Tullow Oil plc Annual Report 2011 - The Group

In Ghana, we have experienced technical challenges relatedto the completions of the Jubilee Phase 1 production wells.The cause has been identified and remedial work has alreadycommenced. This work, in parallel with the Phase 1Adevelopment which was approved in January 2012, is expectedto restore production capacity steadily during the year. The Planof Development (PoD) for Tweneboa-Enyenra-Ntomme (TEN)discoveries in Ghana is progressing well and is expected to besubmitted in the second half of 2012. The Group underpinned itslong-term commitment to Ghana with a secondary listing on theGhana Stock Exchange in July 2011, which raised approximately$72 million. This provides the opportunity for Ghanaian individualsand institutions to invest in the future of their oil industry and toshare in the performance of Tullow’s global operations.Tullow’s financial position has been significantly strengthenedby production and cash flow from the Jubilee field. As a result,the Board feels that it is appropriate to increase the finaldividend to 8.0 pence per share, which brings the total payoutfor the year to 12 pence per share. This represents an increaseof 100% compared with 2010. The dividend will be paid on24 May 2012 to shareholders on the register on 20 April 2012.The Annual General Meeting (AGM) will be held on 16 May 2012at Haberdashers Hall, 18 West Smithfield, London EC1A 9HQ. Ameeting for shareholders in Ireland will be held on 30 May 2012at the Royal College of Physicians of Ireland, No.6 KildareStreet, Dublin 2.Our successful exploration-led growth strategy requiresdisciplined resource allocation and effective risk managementto be embedded into all of our activities. The broad range of risksthat we face are outlined in this report, starting on page 40, andthe measures that we take to mitigate them are necessarilyvaried and numerous. However, underpinning them all is acorporate culture that strikes a balance between entrepreneurialrisk-taking and prudent risk management, combinedwith outstanding people with a strong commitment to thelong-term success of Tullow.Continuing this success depends upon our ability to buildorganisational capacity without compromising our uniqueculture. As we continue to grow, it is necessary to introducemore formal processes and procedures, but we remainabsolutely committed to maintaining our entrepreneurialcharacter and to upholding our core values of teamworkand commitment, entrepreneurial spirit and initiative,focus on results, and integrity and respect.At the end of 2011, Pat Plunkett retired after 11 years asChairman. David Williams, Chairman of the Audit Committee, willretire after the AGM in 2012 after six years on the Board. SteveMcTiernan, the Senior Independent Director, will retire from theBoard before the end of 2012 after 10 years on the Board. I wouldlike to thank them on your behalf, and on behalf of the Board, fortheir contribution to a period of outstanding growth and successfor Tullow. In March 2012, Steve Lucas was appointed as anon-executive Director with effect from 14 March 2012.In our search for two new directors, we have identified thepersonal attributes, background and experience that we requirefor the next phase of growth. We will also seek to increase thediversity of the Board – both gender and nationality – as part ofthis process and will conduct the searches sequentially to ensurethat the two successful candidates bring complementary skillsand experience to Tullow.Executive remuneration has been the focus of considerablecomment over the past year. At the beginning of 2011, Tullowgranted 20% salary increases to our Executive Directors, toreflect the outstanding performance and growth of the companyand the fact that increases in the previous two years werelimited to inflation adjustments. In 2012, in common with allother members of staff, the Executive Directors will receivesalary increases in line with inflation.As part of my induction as Chairman, I conducted the Boardevaluation in 2011. Timely approvals for the PoD in Ugandaand production ramp-up in Ghana are clearly key issues forthe Board in 2012. Talent management, succession planning,and financial and portfolio management will also be areas ofparticular focus. In addition, we intend to continue to improvethe quality of information and analysis available to the Boardon political and economic risk, the competitive landscape andindustry benchmarking.The early months of 2012 have seen strong oil prices driven byuncertainty over supply. While Tullow carefully hedges much of itsproduction we remain exposed to any major change in oil prices.Recent forecasts expect global economic growth to exceed 3%this year, which is seen as a key level to underpin oil prices. Asiais likely to be the main driver of economic growth and almost allof the growth in demand for oil is expected to come fromnon-OECD countries.The performance of Tullow is testament to the strength of ourpeople. I thank Aidan Heavey, our Chief Executive Officer, theExecutive Directors and all Tullow employees and contractorsfor their contribution to past performance and commitmentto the future success of the Group. Tullow has consistentlydemonstrated the ability to create new opportunities for growth,develop major projects effectively and generate exceptionalshareholder returns. Despite the current economicuncertainties, the outlook for oil price remains good and theGroup’s exploration programme and development pipelinehave never been stronger. With these rich opportunitiesahead, Tullow looks forward with confidence and excitement.Simon R ThompsonChairmanMore informationPageRisk management 40Chairman’s introductionto corporate governance 76Board objectives and performance 781BUSINESS REVIEW9www.tullowoil.com