Tullow Oil plc Annual Report 2011 - The Group

5Commercial reserves estimates (note 12);Proven and probable reserves are estimated using standardrecognised evaluation techniques. The estimate is reviewed atleast twice annually and is regularly reviewed by independentconsultants. Future development costs are estimated takinginto account the level of development required to produce thereserves by reference to operators, where applicable, andinternal engineers.Presumption of going concern (note 19);The Group closely monitors and manages its liquidity risk.Cash forecasts are regularly produced and sensitivities runfor different scenarios including, but not limited to, changes incommodity prices, different production rates from the Group’sportfolio of producing fields and delays in developmentprojects. In addition to the Group’s operating cash flows,portfolio management opportunities are reviewed topotentially enhance the financial capacity and flexibility of theGroup. The Group’s forecasts, taking into account reasonablypossible changes as described above, show that the Group willbe able to operate within its current debt facilities and havesignificant financial headroom for the 12 months from the dateof approval of the 2011 Annual Report and Accounts.Decommissioning costs (note 22);The costs of decommissioning are reviewed twice annuallyand are estimated by reference to operators, whereapplicable, and internal engineers.A review of all decommissioning cost estimates wasundertaken by an independent specialist in 2010 which hasbeen assessed and updated internally for the purposes of the2011 financial statements.Provision for environmental clean-up and remediation costs isbased on current legal and constructive requirements,technology and price levels.Recoverability of deferred tax assets (note 22); andDeferred tax assets are recognised for used tax losses tothe extent that it is probable that future taxable profits will beavailable against which the losses can be utilised. Judgementis required to determine the value of the deferred tax asset,based upon the timing and level of future taxable profits.Other tax provisions.The Group operates in a number of jurisdictions in which thetax legislation is open to interpretation. Tax provisions, whichare made based on the Group’s best estimate of the amountexpected to be paid, may change as agreement is reachedwith the relevant taxation authority.FINANCIAL STATEMENTS123www.tullowoil.com