Tullow Oil plc Annual Report 2011 - The Group

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Notes to the Group financial statements continuedYear ended 31 December 2011Note 19. Financial liabilities continuedThe Group monitors capital on the basis of the net debt ratio, that is, the ratio of net debt to net debt plus equity. Net debt iscalculated as gross debt, as shown in the balance sheet, less cash and cash equivalents.External borrowings 3,161.2 2,281.2 1,396.1Less cash and cash equivalents (307.1) (338.3) (252.2)2011$m2010$m2009$mNet debt 2,854.1 1,942.9 1,143.9Equity 4,766.0 3,903.4 2,448.5Net debt ratio 60% 50% 47%The movement from 2010 is attributable to higher external borrowings during 2011, principally as a result of the Group’s$2,057.5 million investment in development, appraisal and exploration activities and acquisitions which is partially offsetby operating cash flows.Interest rate riskThe interest rate profile of the Group’s financial assets and liabilities, excluding trade and other receivables and trade andother payables, at 31 December 2011 was as follows:Cash at bank at floating interest rate 138.9 5.2 38.5 21.3 203.9Cash at bank on which no interest is received 99.5 0.6 0.5 2.6 103.2Fixed rate debt (291.6) – – – (291.6)Floating rate debt (2,624.1) – (160.2) – (2,784.3)US$$mEuro$mStg$mOther$mTotal$mThe profile at 31 December 2010 for comparison purposes was as follows:(2,677.3) 5.8 (121.2) 23.9 (2,768.8)Cash at bank at floating interest rate 224.5 5.7 18.7 12.0 260.9Cash at bank on which no interest is received 74.8 0.4 0.3 1.9 77.4Fixed rate debt (386.4) – (158.4) – (544.8)Floating rate debt (1,655.0) – – – (1,655.0)US$$mEuro$mStg$mOther$mTotal$mThe profile at 31 December 2009 for comparison purposes was as follows:(1,742.1) 6.1 (139.4) 13.9 (1,861.5)Cash at bank at floating interest rate 34.4 1.0 194.9 9.7 240.0Cash at bank on which no interest is received – – 11.4 0.8 12.2Fixed rate debt – – (544.8) – (544.8)Floating rate debt (58.9) – (710.9) – (769.8)US$$mEuro$mStg$mOther$mTotal$m(24.5) 1.0 (1,049.4) 10.5 (1,062.4)Floating rate debt comprises bank borrowings at interest rates fixed in advance from overnight to three months at ratesdetermined by US dollar LIBOR and sterling LIBOR. Fixed rate debt comprises bank borrowings at interest rates fixed in advancefor periods greater than three months or bank borrowings where the interest rate has been fixed through interest rate hedging.140Tullow Oil plc 2011 Annual Report and Accounts
5The $3.5 billion Reserves Based Lending Facility incurs interest on outstanding debt at sterling or US dollar LIBOR plus anapplicable margin. The outstanding debt is repayable in variable amounts (determined semi-annually) over the period to31 December 2015, or such time as is determined by reference to the remaining reserves of the assets, whichever is earlier.The $650 million Revolving Credit Facility is repayable in full on 31 December 2014. The facility incurs interest on outstandingdebt at US dollar LIBOR plus an applicable margin.At the end of December 2011, the headroom under the two facilities amounted to $826 million; $176 million under the $3.5 billionReserves Based Lending Facility and $650 million under the Revolving Credit Facility. At the end of December 2010, the headroomunder the two facilities amounted to $685 million; $175 million under the $2.5 billion Reserves Based Lending Facility and $510million under the Revolving Credit Facility. At the end of December 2009, the headroom under the two facilities was $620 million;$370 million under the $2 billion Reserves Based Lending Facility and $250 million under the Revolving Corporate Facility.The Group is exposed to floating rate interest rate risk as entities in the Group borrow funds at floating interest rates. The Grouphedges its floating rate interest rate exposure on an ongoing basis through the use of interest rate swaps. The mark-to-marketposition of the Group’s interest rate portfolio as at 31 December 2011 is $7.2 million out of the money (2010: $13.6 million and2009: $8.9 million out of the money). The interest rate hedges are included in the fixed rate debt in the above table.Foreign currency riskWherever possible, the Group conducts and manages its business in sterling (UK) and US dollars (all other countries), theoperating currencies of the industry in the areas in which it operates. The Group’s borrowing facilities are also denominated insterling and US dollars, which further assists in foreign currency risk management. From time to time the Group undertakescertain transactions denominated in foreign currencies. These exposures are managed by executing foreign currency financialderivatives, typically to manage exposures arising on corporate transactions such as acquisitions and disposals. There were noforeign currency financial derivatives in place at the 2011 year end (2010: nil). Cash balances are held in other currencies to meetimmediate operating and administrative expenses or to comply with local currency regulations.As at 31 December 2011, the only material monetary assets or liabilities of the Group that were not denominated in the functionalcurrency of the respective subsidiaries involved were £106.0 million ($163.8 million) cash drawings under the Group’s borrowingfacilities (2010: £106.0 million and 2009: $1,337.0 million).The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reportingdate are net liabilities of $163.8 million (2010: net liabilities of $164.0 million and 2009: net liabilities of $1,337.0 million).Foreign currency sensitivity analysisThe Group is mainly exposed to fluctuations in the US dollar. The Group measures its market risk exposure by running varioussensitivity analyses including 20% favourable and adverse changes in the key variables. The sensitivity analyses include onlyoutstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 20% change inforeign currency rates.As at 31 December 2011, a 20% increase in foreign exchange rates against the functional currencies of entities in the Groupwould have resulted in a decrease in foreign currency denominated liabilities and equity of $27.3 million (2010: $27.3 millionand 2009: $226.7 million) and a 20% decrease in foreign exchange rates against the functional currencies of entities in the Groupwould have resulted in an increase in foreign currency denominated liabilities and equity of $32.8 million (2010: $32.8 million and2009 $339.9 million).FINANCIAL STATEMENTS141www.tullowoil.com
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Production operators in the central
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2011 highlightsRECORD RESULTSIndust
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In Ghana, we have experienced techn
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More informationPageStrong organisa
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CLEARVISIONSPECIAL FEATURETO BE THE
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1Exploration& appraisal7Sharedprosp
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EXPLORATION& APPRAISALStrategic pri
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DELIVERING MATERIALPRODUCTIONGROWTH
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21www.tullowoil.com
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RISKMANAGEMENTStrategic priority: E
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MAINTAINING OURENTREPRENEURIALCHARA
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SHAREDPROSPERITYStrategic priority:
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DELIVERINGSUBSTANTIAL RETURNSOur st
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Key Performance Indicators continue
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Financial reviewFUNDING FUTURE GROW
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Financial review continued2011 Grou
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Financial review continuedDividendT
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Regional business management unitsI
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LONG-TERMPERFORMANCE RISKSWe group
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1Operational risk continuedKey deve
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482011 operations overviewOverall,
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2OPERATIONS REVIEWEurope,South Amer
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DEVELOPMENT & OPERATIONSA new scale
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Senior DrillingSupervisor withtrain
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Mauritania & SenegalProduction from
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periods for Kasamene, Wahrindi, Kig
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2West African and South American ex
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62Creating shared prosperityCreatin
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More informationPageSpecial feature
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Social performance standardsWe are
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3The effect of Uncontrolled Release
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3Future talent poolIn October 2011,
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3LOCAL CONTENTCreating real opportu
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3Key corporate responsibility polic
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76Chairman’s introductionAt Board
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4In order to provide the human and
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I am delighted to have taken on the
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Board of DirectorsEXPERIENCED LEADE
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4CORPORATE GOVERNANCEAnn GrantNon-e
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Audit planning and update on releva
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Directors in their place. On 12 May
Page 91: CONTENTS89 Introduction89 Remunerat
Page 94 and 95: Directors’ remuneration report co
Page 102 and 103: Corporate governanceThe UK Corporat
Page 104 and 105: Corporate governance continuedThe f
Page 106 and 107: Corporate governance continuedAccou
Page 108 and 109: Other statutory informationResults
Page 111 and 112: All employees are helped and encour
Page 113 and 114: As part of our Code of Business Con
Page 115 and 116: Independent Auditor’s Reportto th
Page 117 and 118: Group balance sheetAs at 31 Decembe
Page 119 and 120: Group cash flow statementYear ended
Page 121 and 122: The principal accounting policies a
Page 123 and 124: 5Finance costs of debt are allocate
Page 125 and 126: 5Commercial reserves estimates (not
Page 127 and 128: 5Note 2. Business combinationsOn 24
Page 129 and 130: 5Europe,South Americaand Asia$mWest
Page 131 and 132: 5Non-current assets by originGhana
Page 133 and 134: 5Note 6. Staff costsThe average mon
Page 135 and 136: 5The Group’s profit before taxati
Page 137 and 138: 5Note 12. Property, plant and equip
Page 139 and 140: 5Note 13. Investments2011$m2010$m20
Page 141: 5Note 18. Trade and other payablesC
Page 145 and 146: 5Note 20. Financial instrumentsFina
Page 147 and 148: 5Oil and gas pricesThe Group uses a
Page 149 and 150: 5Financial derivativesThe Group int
Page 151 and 152: 5Deferred tax assets are recognised
Page 153 and 154: 5Note 27. Share-based payments2005
Page 155 and 156: 5UK & Irish Share Incentive Plans (
Page 157 and 158: Independent Auditor’s Reportto th
Page 159 and 160: Company balance sheetAs at 31 Decem
Page 161 and 162: Notes to the Company financial stat
Page 163 and 164: 5Note 6. Bank loansCurrentShort-ter
Page 165 and 166: 5Note 9. Shareholders’ fundsShare
Page 167 and 168: 2010 Share Option Plan (2010 SOP) a
Page 169 and 170: 5Note 13. Subsequent eventsSince th
Page 171 and 172: Commercial reserves and contingent
Page 173 and 174: Area TullowLicenceFieldssq km inter
Page 175 and 176: Licence / BlocksFieldsAreasq kmTull
Page 177 and 178: ContactsSecretary & registered offi
Page 179 and 180: KKenya 6, 7, 57Key financial metric
Page 181 and 182: MmmbblmmboemmscfdMoUMTMMillion barr
Page 183 and 184: This report is printed on Heaven 42
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Tullow Oil plc Annual Report 2011 - The Group

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