Tullow Oil plc Annual Report 2011 - The Group

Notes to the Group financial statements continuedYear ended 31 December 2011(h) Share-based paymentsThe Company has applied the requirements of FRS 20Share-based Payments. In accordance with the transitionalprovisions of that standard, only those awards that weregranted after 7 November 2002, and had not vested at1 January 2005, are included.All share-based awards of the Company are equity settled asdefined by FRS 20. The fair value of these awards has beendetermined at the date of grant of the award allowing for theeffect of any market-based performance conditions. This fairvalue, adjusted by the Company’s estimate of the number ofawards that will eventually vest as a result of non-marketconditions, is expensed uniformly over the vesting period.The fair values were calculated using a binomial option pricingmodel with suitable modifications to allow for employeeturnover after vesting and early exercise. Where necessary thismodel was supplemented with a Monte Carlo model. The inputsto the models include: the share price at date of grant; exerciseprice; expected volatility; expected dividends; risk free rate ofinterest; and patterns of exercise of the plan participants.(i) Capital managementThe Company defines capital as the total equity of theCompany. Capital is managed in order to provide returns forshareholders and benefits to stakeholders and to safeguardthe Company’s ability to continue as a going concern. Tullowis not subject to any externally-imposed capital requirements.To maintain or adjust the capital structure, the Company mayadjust the dividend payment to shareholders, return capital,issue new shares for cash, repay debt, and put in place newdebt facilities.158Tullow Oil plc 2011 Annual Report and Accounts