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  • Glossary

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    Glossary

    A

    AGM

    Annual General Meeting

    AFS

    Available for sale

    B

    bll

    Barrel

    bcf

    Billion cubic feet

    boe

    Barrels of oil equivalent

    boepd

    Barrels of oil equivalent per day

    bopd

    Barrels of oil per day

    C

    CMS

    Caister Murdoch System

    CMS III

    A group development of five satellite fields linked to CMS

    CR

    Corporate Responsibility

    CSO

    Civil Society Organisation

    CNOOC

    China National Offshore Oil Corporation

    D

    DLT

    Development Leadership Team

    DoA

    Delegation of Authority

    DRC

    Democratic Republic of Congo

    DSBP

    Deferred Share Bonus Plan

    E

    EA

    Exploration Area

    E&E

    Exploration and evaluation

    E&A

    Exploration and Appraisal

    E&P

    Exploration and Production

    EBITDA

    Earnings Before Interest, Tax, Depreciation and Amortisation

    EHS

    Environment, Health and Safety

    EMS

    Environmental Management System

    ERC

    Energy Resource Consultants

    ESOS

    Executive Share Option Scheme

    F

    FEED

    Front End Engineering and Design

    FPSO

    Floating Production Storage and Offloading vessel

    FRC

    Financial Reporting Council

    FRS

    Financial Reporting Standard

    FTG

    Full Tensor Gravity Gradiometry

    FTSE 100

    Equity index whose constituents are the 100 largest UK listed companies by market capitalisation

    FVTPL

    Fair Value Through Profit or Loss

    G

    GELT

    Global Exploration Leadership Team

    GNPC

    Ghana National Petroleum Corporation

    GoU

    Government of Uganda

    Group

    Company and its subsidiary undertakings

    H

    H&S

    Health and Safety

    HIPO

    High Potential Incident

    HNBS

    Hewitt New Bridge Street

    HR

    Human Resources

    I

    IAS

    International Accounting Standard

    IASB

    International Accounting Standards Board

    IFRIC

    International Financial Reporting Interpretations Committee

    IFRS

    International Financial Reporting Standards

    IMS

    Information Management System

    ISO

    International Organization for Standardization

    K

    km

    kilometres

    KPI

    Key Performance Indicator

    L

    LIBOR

    London Interbank Offered Rate

    LTI

    Lost Time Incident

    LTIFR

    LTI Frequency Rate measured in LTIs per million hours worked

    M

    mmbbl

    Million barrels

    mmbo

    Million barrels of oil

    mmboe

    Million barrels of oil equivalent

    mmscfd

    Million standard cubic feet per day

    MoU

    Memorandum of Understanding

    MTM

    Mark To Market

    N

    NGO

    Non-Governmental Organisation

    O

    OR&A

    Operational Readiness and Assurance

    P

    p

    pence

    P10

    Reserves and/or resources estimates that have a 10 per cent probability of being met or exceeded

    P50

    Reserves and/or resources estimates that have a 50 per cent probability of being met or exceeded

    P&D

    Production and Development

    PAYE

    Pay As You Earn

    PRT

    Petroleum Revenue Tax

    PSC

    Production Sharing Contract

    PSP

    Performance Share Plan

    S

    SCT

    Supplementary Corporation Tax

    SIP

    Share Incentive Plan

    SMC

    Senior Management Committee

    SPA

    Sale and Purchase Agreement

    sq km

    Square kilometres

    SRI

    Socially Responsible Investment

    T

    toes

    Tullow Oil Environmental Standards

    TSR

    Total Shareholder Return

    U

    UK GAAP

    UK Generally Accepted Accounting Principles

    V

    VAT

    Value Added Tax

    W

    WAEP

    Weighted Average Exercise Price

    WCTP

    West Cape Three Points

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Enhancing financial flexibility

"The Tullow financials are up on 2009 and will be transformed significantly in 2011 by revenues from the Jubilee field in Ghana and the expected proceeds from the Uganda farm-down."

Ian Springett, Chief Financial Officer

Finance Business Model

Our financial strategy continues to be to ensure we have a strong balance sheet and the flexibility to support the Group's significant growth strategy.

2010 results summary

  2010 2009 Change
  1. 2010 excludes $1,450 million Heritage acquisition and $340 million Ghana FPSO.
  2. Before working capital movements.
Sales revenue ($m) 1,090 916 +19%
Operating profit ($m) 235 151 +56%
Net profit ($m) 73 31 +137%
Basic earnings per share (cents) 6.1 3.2 +90%
Dividend per share (pence) 6.0 6.0 No change
Capital investment ($m)1 1,235 1,189 +4%
Cash generated from operations ($m)2 762 588 +30%

Supporting our growth strategy

Our financial strategy is to ensure we have a strong balance sheet and the flexibility to support the Group's significant exploration-led growth strategy. In 2011 we expect to spend some $1.5 billion on high-impact exploration, and further significant appraisal and development programmes in Ghana and Uganda while the remainder will be allocated across the rest of the business.

In 2010, Tullow strengthened its balance sheet with $0.9 billion of additional debt facilities and $1.45 billion raised from an equity placing in January. This finance, the expected Uganda farm-down proceeds and the revenues from Jubilee production, will ensure we have a very secure funding base for the next phase of our growth.

Looking forward, our focus will remain on high-impact exploration campaigns funded increasingly by operational cash flow and by making choices on selective developments and portfolio activity. We may also seek to further diversify our sources of debt funding when appropriate.

2010 financial results

2010 profit before tax was higher than 2009 primarily because of the following:

  • Increased revenues of $174 million from higher oil and gas prices partially offset by lower sales volumes;
  • A lower IAS 39 charge of $28 million in 2010 compared with a charge of $60 million in 2009;
  • Partly offset by increased exploration write-offs which were $72 million higher in 2010.

2010 key financial metrics

  2010 2009 Change
  1. Cash operating costs are cost of sales excluding depletion, depreciation and amortisation and under/over lift movements.
  2. Net debt is cash and cash equivalents less financial liabilities.
  3. Interest cover is earnings before interest, tax, depreciation and amortisation charges and exploration written off divided by net finance costs.
  4. Gearing is net debt divided by net assets.
Production (boepd, working interest basis) 58,100 58,300 No change
Sales volume (boepd) 47,400 48,350 -2%
Realised oil price per bbl ($) 78.0 60.0 +30%
Realised gas price (pence per therm) 42.0 39.3 +7%
Cash operating costs per boe ($)1 12.5 12.4 No change
Operating cash flow before working capital per boe ($) 35.9 27.6 +30%
Net debt ($ million)2 1,943 1,144 +70%
Interest cover (times)3 13.8 10.1 3.7 times
Gearing (%)4 50 47 3%

Production, commodity prices and revenue

Working interest production averaged 58,100 boepd, which is in line with 2009 and was ahead of budget expectations. Additional production from Ghana, Gabon and successful infill drilling in the UK largely mitigated the impact of the decline in other mature fields. Sales volumes averaged 47,400 boepd, which is a reduction of 2% compared to 2009.

On average, oil prices in 2010 were significantly higher than 2009 levels. Realised oil price after hedging for 2010 was US$78.0/bbl (2009: US$60.0/bbl), an increase of 30%. Tullow's oil production sold at an average discount of 2% to Brent Crude during 2010 (2009: 2% discount).

UK gas prices in 2010 were broadly in line with 2009 levels. The realised UK gas price after hedging for 2010 was 42.0 pence/therm (2009: 39.3 pence/therm), an increase of 7%.

Higher commodity prices more than offset the lower sales volumes. Overall revenue increased by 19% to $1,089.8 million (2009: $915.9 million).

Operating costs, depreciation and impairments

Underlying cash operating costs, which exclude depletion and amortisation and movements on the underlift, amounted to $264.3 million; $12.47/boe (2009: $264.7 million; $12.43/boe), in line with 2009 levels.

Depreciation, depletion and amortisation charges before impairment charges for the year amounted to $355.9 million; $16.78/boe (2009: $350.7 million; $16.46/boe). The Group has also recognised a further impairment charge of $4.3 million; $0.20/boe (2009: $12.5 million; $0.59/boe) in respect of the Chinguetti field in Mauritania.

At the year-end, the Group was in a net underlift position amounting to 10,100 barrels. The movements during 2010 in the underlift and stock position have given rise to a credit of $8.3 million to cost of sales (2009: charge of $10.1 million).

Administrative expenses of $89.6 million (2009: $77.6 million) include an amount of $10.2 million (2009: $18.3 million) associated with IFRS 2 – Share-based Payments. The increase in total general and administrative costs is primarily due to the continued growth of the Group during 2010 with employee numbers increasing by 40% to 935 people.

Exploration cost written-off

Exploration costs written-off were $154.7 million (2009: $82.7 million), in accordance with the Group's 'successful efforts' accounting policy, which requires that all costs associated with unsuccessful exploration are written-off in the income statement. This write-off is principally associated with exploration activities in Gabon, Ghana and Tanzania, new ventures activity and licence relinquishments in Angola and Gabon.

Financial statements

With effect from 1 January 2010 Tullow presents its financial statements in US dollars.

Risk management

Risk management is a dynamic and critical business function as it is important to achieving long-term shareholder value.

Operations review

The performance of our global assets was very strong in 2010.