Notes 1 - 10

Note 1. Retrospective restatement

During the year the Group has revised its inventory oil product valuation accounting policy to value inventory oil product at net realisable value in line with IAS 2 Inventories. In order to aid comparability the Group has retrospectively applied the revised accounting policy. The impact on the financial statements is summarised in the table below.

Note 2. Business combinations

On 24 May 2011 Tullow announced that it had acquired 100% of Nuon Exploration & Production B.V. ("Nuon") from the Vattenfall Group. The acquisition of Nuon added a portfolio of 25 licences over 30 producing fields, a number of development and exploration opportunities and ownership of key infrastructure. The Nuon transaction had an effective date of 1 January 2011 but completed on 30 June 2011 and this is therefore the acquisition date. Accordingly, the financial statements include the balance sheet of Nuon including fair value adjustments. Revenue and expenses were included within the Group income statement from 1 July 2011.

The fair value allocation to the Nuon assets is preliminary due to the finalisation of an independent review of acquired contingent resources and will be reviewed in accordance with the provisions of IFRS 3 – Business Combinations. The purchase consideration equals the aggregate of the fair value of the identifiable assets and liabilities of Nuon and therefore no goodwill has been recorded on the acquisition. Deferred tax has been recognised in respect of the fair value adjustments as applicable.

Transaction costs in respect of the Nuon acquisition of $1.1 million have been recognised in the income statement. From the date of the acquisition, Nuon has contributed $67.6 million to Group revenues and $3.2 million to the profit of the Group. If the acquisition had been completed on the first day of the financial year, Group revenues for the year would have been $2,384.3 million and group profit would have been $695.4 million.

There were no acquisitions involving business combinations in 2010 or 2009.

Note 3. Segmental reporting

In the opinion of the Directors the operations of the Group comprise one class of business, oil and gas exploration, development and production and the sale of hydrocarbons and related activities. In 2011 the Group reorganised its operational structure into three regions so that the management and resources of the business are aligned with the delivery of business objectives. The reportable segments in accordance with IFRS 8 are therefore now the three geographical regions that the Group operates within, being Europe, South America and Asia; West and North Africa and South and East Africa. The following tables present revenue, profit and certain asset and liability information regarding the Group's business segments for the year ended 31 December 2011, 31 December 2010 and 31 December 2009. The tables for the years ended 31 December 2010 and 31 December 2009 have been restated to reflect the new reportable segments of the business.

All sales are to external customers. Included in revenue arising from West and North Africa are revenues of approximately $1,036.0 million (2010: $546.1 million, 2009: $269.2 million) which arose from sales to the Group's largest customers.

Unallocated expenditure and net liabilities include amounts of a corporate nature and not specifically attributable to a geographic area. The liabilities comprise the Group's external debt and other non-attributable corporate liabilities. The unallocated capital expenditure for the period comprised the acquisition of non-attributable corporate assets.

Note 4. Total revenue

For 2011 included within finance revenue is a $22.3 million gain on cancellation of a finance lease, see note 21.

Note 5. Operating profit

Fees payable to Deloitte LLP and their associates for non-audit services to the company are not required to be disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis.

Tax advisory services include assistance in connection with enquiries from local fiscal authorities. Information technology services includes IT security analysis and assistance provided to management in the selection of new systems. The auditor is not involved in the design or implementation of IT systems.

Other services – non assurance includes assistance to management in assessing changes to the finance function resulting from the Group's expansion and subscription fees for upstream data.

Details of the company's policy on the use of auditors for non-audit services, the reasons why the auditor was used rather than another supplier and how the auditor's independence and objectivity was safeguarded are set out in the Audit Committee report. No services were provided pursuant to contingent fee arrangements.

Note 6. Staff costs

The average monthly number of employees (including Executive Directors) employed by the Group worldwide was:

A proportion of the Group's staff costs shown above is recharged to the Group's joint venture partners, a proportion is allocated to operating costs and a proportion is capitalised into the cost of fixed assets under the Group's accounting policy for exploration, evaluation and production assets. The net staff costs recognised in the administrative expenses was $42.9 million (2010: $55.4 million).

Details of Directors' remuneration, Directors' transactions and Directors' interests are set out in the part of the Directors' remuneration report described as having been audited which forms part of these financial statements.

Note 7. Finance costs

Borrowing costs included in the cost of qualifying assets during the year arose on the general borrowing pool and are calculated by applying a capitalisation rate of 4.05% (2010: 4.51%) to cumulative expenditure on such assets.

Note 8. Taxation on profit on ordinary activities

(a) Analysis of charge in period

The tax charge comprises:

(b) Factors affecting tax charge for period

The tax rate applied to profit on ordinary activities in preparing the reconciliation below is the UK corporation tax rate applicable to the Group's non upstream UK profits.

The difference between the total current tax charge shown above and the amount calculated by applying the standard rate of UK corporation tax applicable to UK profits (26%) (2010: 28%) to the profit before tax is as follows:

The Group's profit before taxation will continue to be subject to jurisdictions where the effective rate of taxation differs from that in the UK. Furthermore, unsuccessful exploration expenditure is often incurred in jurisdictions where the Group has no taxable profits, such that no related tax benefit arises. Accordingly, the Group's tax charge will continue to depend on the jurisdictions in which pre-tax profits and exploration costs written off arise.

The Group has tax losses of $1,082.3 million (2010: $840.1 million) that are available indefinitely for offset against future taxable profits in the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group.

The Group has recognised $117.5 million in deferred tax assets in relation to taxable losses (2010: $175.1 million).

No deferred tax liability is recognised on temporary differences of $253.0 million (2010: $485.6 million) relating to unremitted earnings of overseas subsidiaries as the Group is able to control the timing of the reversal of these temporary differences and it is probable that they will not reverse in the foreseeable future.

Note 9. Dividends

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

Note 10. Earnings per ordinary share

Basic earnings per ordinary share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per ordinary share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued if employee and other share options were converted into ordinary shares.