Chairman's statement

I take over as Chairman of your Company at an exciting time for Tullow. 2011 has been a very good year for the Group. We have drilled 35 Exploration and Appraisal (E&A) wells with a 74% success ratio and have made further discoveries in Ghana and Uganda as well as opening up a major new basin with significant potential offshore French Guiana. Once again, this represents an industry-leading result for our exploration-led growth strategy.

Our financial performance has also been strong with record results for 2011. Sales revenue grew 111% to $2.3 billion (2010: $1.1 billion) as a result of a 41% increase in sales volumes and significantly higher average price realisations. Profit before tax was up 499% to $1,073 million (2010: $179 million). Profit after tax for the year increased 670% to $689 million (2010: $90 million). Basic earnings per share grew 795% to 72.5 cents (2010: 8.1 cents). During the year we invested $1.4 billion in operations and spent $737 million on acquisitions. We also increased the debt facilities available to us to strengthen the financial resources of the Group and position ourselves to pursue new opportunities.

We have enhanced our Environment, Health and Safety (EHS) processes, aligning and embedding high standards across the business to ensure that we continue to improve the health and safety of our employees and contractors and safeguard the environment. In 2011, we achieved the best safety performance in our history with our lowest Lost Time Injury Frequency Rate (LTIFR) of 0.38. We also continued to foster the creation of shared prosperity in the countries and communities where we operate through localisation, local content development and social enterprise investment, which increased 346% to $11.6 million in 2011.

During the course of 2011 the Group faced some significant strategic and operational challenges. Progressing our major project in Uganda took considerably longer than originally envisaged. The discovery of oil by Tullow has created the opportunity to transform the economy of Uganda, and the lives of local people and communities, if wisely managed. This has triggered a debate, at every level, about how best to develop these resources in the national interest. Tullow’s commitment to reaching an agreement that will benefit all parties and to building durable relationships that will stand the test of time was rewarded in February 2012. We signed two new Production Sharing Agreements (PSAs) with the Government of Uganda, and completed the farm-down of two-thirds of our Ugandan licences to CNOOC and Total. We are now ready, with our partners, to embark upon the development of the country’s oil industry. First oil could be as soon as late 2012, with material production volumes likely to be from 2016.

In October 2011, allegations were made in the Ugandan Parliament that Tullow employees had bribed senior government ministers. The accusations were made on the basis of forged documents and we have worked with the UK Serious Fraud Office, the Metropolitan Police and the relevant authorities in Uganda and Malta (where the payments were allegedly made) to demonstrate irrefutably that the allegations are entirely unfounded. Tullow has an absolute commitment to upholding high ethical standards. Our approach is based not only on our legal obligations, but on the firm belief that our reputation for integrity underpins our attractiveness as an employer, a business partner and an investor in the countries where we operate.

In Ghana, we have experienced technical challenges related to the completions of the Jubilee Phase 1 production wells. The cause has been identified and remedial work has already commenced. This work, in parallel with the Phase 1A development which was approved in January 2012, is expected to restore production capacity steadily during the year. The Plan of Development (PoD) for Tweneboa-Enyenra-Ntomme (TEN) discoveries in Ghana is progressing well and is expected to be submitted in the second half of 2012. The Group underpinned its long-term commitment to Ghana with a secondary listing on the Ghana Stock Exchange in July 2011, which raised approximately $72 million. This provides the opportunity for Ghanaian individuals and institutions to invest in the future of their oil industry and to share in the performance of Tullow’s global operations.

Tullow’s financial position has been significantly strengthened by production and cash flow from the Jubilee field. As a result, the Board feels that it is appropriate to increase the final dividend to 8.0 pence per share, which brings the total payout for the year to 12 pence per share. This represents an increase of 100% compared with 2010. The dividend will be paid on 24 May 2012 to shareholders on the register on 20 April 2012. The Annual General Meeting (AGM) will be held on 16 May 2012 at Haberdashers Hall, 18 West Smithfield, London EC1A 9HQ. A meeting for shareholders in Ireland will be held on 30 May 2012 at the Royal College of Physicians of Ireland, No.6 Kildare Street, Dublin 2.

Our successful exploration-led growth strategy requires disciplined resource allocation and effective risk management to be embedded into all of our activities. The broad range of risks that we face are outlined in this report, in the Risk management section, and the measures that we take to mitigate them are necessarily varied and numerous. However, underpinning them all is a corporate culture that strikes a balance between entrepreneurial risk-taking and prudent risk management, combined with outstanding people with a strong commitment to the long-term success of Tullow.

Continuing this success depends upon our ability to build organisational capacity without compromising our unique culture. As we continue to grow, it is necessary to introduce more formal processes and procedures, but we remain absolutely committed to maintaining our entrepreneurial character and to upholding our core values of teamwork and commitment, entrepreneurial spirit and initiative, focus on results, and integrity and respect.

At the end of 2011, Pat Plunkett retired after 11 years as Chairman. David Williams, Chairman of the Audit Committee, will retire after the AGM in 2012 after six years on the Board. Steve McTiernan, the Senior Independent Director, will retire from the Board before the end of 2012 after 10 years on the Board. I would like to thank them on your behalf, and on behalf of the Board, for their contribution to a period of outstanding growth and success for Tullow. In March 2012, Steve Lucas was appointed as a non-executive Director with effect from 14 March 2012.

In our search for two new directors, we have identified the personal attributes, background and experience that we require for the next phase of growth. We will also seek to increase the diversity of the Board – both gender and nationality – as part of this process and will conduct the searches sequentially to ensure that the two successful candidates bring complementary skills and experience to Tullow.

Executive remuneration has been the focus of considerable comment over the past year. At the beginning of 2011, Tullow granted 20% salary increases to our Executive Directors, to reflect the outstanding performance and growth of the company and the fact that increases in the previous two years were limited to inflation adjustments. In 2012, in common with all other members of staff, the Executive Directors will receive salary increases in line with inflation.

As part of my induction as Chairman, I conducted the Board evaluation in 2011. Timely approvals for the PoD in Uganda and production ramp-up in Ghana are clearly key issues for the Board in 2012. Talent management, succession planning, and financial and portfolio management will also be areas of particular focus. In addition, we intend to continue to improve the quality of information and analysis available to the Board on political and economic risk, the competitive landscape and industry benchmarking.

The early months of 2012 have seen strong oil prices driven by uncertainty over supply. While Tullow carefully hedges much of its production we remain exposed to any major change in oil prices. Recent forecasts expect global economic growth to exceed 3% this year, which is seen as a key level to underpin oil prices. Asia is likely to be the main driver of economic growth and almost all of the growth in demand for oil is expected to come from non-OECD countries.

The performance of Tullow is testament to the strength of our people. I thank Aidan Heavey, our Chief Executive Officer, the Executive Directors and all Tullow employees and contractors for their contribution to past performance and commitment to the future success of the Group. Tullow has consistently demonstrated the ability to create new opportunities for growth, develop major projects effectively and generate exceptional shareholder returns. Despite the current economic uncertainties, the outlook for oil price remains good and the Group’s exploration programme and development pipeline have never been stronger. With these rich opportunities ahead, Tullow looks forward with confidence and excitement.