KPIs

measuring our performance

The Group’s progress against its corporate scorecard is tracked every month to assess the Group’s performance and delivery against its strategy.

Tullow’s Key Performance Indicators (KPIs) are important in assessing the overall health and performance of the business and they make up a Group scorecard that includes a range of operational, financial and non-financial measures.

A single Group scorecard was agreed with the Board for 2015 which included specific strategic targets that were deemed important for the year. Each year, targets within the scorecard may change to reflect the most material strategic objectives and associated risks the Group faces, as well as measures to deliver on the longer-term strategy of the Company. 

The Group scorecard is used to determine Executive Directors’ and employees’ performance related pay to ensure that all areas of the business are driving towards the same goals. Executive Directors’ performance is judged solely on the delivery of the targets set in the Group scorecard, whereas the majority of employees’ bonuses are based on a combination of individual and Group performance.

Each objective measured has a percentage weighting and financial indicators have a baseline and a stretch performance target. In 2015, Tullow’s overall performance was 37.7 per cent. This reflects the challenging year the Group faced and the impact it has had on our Total Shareholder Return (TSR), which accounts for 50 per cent of the total possible score. However, the delivery of the majority of remaining targets reflects strong performance in maintaining liquidity, sustaining cash flows, operating safely, reducing our costs and overall operational delivery. More detailed discussion on each KPI is below.

Production

Relevance to strategy:

Production provides a key source of funding for the Group in the form of high margin annual cash flow. Production guidance is set as part of the business planning process and meeting these levels is important for ongoing liquidity.

Target

Maintain Group production against a base target of 71,000 boepd, and maintain the integrity and operating efficiency of the Jubilee field.

2015 performance

The Group’s working interest production in 2015 was 73,400 boepd, exceeding the base target. This reflects strong performance from the Jubilee field and our non-operated West African portfolio.

 

TU156_KPI_WorkingInterestProduction

Operating costs

Relevance to strategy:

Operating costs determine how much it costs Tullow to produce each barrel of oil it extracts. The lower the cost, the higher the margin Tullow receives when the oil is sold. Opex is impacted by industry costs, inflation, Tullow’s fixed costs and production output.

Target:

Deliver Opex/boe base target of $14.5/boe.

2015 performance:

Opex/boe in 2015 was $15.1/boe, after taking account of the uncontrollable effect of Gabon royalties. This did not achieve the base target of $14.5/boe, primarily due to unforeseen maintenance on the Jubilee FPSO.

 
TU156_KPI_CashOperatingCosts

Net G&A Cost Savings

Relevance to strategy:

Administrative costs are the corporate costs of running the organisation. They should be directly related to our levels of operational activity, efficiency, planning and budgeting.

Target:

Reduce activities and related G&A costs that will deliver net G&A cost savings of a $50 million run rate at the end of 2015.

2015 performance:

Net G&A was $194 million in 2015. There have been significant reductions in headcount, payroll and non-payroll costs during 2015. The adjusted 2015 annualised exit run-rate was $109 million, which is a reduction of $46 million compared to 2014 adjusted net G&A of $155 million, after excluding the effect of the IFRS 2 Share-Based Payments charge.

Net G&A cost savings

TEN Project Schedule and Budget

Relevance to strategy:

Delivering the TEN Project on time and on budget will lead to significant production growth and will build on available reserves which underpin debt capacity.

Target:

Forecasts on track for delivering TEN first oil in mid-2016 and within budget. This is measured on a sliding scale and the full score of this KPI required the schedule and budget forecasts to meet stretch targets.

2015 performance:

The base target for the forecast delivery of the TEN Project was achieved in 2015. The project is forecast to be delivered within budget and is on track for first oil in July / August 2016.

TEN project schedule and budget

SAFE AND SUSTAINABLE OPERATIONS SCORECARD

Relevance to strategy:

Tullow’s safe and sustainable operations scorecard provides a complete view of Tullow’s performance and drives towards a sustainable business for the long term.

Target:

Demonstrate measurable improvements to performance based on the scorecard, which covers occupational safety, process safety, social performance, social investment, environmental performance and regulatory compliance.

2015 performance:

Performance measures in 2015 showed improvements across the majority of categories. Improvements were notably in the safer management of motor vehicle operations, with significantly fewer Motor Vehicle Collisions (MVC) incidents (75 per cent reduction). The number of private and public security forces trained in compliance with Tullow’s Voluntary Principles on Security and Human Rights requirements has also increased significantly during the year. Areas of declining performance included volume of gas flared and GHG emissions due to a compressor issue on the Jubilee FPSO.

 

TU156_KPI_EHS scorecard

LOST TIME INJURY FREQUENCY

Relevance to strategy:

Lost Time Injury Frequency (LTIF) is a measure of incidents that occur either in Tullow or our contractors’ operations that result in a fatality, a permanent disability or a reduction of man-hours worked. They are a direct measure of our safety procedures and the quality of training and have the potential to impact our reputation and ability to operate effectively.


Target:

Reduce LTIF by 20 per cent from the 2014 end of year performance.


2015 performance:

Tullow reduced LTIF by 48 per cent, with an end of year LTIF of 0.30. Improvements were made through a greater focus on the organisation of land operations and control of work at these locations, in particular in our drilling, completions, and extended well testing activities.

TU156_KPI_Lost_Time

Major Simplification project

Relevance to strategy:

Tullow’s strategy is focused on creating long-term shareholder value, supported by efficiency, cost management and a strong culture. The objective of the MSP, which was completed in 2015, was to streamline our business and processes, cut costs and re-focus the Group on key priorities and activities.

Target:

Deliver business restructuring and efficient processes focused on value.

2015 performance:

The MSP project has successfully adjusted the operating model of the business, clarified key accountabilities, improved culture around value creation and performance management, and simplified the organisational structure – with further work ongoing to simplify internal processes and better manage our cost base. Headcount has been reduced across the business to better reflect Tullow’s activities and scope of operations. The new operating model and implementation of an integrated management system has better defined key accountabilities and responsibilities. Ongoing performance management reviews have evolved to improve discussions around value creation on a more regular basis, with the Group’s ongoing delivery against its key objectives regularly communicated to staff. A shift to a more cost-conscious culture has occurred as a result of regular expenditure reviews and improved cross business challenge. Engagement with the Executive, in-country management and peers has been stepped up to help motivate, engage and focus staff on the Group’s targets during this period of change and challenging market conditions.

MSP

East Africa

Relevance to strategy:

Tullow’s basin-opening discoveries in Uganda and Kenya have discovered a new oil province with the potential of circa 300,000 bopd combined gross production. Monetising these discoveries through development and/ or portfolio management is a fundamental part of Tullow’s strategy.

 

Target:

Deliver East Africa exploration campaign, demonstrate commercial viability of South Lokichar resource base and maintain ability to accelerate a commercially attractive project into 2016. Progress East Africa development programme though pipeline agreements and resolution of Uganda tax issues.

2015 performance:

Nine appraisal wells were drilled in the South Lokichar Basin in Kenya in 2015 and all were largely on prognosis. Extended Well Tests displayed good connectivity at Ngamia and Amosing and provided important data for development plans. Elsewhere, three potential basin opening exploration wells were drilled in 2015, but none made discoveries. In August 2015, the Governments of Kenya and Uganda issued a joint statement agreeing the Northern pipeline route would be used to export oil, subject to certain conditions. A technical team is working on addressing these conditions to gain unequivocal agreement from both governments. A draft field development plan for the discoveries in the South Lokichar Basin was submitted in December 2015. In Uganda, historic CGT and VAT issues were resolved.

East Africa

Liquidity

Relevance to strategy:

Sufficient liquidity is imperative for a company’s survival and it enables the Group to meet its capital commitments and to invest in projects and assets that will bring value in the future.

Target:

Take appropriate steps to ensure cost-effective and sufficient liquidity in 2015.

2015 performance:

The March 2015 re-determination accessed $450 million of increased debt capacity, and the strength of our producing assets helped to maintain debt capacity in the October 2015 re-determination despite lower oil prices. Net debt at year end 2015 was $4.0 billion and headroom and free cash was $1.9 billion, ahead of guidance due to a combination of cost savings and deferral of certain capex to 2016. A number of exploration farm-outs were concluded during the year, reducing E&A expenditure through carried costs.

Liquidity

TOTAL SHAREHOLDER RETURN

Relevance to strategy:

Tullow’s strategy is focused on building long-term sustainable value growth. Our primary strategic objective is to deliver substantial returns to shareholders.

Target:

The baseline target is median TSR performance in relation to a peer group and the stretch target is upper quartile performance. TSR is based on performance over the 24 months ended 31 December 2015.

2015 performance:

Tullow’s TSR is measured against a bespoke group of listed exploration and production companies. Tullow was ranked 19 out of 21 peers for TSR performance, resulting in no award for TSR. Over the measured 24-month period, Tullow experienced negative TSR of 77.78%, compared to a median of negative 38.2%.

TSR