KPIs

Focused on delivery

The scorecard is made up of a collection of key performance indicators (KPIs) which indicate the Group’s overall health and performance across a range of operational, financial and non-financial measures.

The scorecard is central to Tullow’s approach to performance management and the 2016 indicators were agreed with the Board. 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. Tullow’s performance against the scorecard is tracked and reviewed at quarterly performance management meetings, which are attended by Executive Directors and Senior Leaders. The Group’s ongoing performance is cascaded quarterly to staff through management briefings and internal communications.

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’ and Vice Presidents' performance is judged solely on the delivery of the targets set in the Group scorecard, whereas the remainder of the permanent employees’ bonuses are based on a combination of individual and Group performance.

In April 2016, a decision was taken to increase the Company performance element of the Employee Bonus Plan from 20 per cent to 30 per cent for all employees in this plan, which is the majority of our employees. This change is designed to encourage more collaborative and team-based working, and reinforce that all employees contribute to the Group’s overall performance.

Each objective measured has a percentage weighting, and financial and production indicators have trigger, base and stretch performance targets. As reflected in the table below, in 2016, Tullow’s overall performance was 38.8 per cent. Although Tullow was the best performer in our peer group by some margin in 2016, the ‘relative’ Total Shareholder Return (TSR) tracks our performance over a three-year period and therefore we remain below the median and score nil of the possible score of 50 per cent.

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 begins below.

2016 Annual Report & Accounts

Download document / PDF 10MB

Strategic Financing (13.5/15)

Relevance to strategy:

Ensuring appropriate financing is in place to support the Company’s growth strategy by ensuring we have sufficient liquidity to meet our capital commitments as well as continuing to invest in projects and assets that will generate future value.

Target

Two key targets make up this KPI: ensuring funding capacity for 2016 and determining a longer-term strategic solution to deleverage and rebase our balance sheet. The first target includes maintaining liquidity through the biannual redetermination of our Senior Reserves Based Lending (RBL) debt facility; extending the Rolling Corporate Facility by one year; and amending the gearing covenant. The second target focuses on deleveraging and rebasing our balance sheet.

2016 performance

Funding capacity was achieved by securing a year’s extension to our Corporate Facility, amending the financial covenant under the RBL and Corporate Facility and the issuance of $300 million convertible bonds. Positive free cash flow generation in Q4 has begun the gradual deleveraging process. The farm-down of our Uganda assets will fully fund our future capital commitments associated with this project, once the deal is complete.

 

Safe, sustainable & efficient operations

Production (0/5%)

Relevance to strategy:

Production generates high-margin annual cash flow helping us to invest in future exploration and developments and repay debt. Setting production targets ensures we maximise revenues and achieve ongoing liquidity.

Target:

Our trigger target of 77,300 boepd pays 0%; our base target of 81,400 boepd pays 50%; and our stretch target of 85,300 boepd pays 100%.

2016 performance:

2016 production was 71,700 boepd, which includes the 2016 net lost production covered by insurance, equating to 4,600 boepd. Our KPI for production therefore achieved no payout, due to the Jubilee turret issue and the slower ramp up of production at the TEN fields

 

Safe, sustainable & efficient operations

Operating costs (1.25/1.25%)

Relevance to strategy:

Underlying cash operating costs represent the cost to Tullow for each barrel of oil produced. The lower the cost, the higher the margin Tullow receives when the oil is sold. Underlying cash opex is impacted by industry costs, inflation, Tullow’s fixed costs and production output.
 

Target:

Our trigger target of $16.5 underlying cash opex/boe pays 0%; our base target of$15.7 opex/boe pays 50%; and our stretch target of $14.9 pays 100%. 

2016 performance:

2016 operating costs were $14.3 per boe (including insurance payouts), achieving the maximum payout available. The expected insurance payout for operating costs relating to the Jubilee turret issue is $31.8 million.

Safe, sustainable & efficient operations

Net G&A (0.9/1.25%)

Relevance to strategy:

Our general and administrative costs are the overall running costs of the business that support our operational activity. The Net G&A represents Tullow’s corporate costs. Throughout the last two years we have worked hard to streamline these costs and achieve a fit for purpose G&A budget.

Target:

The trigger target of $147 million pays 0%; our base target of $127 million pays 50%; and our stretch target of $100 million pays 100%.

2016 performance:

2016 Net G&A was $116.4 million, achieving a 0.9% payout of the 1.25% allocation based on a sliding scale.

Safe, sustainable & efficient operations

Capital Expenditure (2.5/2.5%)

Relevance to strategy:

We must manage capital investment efficiently to reflect an oil price which may remain low in the short to medium term and provide the investment required to grow and sustain our business, supporting development costs for major projects, exploration campaigns and infill drilling programmes.

Target:

The trigger target of $1.1 billion pays 0%; and the stretch target of $942 million pays 100%. 

2016 performance:

2016 capex was $857 million (net of the insurance payout), overachieving the stretch target of $942 million and therefore receiving 100% payout.



 
 

Safe, sustainable & efficient operations

Safe & sustainable operations (4.1/5%)

Relevance to strategy:

Safe and sustainable operations mean we protect people and our facilities as well as the communities and environment that may be affected by our activities. It ensures Tullow operates safely and efficiently while maintaining a good corporate reputation.

Target:

Tullow’s safe and sustainable operations are measured by three targets: process safety, focused on reducing process safety events and making improvements to our asset integrity; occupational health& safety focused on Lost Time Injury Frequency (LTIF) reduction and malaria prevention; and sustainability, including metrics focused on environmental and social performance.

2016 performance:

In 2016 there were no Tier 1 or Tier 2 incidents. The Jubilee Asset Integrity improvement plan is on schedule. The LTIF rate was zero, beating the stretch target of 0.24. There were no serious malaria cases reported. There have been no significant work disruptions reported in 2016. Overall the safe & sustainable KPI achieved 4.1% out of a maximum 5% allocation.

Business development & growth

TEN (4.5/5%)

Relevance to strategy:

The TEN Project represented the majority of Tullow’s capital expenditure for both 2015 and 2016 and completing it not only demonstrates our capability to deliver large scale, complex projects but also increased production revenues, enabling the business to organically deleverage through free cash flow.

Target:

This KPI was based on the following targets: timing of achieving first oil; ramp-up of production; production attainment; and operability. These targets all reflected an equal weighting of the maximum score of 5%.

2016 performance:

First oil was achieved in August 2016; ramp up production was 5.5mmbbls; the capacity of the FPSO has been successfully tested at an average rate of over 80,000 bopd in 2017; systems are operational and commissioning is ongoing. The TEN project ranks in the top 10% of global projects for both schedule delivery and capex budget (per Independent Project Analysis (IPA)). A score of 4.5% out of the maximum 5% has been given.

Business development & growth

East Africa (4.5/5%)

Relevance to strategy:

Tullow’s basin-opening discoveries in Uganda and Kenya have discovered a new oil province which has the potential of being a 2.45 billion boe resource. Monetising these discoveries through development and/or portfolio management is a fundamental part of Tullow’s strategy.

Target:

This KPI is comprised of the following targets: implementing a material transaction on our East Africa portfolio; maintaining East Africa development for Final Investment Decision by the end of 2017; and presenting Kenya Early Oil Pilot Scheme Investment Proposal.

 2015 performance:

The farm-down of our Uganda assets to Total was announced in early 2017. Also in Uganda eight production licences were awarded; the pipeline is progressing; upstream and pipeline FEED are commencing in 2017; and upstream ESIA scoping studies are approved. In Kenya, our licences have been extended; water injection testing has commenced; and the Kenya Early Oil Pilot scheme has been approved by the upstream partners. Overall, this KPI achieved 4.5% out of the potential 5% allocation.

Business development & growth

Exploration (3.4/5%)

Relevance to strategy:

Value creation from converting discovered resources into reserves from material, low-cost, high-return oil exploration with clear routes to commercialisation.

Target:

This KPI is made up ofthe following three targets: accessing material acreage positions; progressing quality prospects; and discovering predicted risked volumes through exploration.

2016 performance:

Two new licences in Guyana and Zambia were signed. Thirteen quality prospects were progressed, across Kenya, Namibia, Norway, Suriname and Mauritania. In Norway, the Cara discovery and the Wisting appraisal well added a combined P50 resource estimate of approximately 41mmboe net. Overall, the exploration KPI achieved 3.4% out of the 5% allocation.

Organisation (4.1/5%)

Relevance to strategy:

Delivering an organisational strategy that results in efficient ways of working and effective governance is key to delivering against our overall Company strategy and maintaining engaged employees.
 

Target:

This target is made up of: organisational efficiency and effectiveness; diversity; and ethics & compliance. The targets include: fully implementing the Integrated Management System (IMS); running an employee feedback survey; ensuring key risks are effectively managed and monitored; improving the effectiveness of SAP; progressing the diversity strategy; and demonstrating delivery against a new Ethics & Compliance scorecard.
 

2016 performance:

Highlights from the progress against this KPI include: IMS implementation on track; the employee survey ran with high participation and action plans were developed to address feedback; all key risks have controls in place to manage them, and are monitored quarterly; all recommendations from an external audit on SAP effectiveness have been implemented; aspirational diversity targets have been agreed and senior leadership engaged; and an Ethics & Compliance e-learning module has been rolled out. Overall, this KPI scored 4.1% out of a 5% allocation.

Total shareholder return (0/50%)

Relevance to strategy

Our strategy is to build long-term sustainable value growth, leading to substantial returns to our shareholders.

Target

If median TSR performance is achieved, 25% of the 50% award vests; if upper quintile performance is achieved, 100% of the 50% award vests. TSR is based on performance over the 36 months ended 31 December 2016.

2016 performance

Tullow’s share price closed 97% up from 4 January when the share price was 165.7p. While this annual performance puts Tullow in the upper quintile of our peer group, because TSR is measured on a rolling three-year basis, Tullow’s performance in this timeframe was below the median range, and therefore this KPI has no payout. Over the 36-month period, Tullow experienced negative TSR of 68% compared to a median negative of 26%.