Tullow Oil plc 2022 Annual Report and Accounts
Tullow Oil plc
2022 Annual Report
and Accounts
Building a better future
through responsible
oil andgas development
Our purpose
Tullow’s purpose is to build a better future through responsible oil and gas
development. Our sustainable approach is a critical element of our business
strategy. We believe the oil and gas industry can, and should be, anengine of
economic development for emerging African economies. We contribute toour
hostnation's sustainable growth by unlocking value from their resources,
throughreliable, safe, cost-effective and carbon-ecient operations.
Key:
Exploration
Development
Production
Decommissioning
We create economic value for our host
nations through tax, royalties and
revenue sharing from the extraction and
sale of hydrocarbons. We also create
social value through job creation,
supplier development and community
support through our Shared Prosperity
activities. Tullow has a proven track
record of managing production
operations with high standards of
safety, environmental stewardship
and community engagement.
Wealso have extensive experience
insuccessfully decommissioning
production sites in a responsible
manner when production ceases.
We create value by developing
discovered resources that have been
confirmed to be commercially viable.
The development plans include
technical and commercial
considerations based on extensive
stakeholder engagement on economic,
operational, social and environmental
matters. These plans are subject to
approval by our host governments
and regulators. The development
phase can be highly capital intensive,
with investment in new infrastructure,
local job creation and supplier
development; all progressed with our
Shared Prosperity ambitions in mind.
Development projects are currently
underway or being planned in Kenya,
Ghana, Gabon and Côte d’Ivoire.
We pursue infrastructure-led
exploration opportunities in and
around our production and development
assets. In addition, we have legacy
positions in emerging basins where
we seek to unlock value through
prospect identification and
selectiveexploration.
Production Development Exploration
South America
Guyana
Argentina
Europe
UK
Africa
Gabon
MauritaniaCôte d’Ivoire
Ghana
Kenya
Note: countries are not to scale
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2022 in numbers
Contents
Strategic report
Our purpose IFC
2022 key metrics 1
Our strategy 2
Our business model 4
Chair's statement 6
Chief Executive Ocer's statement 8
Markets 11
A balanced scorecard 14
Gabrielle's story 16
Operations review 18
Chief Financial Ocer's statement 21
TCFD scenario analysis 23
Finance review 24
Elah's story 28
Sustainability 30
Kwame's story 38
Governance and risk management 40
Section 172(1) statement 47
Viability statement 50
Non-financial reporting 52
Corporate governance
Directors’ report 54
Board of Directors 60
Stakeholder engagement 62
Audit Committee report 63
Nominations Committee report 69
Safety and Sustainability
Committeereport 71
Remuneration report 73
Other statutory information 98
Financial Statements
Statement of Directors’
responsibilities 102
Independent auditor’s report
to the members of Tullow Oil plc 103
Group Financial Statements 115
Company Financial Statements 164
Supplementary information
Alternative performance
measures 173
Shareholder information 175
Commercial reserves
and contingent resources
summary (unaudited)
workinginterest basis 176
Group working interest production
61,100 boepd
2021: 59,200 boepd
Operating cash flow
$972m
2021: $711m
Adjusted EBITDAX
$1.5bn
2021: $1.0bn
Profit/(loss) after tax
$49m
2021: $(81)m
Capital investment
$354m
2021: $263m
Free cash flow
$267m
2021: $245m
Net debt
$1.8bn
2021: $2.1bn
Gearing
1.3 times
2021: 2.2 times
Tullow Oil plc
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Our people:
Building a better future
Gabrielle's story
p.16
Tullow Oil plc
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Our strategy
At Tullow, we believe that reliable and
adequate energy supplies are critical for
sustaining human progress and ensuring
political stability. We also believe that fossil
fuels will remain a necessary part of the
energy mix for some time, as migration to
alternative energy sources will require
substantial investment in new technologies
and infrastructures over many years to
come. In the meantime, Africa continues
tosuffer from extreme energy poverty,
hindering economic growth and social
advancement. If African nations are to
prosper, they must benefit from their vast
pool of natural resources. For this reason,
our focus at Tullow is to help deliver
prosperity in Africa and our other host
nations through managing the exploration,
development and production of oil and gas
resources safely, eciently, collaboratively
andtransparently. Our differentiated
business strategy is informed by our
longhistory of assetdevelopment in
Africa, our passion to build a better
futurefor our host nations and
ourenvironmental consciousness.
A differentiated business strategy
Our values
Do the right thing
Collaborate
Take responsibility
Make it count
Shared prosperity
A better future
Differentiated business strategy
Our focus
Business growth
Capital eciency
Operational excellence
Our way
Trusted partner
Committed contributor
Attractive employer
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Our business strategy is built on the following themes:
Our focus
Business growth: Developing discovered resources, near field and infrastructure-led exploration and M&A
Our business is underpinned by a deep and rich portfolio of discovered resources. For example, our Jubilee and TEN fields in
Ghana provide significant opportunities for infill drilling, facilities expansion and new production from currently undeveloped
parts of the fields as well as near field exploration. In Gabon and Côte d’Ivoire, we have identified a number of low-risk investment
projects. In these areas we are leveraging our deep geoscience expertise to explore around our producing assets, where the
proximity to existing infrastructure supports fast commercialisation of any discovered resources, resulting in high returns and
rapid payback. We are also working to realise further growth through our discovered resources in Kenya.
Our industry is going through a structural shift as many larger companies de-emphasise their oil and gas business, particularly in
Africa. With a credible presence across Africa and a proven track record across exploration, development and production
operations, we are well placed to deliver value through mergers and/or acquisitions.
Capital eciency: Managing cost and capital to deliver a robust balance sheet
At Tullow every barrel matters and every dollar counts. We operate within a strict cost framework and have capital controls to deliver
returns for our investors and to fuel our growth plans. At the same time, we continue to strengthen our balance sheet, reducing net
debt through the generation of material free cash flow. In 2022, our cash gearing (net debt to EBITDAX) reduced to 1.3 times, a
material acceleration of our deleveraging trajectory which brings confidence that our investments in high-return opportunities,
along with cost and capital eciency focus, are delivering positive results.
Operational excellence: Maximising asset performance, reliability and safety
We focus on operational excellence in all aspects of our activities. We maximise the performance of our assets, leveraging our
engineering, technical and subsurface geoscience expertise to design ecient systems and processes while ensuring timely
equipment replacement and maintenance to deliver safe, reliable and environmentally responsible production performance.
Wecontinuously monitor our workforce requirements to ensure we have the right levels of staff and provide training to ensure
that we have the right skills in place to operate our assets dependably.
Our way
Trusted partner: Operating to uncompromising standards of ethical conduct
Tullow’s success depends on one thing: trust. Trust in Tullow allows us to partner with governments to help alleviate
energypoverty in Africa, maintain positive relations with regulators and inspire confidence in financing institutions to ensure
continued access to capital. For Tullow, being a trusted and trustworthy organisation includes maintaining high standards
ofethics and compliance in all that we do, zero tolerance for corruption, responsible tax management and tax transparency
asstrategic imperatives.
Committed contributor: Improving the everyday lives of people in our host nations
When our business succeeds, our host nations benefit. This goes beyond augmenting national revenues from oil and gas; it means
engaging, community by community, to understand local needs and support social advancement in meaningful ways. We encourage
our communities to speak openly with us on matters of importance to them, while investing in social development in multiple
ways. Equally, we operate with environmental consciousness to minimise the impact of our activities on climate change and the
natural environment. Tullow benefits through a collaborative and capable supply chain and employees who enjoy positive
relationships and a respected standing in our communities.
Attractive employer: Nurturing a collaborative, caring and open work environment
Tullow fosters an open team culture in an empowering workplace in which people are confident and comfortable to engage,
contribute and speak openly about any aspect of what we do or how we work. As an inclusive organisation, we promote respect,
diversity, equality and transparency, underpinned by strong human resources management. We invest in training to enable our
people to realise opportunities for professional advancement. Empowering our workforce is a strategic driver of our success.
Our business model
- Financial resources based on
material free cash flow generated
through our production that fund
business continuity and growth
- Material reserves and resources in
West Africa and significant
resources in Kenya
- Positive relationships with
hostnation governments and
regulatory bodies
- Strong reputation as an ethical and
responsible oil and gas operator
- Skilled team including local teams
in Africa with engineering and
subsurface technical expertise
- Strong relationships with local
communities supported by
continuous engagement
- Network of dependable suppliers,
including local suppliers in Africa,
supporting business continuity
andgrowth
- Responsible, safe and
reliableoperations
- Cost focus and capital discipline to
ensure financial resilience with a
target to reach gearing of less than
1.0 times net debt to EBITDAX on a
sustainable basis
- Conservative financial strategy
supported by hedging to
protectrevenues
- Shared Prosperity with our host
nations and their populations and
local content investment
- Environmental stewardship
throughout our value chain
- Carbon reduction and a target to
reach Net Zero by 2030 (Scope 1
and 2 net equity emissions)
- Ethical conduct in line with our
Code of Conduct at all times
- Maintaining a positive workplace
and upholding human rights
through our value chain
- Tax responsibility and transparency
A value-creating business model
Tullow creates value by investing in the
exploration for, and development and
production of, oil and gas resources. With
anestablished foothold in our host nations,
wemonetise oil and gas from our portfolio of
assets to deliver economic and social benefits
for all stakeholders and contribute to prosperity
in our host nations. Our keen focus on
maximising the performance of our assets
through eciencies and strict cost management,
alongside our commitment to building positive
relationships and partnerships across our
valuechain, has enabled Tullow to mature into
atrusted operator and champion of
sustainabledevelopment.
Tullow Oil plc
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Our investors
Our host nations
Our people
Inputs CommitmentsStakeholders
Financial statements Supplementary InformationStrategic Report Governance Report
Tullow Oil plc
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- Reliable, low-cost, high-margin
production
- Group 2022 reserves replacement
ratio of c.90%
- High IRRs
- Identified potential for 120kbopd
plateau production rate in Kenya
- Strategic positions in
emergingbasins
- Shared Prosperity in education,
local content and enterprise
development in our host nations,
reaching thousands of suppliers
and entrepreneurs
- Attractive workplace nurturing a
skilled workforce with leading-
edge knowledge in the oil and
gassector
- Mitigation of our climate
changeimpacts
- Strong cash flow generation and further
investment in responsible oil and gas
development and production
- Deleveraging whilst maintaining asset value of
the Company, accreting value to our shareholders
- Contribution to economic growth and sustainable
development in our host nations through thriving
and responsible oil and gas development
andproduction
- Tangible social benefits in our host nations
through infrastructure developments, STEM
education, high-skill job opportunities and
supplier engagement and development
- Improved resilience and social cohesion in local
communities, especially fishing communities in
areas of our assets
- Job stability, professional growth and career
development for hundreds of Tullow employees
with a focus on localisation of our African
workforce, reducing social inequalities
- Contribution to global efforts to mitigate climate
change and reduce global climate risks
Outputs Value created
SDG
contribution
Commitments
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Chair’s statement
Positioning the company
well for the future
I have very much enjoyed my first year as the Chairman of your
company. It has been a year marked by strong operational and
financial performance across the Group, which is a testament to
the hard work and commitment of the entire Tullow team. The
team has continued to build on a culture in which every dollar
counts and every barrel matters. I congratulate them on a good
performance that has delivered strong cash flows and led to a
material improvement in the Group’s balance sheet, positioning
your company well for the future.
I have been particularly impressed by the team's focus on
operational delivery as evidenced by the strong drilling
performance in Ghana, the successful Operations and
Maintenance (O&M) transformation at Jubilee and the top
quartile safety performance. The O&M transformation at the
Jubilee is also key to delivering reductions in the operating cost
base and carbon emissions.
Phuthuma Nhleko
Chair
Phuthuma Nhleko reflects on his first full year as Chair of Tullow and the significant
progress the Group made in 2022.
“
At Tullow, we believe that oil
& gas development can be a
major driver for economic
development in Africa, and
therefore we remain
committed to deploying our
expertise and capital to
partner with host
governments to unlock value
from their resources in a
responsible manner.
”
Phuthuma Nhleko
Chair
Tullow Oil plc
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Strategy
We have a high quality portfolio. The focus of the team on cost
management, disciplined capital deployment and operating
eciency enables us to maximise cash flow generation from
these assets. We are therefore able to self-fund a high-return
investment programme to deliver further value, cash flows and
drive down debt. The organic growth potential from our assets
can be determined with confidence.
Tullow’s operational and financial turnaround is widely
acknowledged by both the industry and host governments in
Africa. Tullow's higher credibility will often lead to unique
inorganic opportunities. For instance, last year, our pre-emption
of Kosmos’ acquisition of Occidential Petroleum’s assets in
Ghana was recouped within the year and has helped support our
deleveraging and value creation efforts. The quick turnaround to
secure the necessary approvals also demonstrates the strong
support Tullow enjoys from the Government of Ghana.
Earlier in the year, we were approached by Capricorn Energy
fora potential merger. After considerable deliberation, the Board
decided to recommend the merger to our shareholders. On the
basis of the terms agreed with the Board of Capricorn Energy, we
saw a potential for material value creation for shareholders by
implementing a business plan that accelerated investment in our
key projects, delivered very significant synergies including
amaterial reduction in debt service costs. However, once
Capricorn Energy were in receipt of a competitive offer, we
decided not to increase our offer that may not ultimately have
advanced shareholder value. Our disciplined approach was
driven by our confidence in our team and assets that underpin
aclear growth strategy and strengthening balance sheet.
The oil & gas industry is in the midst of a structural change as
many companies assess their long-term commitment to oil &
gas. This will create opportunities for inorganic growth,
particularly in Africa. At Tullow, we have built a unique operating
platform that, along with our deep understanding of Africa,
positions us uniquely to secure these opportunities and deliver
further value.
Tullow’s Board
Over the past year, I have greatly appreciated the support of
Tullow’s Board. I am also pleased that we have appointed Richard
Miller as CFO. Richard brings extensive oil & gas and financial
experience to the role having been with Tullow for over 11 years,
including as Interim CFO since April 2022. During that time Richard
led the Tullow Finance team, supporting a number ofacquisitions,
disposals and capital markets transactions. Heplayed a significant
role in the continued turnaround of Tullow with the successful
rebasing of Tullow’s cost structure, the resetting of the balance
sheet and the change to a more focused capital allocation.
TheBoard and I look forward to working closely with Richard.
InFebruary 2023, the Company announced the appointment of
Roald Goethe as an independent Non-executive Director. Roald
is a highly experienced oil & gas executive with extensive
commercial knowledge of the energy industry in Africa including
business development, M&A and inoilmarkets, specifically
hedging, financing and trading. TheBoard and I look forward to
working closely with both Richard and Roald.
I was pleased to use the opportunity of the externally facilitated
Board evaluation to focus on the requirements of the Board
tobest support the business in its delivery of the strategy.
Furtherinformation on the evaluation can be found on page 57.
Tullow and Africa
This is a time of great uncertainty and change in the global
energy markets. Despite all the important work being done on
energy transition, its trajectory and pace remain uncertain. For
now, it is clear that the world will continue to consume significant
quantities of oil & gas. However, the oil & gas industry has
significantly underinvested in new developments needed to
maintain sucient supply. This investment gap means that we
expect the markets to remain volatile, impacting the energy
trilemma ofsecurity, accessibility and affordability.
Society and policy makers should acknowledge the need for
differentiated approaches to the energy transition between the
developed and emerging world and ensure there is a just
transition. This is essential to support economic growth in the
emerging world. We experience this first hand in our African
operations. Importantly, we must bear in mind that the African
continent accounts for less than 3% of the world's energy-related
COe emissions to date and has the lowest emissions per capita
of any region. Assuch it is hard to argue against the right of the
African countries to develop their resources for the benefit of
their people, as has been done for decades in countries in the
developed world. Thiswas underscored clearly by many African
leaders at COP27 in Cairo last year.
At Tullow, we believe that oil & gas development can be a major
driver for economic development in Africa, and therefore we
remain committed to deploying our expertise and capital to
partner with host governments to develop local content capacity,
enhance energy security through the long-term supply of
indigenous gas in Ghana and unlock value from our host nations'
resources ina responsible manner.
Conclusion
Rahul and his team continue to build a track record of consistently
meeting expectations and delivering on the strategy. This has
not yet translated into our share price despite higher commodity
prices through the year. However as the Group continues to
restore trust and confidence after the events of 2019, I am confident
that our investors will be rewarded. Basedon aclear and
disciplined growth strategy we will deliver material free cash
flow that will help reduce debt whilst growing the value of our
company. This will drive material value creation for our shareholders
and shared prosperity for our host nations and communities.
With this compelling vision for Tullow over the nextfew years,
theBoard looks to the future with confidence.
Thank you for your support for Tullow.
Phuthuma Nhleko
Chair
7 March 2023
Tullow Oil plc
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Chief Executive Ocer’s statement
Creating a unique platform for growth
inthe oil and gas sector
I joined Tullow in 2020, because I had conviction in the quality of
the asset base and the belief that with focus and discipline we
would turn the business around and unlock its underlying value.
The strong operational and financial performance of the business
since then validates that conviction. Tullow is now creating value
and generating free cash flow. Our balance sheet is stronger with
significant liquidity headroom and leverage of less than 1.5 times.
At the same time, we have created a unique platform for
growthwithin the oil and gas sector. Today we have a strong
anddiverse leadership team with a highly energised organisation
characterised by deep commitment to delivering on our business
plan. There is a real willingness to go “beyond the call of duty”
indelivering excellence. This is evidenced by the successful
transition of the operation and maintenance of the Jubilee FPSO,
the top quartile drilling performance, and the ongoing delivery of
the Jubilee South East Project that remains on time and on budget.
2022 performance
Our strong business performance in 2022 builds on the foundations
we laid in 2021, and clearly, there are many things tocelebrate.
Starting with safety, 2022 was the second successive year of
industry top quartile safety performance with no recordable
incidents in the year and no Tier 1 process safety events.
The team has done a great job in managing inflationary
pressures on both G&A and Opex, demonstrating that “every
dollar counts” at Tullow. Through a focus on continuous
improvement, we are seeing initiatives – big and small – to help
unlock value and save costs. Despite sector-wide inflation, our
operating expenditure has remained in line with expectations
and we held our G&A costs flat.
On production operations, the team has done a stellar job in
delivering high production eciency and maximising production
– demonstrating that “every barrel matters” at Tullow.
We also successfully transferred the operation and maintenance
of the FPSO at the Jubilee field – our most prized asset – from an
external contractor to our operating team. This is a major step in
supporting our vision of becoming a leading low-cost operator
and we have immediately seen the beneficial impact of that
decision with increased uptime and c. 30% lower operating costs
in the second half of the year compared to the first. In addition,
what is most energising is the change in morale, attitude and
ownership of the operating team, which has resulted in visible
improvements in control of work, housekeeping, orderliness and
general positivity on the FPSO.
Capital discipline remains at the heart of what we do and I am
pleased to report that we delivered our capital investment
programme within budget. The drilling team has delivered the
Rahul Dhir
Chief Executive Ocer
“
We have a strong and diverse
leadership team with a highly
energised organisation
characterised by deep
commitment to delivering
onour business plan.
”
Rahul Dhir
Chief Executive Ocer
2022 was a solid year of delivery for Tullow with a strong set of financial results and
excellent operational performance. Rahul Dhir, Chief Executive Ocer, discusses the
progress Company has made and why he has the conviction that Tullow will continue
unlock its true value.
Tullow Oil plc
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Financial statements Supplementary informationStrategic Report Governance Report
well programme faster than planned, obviating the need to hire a
second rig. This resulted in further cost savings against our long
term plan and accelerated production growth.
At Jubilee, the development of the South East area is progressing
in line with plans and budget, and once the new wells come
onstream in 2023 we expect total production from the field will
exceed 100 kbopd. First oil from the Jubilee South East project
will be a significant milestone, bringing previously undeveloped
reserves to production, and highlighting Tullow’s project
management strengths and ability to integrate deliverables
across a global multidisciplinary team.
At TEN, the focus in 2022 was on reservoir management, and we
have been able to reduce annual decline rates to less than half
compared to 2021. The year was not without challenges at TEN.
We were disappointed by the results of the two Ntomme riser
base wells, but did deliver a technically challenging well in
Enyenra North that helped stabilise production rates. Our team
continues to persevere in their efforts to deliver value from TEN,
and while no new wells are planned this year, the focus will
remain on reservoir management and importantly on delivering
a new plan of development to the Government of Ghana,
encompassing infill drilling, phased development of new areas
near existing infrastructure, development of the significant gas
resource and drilling of prospective resources.
We also invested $126 million to pre-empt the sale of assets in
Ghana by Occidental Petroleum to Kosmos Energy, and this
investment, which has boosted net production and added to our
net 2P reserves, has already paidback.
In addition to maximising oil production from our two fields in
Ghana we arealso focused on commercialising the material gas
resources. The war between Russia and Ukraine is having a
profound and long-term impact on LNG flows, as Europe looks to
replace Russian gas with imported LNG. This has created an
imperative in Ghana to develop indigenous gas to provide energy
security and support economic development. Tullow, along with
our JV partners, is committed to working with the Government of
Ghana to provide long-term gas supplies. As part of this process,
we signed an Interim Gas Sales Agreement, representing the first
commercialisation of gas from the Jubilee field. This agreement
is an important step towards a long-term agreement which will
transform the vast resources across Jubilee and TEN into
another revenue stream for Tullow whilst providing a long-term
source of energy forGhana.
Our non-operated asset portfolio performed broadly in line with
expectations, despite some unplanned downtime at the Espoir
field in Côte d’Ivoire and natural decline in some of the more
mature fields in Gabon. This part of our asset base will remain a
material contributor to production and cash flow, with ongoing
investment to optimise our equity positions and replace
maturing production with moderate capital spend.
Our exploration strategy is largely focused around our producing
assets inWest Africa, where we have a deep understanding of
the geoscience and access to infrastructure enables rapid
development of discoveries. To this end, we have expanded our
strategic position in the Tano Basin by securing a new offshore
exploration licence in Côte d’Ivoire, in an area adjacent to our
producing fields in Ghana. In addition, we also retain material
legacy positions in the emerging basins of Guyana and Argentina,
where we continue to seek opportunities to unlock value.
Higher oil prices have also brought contingent payments from
previous disposals into focus. In Uganda, at plateau production
Tullow would receive a share of revenue. At $70/bbl, this is
estimated to be c.$15 million per annum and increases to
c.$47million per annum at $100/bbl. The upside exposure is
uncapped and for the full duration of the licence. In Gabon
andEquatorial Guinea, there is potential for receipts of up
to$40million over the next five years.
Kenya
In March 2023, the Kenya Joint Venture partners submitted the
final Field Development Plan (FDP) for approval to the Ministry
ofEnergy & Petroleum (MoEP) and the Energy and Petroleum
Regulatory Authority (EPRA). The FDP is based on a life of field
resource of 585mn bbls gross, initial plateau production of
120kbopd and capital investment of c$3.4 billion to first oil.
TheFDP approval process, including ratification by parliament,
isexpected to conclude later this year. In parallel, we continue
toprogress a farm-down to a strategic partner in a joint process
with our partners.
Proposed merger
In June 2022, Tullow’s Board proposed a merger of equals
withCapricorn Energy in an all-share, nil premium offer.
Thisopportunistic transaction could have resulted in accelerated
investment across Tullow’s portfolio, however, our Board did not
believe that an improved offer in line with the demands of some
of Capricorn Energy’s key shareholders would have represented
good value for Tullow’s shareholders. This decision was supported
by our Board’s strong confidence in Tullow’s business plan that
we outlined at the beginning of the year, and which continues to
deliver value.
Board
Throughout the year I have benefited greatly from the wise
counsel and experience of our Chairman, Phuthuma Nhleko.
Hebrings a deep understanding of the African business and
political landscape along with strategic thinking and a real
focuson value creation.
Richard Miller was confirmed as our permanent CFO in December
2022. Richard has a strong financial background, with a focus on
cost and capital discipline and he knows the business really well.
In his role of Interim CFO in 2022, Richard has been a real thought
partner as we have continued Tullow’s transformation, rebasing
our cost structure, improving our balance sheet and bringing a
much clearer focus on capital allocation. I am delighted with his
appointment. I’m also looking forward to working with the
newest member of the Board, Roald Goethe, who was appointed
as an independent non-executive Director in February 2023.
Roald brings a unique commercial and entrepreneurial
perspective which will be help pursue our long-term strategy.
Tullow Oil plc
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Chief Executive Ocer’s statement continued
Unlocking value for our Host Nations and
SharedProsperity
Our Purpose is to “build a better future through responsible oil &
gas development”. We recognise that the successful delivery of
our business plan is also integral to the economic prosperity and
development of our host nations. Forinstance, in 2022 our
operations in Ghana delivered over $1.5billion in value for Ghana
through taxes, royalties, GNPC’s participating share in the
licences and discounted supply of gas and condensate. Further,
a long-term supply agreement of indigenous gas will enhance
energy security and facilitate industrial development in Ghana.
We actively invest in social programmes across our host nations
with the aim of making a meaningful impact working with the
communities where we operate, with a focus on accelerating
progress through partnerships. In 2022, we enabled more than
9,000 students to access education and we continued to support
local entrepreneurship through theFisherman’s Anchor project,
a micro credit scheme, that provided financial assistance to over
1,300 beneficiaries. Building local content capacity is
fundamental to the success ofour business, and our goal is to
increase the local participation in our supply chain through open
dialogue, providing business tools, and connecting local
companies with a future ready workforce. In Ghana, our Advisory
Board continues to provide uswith great insights and advice,
helping us improve our understanding of the domestic context
and enhancing our localrelationships.
The symbiotic linkage between Tullow and our host nations is
underpinned by strong relationships with our key stakeholders.
Our host nations recognise the criticality of our operations and
investments to their economic development and energy security.
Therefore they want Tullow to keep investing in their countries to
ensure that they benefit from theirnatural resources in the same
way that many other nations, particularly in the developed world,
havealready.
Climate
Our shareholders will recall that Tullow made a commitment to
being Net Zero on our Scope 1 and 2 net equity emissions by
2030. Work towards this target is well underway with increased
gas handling capacity at Jubilee and process modifications
ongoing at TEN. Further progress is expected during a planned
maintenance shutdown of the TEN FPSO in 2023. These
developments will enable us to eliminate routine flaring in Ghana
by 2025. At the same time, we are making good progress on a
nature-based carbon off-set project in Ghana with the signing a
Letter of Intent (LoI) with the Ghana Forestry Commission (FC) in
December 2022.
A fundamental redesign of the Kenya FEED has resulted in
reduction of the carbon intensity of the project by c.40%.
Thiswas achieved by limiting GHG emissions in the design,
reinjecting excess gas into reservoirs for reuse at a later stage
and committing to zero routine flaring from the outset. The use
of solar power for pipeline operations and nature based offset
projects offer the opportunity to abate residual emissions.
Tofurther sustain responsible operations, we are considering
anEnvironmental Stewardship Fund and a Shared Prosperity
Fund
to deliver a net positive impact to local communities.
Outlook
Strong operational delivery, rigorous focus on costs and capital
discipline, increased equity in our key operated fields in Ghana
and higher oil prices drove material, expectation-beating free
cash flow generation in 2022. This accelerated the Group’s
deleveraging with a net debt to EBITDAX ratio of 1.3 times bythe
end of the year. This performance demonstrated the underlying
cash generation potential of the business.
2023 will be an exciting year as we continue to deliver on our
Business Plan, with capital investment, in particular in Ghana,
expected to support production growth through to 2025 and
material free cash flow generation. At an oil price of $80 per
barrel, we expect to deliver $800–$900 million in free cash flow
in the three years 2023-2025. In addition, we are working on
several notable milestones that will deliver material value.
Theseinclude: completion of the Jubilee South East Project
which is key to delivering over 100 kbopd from Jubilee, the Plan
of Development for TEN which will set out a clear pathway for
creating value, commercialisation of gas in Ghana to deliver
secure gas supplies for the nation, and progress on Kenya FDP
and strategic partner induction that willhelp transform the value
of this major resource.
The Tullow team has worked exceptionally hard in 2022 to deliver
the business plan and I thank them for their commitment and
delivery. We are also grateful to our host nations and communities
for their continued support and our shareholders and debt
investors for their confidence in us.
We have created a platform of assets and set of capabilities
which are unique within our sector and that gives me great
confidence in Tullow’s ability to deliver growth and value for
allourstakeholders.
Rahul Dhir
Chief Executive Ocer
7 March 2023
Tullow Oil plc
2022 Annual Report and Accounts
11
Financial statements Supplementary informationStrategic Report Governance Report
A volatile market
during political and
economic uncertainty
Markets
1
Geopolitics
The conflict in Ukraine, elevated inflationary
pressures and a slowdown in global growth
were among the key political and economic
events of 2022.
Following a post-pandemic rebound in the global economy in
2021, 2022 saw numerous pressure points emerge amid
heightened political and economic uncertainty.
Russia’s full-scale invasion of Ukraine on 24 February 2022 was,
and continues to be, one of the most significant conflicts in
Europe since 1945. While the Russo-Ukrainian War acted to
exacerbate cross-asset volatility, energy prices in particular
were driven higher, feeding expectations of a global energy
crisis. The pressures within Europe were particularly exacerbated
given the relatively high dependence on Russian energy exports,
with the inflationary pressures further intensified by Russia’s
decision to cut natural gas supplies to Europe in September.
Consumer price indices printed at record levels across major
economies fuelled by the aforementioned war in Ukraine, surging
energy prices and supply-side factors. Monetary and fiscal
conditions imposed during the COVID-19 pandemic compounded
the pressures, leading central banks to exhibit an increasingly
hawkish tilt before ultimately undertaking several rounds of monetary
policy tightening in an effort to stem the pricing pressures.
Oil price volatility was another major characteristic in 2022, with
prices initially rising in the first half of the year on constricted
supply dynamics onset by the war. Brent crude reached an
intra-year high of $130/bbl during March in the early aftermath of
the invasion, the highest price demanded for the commodity
since 2008. The environment triggered record corporate profits
within the energy sector and amid a mounting cost of living crisis
domestically, the UK Government announced a temporary 25%
windfall tax on the profits of North Sea oil and gas operators –
the Energy Profits Levy – in May. The tax rate was subsequently
increased to 35%, with the levy set to fall away in March 2028.
Oil markets cooled rapidly in the second half of the year,
withBrent dipping below $80/bbl in early December following
numerous rounds of monetary policy tightening by central banks
and on a particularly weak Chinese demand outlook.
Outside the oil and gas sphere, wider commodities also performed
well in 2022. Coal gained amid record high demand, with the trend
anticipated to extend into 2023. Agricultural markets also saw
large gains, with grain and palm oil eclipsing all-time highs in March
on a culmination of poor weather conditions and pandemic-related
supply disruptions. Combined, the rapidly rising commodity prices
fuelled concerns of an accelerated route to a recession in Europe,
with the higher energy prices a key contributor to elevated
inflation levels.
As pricing pressures became entrenched, central banks
undertook several rounds of monetary policy tightening as
policymakers weighed the benefits of tightening monetary policy
conditions against stagflation, growing unemployment and
economic ‘hard landing’ risks. Ultimately, the Bank of England,
Federal Reserve and European Central Bank undertook 325bps,
425bps and 250bps of tightening respectively across 2022.
UK political news flow was also in focus, with newly elected
Prime Minister Liz Truss announcing a £150 billion energy plan
support package to ease cost pressures on domestic households.
The announcement was soon followed by a ‘mini-budget’ from
Chancellor Kwasi Kwarteng, with the “biggest package in
generations” of unfunded tax cuts undermining market
confidence and driving a sharp broad-based sell-off across both
domestic equity and debt markets. The yield on the closely
watched UK 10Y Gilt surged by as much as c.130bps through
September as a result, the greatest monthly gain on record for
the asset, whilst also facilitating unprecedented Sterling
weakness, with GBP trending towards parity against USD in late
September. Much of this reversed, however, as new Chancellor
Jeremy Hunt and Prime Minister Rishi Sunak quickly unwound
most of the mini-budget and aimed to stabilise the economy.
Further inhibiting growth in 2022 were Chinese coronavirus
headlines, with the country’s strict adherence to zero-COVID
policies acting as a headwind to global output growth.
Towardsthe year end, the country moved to loosen a range
ofthe zero-COVID measures, including removing the need for
inbound travellers to quarantine and permitting Chinese citizens
to resume outbound travel. However, fears surrounding rising
case levels across the country remained in focus as initial
reopening optimism was overshadowed by a resurgent outbreak
in the world’s second largest economy.
Russia's invasion of Ukraine as well as
recession concerns have caused energy prices
to fluctuate throughout the year and has
highlighted the importance of energy security.
Tullow Oil plc
2022 Annual Report and Accounts
12
Markets continued
2
Oil price
Oil markets in 2022 were characterised by
significant volatility, with prices spiking
following Russia’s invasion of Ukraine,
before tapering off later in the year due
to recession concerns amid central bank
monetary policy tightening. ICE Brent
prices traded in a wide range, between
$75-$130⁄bbl, with an average daily price
during 2022 of ~$98⁄bbl.
January prices started the year on the front foot due to the
worsening geopolitical situation in Eastern Europe. Those fears
created upward momentum that carried gains through February
when the invasion of Ukraine was finally laid bare, and prices
climbed 9.1% month on month (m/m) touching a high of $98/bbl
just as the month ended. In March, the upward trend continued
despite efforts by the US to absorb some of the price shock,
announcing plans to release 180 million barrels from their
national reserves starting from May. Despite a temporary pause
to the crude rally, the move ultimately had limited effect with the
average monthly price during March gaining 19.6% m/m to reach
an intra-year high of ~$130/bbl. However, by April, the imminent
release of US crude stocks was beginning to act as a headwind
tooil markets, and the average monthly ICE Brent first month
contract fell by 5.7% m/m and those prices in March would end
up being the highest seen all year.
In May, ICE Brent largely reversed April’s move, posting a 5.5% m/m
gain and reaching $118/bbl after China announced a June
resumption of manufacturing from its key commercial hub of
Shanghai and commentators thought this might signal a change in
China’s COVID-19 policy. Supply-side dynamics in Europe were
also price supportive as the EU began a wide-ranging discussion on
the ban of all Russian energy imports and a price cap. In June, oil
prices trended 4.3% higher m/m but this was short lived after
OPEC+ announced it would materially increase production in July
and August and downward pressure was applied to prices during the
rest of the month. The supply dynamics from all this additional oil,
alongside weakening US and EU macro data, acted to fan demand
concerns. In July, ICE Brent prices continued their downward
move, with prices losing 10.7% m/m to hit a low of $99/bbl amid
bearish macro sentiment and a worsening demand outlook. These
factors continued to weigh on prices over August, with the monthly
average price softening by a further 6.5% m/m as the progressive
increases in interest rates weighed demand forecasts and stunted
future growth expectations across the globe.
In September the expected softening of Chinese COVID-19
lockdowns failed to materialise, and the regime reiterated its
support for its “zero-COVID” policy despite local protests and
theobvious impacts to the China economy. These headwinds
hindered prices and average ICE Brent prices fell by 7.1% m/m,
dipping to $83/bbl for the first time since before the war. October
saw a slight improvement to sentiment as a decision by OPEC+
toreverse its earlier boost to output and actually cut production
guided the prompt ICE Brent contract back towards $100/bbl
before ultimately falling short. The end of the year saw a further
decline in market confidence despite the reversal of China’s
“zero-COVID” policy as growth concerns instead focused on
whatthis policy change would mean in the short term – mainly
aburgeoning COVID-19 outbreak and loss of demand/output.
Assuch, average ICE Brent prices during November were 2.6%
lower m/m whilst during early December, ICE Brent reached
its2022 nadir, touching $77/bbl. However, the latter half of
December saw oil regain some ground, slightly boosted by the
introduction of the EU’s Russian oil import ban and price cap
which partially came into effect on 5December. Despite the late
rally, prices during December remained 10.3% lower m/m at
~$81/bbl and prices averaged the year at $98/bbl. Thus, while
prices ended the year lower than they started, 2022 saw the
highest average price since 2014.
Tullow Oil plc
2022 Annual Report and Accounts
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Financial statements Supplementary informationStrategic Report Governance Report
3
Climate change policy:
managing the ‘transitions’
Sharm el-Sheikh Climate Change Conference
(COP27): ‘All of Africa’ COP, focused on
implementation and delivering an
agreement on establishing a Loss and
Damage Fund.
The United Nations Environment Programme (UNEP) Emissions
Gap Report 2022: The Closing Window – Climate crisis calls for
rapid transformation of societies, published in October 2022,
stated that since COP26 (Glasgow, 2021), new and updated
nationally determined contributions (NDCs) have ‘barely
impacted the temperatures we can expect to see at the end
ofthis century’ and that unconditional NDCs point to a 2.6°C
increase in temperatures by 2100, far beyond the goals of the
Paris Agreement. To get on track to limiting global warming to
1.5°C, a 45% reduction in current greenhouse gas emissions
by2030 will be required. For 2°C, a cut of 30% would be required.
As a consequence, a stepwise approach is no longer an option;
what is needed is a system-wide transformation.
The importance of COP27 could not be understated.
TheEgyptian COP27 Presidency defined the summit's four key
goals as: Mitigation: all parties, especially those in a position to
“lead by example”, are urged to take “bold and immediate actions”
and to reduce emissions to limit global warming well below 2°C;
Adaptation: ensure that COP27 makes the “crucially needed
progress” towards enhancing climate change resilience and
assisting the world’s most vulnerable communities; Finance: make
significant progress on climate finance, including the delivery of
the promised $100 billion per year to assist developing countries;
and Collaboration: as the UN negotiations are consensus based,
reaching agreement will require “inclusive and active participation
from all stakeholders”.
African leaders echoed these goals, speaking of the importance
of equity, fairness, and responsibility: ‘Climate change is a global
emergency, and Ghana calls on all parties to act with equity and a
sense of responsibility’, said the President of the Republic of
Ghana, Nana Addo Dankwa Akufo-Addo.
COP27 did in fact serve to highlight the importance of collaborative,
inclusive and meaningful dialogue with a wide spectrum of
stakeholders, the complexity of transforming global energy
systems and the need for differentiated approaches to managing
the energy transition, north vs south, both trajectory and speed,
whilst also ensuring a just transition, for workforces, communities
and consumers, aiming for reliable, affordable and secure clean
energy resources, in eradicating energy poverty and supporting
economic growth.
COP27 delivered a breakthrough agreement, set out in the
‘Sharmel-Sheikh Implementation Plan’, that includes the creation
of a ‘Loss and Damage Fund' for vulnerable countries hit hard by
climate disasters and consistent with the overall theme of justice
and fairness.
Climate change, the energy transition and just transition will
continue to be topics of considerable national and international
debate in 2023, played out against a dicult geopolitical backdrop
that has underscored the importance of energy security as
anessential driver for economic growth and development.
Research shows that energy demand continues to increase and,
as widely accepted, oil & gas will continue to be a crucial part of
the global energy mix for decades to come. As we continue to
‘build a better a future through the responsible development of oil
and gas”, we will ensure these considerations continue to inform
our business strategy.
Tullow Oil plc
2022 Annual Report and Accounts
14
A balanced scorecard
Measuring our
performance
2022 scorecard
1. Safety 5.6/7.5%
2. Financial performance 1.9/5.0%
3. Production 6.3/10.0%
4. Business Plan implementation 5.6/7.5%
5. Sustainability 2.6/5.0%
6. Unlocking value 4.8/10.0%
7. Leadership effectiveness 3.2/5.0%
8. Total Shareholder Return 0/50.0%
Remuneration Report pages 73 to 97
The safe and responsible operation of our assets is always our
first priority and through the implementation of safety
improvement plans, contractor engagement, active leadership
interventions and a strong reporting culture we have maintained
our strong EHS performance in 2022. There have been no
recordable injuries in 2022 and no Tier 1 incidents for loss of
primary containment (LOPC). Strong operational delivery was
also evident in our production eciency with TEN and Jubilee
achieving at least 97%. Actual production once normalised to
remove benefit from pre-emption was close to matching our
scorecard target.
Actual operating cash flow of $972 million was significantly
higher than Budget thanks to the higher oil prices in 2022 but
for the scorecard KPI we normalised back to our Budget price
assumption. This means the KPI focused on cost and working
capital management. As a result, our normalised OCF was
$557million resulting in meeting our scorecard target.
The Business Plan implementation KPI tracks our delivery of
the capital investment in the Budget (what percentage of the
work programme have we delivered?) and whether we have
delivered it on cost (have we adhered to the Budget costs?).
Wedelivered 95% of the Budget work programme for a spend
of $362 million. An additional $38 million of capital spend was
for additional projects approved post the Budget, e.g. the extra
wells drilled on Jubilee because we were ahead of schedule.
The sustainability KPI was measured against a series of
milestones which tracked our delivery against several key
themes, shared prosperity, local content, employee engagement,
corporate governance, and progress of our Net Zero plans.
The unlocking value KPI was based around delivery of six
critical actions. Highlights include completing the pre-emption
of the sale by Occidental Petroleum to Kosmos of its interests
in the Jubilee and TEN fields in early 2022, together with the
successful takeover of operatorship of the Jubilee FPSO in
mid2022.
KPI Performance
No recordable injuries in 2022, maximum score achieved
No LOPCs at Tier 1. One Tier 2 LOPC
Normalised operating cash flow (OCF) at $557 million
Group oil production normalised for pre-emption at 57.4 kbopd
Jubilee production eciency at 97%; TEN production eciency at 98%
95% of the 2022 capex work programme completed at spend totalling $362 million
Implementing plan to eliminate our routine flaring by 2025 and being Net Zero on our Scope 1 and 2 net equity
emissionsby 2030
Delivery of a number of critical actions to unlock value in 2022 and drive future growth
In 2022, the leadership team has continued to work collaboratively and together with a highly energised workforce,
delivered strong performance across the core business activities and made solid progress in the critical areas identified
tounlock value. Together with strong support from the Board in the year, the leadership team continued to position the
company for sustainable success
TSR position is bottom quartile
1. Safety
2. Financial performance
3. Production
4. Business Plan implementation
5. Sustainability
6. Unlocking value
7. Leadership effectiveness
8. Total Shareholder Return
1
Our scorecard aligns both executive pay and
employees’ performance-related pay to Key
Performance Indicators (KPIs) measuring our
performance across a range of operational,
financial and non-financial measures.
6.3/10.0%
5.6/7.5%
2.6/5.0%
3.2/5.0%
0/50.0%
4.8/10.0%
5.6/7.5%
1.9/5.0%
Tullow Oil plc
2022 Annual Report and Accounts
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Financial statements Supplementary informationStrategic Report Governance Report
2023 scorecard
1. Safety 7.5%
2. Financial performance 5.0%
3. Production 10.0%
4. Business Plan implementation 7.5%
5. Embedding sustainability 5.0%
6. Unlocking value 10.0%
7. Leadership effectiveness 5.0%
8. Total Shareholder Return 50.0%
Remuneration Report pages 73 to 97
The 2023 scorecard remains largely the same as the 2022
scorecard as it reflects a focus on performance with clear
output KPIs at the Group level balanced with a series of input
targets across all other levels of the business. It ensures safety
is prioritised alongside operational targets, and balances
short-term production targets with longer-term business
value, Business Plan implementation and leadership to stabilise
and then grow our business, whilst delivering a robust
response to sustainability.
With input from the Extended Leadership Team and the
Remuneration Committee, we have updated the critical actions
for the 2023 unlocking value section whereby operations and
maintenance (O&M) transformation and Ghana pre-emption
are replaced by delivering enhancement in TEN value and
deleveraging/positioning for future refinancing.
KPI Performance
Total recordable incident rate (TRIR) of between 0.77 and 0.48; lossofprimarycontainment (LOPC) Tier 1 and 2 as per
IOGP definition of1orless at Tier 2 and 0 at Tier 1
Group underlying operating cash flow (OCF) of $726 million to $888 million ataBrent price of $80/bbl
58–64 kbopd produced; Jubilee production eciency of 94–98%; TEN production eciency of 95–99%
Achieve 100% agreed work programme for $423 million agreed budget
Delivery of key actions in progressing our Net Zero Plan, socio-economic contribution, employee engagement
andembedding strong governance
Focus on unlocking value through a number of critical actions discussed below
Organisation is positioned for sustainable success
Creating shareholder value
1. Safety
2. Financial performance
3. Production
4. Business Plan implementation
5. Embedding sustainability
6. Unlocking value
7. Leadership effectiveness
8. Total Shareholder Return
1
50.0%
7.5%
5.0%
10.0%
7.5%
10.0%
5.0%
5.0%
Finally, the Board made a judgement on the effectiveness
ofthe Senior Leadership Team over the year. It considered
several factors, including the strength and cohesiveness of
theleadership team, a clear strategy being set and understood
across the organisation, the engagement of the workforce and
the successful delivery of business activities in 2022. The Board
concluded that the strong performance in 2022 has been
driven by the unrelenting focus on business performance
andthe hard work and dedication of the entire Tullow team,
resulting in a score of 3.2%.
1. TSR is only applicable to CEO and CFO remuneration.
Remuneration for the wider workforce is based on all
otherKPIs.
Tullow Oil plc
2022 Annual Report and Accounts
16
“
We look for every opportunity to
improve our production rates from
our well stock; producing safely
and sustainably while minimising
losses is key to achieving
operational excellence.
”
Gabrielle Acquah
Senior Petroleum Engineer
Operational excellence:
Maximising asset
performance, reliability
andsafety
Strategy in action
Tullow Oil plc
2022 Annual Report and Accounts
17
Financial statements Supplementary informationStrategic Report Governance Report
Gabrielle Acquah
Senior Petroleum Engineer
What are the key responsibilities of yourrole?
I oversee surveillance and production optimiation of the TEN field, offshore Ghana. Surveillance
requires nearly round-the clock monitoring of both producer and injector wells using high
frequency real-time data toensure performance is in line with expectations and within safe
operating limits. My team, which consists of production technology, reservoir engineering, facilities
engineering, and production chemistry optimise oil production by actively seeking andmodelling
opportunities both upstream and downstream of the wells. This is done in collaboration with the
offshore team, with the aim of increasing field production and injection. We also carry out
investigations to find causes of any anomalous behaviours when they occur and try to find ways to
resolve them. Another key area is production loss management which identifies the major causes
of production losses thereby presenting an opportunity to address them when possible and
ultimately improve performance.
How does your role contribute to achieving operational excellence?
The TEN field accounts for 18 % of Tullow’s net production. Therefore, ensuring that the field is
producing the most that it can daily in a safe and sustainable manner impacts the company’s
bottom line. We look for every opportunity to improve our production rates from our well stock;
producing safely and sustainably while minimising losses is key to achieving operational excellence.
It is important to note that this does not happen without having a high facility uptime on the FPSO
which the offshore team strives to achieve everyday.
How has your career developed at Tullow?
I joined the Tullow Production Technology team in December 2011 after working with MODEC
oncontract. I worked on the Jubilee Field in the production space up until 2016 and moved into an
operations reservoir engineer role for the TEN field. In 2018, I moved to London on a two-year assignment
continuing in my role as a TEN reservoir engineer, however, with a new focus on future opportunities.
Idid a lot of the initial modelling work for the Enyenra South Project. Following that I had a brief stint
working on the Kenya Early Oil Pilot Scheme (EOPS). In mid-2020, Icame back to Ghana and joined
the Well, Reservoir and Facilities Management team looking after TEN operations.
What achievements are you most proud of in 2022?
The TEN field was on a steep decline entering 2022. There was an obvious concern on how we were
going to mitigate this without any new wells being drilled early in the year. Despite the challenges
the team carried out some significant optimisations which resulted in production gains and slowed
down the decline ahead of the new well, En21-P that came online in September 2022. Iwas honoured
to be nominated for the CEO Star Award for one of these opportunities that werecarried out.
Q&A
Gabrielle's story
Tullow Oil plc
2022 Annual Report and Accounts
18
Operations review
A review of our operations
Ghana
Jubilee
Production from the Jubilee field increased from an average
of74.9 kbopd (26.6 kbopd net) in 2021 to 83.6 kbopd (31.9 kbopd
net) in 2022. Continued excellent operational eciency of c.97%
(2021: c.98%) was achieved and production was supported by
four new wells (one producer and three water injectors) coming
online ahead of schedule due to outstanding drilling and
completions performance.
Two wells were drilled in the Jubilee South East area in the
second half of 2022 and a third well in January 2023. Primary
target reservoir results are in line with expectations, but with
upside from deeper appraisal target reservoirs that encountered
oil resources for future development. These wells will commence
production in the second half of the year after the installation and
tie-in to the Jubilee South East Project subsea infrastructure, in
line with the initial project schedule. The completion of the
Jubilee South East Project will mark the end of the current major
infrastructure spend in the Jubilee area with the majority of
near-term capex expected to be focused on drilling and
completing new wells.
First oil from the Jubilee South East project will be a significant
milestone, bringing previously undeveloped reserves to production
and helping define future growth opportunities in the Jubilee area.
This project, which was delivered through a multi-national
supply chain effort, is being delivered on budget despite the
inflationary environment and challenges associated with
COVID-19 during 2020-22, highlighting Tullow’s project
management strengths and ability to integrate deliverables
across a global team.
In 2023, Jubilee oil production is expected to average c.95 kbopd
(c.37 kbopd net), with five wells expected to come online, starting
in the middle of the year. Gross oil production from the Jubilee
field is expected to exceed 100 kbopd once all these wells have
been brought online. This rate increase is also enabled by the
successful execution of expansion work on the Jubilee FPSO,
increasing water and gas handling capacity to support the
additional well stock coming online. The focus on operational
excellence in production, drilling and major project delivery in
recent years hasyielded appreciable value and will continue to
be an area ofleverage for Tullow.
Production, reserves and resources
In 2022, Group working interest production averaged 61.1 kboepd,
in line with guidance following pre-emption of the Deep Water
Tano component of the Kosmos Energy/Occidental Petroleum
Ghana transaction.
Group working interest production guidance for 2023 is 58-64
kboepd, excluding 19 bcf of gas sold under the Interim Gas Sales
Agreement and any additional volumes of gas sold during the
course of the year. The main driver of production growth in 2023
is expected to be the Jubilee South East development which is
dueonstream in the second half of the year. The near-term focus
on TEN is to sustain the strong operational uptime and improve
gas handling on the FPSO this year, which will facilitate a
reduction in flaring and increased gas injection to support oil
production. Improvements on the gas processing facilities will
be implemented during a planned maintenance shutdown,
scheduled for the third quarter of the year. A two week FPSO
maintenance shut-down will impact production from TEN.
Production from the non-operated portfolio will be supported by
new wells planned at Tchatamba, Ezanga and Etame.
Group average working interest production
FY 2022
(kboepd)
FY 2023
range
(kboepd)
Ghana 44.4 48
Jubilee 31.9 37
TEN 12.5 11
Non-operated portfolio 16.7 14
Gabon 14.9 13
Côte d’Ivoire 1.8 1
Group 61.1 58–64
The Group’s audited 2P reserves are 229 mmboe at the end
of2022 (2021: 231 mmboe). Group reserves replacement was
c.90% as a result of the additional equity acquired through the
pre-emptive transaction in Ghana and other positive revisions
including transfers from contingentresources, offset by
reduction in TEN due to greater than expected base decline
inEnyenra and the two Notmme riser base area well results.
Asat 31 December 2022, the audited 2P NPV10 was $3,895 million
(2021: $3,633 million).
The Group’s audited 2C resources reduced to 605mmboe at
theend of 2022 (2021: 625mmboe). This was principally due
totheevaluation of several projects in the TEN development
area, some of which have been upgraded from contingent
resources to reserves.
Tullow Oil plc
2022 Annual Report and Accounts
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Financial statements Supplementary informationStrategic Report Governance Report
TEN
Production from the TEN fields averaged 23.6 kbopd (12.5 kbopd
net) in 2022. Continued excellent operational eciency of c.98%
(2021: c.97%) was achieved with overall production at the lower
end of guidance.
Ntomme gross production averaged 16.8 kbopd for the full year.
No new wells were brought online during the year at Ntomme,
but pressure support from existing gas and water injection wells
resulted in steady production. Enyenra gross production
averaged 6.8 kbopd for the full year, supported strongly in the
fourth quarter by a new production well, which was brought
online in September 2022. Currently producing 3 kbopd, this well
and a new water injector brought online in December2022, will
contribute to supporting production in 2023.
Two wells drilled in the Ntomme riser base area did not
encounter economically developable resources and will not be
completed in 2023 as originally intended, removing c.2.5 kbopd
net from previously expected 2023 production.
The longer term plan for TEN is to monetise its significant
remaining resources through infill drilling, phased development
of new areas near existing infrastructure, development of the
significant gas resources and drilling of prospective resources.
Arestructuring of the FPSO cost base is under evaluation to
enable sustained cost eciency in production operations.
Tullowexpects to submit a plan of development to the
Government of Ghana later this year.
In 2023, TEN production is expected to average c.20 kbopd
(c.11kbopd net), including the planned two-week maintenance
shutdown. No new wells are planned to be added in TEN in 2023.
Jubilee operations and maintenance transformation
The transition of operatorship to Tullow on the Jubilee FPSO took
place in July 2022. This is a major step in Tullow's transformation
to a leading low-cost deep-water operator, and is expected to
deliver sustainable improvements in safety, reliability and cost.
Following the transition, which is supported by a comprehensive
multi-year transformation plan, FPSO uptime averaged c.99% in
the second half of 2022, compared to c.95% in the first half.
Operations and maintenance (O&M) costs were c.30% lower in
the second half of the year compared to the first, and 2023 full
year O&M costs are expected to be c.23% lower than in 2021,
demonstrating the sustainability of the structural changes
delivered through the transformation, helping mitigate the
impact of inflation through the supply chain, and allowing for
sustained prioritisation of FPSO upkeep activities which are
important for maintaining the FPSO's top-tier performance for
the long-term.
Gas Commercialisation
In December 2022, an Interim Gas Sales Agreement for 19 bcf
gross of Jubilee gas was executed, utilising the price for TEN
associated gas referenced in the 2017 TEN Gas Sales Agreement
which was $50c/mmbtu. The 19 bcf is expected to have been
supplied by the middle of the year at an anticipated export rate in
excess of 100 mmscfpd, adding c.7 kboepd net production during
the first half of the year. Further gas export will be contingent on
reaching agreement on acceptable commercial terms for
futurevolumes.
Tax exposure
As announced on 14 February 2023, throughout 2021 and 2022,
Tullow has received revised and new tax assessments from
theGhana Revenue Authority (GRA). Tullow believes these
assessments are without merit and filed requests for arbitration
with the International Chamber of Commerce in London, in
accordance with the dispute resolution process set out in the
Petroleum Agreements which govern Tullow Ghana Limited's
(TGL's) activities in Ghana. Notwithstanding this formal step,
Tullow intends to continue toengage with the Government of
Ghana, including the GRA, withthe aim of resolving these
disputes on a mutually acceptable basis.
Tullow Oil plc
2022 Annual Report and Accounts
20
Operations review continued
Non-operated portfolio
Production from Tullow’s non-operated portfolio in Gabon and
Côte d’Ivoire averaged 16.7 kboepd net in 2022 (2021: 17.2 kboepd
net), supported by new wells brought online in Tchatamba,
Ezanga and Etame. Capital expenditure in Gabon and Côte
d’Ivoire in 2022 was c.$43 million net, with approximately 60%
allocated to infrastructure projects, including the tie-back of the
Wamba discovery for a long-term production test.
In Côte d’Ivoire, remediation work on the Espoir FPSO will
continue through 2023. A 4D seismic survey will be acquired over
the licence to support the upcoming infill development drilling
campaign and mature other future investment projects.
Net production from the non-operated portfolio is expected to
average c.14 kboepd in 2023, which includes production from the
Wamba discovery long-term production test which will continue
throughout 2023. Total capital expenditure is expected to be
c.$60 million net, of which c.75% will be allocated to infrastructure
projects to support future developments and production. The
remaining investment will be in new wells at the Ezanga Complex
and workovers across the portfolio to sustain production levels.
Decommissioning
In the UK and Mauritania, decommissioning expenditure was
c.$72 million in 2022 and is expected to be c.$90 million in 2023,
which is the last year of significant decommissioning spend.
Atthe end of 2023, it is expected that less than $30 million of
decommissioning liabilities will remain for the two countries.
In 2022, UK decommissioning activity included the removal
offour platforms (three at the Murdoch Hub and the Ketch
platform). Removal of the Ketch pipeline commenced in 2022
and is expected to complete in the second half of 2023. Eleven
Schooner wells were successfully plugged and abandoned.
Plugging and abandonment work has also begun at the Boulton
field, as part of an eight well campaign in the CMS area. In Mauritania,
the Tullow operated Banda and Tiof decommissioning campaign
commenced in December 2022 and is expected to complete by
the middle of the year.
Starting in 2023, c.$20 million will be required to be paid annually
into escrow for future decommissioning of currently producing
assets in Ghana and parts of the non-operated portfolio.
Kenya
Engagements to secure a strategic partner for the development
project in Kenya are ongoing.
In March 2023, Tullow and its JVPartners submitted an updated
Field Development Plan to the Ministry of Energy and Petroleum
and the Energy and Petroleum Regulatory Commission Authority,
for their approval. This is currently under review by the
relevantauthorities.
Kenya continues to remain an important asset in Tullow’s
development portfolio, with the potential to add material
resources and create value for shareholders.
Exploration
Capital expenditure on exploration and appraisal activities was
c.$45million in 2022 and is expected to be c.$30 million in2023.
In Guyana, the operator of the Kanuku licence (Tullow 37.5%), Repsol,
drilled the Beebei-Potaro prospect which encountered water
bearing reservoirs, and the well was plugged and abandoned.
In Gabon, Tullow, together with JV partner Perenco, is focused on
maturing the prospective resource base within the Simba
licence, where several low-risk and compelling investment
options adjacent to infrastructure have been high-graded for
near-term drilling programmes.
In Côte d’Ivoire, Tullow, together with its JV Partner PetroCi,
haselected to proceed into the second exploration phase in
Block CI-524 and is maturing a number of drilling candidates.
Tullow has enhanced its strategic position in the Tano Basin,
where it has a differentiated subsurface understanding, with
a90% interest in a new offshore exploration licence (CI-803),
which isadjacent to Block CI-524 and also to Tullow’s producing
fields in Ghana.
In the emerging basins of Argentina and Guyana, Tullow continues
to purse activities to unlock value from its significant prospective
resource base. A two year extension has been secured in Block
MLO-122 in Argentina.
Proposed Merger
On 1 June 2022, Tullow entered into an agreement for a proposed
all-share merger with Capricorn Energy PLC ("Capricorn").
Theaim of the proposed merger was to create a leading
Africanenergy company, and it would have enabled Tullow to
accelerate its deleveraging trajectory and investment in growth.
On 29September 2022, Tullow noted the announcement released
by Capricorn in connection with its proposed combination with
NewMed Energy Limited Partnership. Tullow’s Board decided
that it would not increase the value of Tullow's offer for Capricorn
or to elect to implement its offer by way of a contractual offer,
and later confirmed that it will no longer proceed with the
proposed merger.
Tullow Oil plc
2022 Annual Report and Accounts
21
Financial statements Supplementary informationStrategic Report Governance Report
Chief Financial Ocer’s statement
Building a capital ecient
andcash-generative business
A new chapter for the CFO team
I am delighted to have been appointed Chief Financial Ocer
(CFO) of Tullow Oil at the end of 2022 following a period as Interim
CFO, taking over from Les Wood, who left the Company last year.
I would like to thank Les for his support to me personally during
my career at Tullow and for the hard work he put in to reset the
Company which put Tullow on much firmer financial footing.
Istep up to CFO after 11 years of working at Tullow, most recently
leading the Finance team as Financial Controller of the Group.
This tenure has given me a deep knowledge across all areas of
Tullow’s financials and first-hand experience in various milestones
the Company has undertaken such as acquisitions and capital
markets transactions as well as major internal changes to rebase
our cost structure. I have worked closely with the leaders and
members of my broader CFO team for several years, and I am
confident we have the right skills, motivation and culture to make
a material contribution to Tullow’s continued turn-around and
return to growth. I am ambitious to drive further cost discipline
and capital eciency across the Group, but also see clear areas
we can invest responsibly to restore and build value for our
stakeholders, particularly through the delivery of the key catalysts
we list in our scorecard. I look forward to reporting on our
progress throughout 2023 and beyond.
2022 was a volatile year for oil markets with prices starting
theyear at $80/bbl, increasing to a peak of $128/bbl in early
March following the invasion of Ukraine, trading as low as $76/bbl
in early December, and ending the year around $85/bbl.
Thevolatility was driven by a variety of factors including
supportive actions from OPEC+, central bank interest rate
increases contributing to a strong US dollar, and China's
persistent Zero Covid policy until the end of the year which
impacted physical oildemand.
Key 2022 financial results
Tullow generated $1.8 billion revenue (2021: $1.3 billion), resulting
in $972 million of operating cash flow (2021: $711 million).
However, the Company made a profit after tax of $49 million,
primarily driven by impairments.
Following an independent reserves audit of our producing
assetswe have reported pre-tax impairments of $391 million.
These were primarily driven by a decrease in TEN 2P reserves
and increased discount rates partially offset by a higher
long-term oil price assumption of $70/bbl.
In terms of deleveraging, Tullow generated $267 million of free
cash flow in 2022. While ahead of year-end expectations, this
figure doesn’t represent the true cash generation of the business
which was more than $450 million before the increased equity
interest in Ghana ($126 million) and the impact of the Norwegian
arbitration payment ($76 million).
Nevertheless, our absolute free cash flow enabled us to reduce
net debt to $1.9 billion and our cash gearing now stands at 1.3x,
surpassing our target of below 1.5x by 2025. We have grown cash
reserves to c.$600 million, which, combined with our $500
million undrawn Revolving Credit Facility (RCF), provides liquidity
headroom of $1.1 billion. Overall we are making great progress
towards our long-term ambition to materially deleverage the
business and have cash gearing of 1x or below, giving us the
financial flexibility to pursue value accretive opportunities or
consider future shareholder returns.
In 2022 Tullow continued to demonstrate that its core producing assets, alongside a prudent
financial strategy, can deliver solid financial results to reduce debt, strengthen our balance sheet
and set a firm foundation for future growth. Richard Miller was appointed Chief Financial Officer in
December 2022 and is pleased to report on the Group’s ongoing financial strategy and performance.
Richard Miller
Chief Financial Ocer
“
Our strong operational and
financial performance has led
to us reaching our gearing
target of below 1.5x three
years ahead of plan.
”
Richard Miller
Chief Financial Ocer
Tullow Oil plc
2022 Annual Report and Accounts
22
Chief Financial Ocer’s statement continued
Prudent financial strategy
Rigorous capital allocation is now embedded at Tullow as we
focus on high-return and fast-payback investments in our
production assets. Capital expenditure was $ 354 million in
2022,with over 90% of spend allocated to our producing assets,
compared with c.70% on average over 2016–20. During 2022 we
have invested c. $100 million on the Jubilee South East and North
East projects which will commence production in the second half
of 2023 and will be the key area of investment to bring the Jubilee
field back to its potential to deliver c.100 kbopd. We also invested
inorganically, with the pre-emption of Oxy’s interests in Ghana
which increased Tullow’s equity interests to 38.9% in the Jubilee
field and 54.8% in the TEN fields. This $126 million investment
has paid back within nine months and demonstrates the focus
onshort-return, value accretive opportunities.
Commodity hedging remains a key component of our financial
risk management. In 2021, as required under the terms of the
refinancing, we built up a portfolio which protects 75% of our
production entitlements for a period of 24 months from completing
our debt refinancing in May 2021, and 50% of our production
entitlements for another 12 months beyond that. Dueto lower oil
prices at the time of executing these hedges our portfolio had
average sold calls of c.$78/bbl in 2022, giving rise to a $319
million payout in the higher price environment which was
materially driven by the invasion of Ukraine. From the start of
2023 through to May 2024 we have a portfolio with collars of
c.$55-75/bbl for c.50% of our forecast net entitlement production.
As the Company continues to de-lever we will revisit our hedge
policy, which has historically been 60% of production entitlements
in the following 12-month period with a goal to secure maximum
access to the upside while maintaining downside protection.
Continued focus on costs
In 2022, we continued to deliver cost savings across the business
with net G&A down to $51 million (2021: $64 million). Our net
operating costs were also reduced to $267 million (2021: $269
million), primarily due to savings of c.$50 million in Ghana due to
self-operatorship of the O&M contract from 1 July 2022 and as a
result of asset disposals. While our culture is becoming ever
more performance focused, where every barrel matters and
every dollar counts, we faced some cost pressures in 2022.
Despite lower net operating costs, unit operating costs increased
to $11.9/bbl (2021: $12.4/bbl). This was primarily due to lower
production and increased costs related to extended COVID-19
operating procedures, shuttle tanker operations, construction
Support Vessel Campaign and shutdown costs. A normalised unit
operating cost was $11.3/bbl.
Managing tax exposure
Following material investment in Ghana for over a decade
tocommence and deliver oil production from the Jubilee
andTENfields, Tullow built up significant capital allowances.
These allowances have been fully utilised through 2022 and
cashtaxes are expected to be in excess of $300 million in 2023
(at $80/bbl), compared to $229 million in 2022. Tax payments
togovernments, as defined in our production agreements,
areakey part of Tullow’s licence to operate and we believe they
are amajor andpositive contribution to the socio-economic
contribution wecan make to the countries where we operate.
However, throughout 2021 and 2022, Tullow has received revised
and new tax assessments from the Ghana Revenue Authority
(GRA). Tullow believes these assessments are without merit and
filed requests for arbitration with the International Chamber of
Commerce in London, in accordance with the dispute resolution
process set out in the Petroleum Agreements which govern TGL’s
activities in Ghana. Notwithstanding this formal step, Tullow
intends to continue to engage with the Government of Ghana,
including the GRA, with the aim of resolving these disputes on
amutually acceptable basis.
Refinancing flexibility
During 2022 there has been a continued deterioration in global
debt capital markets, with a significant reduction in emerging
market funds flow. Furthermore the challenging economic
situation in Ghana triggered by the pandemic and Ukraine war
has implications for Tullow. Progress has been made with a staff
level agreement with the IMF and completion of a domestic debt
restructure in February 2023.
While the external market is challenging, as mentioned above
Tullow has $0.6 billion of free cash and $500 million available
under the RCF, leaving the Company with over $1.1 billion
liquidityheadroom and no debt maturities until March 2025.
Ifoilprices stay at around $80/bbl, we expect to deliver around
$800–$900 million of free cash flow in 2023—2025; if oil averages
$100/bbl inthe same period, that figure could increase to
c.$1.5billion. Assuch, despite the current challenging market
backdrop, Tullow has time, options and flexibility to address
refinancing onan opportunistic basis. Part of my remit as
CFOwill be to regularly review options to optimise our capital
structure which may include retiring or purchasing outstanding
debt from time totime through cash purchases or exchanges
inthe open market or otherwise.
Demonstrating progress in 2023
Tullow has a clear set of deliverables that can act as catalysts
torestore and build value. These include making development
progress and securing a strategic partner in Kenya, defining the
future for the TEN fields, reducing our debt further, addressing
our capital structure when appropriate and resolving GRA tax
claims. Having such a clear set of tasks allows our team to be
incredibly focused and dedicated to making progress against
allof them, all the while remaining agile for value accretive
opportunities that may arise. It also allows our shareholders,
potential investors and wider stakeholders to measure our
success and I welcome the opportunity to report positively
onourprogress in the year ahead.
Richard Miller
Chief Financial Ocer
7 March 2023
Tullow Oil plc
2022 Annual Report and Accounts
23
Financial statements Supplementary informationStrategic Report Governance Report
All text to be supplied
Insights from the Task Force on Climate-related
FinancialDisclosures (TCFD) scenario analysis
We continued to test the resilience of our business this year using scenarios provided by the International Energy Agency (IEA),
awidely used source for the global energy sector. The three IEA scenarios assess the potential impact of the energy transition
across industries and economies, with varying impacts on energy demand and mix across global markets. As an upstream
exploration and production (E&P) company, we consider the IEA scenarios to be well suited for exploring potential pathways for
the energy sector more broadly and the role of the oil and gas industry within it.
While the IEA scenarios assume a reduction in oil demand at different points in the future, oil continues to play an important role
in the global energy system for decades to come. Both the APS and STEPS scenarios project a decline in oil production between
now and 2030 with additional investment required to meet demand, typically through new conventional projects with shorter lead
times and quick payback periods including projects to extend production from existing fields. Even under the NZE scenario
continued investment in existing upstream assets is needed to meet demand. This outlook is well aligned with Tullow’s strategy,
which is focused on maximising value from our existing assets and is supported by an infrastructure-led, near-field exploration
strategy to minimise payback periods.
Our scenario analysis reflects the impact of each IEA scenario on the Group’s operating cash flow (OCF) over 1, 5, and 10 years consistent
with our Viability Statement for our existing production portfolio. Using the OCF KPI is an explicit way for us to demonstrate the impact
to cash flows under the different scenarios, to analyse the impact of oil price on our ability as a company to generate the cash we need
to invest in and finance the activities of ourbusiness. It is clear from the oil price trajectories in the APS and NZE scenarios that the IEA
predicts a more challenging oil price environment should the assumptions within these scenarios come to pass.
Refer to note 26 for our assessment of climate change risk on the Group’s Financial Statements.
OCF impact 1 year 5 years 10 years
STEPS Stated Policies Scenario
APS Announced Pledges Scenario
NZE Net Zero Emissions by 2050 Scenario
IEA scenarios
(Real terms 2021 $/bbl) 2023 2024 2025 2026 2027 2028 2029 2030 2035 2040 2045 2050
STEPS Stated Policies Scenario 72 73 75 76 78 79 81 82 85 89 92 95
APS Announced Pledges Scenario 68 67 67 66 66 65 65 64 63 62 61 60
NZE Net Zero Emissions by 2050 scenario 61 58 54 50 46 43 39 35 32 30 27 24
Refer to note 10 for the Group oil price assumptions.
Tullow complies with the TCFD disclosure recommendations fully within this report and more comprehensively in our Climate Risk and Resilience Report; see table
below for information regarding these disclosures. Our Climate Risk and Resilience Report can be found at www.tullowoil.com/sustainability and includes a full TCFD
index for ease of reference.
TCFD disclosures
Governance Describe the Board’s oversight of climate-related risks and opportunities. Page 58–59
Describe Management’s role in assessing and managing climate-related risks and opportunities. Page 59
Strategy Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term. Risks, Page 44, 50
Opportunities, Page 2–5,
49
Page 158-159 (Note 26)
Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning. Page 2-5, 10, 23
Page 158-159 (Note 26)
Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a
2°C or lower scenario.
Page 23
Page 158-159 (Note 26)
Risk
management
Describe the organisation’s processes for identifying and assessing climate-related risks. Page 40-42, 44, 58-59
Describe the organisation’s processes for managing climate-related risks. Page 34–35, 40-42
Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s
overall risk management.
Page 42–44, 46, 58-59
Metrics and
targets
Disclose the metrics used by the organisation to assess climate-related risks and opportunities, in line with its strategy and risk
management process.
OCF – Page 23
Emissions Page 34-35
Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. Page 34–35
Describe the targets used by the organisation to manage climate-related risks, opportunities, and performances against targets. Page 14–15, 71-73, 80
Positive impact
Loss of 0–10%
Loss > 10%
Tullow Oil plc
2022 Annual Report and Accounts
24
Finance review
Cost of sales
Underlying cash operating costs
Underlying cash operating costs amounted to $267 million;
$11.9/boe (2021: $269 million; $12.4/boe). The decrease in
operating costs is due to the disposal of Equatorial Guinea and
the Dussafu asset in Gabon in 2021 and the O&M transformation
project on Jubilee (refer to Operations review on page 19) offset
by the shutdown in Jubilee in Ghana, the Simba expansion
project costs in Gabon and the increased equity interest in Ghana
following pre-emption.
Normalised cash operating costs which exclude COVID-19
operating procedures, shuttle tanker operations, Construction
Support Vessel (CSV) campaign and shutdown costs were
$11.3/boe (2021: $12.1/boe).
Depreciation, depletion and amortisation (DDA)
DD&A charges before impairment of oil and gas and leased
assets amounted to $411 million; $18.4/boe (2021:$361 million:
$16.7/boe). This increase in DD&A per barrel is mainly attributable
to Ghana pre-emption which was effective 1Q22 and downward
revision of TEN 2P reserves partially offset by 2021 impairments.
Underlift and oil stock movements
The underlift in the income statement was mainly due to timings
ofthe liftings in Ghana as well as increased oil prices and stock
positions in Gabon.
Administrative expenses
Administrative expenses of $51 million (2021: $64 million)
havedecreased against the comparative period mainly due to
lower payroll related costs as a result of the reduced headcount
as well as a favourable GBP:USD FX variance in 2022. Tullow
achieved approximately $300 million in net cash savings since
mid-2020 to date thereby delivering in excess of the target set.
Gain on bargain purchase
On 17 March 2022 the Group completed the pre-emption related
to the sale of Occidental Petroleum’s interests in the Jubilee and
TEN fields in Ghana to Kosmos Energy. As a result of this acquisition,
the Group’s interest in the TEN fields increased from 47.18% to
54.84%, and from 35.48% to 39.0% in the Jubilee field. The
difference between the fair value of net assets acquired and
consideration paid was recognised within the income statement
as a gain on bargain purchase of $197 million. Refer to note 15
Business combination.
Exploration costs written off
During 2022, the Group has written off exploration costs of
$105million (2021: $60 million) which are predominantly
drivenby write-offs from Guyana after the completion of
theBeebei-Potaro commitment well which was plugged
andabandoned.
Income Statement (key metrics) 2022
2021
Restated
Revenue ($m)
Sales volumes (boepd) 55,170 55,450
Realised oil price ($/bbl) 88.0 63.3
Total revenue 1,783 1,285
Operating costs ($m)
Underlying cash operating costs (2) (269)
Depreciation, depletion and
amortisation (DDA) of oil and gas
andleased assets (411) (361)
DDA before impairment charges
($/bbl) (18.4) (16.7)
Underlift and oil stock movements (46) (20)
Administrative expenses (51) (64)
Gain on bargain purchase 197 –
Exploration costs written off (105) (60)
Impairment of property, plant
andimpairment (391) (54)
Net financing costs (293) (312)
Profit before tax ($m) 442 215
Income tax expense (393) (296)
Profit/(loss) after tax ($m) 49 (81)
Last 12 months adjusted EBITDAX
2
1,469 973
Basic earnings/(loss) per share (cents) 3.4 (5.7)
1. Refer to Note 6 for details on prior year restatement.
2. Alternative performance measures are reconciled on pages 173 -174.
Revenue
Sales volumes
During the period there were 55,170 boepd (2021: 55,450 boepd)
of liftings. This mainly consisted of 13 liftings in Jubilee of 29,322
boepd and 5 liftings in TEN of 12,270 boepd compared to 10
liftings in Jubilee of 25,987 boepd and 5 liftings in TEN of 13,511
boepd in 2021. The increase in Jubilee liftings was mainly driven
by increased production. Refer to Operations Review on page 18
for further information on working interest production.
Realised oil price ($/bbl)
The Group’s realised oil price after hedging for the period
was$88.0/bbl and before hedging $104.3/bbl (2021: $63.3/bbl
and $70.9/bbl, respectively). The higher oil prices during 2022
resulted in hedge losses, decreasing total revenue by $319 million
(2021: decrease of$153 million). The increase in oil prices was
triggered by Russia's invasion of Ukraine in February 2022. Refer
to Oil Prices in the Market section on page 12 forfurther information.
2022 financial results
Tullow Oil plc
2022 Annual Report and Accounts
25
Financial statements Supplementary informationStrategic Report Governance Report
Impairment of property, plant and equipment
The Group recognised a net impairment charge on producing
assets of $391 million in respect of 2022 (2021: $54 million).
Impairments are mainly due to downward revision of TEN
reserves as well as changes to estimates on the cost of
decommissioning for certain UK and Mauritania assets.
Net financing costs
Net financing costs for the period were $293 million (2021:
$312million). The decrease in financing costs is mainly due to
$19million fees incurred in 2021 in relation to the refinancing
ofthe RBL facility, and a decrease of $7 million in interest on
obligations under finance leases due to a decrease in lease
liability position offset by an increase in interest on borrowings
of $7 million.
Net financing costs include interest incurred on the Group’s
debtfacilities, foreign exchange gains/losses, the unwinding of
discount on decommissioning provisions, and the net financing
costs associated with lease assets. These costs are offset by
interest earned on cash deposits. A reconciliation of net
financing costs is included in note 5.
Taxation
The overall net tax expense of $393 million (2021: $296 million)
primarily relates to tax charges in respect of the Group’s
production activities in West Africa, as well as UK decommissioning
assets, reduced by deferred tax credits associated with exploration
write-offs, impairments and provisions for onerous service contracts.
Based on a profit before tax for the year of $442 million
(2021:$215 million), the effective tax rate is 88.9% (2021: 137.6%).
After adjusting for non-recurring amounts related to acquisition
through business combination, exploration write-offs, disposals,
impairments, provisions for onerous service contracts and their
associated deferred tax benefit, the Group’s adjusted tax rate
is70.3% (2021: 116.4%). The effective tax rate has decreased
primarily due to the release of provisions on the settlement of
taxaudits and higher taxes on uncertain treatments in the prior
year, offset by there being no UK tax benefit from net interest
andhedging expenses of $570 million (2021: $417 million).
Non-deductible expenditure in Ghana and Gabon and prior
yearadjustments are additional contributing factors.
The Group’s future statutory effective tax rate is sensitive to the
geographic mix in which pre-tax profits arise. There is no UK tax
benefit from net interest and hedging expenses, whereas net
interest income and hedging profits would be taxable in the UK.
Consequently, the Group’s tax charge will continue to vary
according to the jurisdictions in which pre-tax profits occur.
Analysis of adjusted
effective tax rate ($’m)
Profit/(loss)
before tax
Tax (expense)
/credit
Effective
tax rate
Ghana FY 2022 994.8 (359.7) 36.2%
FY 2021 450.9 (163.3) 36.2%
Gabon FY 2022 316.1 (158.9) 50.3%
FY 2021 185.0 (95.2) 51.5%
Equatorial Guinea
FY 2022 — — —
FY 2021 15.5 (5.4) 35.0%
Corporate FY 2022 (584.5) 3.5 0.6%
FY 2021 (386.0) (41.8) (10.8)%
Other non-operated &
exploration FY 2022 15.9 (6.9) 43.5%
FY 2021 5.1 (9.1) 178.2%
Total FY 2022 742.3 (522.1) 70.3%
FY 2021 270.6 (314.9) 116.4%
1. The prior year has been restated to include the notional tax on the profit oil
within current tax expense in accordance with the terms of the respective
Production Sharing Contracts (PSCs). Refer to Note 6.
Adjusted EBITDAX
Adjusted EBITDAX for the year was $1,469 million (2021: $973 million).
The increase from 2021 was predominantly due to higher revenues.
Profit for the year from continuing activities
andearnings per share
The profit for the year from continuing activities amounted to
$49 million (2021: $81 million loss). Profit after tax has increased
by $130 million driven by higher revenues and lower costs. Basic
earnings per share was 3.4 cents (2021:5.7 cents loss per share).
Tullow Oil plc
2022 Annual Report and Accounts
26
Finance review continued
Balance Sheet and Liquidity
management (key metrics)
2022 2021
Capital investment ($m)
1
354 263
Derivative financial instruments(net)
($m) (244) (180)
Borrowings (2,473) (2,569)
Underlying operating cash flow ($m)
1
972 711
Free cash flow ($m)
1
267 245
Net debt ($m)
1
1,864 2,131
Gearing (times)
1
1.3 2.2
1. Alternative performance measures are reconciled on pages 173 -174.
Capital investment
Capital expenditure amounted to $354 million (2021:$263million)
with $309 million invested in production and development
activities and $45 million invested in exploration and
appraisalactivities.
Tullow will continue to maintain capital discipline primarily
directing investment towards maximising value from the Group’s
producing assets. The Group’s 2023 capital expenditure is
expected to comprise Ghana capex of c.$300 million, West
African non-operated capex of c.$60 million, Kenya capex of
c.$10 million and exploration spend of c.$30 million.
Derivative financial instruments
Tullow has a material hedge portfolio in place to protect against
commodity price volatility and to ensure the availability of cash
flow for re-investment in capital programmes that are driving
business delivery.
At 31 December 2022, Tullow’s hedge portfolio provides downside
protection for 64% of forecast production entitlements through
to May 2023 and 40% for a further 12 months to May 2024 with
$55/bbl floors and weighted average sold calls of $75/bbl for the
remainder of 2023 up to May 2024.
All financial instruments that are initially recognised and
subsequently measured at fair value have been classified in
accordance with the hierarchy described in IFRS 13 Fair Value
Measurement. Fair value is the amount for which the asset or
liability could be exchanged in an arm’s length transaction at the
relevant date. Where available, fair values are determined using
quoted prices in active markets (Level 1). To the extent that
market prices are not available, fair values are estimated by
reference to market-based transactions or using standard
valuation techniques for the applicable instruments and
commodities involved (Level 2).
All of the Group’s derivatives are Level 2 (1H 2021: Level 2).
Therewere no transfers between fair value levels during theyear.
At 31 December 2022, the Group's derivative instruments had
anet negative fair value of $244 million (2021: net negative
$180million).
Hedge position
at31December 2022
2023 2024
1
2025
Hedged Volume (kbopd) 33,095 11,305 —
Weighted average bought put
(floor) ($/bbl) $55/bbl $55/bbl —
Weighted average sold
call($/bbl) $75/bbl $75/bbl —
1. Hedges are shown to May 2024.
Borrowings
In May 2022, the Group made a mandatory prepayment of
$100million of the Senior Secured Notes due 2026, which
reduced total drawn debt to $2.5 billion.
Management regularly reviews options for optimising the Group’s
capital structure and may seek to retire or purchase outstanding
debt from time to time through cash purchases or exchanges in
the open market or otherwise.
Credit Ratings
Tullow maintains credit ratings with Standard & Poor’s (S&P) and
Moody’s Investors Service (Moody’s).
On 31 May 2022, S&P’s revised Tullow’s outlook to positive, and
re-armed Tullow’s B- corporate credit rating, the B- rating of
the $1.7 billion 2026 Notes, and the CCC+ rating of the $800 million
Senior Notes maturing in 2025. On 18 August 2022, S&P’s revised
Tullow’s outlook to negative following S&P’s downgrade of Ghana’s
foreign and local currency sovereign ratings. Concurrently, S&P’s
armed the B- rating of the $1.7billion 2026 Notes, and the CCC+
rating of the $800 million Senior Notes maturing in 2025.
On 9 June 2022, Moody’s changed Tullow’s outlook to positive
andarmed the B3 corporate credit rating, the B2 rating of the
$1.7 billion 2026 Notes, and the Caa2 rating of the $800 million
Senior Notes maturing in 2025. On 6 October 2022, Moody’s
placed Tullow’s ratings on review for downgrade, primarily
drivenby Moody's downgrade and placing on review for further
downgrade of Ghana’s long-term issuer and senior unsecured
debt ratings to Caa2 from Caa1. On 2 December 2022, Moody’s
downgraded Tullow’s corporate credit rating to Caa1 with
negative outlook, and the rating of the $1.7 billion 2026 Notes to
Caa1. Concurrently, Moody’s confirmed the Caa2 rating of the
$800 million Senior Notes maturing in 2025. The rating action
concluded the review for downgrade initiated by Moody's on
6October 2022 and reflected Moody's downgrade of Ghana's
long-term issuer rating to Ca from Caa2 and the concurrent
downward revision of Ghana's local currency and foreign
currency country ceilings to Caa1 and Caa2 respectively,
fromB2and B3.
Tullow Oil plc
2022 Annual Report and Accounts
27
Financial statements Supplementary informationStrategic Report Governance Report
Free cash flow and underlying operating cash flow
Underlying operating cash flow amounted to $972 million
(2021:$711 million). This is due to an increase in net cash from
operating activities of $291 million (2021: $113 million), an
increase in repayment of obligations under leases of $13 million
(2021:$27 million increase) and an increase in decommissioning
expenditure of $5 million (2021: $5 million increase) as well as
$48 million increase (2021: $2 million increase) in lease
repayment obligations due to the pre-emption in Ghana.
Free Cash Flow (FCF) has increased to $267 million compared to
$245 million in 2021 primarily due to an increase in net cash from
operating activities of $291 million as explained above and no
debt arrangement fees being incurred in 2022 compared to 2021
of $56 million offset by increase in net cash used in investing
activities of $255 million mainly due to the increased equity
interest in Ghana.
Net debt and gearing
Reconciliation of net debt $m
Year end 2021 net debt 2,131
Revenue (1,783)
Operating costs 267
Other operating and administrative expenses 257
Cash flow from operations (1,259)
Movement in working capital (29)
Tax paid 229
Purchase of intangible exploration and evaluation
assets and property, plant and equipment 433
Other investing activities (77)
Other financing activities 434
Foreign exchange gain/(loss on cash and debt 2
Year-end 2022 net debt 1,864
Net debt reduced by $267 million during the year to $1,864 at 31
December 2022 (2021: $2,131 million), consisting of $800 million
Senior Notes due 2025 and $1,700 million Senior Secured Notes
due 2026 less cash and cash equivalents. In May 2022, $100
million of the Senior Secured notes due 2026 was prepaid at par.
The Gearing ratio has decreased to 1.3 times (2021: 2.2 times) due
to an increase in Adjusted EBITDAX as explained above primarily
due to higher revenues. This is ahead of guidance at the start of
the year which indicated that gearing should reach less than
1.5times by year-end 2023.
Liquidity risk management and Going Concern
The Directors consider the going concern assessment period to
be up to 31 March 2024. The Group closely monitors and manages
its liquidity headroom. Cash forecasts are regularly produced,
and sensitivities run for different scenarios including, but not
limited to, changes in commodity prices, different production
rates from the Group’s producing assets and different outcomes
on ongoing disputes or litigation.
Management has applied the following oil price assumptions
forthe going concern assessment:
Base Case: $84/bbl for 2023, $79/bbl for 2024; and
Low Case: $70/bbl for 2023, $70/bbl for 2024.
The Low Case includes, amongst other downside assumptions,
a5% production decrease compared to the Base Case.
At 31 December 2022, the Group had $1.1 billion liquidity headroom
consisting of c.$0.6 billion free cash and $0.5 billion available
under the revolving credit facility.
The Group’s forecasts show that the Group will be able to operate
within its current debt facilities and have sucient financial
headroom for the going concern assessment period under its
Base Case and Low Case. Based on the analysis above, the
Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Thus, they have adopted the going concern
basis of accounting in preparing the year end result.
Events since 31 December 2022
Non adjusting events
As announced on 14 February 2023, throughout 2021 and 2022,
Tullow has received revised and new tax assessments from the
Ghana Revenue Authority (GRA). Tullow believes these assessments
are without merit and filed requests for arbitration with the
International Chamber of Commerce in London, in accordance
with the dispute resolution process set out in the Petroleum
Agreements which govern Tullow Ghana Limited’s (TGL's) activities in
Ghana. Notwithstanding this formal step, Tullow intends to
continue to engage with the Government of Ghana, including the
GRA, with the aim of resolving these disputes on a mutually
acceptable basis.
In March 2023, Tullow and its JV Partners submitted an updated
Field Development Plan to the Ministry of Energy and Petroleum
and the Energy and Petroleum Regulatory Commission Authority
in Kenya, for their approval. This is currently under review by the
relevant authorities.
In 2023, there were two new appointments:
Richard Miller appointed as Chief Financial Ocer (CFO) from
January 2023.
Roald Goethe appointed as independent non-executive Director
from February 2023.
There have not been any other events since 31 December 2022
that have resulted in a material impact on the year end results.
Tullow Oil plc
2022 Annual Report and Accounts
28
Committed contributor:
Improving the everyday life of
people in our host nations
Strategy in action
“
In helping to build resilient
communities within our
operational areas, our social
performance initiatives have
improved the standard of
living and socioeconomic
development of impacted
communities.
”
Elah Boye-Ampah
Social Performance Senior Advisor
Tullow Oil plc
2022 Annual Report and Accounts
29
Financial statements Supplementary informationStrategic Report Governance Report
Elah Boye-Ampah
Social Performance Senior Advisor
Q&A
Elah's story
What are your key responsibilities as Social Performance Senior Advisor?
As a Social Performance Senior Advisor, I am responsible for establishing and maintaining good relationships
with our stakeholders, providing guidance and strategic support, and managing operational and community
related grievances to reach amicable resolutions. I also provide technical advice for effective management of all
socio-economic investments and impact mitigation initiatives, ensure compliance of national policy directives
with regards to corporate social responsibilities and impact mitigations, and identify and develop new ways of
improving stakeholder and community participation and partnership for project sustainability.
How does your role contribute to supporting social advancement of local communities?
Guided by statutory and regulatory requirements, as well as Tullow’s operational commitments, I am tasked
withthe responsibility of assessing, analysing, conceptualising, implementing, and monitoring all community
development initiatives, and providing technical backstopping for each cycle. In helping to build resilient
communities within our operational areas, our social performance initiatives have improved the standard of
living and socioeconomic development of impacted communities.
My role in grievance management and enforcement of Voluntary Principles Security and Human Rights (VPSHR)
have also contributed to the overall social cohesion and cooperation for sustaining our social license to operate
in Ghana. My continuous interactions with students at the Senior High Schools under the ‘School Engagement
Program’ has contributed immensely to deepening the awareness of oil and gas formation, exploration, and
production in Ghana with students serving as conduits for promoting offshore safety around oil installations.
Myengagements with communities have also enhanced stakeholder collaboration and cooperation, which has
evidently supported our project implementation, knowledge sharing, ownership, and sustainability on our
community interventions.
How has your career developed at Tullow?
My career has improved greatly through the introduction of some key policies and training programmes at
Tullow including stakeholder management, benefit sharing and impact management. My continuous engagements
with the community and stakeholders, as well as exposure with other industry players, have greatly enhanced
my communication, project, and grievance management skills and my role as the deputy project lead on social
performance, has indisputably improved my leadership skills.
What achievements are you most proud of in 2022?
There were a number of achievements that I am proud of in 2022. Notably, we supported over 7,000 students
through our various education initiatives such as free Senior High Schools, tertiary scholarships, radio school
programmes and STEM Clubs; awarded a total of 320 scholarships to new beneficiaries under the Scholar’s Aid
Project bringing total beneficiaries to 920; we developed a 10-acre land as part of the next phase of the vegetable
agribusiness project; and we trained 100 volunteers who bought a total of 53,897 kg ofplastics under our
rollback plastics campaign.
Tullow Oil plc
2022 Annual Report and Accounts
30
Sustainability
Tullow takes a strategic approach to embedding the management
of Environment, Social and Governance (ESG) matters throughout
our business, based on our understanding of the needs and
expectations of our stakeholders, combined with afocus on the
topics that reflect our most significant economic, social and
environmental impacts and risks. Recognising the value of
collaboration and in the spirit of generating value for Tullow
andall stakeholders, our overarching aim is to accelerate
progress through partnerships.
Our ESG framework includes 15 sustainability material topics
which are clustered in four pillars and informed by leading
sustainability reporting standards and frameworks, including
thesustainability reporting guidance of IPIECA, GRI Standards
and the SASB Oil & Gas Sector Exploration and Production Standard.
We also considered sustainability trends impacting our industry
and global priorities reflected in the SDGs; Tullow is best placed
to make a significant contribution towards 7 SDGs across our
sustainability focus areas. In 2023, we intend to conduct a new
double materiality assessment to align our sustainability focus
with our updated business strategy and impacts in today’s
business environment.
Accelerating progress through partnerships
Material topics
- Employee health
and safety
- Process safety
- Emergency response
Material topics
- Local content and capacity
- Community development
- Social investment
Material topics
- Climate change
- Biodiversity
- Spills
- Waste
Material topics
- Compliance
- Anti-corruption
- Human rights
- Inclusion and diversity
- Tax transparency
The oversight of our sustainability strategy plans and
performance rests with our Board of Directors. The Safety
andSustainability Committee engages closely with Tullow’s
Senior Leadership Team to provide guidance on strategy
implementation risks and opportunities, while supporting
theBoard of Directors by advising on decisions relating to
sustainability. Within the Senior Leadership Team, reporting
tothe CEO, the Director of People and Sustainability oversees
Tullow’s performance and sustainability disclosure supported
bya Group Head of Sustainability and networked teams across
the organisation.
Our comprehensive sustainability disclosures can be found in
Tullow’s 2022 Sustainability Report and supporting documents,
and our 2022 Climate Risk Report which follows the Task Force
onClimate-Related Financial Disclosures (TCFD) framework.
p 31 p 32 p 34 p 36
Safe
operations
Shared
Prosperity
Environmental
stewardship
Equality and
transparency
Tullow Oil plc
2022 Annual Report and Accounts
31
Financial statements Supplementary informationStrategic Report Governance Report
Safe operations
2022 highlights
- Zero lost time injuries across our global operations –
afirstfor Tullow
- Seven High Potential Incidents in 2022, compared to
fiveincidents in 2021
- Zero Tier 1 and one Tier 2 Loss of Primary Containment
(LOPC) releases
- Completed IOGP Process Safety Fundamentals (PSF)
programme across our operations
- Conducted Process Safety Risk Assessment training
inGhana
- Completed Human Factors Training for all our workforce
- Average participation in 7.1 wellness events per employee
throughout the year
Tullow invests in creating a safe workplace for all Tullow
employees and contractors working on our sites, wherever they
are. As a core pillar of our sustainability approach and overseen
by the Safety and Sustainability Committee of the Board of
Directors, safe operations are at the forefront of our daily work
and an important element of decision making at every stage of
our operations. We work hand in hand with our contractors to
ensure compliance with laws and regulations governing
safeworking.
Occupational health and safety
2022 was a landmark year in safety for Tullow: for the first time in
our history, Tullow achieved a full year of injury-free operations
globally. This strong performance is the result of continuous
reinforcement of our safety leadership, culture and practices
over several years and throughout 2022. However, we
recognisethat maintaining this high standard requires ongoing
investment. In 2022, in addition to regular safety training and
communications, we stepped up incident investigation training
with fortnightly meetings with an external safety coach to embed
investigation practices.
Safety performance 2022 2021 2020
Lost Time Injuries Frequency
(LTIF)
0 0.21 0.32
Total Recordable Injuries
Frequency (TRIF)
0 0.43 1.27
High Potential Incident
Frequency (HiPoF)
1.5 1.06 1.74
Workforce fatalities 0 0 0
Process safety
In 2022, we maintained a strong level of process safety
performance and a full schedule of awareness and training
initiatives, including:
- Completed our 12-month campaign to engage front line
workers on our implementation of the Association of Oil and
Gas Producers (IOGP) Process Safety Fundamentals (PSF)
witha review of PSF implementation in practices across
ouroperations.
- Conducted Process Safety Risk Assessment training in Ghana
using an external expert with focus on detailed aspects of risk
management and safety incident prevention.
- Completed Human Factors Training for all our workforce,
focusing on mitigating human errors at all stages of our
operations to prevent safety incidents.
Process safety events (PSE) 2022 2021 2020
Tier 1 0 0 0
Tier 2 1 0 4
Total 1 0 4
Asset protection and emergency response
We are committed to maintaining and enhancing our ability
torespond rapidly to unforeseen events in order to maintain
business continuity and minimise negative impacts on people,
the environment, our physical and intellectual assets, and our
reputation. Our asset protection related policies, standards and
plans incorporating security, business continuity, and crisis and
emergency management (CEM) provide a strong basis for
Tullow’s ongoing preparedness to respond to any emergency.
In2022, we continued our emergency response training and
exercises involving credible emergency scenarios. Specifically,
we conducted a major emergency response training with the
Jubilee FPSO, Tullow Ghana Incident Management Team and
theCrisis Management Team in mid-2022.
Employee wellness
Wellness is a year-round priority at Tullow. We maintain a global
wellness programme to support employees in maintaining a
healthy lifestyle and we retain an in-house occupational health
nurse and clinical psychologist to provide support to colleagues
as needed. In 2022, we launched a new wellness intranet site
tomake it easier for employees to engage with the wellness
programme, including our Employee Assistance Programme
(EAP) which offers individual counselling on any personal issue
including mental health challenges. In 2022, our Global Wellness
Agenda included a diverse range of activities throughout the
year and specifically our annual global Wellness Fortnight in
November. In May, we provided all employees with a Wellness
Afternoon Off, to give them personal time to rest and re-energise.
Our approach to wellness extends to partners and contractors
working at Tullow sites: in 2022, we held a contractor forum on
the topic of occupational health and wellbeing, attended by
morethan 50 representatives of 28 contractor companies.
Tullow Oil plc
2022 Annual Report and Accounts
32
Shared Prosperity
2022 highlights
- Enabled 9,000+ students in Ghana, Kenya, Guyana and
Suriname to access education
- Supported 6,000+ secondary and tertiary students with
Tullow STEM scholarships, bursaries and after school
support
- Provided accommodation and classroom facilities for over
3,000 pupils through our $10 million commitment to
promote enrolment in Free Senior High Schools in Ghana
- Through the Fisherman’s Anchor Project, provided over
$300,000 in small loans to 1,300+ businesses; over 91% of
the businesses owned by women and 89% are fish
processing businesses
- Spent $173 million with local suppliers in 2022, constituting
15% of Tullow’s overall local supplier spend, bringing total
five year spend to $1.2 billion
- Implemented local content initiatives including training,
mentoring and a new reporting tool to enhance
measurement and transparency of supplier social impacts
Our Shared Prosperity strategy reflects our vision to accelerate,
through partnerships, progress towards a better, inclusive,
future in which local communities and economies can flourish.
Through our Shared Prosperity strategy, we contribute to equipping
host communities with social and business capabilities, to
enhance employability and support enterprise development
including local content. Our focus on fostering partnerships is a
core component of accelerating progress towards a future in
which no-one is left behind.
Stakeholder engagement: Our ongoing deep dialogue,
positiverelationships and long-standing partnerships with
localgovernments and communities help us understand the
context, impacts, risks and opportunities associated with our
business activities. In Ghana, we maintained dialogue with 115
communities around our Jubilee and TEN operations including
several regulatory authorities. A key discussion was the transition
of security provided for our offshore platforms from our own
contractors to the Ghana Navy. In Kenya, we conducted
consultations with the National Land Commission and all local
community groups in preparation for our development of
oilfields in the region.
Managing business impacts: We act to advance the positive
andmitigate the negative environmental and social impacts
associated with our business activities as an enabler of our
Shared Prosperity strategy.
Accelerating young people’s education and
skilldevelopment
We invest significantly in supporting access to education and
preparing people for jobs with a focus on equipping youth with
transferable skills. Our multiyear educational partnerships and
scholarships cover the full education lifecycle from primary to
tertiary education and ongoing vocational qualifications. In 2022,
our ongoing partnerships in Ghana, Kenya, Guyana and Suriname
enabled over 9,000 students to continue to access education,
and 143 students transitioned to tertiary education in Ghana.
Through our $10 million commitment over five years (2020-2024)
to promote enrolment in Free Senior High Schools in Ghana, we
provided accommodation and classroom facilities for over 3,000
pupils by the end of 2022. The Youth Bridge Foundation, with
Tullow’s support, reached students from 36 junior and senior high
schools with STEM programmes and helped close to 2,000 pupils
to prepare for certificate exams.
Accelerating enterprise development
We continue to support local entrepreneurship and local
economic growth with a focus on agricultural livelihoods.
TheFishermen’s Anchor Project (FAP) is a micro credit scheme
funded by Tullow Ghana and JV Partners and administered by
Opportunities Industrialization Center International. Planned over
a five-year span from 2019, FAP aims to provide critical financial
support to boost income and economic activity in fishing
communities in the coastal districts of Ghana’s Western Region.
In 2022, hundreds of local fishermen received training inbusiness
improvement practices. As at the end of 2022, the economic reach
of FAP includes approximately $300,000 disbursed in small loans
to over 1,300 loan beneficiaries of which 91%were women-owned
businesses and 89% were fish processing businesses.
Sustainability continued
Tullow Oil plc
2022 Annual Report and Accounts
33
Financial statements Supplementary informationStrategic Report Governance Report
Optimising local content
We aim to create the conditions for local companies to
participate in our supply chain through open dialogue, business
tools and connecting them with a workforce which is ready for
the future.
As a large operator in our host countries, we leverage our spending
power to benefit local businesses and their participation in
regional and national economies. Tullow's local supplier spend in
2022 was $173 million, which constitutes 15% of Tullow’s overall
local supplier spend. In Ghana multiple supplier initiatives were
run in 2022 and included:
- Four workshops providing our industry expertise to advance
local suppliers as part of the Petroleum Commission of Ghana
(PC) and Tullow Ghana collaboration.
- Tullow Supplier Finance Readiness Programme, in partnership
with Invest in Africa, to equip Tullow Ghana suppliers and other
oil and gas sector businesses to engage with financial
institutions to obtain business funding.
- Tullow Supplier Mentoring and Training Programme, in
partnership with Accenture in Ghana, for 200 suppliers and
service providers in Ghana’s upstream oil and gas sector.
- Our first Tullow Supplier Market Day in Ghana, attended by
131local companies, which will continue as a quarterly
in-person forum to support direct engagement and support
with local suppliers.
- Ground-breaking, proprietary Local Content Reporting Tool
(LCR Tool) to enhance the transparency of our local content
impacts. The LCR Tool provides a single source of data for
capturing the impacts of our suppliers through their own local
content initiatives incorporated in contracts with Tullow
Ghana. Initially, we commenced with 30 Tier 1 suppliers
withcontract values in excess of $5 million.
Tullow Oil plc
2022 Annual Report and Accounts
34
Sustainability continued
Environmental stewardship
2022 highlights
- Progress made on our Net Zero Roadmap at Jubilee and TEN
fields to advance elimination of routine gas flaring
- 73% reduction in Scope 2 GHG emissions achieved over the
last five years
- Completed Feasibility Report, identifying deforestation
drivers and intervention activities and signed Letter of Intent
with the Forestry Commission of Ghana to develop a REDD+ /
ARR program.
- Tripling of capacity of our PV solar array at our oces
completed in Takoradi, Ghana
- Zero waste to landfill achieved over a two-month period at
our Jubilee FPSO
- Decommissioning activities to protect biodiversity continued
in the UK and Mauritania
Tullow is committed to being a responsible steward of the
environment and ensuring robust systems are in place for
assessing and managing environmental risk. A key focus is our
contribution to mitigating the effects of global climate change
through our commitment to Net Zero while minimising our water
and waste impacts and protecting biodiversity.
Progressing our Net Zero Roadmap
We have committed to achieving Net Zero by 2030 on our Scope 1
and 2 GHG emissions on a net equity basis through a combination
of decarbonising our operated assets in Ghana and identifying
suitable nature-based solutions to offset our hard to abate
emissions. We are prioritising decarbonisation of our operations,
targeting to reduce emissions across our portfolio by at least
40% by 2025 on a net equity basis against a 2020 baseline
through the elimination of routine flaring.
Supported by our internal Net Zero Task Force and approved by
our Board of Directors and Senior Leadership Team, we have
defined a pathway to achieving our Net Zero target with a primary
focus on our operations in Ghana. In addition to ongoing carbon
eciency projects, the two core components of our Net Zero
pathway are:
- Eliminating routine flaring: We will lower our GHG emissions
by at least 40% from a 2020 baseline by eliminating routine gas
flaring (by increasing our gas processing capacity) from our
Jubilee and TEN fields by 2025. The majority of spend linked
tothese decarbonisation initiatives will occur before 2025. Gas
capacity changes will require shutdowns of operations at each
site to allow for switching out of core equipment and other
upgrades, which are scheduled to occur during planned
maintenance programmes. We also take a proactive role in
working with our partners at our non-operated assets, for
example, in Gabon, to drive the elimination of routine flaring
and pursue other emission reduction opportunities.
- Nature-based solutions: By seeking to invest in verified
nature-based carbon removal opportunities in Ghana, we
expect to be able to offset our residual GHG emissions by 2030.
In 2022, following a feasibility study, we signed a Letter of
Intent with the Forestry Commission in Ghana that will enable
us to conduct due diligence ahead of an anticipated Final
Investment Decision (FID) in 2023.
The proposed initiative is expected to offset approximately
600,000 tonnes of CO2e annually while generating significant
local community engagement, local jobs and positive biodiversity
outcomes through reduced deforestation and improved
landmanagement.
Potential liabilities (i.e. costs to purchase carbon off-sets) are,
asyet unknown. Therefore, these costs have not been included in
our impairment model, as the carbon off-set price, subject
toon-going negotiations with the Forestry Commission will only
beconfirned, post FID.
We update our pathway to Net Zero on an annual basis, to
account for changes in both our operational and non-operated
footprint, and to confirm the projects we are investigating are
sucient, in terms of volume of carbon sequestered to meet
our2030 Net Zero Commitment.
Non-operated emission
abatement projects
20302025
Operated
(c.85%)
Non-operated
(c.15%)
Jubilee and TEN
decarbonisation
initiatives and
other NPV+
projects
Nature-based
offsets to
mitigate
residual
emissions
Our detailed pathway to Net Zero and managing climate risks to
our business are laid out in our third annual Climate Risk Report,
prepared in line with the Task Force on Climate-related Financial
Disclosures (TCFD) recommendations which can be found at
www.tullowoil.com/sustainability.
Tullow Oil plc
2022 Annual Report and Accounts
35
Financial statements Supplementary informationStrategic Report Governance Report
Driving carbon eciencies
We continue to drive carbon eciencies through our operations,
and this can be seen in the approximately 75% reduction in
Scope 2 GHG emissions recorded in 2022, compared to 2018.
In the meantime, our Scope 1 emissions, correlated to production
and associated flaring levels, show a further temporary increase
in 2022. We will continue to monitor these emission sources,
until gas handling projects are completed on Jubilee and TEN.
In 2022, we recorded an increase in Scope 3 emissions, due to an
expanded basis of reporting to include all material emissions
associated with Tullow’s value chain including purchased goods
and services, capital goods and the use of sold products, in
addition to other Scope 3 emissions we already disclose. We are
continuously working to better understand our Scope 3 emissions,
engaging with our supply chain partners to influence emissions
which are outside of Tullow’s immediate operational control.
Total air emissions:
thousand tCO
2
e 2022 2021 2020 2019 2018
Group Scope 1 2,258 2,234 2,040 1,072 1,046
Group Scope 2 0.81 0.53 1.28 1.69 3.00
Group Scope 3 6,680 892 324 15 14
Total Group 8,939 3,127 2,365 1,089 1,063
Group emissions
intensity kg CO2e/boe
37 35 29 - -
Group energy use
(GWh)
2,645 2,968 2,682 2,862 2,707
UK air emissions:
thousandtCO
2
e 2022 2021 2020 2019 2018
UK Scope 1 0.059 0.11 0.27 0.24 -
UK Scope 2 0.2 0 0.57 0.71 -
UK energy use (GWh) 1.1 1.7 3.6 4.0 -
1. GHG Data is from controlled operations and the calculation methodology can be found in the
Basis of Reporting and GHG Methodology documents at www.tullowoil.com/sustainability
2. Integrated Reporting & Assurance Services (IRAS) has provided independent assurance over
Scope 1 and 2 emissions
For details of our Scope 1, 2 and 3 GHG emissions for the years
2018-2022, please see our Sustainability Data Workbook
at www.tullowoil.com/sustainability.
Increasing solar power: In 2022, we tripled the capacity of our
PV solar array at our oces in Takoradi, Ghana from 131 kwh/year
to approximately 390 kwh/year. The installation now provides all
power needs for our Takoradi oce requirements.
Managing water and waste
During the year, we continued our management ofcommunity
water boreholes for the benefit of our local communities in
Kenya. On average, almost 20,000 households benefited from
ourwater distribution which supplies approximately 4,000 cubic
metres of water per year.
Our rigorous programme of waste segregation and waste
management at Tullow Ghana enabled us to achieve zero
wasteto landfill over a two-month period at our Jubilee FPSO.
We continue to embed waste awareness and practices to
maintain this standard. In 2022, we also progressed a project
toreduce single-use plastic on the Noble Venturer, the drill
shipthat transports our oil onshore by providing nine water
dispensers to replace more than 180,000 plastic bottles of water
per year to hydrate a 180-string crew in high temperatures.
Protecting biodiversity
We strive to minimise negative impacts on biodiversity at the
planning, exploration, development and decommissioning
phases of our activities. In 2022, we continued with our
decommissioning activities in two regions:
UK: Drilling activity ceased in the UK in 2018, and we are currently
nearing the completion of full and final decommissioning of operated
and non-operated assets in this region. We removed all drilling
platforms and in 2022, commissioned a rock placement survey
toenable us to proceed with protecting the seabed with sustainable
local rocks, leaving it safe for fishing. We are proceeding with
safe decommissioning of platforms in satellite fields, which is
scheduled for completion by the end of 2025.
Mauritania: We are on track to complete our clearing and
decommissioning activities from our fields in Mauritania
following cessation of activity in non-operated areas in 2014.
Allseabed equipment and support facilities have been removed
and final well head protections are being put in place, scheduled
for completion in 2023, with zero residual impact on the
marineenvironment.
Tullow Oil plc
2022 Annual Report and Accounts
36
Equality and transparency
2022 highlights
- $645 million total socio-economic contribution in our host
countries, bringing total five-year socio-economic
contribution to $3.1 billion
- $468 million paid to host countries in taxes
- New human rights working group formed and actions
advanced to protect human rights
- Workforce growth of 8% to a total of 382 employees
- 26% women colleagues overall, with 14% of Senior
Management roles held by women (compared to 29% and
10% respectively in 2021)
- 50 new hires onboarded in Ghana to support new FPSO
in-house operations
- Wages linked to the U.S.$ for employees in Ghana to help
overcome financial hardship caused by local currency
depreciation
- 75% localisation achieved in Ghana with a target of 90%
Promoting an ethical culture
Our Code of Ethical Conduct (CoEC) governs the way we work
andconveys a clear message to Tullow employees, supply chain
partners and external stakeholders about our approach to ethical
standards, anti-corruption, compliance and upholding human
rights. In 2022, 100% of Tullow employees completed our mandatory
annual online CoEC training and we again provided our annual
training for key suppliers. We urge our colleagues to speak up
ifthey observe behaviour which they believe is not in alignment
with our CoEC. In 2022, we adopted a new reporting platform
which offers improved functionality and easier access to encourage
employees to speak up. In 2022, the mix of reported concerns
were similar to those in prior years and nomajor disciplinary
actions were required.
Protecting human rights
During 2022, we advanced human rights programmes through
multiple actions including:
- Formed an internal cross-functional human rights working
group with members from across the Company.
- Conducted an internal audit of our modern slavery processes
and identified areas for improvement. Our Modern Slavery
statement can be found on our website: https://www.tullowoil.
com/application/files/9816/5823/1441/Modern_Slavery_Act_
JULY_2022.pdf
- Piloted worker welfare training modules in conjunction with
the IPIECA in Kenya.
- Achieved 100% participation of Tullow colleagues and
contracted employees in “Introduction to the UN Guiding
Principles on Business and Human Rights” training.
- Completed educational sessions on ethics and compliance
forlocal companies in Guyana, with 129 participants from
111companies.
Socioeconomic contribution and tax transparency
Tullow believes transparency regarding payments to
governments is an important way to promote honesty in our
industry, mitigate corruption and support inclusive development.
Tullow has been a corporate supporter of the Extractive Industries
Transparency Initiative (EITI) since 2011 and our annual Payments
to Governments Report provides details of all mandatory and
voluntary tax payments.
Our payments to governments, including payments in kind,
amounted to $468 million in 2022 (2021: $234 million). Total
payments to all major stakeholder groups including suppliers
and communities, as well as governments, brought our total
socioeconomic contribution to $645 million (2021: $445 million)
of which $173 million was spent with local suppliers and
$4million in discretionary spend on social projects. Our total
payments made to the Ghanaian Government in 2022 amounted
to $341 million (2021: $172 million).
Engaging our people
In 2022, we reinforced our organisational structure and performance
capabilities to support an optimistic future of development and
growth. In particular, we supported the transition to in-house
operation of our Jubilee FPSO, an encouraging development
forour team in Ghana, enabling us tobuild the organisation’s
capability and bring opportunity to advance our business in
theregion. We onboarded 50 new hires in Ghana to meet this
challenge. Overall, our workforce in 2022 grew by 8%.
Our 2022 Employee Value Proposition Survey delivered an
encouraging result. With close to 90% participation, we saw an
average positive 70% score across the sum of all survey questions,
an improvement from 63% and 62% in our two prior surveys.
Sustainability continued
Speaking up cases
Human resources 4
Breach of internal
procedures 5
Worker welfare and human rights 1
Third party 11
Dishonest behaviour 1
22 speaking up cases
Tullow Oil plc
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Financial statements Supplementary informationStrategic Report Governance Report
Selected positive score results from our EVP Survey in 2022
Where I work, we never compromise our EHS
performance in order to meet other targets
91%
In my team people are held accountable for results 90%
Teams in Tullow collaborate in the best interests
oftheCompany
81%
Tullow's vision, purpose and values are clearly articulated 79%
It is clear how my team's KPIs support the overall goals of
the organisation. (i.e., we measure the right things that
add value)
79%
I believe Tullow is committed to creating an inclusive and
diverse work environment
69%
On the other hand, employees expressed improvement
opportunities, primarily in the areas of senior leadership
responsiveness and improved pathways to realise individual
potential. In 2022, we worked to address these topics and
conducted a full evaluation of our performance management,
leadership visibility and recognition programmes to meet
employee needs and aspirations.
Tullow Advisory Panel (TAP): Aligned with our values of
collaboration and creating a transparent and inclusive culture,
the Tullow Advisory Panel (TAP) augments existing channels of
communication between employees, senior management and
the Board of Directors. TAP’s membership is a diverse panel of
eight elected colleagues representing employees from across
our different locations. TAP meets quarterly with Tullow’s Senior
Leadership Team and separately, with the Board of Directors, to
provide feedback collected from colleagues on a wide range of
topics from staff development to employee workload to diversity
and inclusion and more. In 2022, a focus of TAP’s feedback to
Tullow’s leadership was addressing our change to remuneration
policy in Ghana (see below).
Rewarding our employees
We aim to provide market competitive compensation packages
which we regularly review to keep pace with local market norms
and employee expectations. In 2022, we revised the compensation
packages of our teams in Ghana. The local currency, the Ghana
Cedi, declined by 55% between January and October 2022,
among the steepest declines of any currency in the world this
year. The impact of this was price hikes for imported goods
anda cost-of-living increase, leading to soaring inflation and
economic diculties for many. Our workforce in Ghana was
severely affected by this development as local currency-based
salaries were no longer commensurate with a living wage.
Inresponse, we established a compensation package linked to
the U.S. dollar, the currency that drives the consumer prices in
Ghana. By October 2022, we had implemented a dollar-linked
salary across all employee categories in Ghana which represented
an increase of 129% in base pay in local currency, protecting
employees against the currency depreciation.
Advancing inclusion and diversity and localisation
In 2022, we continued to support the development of our
Inclusion and Diversity (I&D) culture with awareness and training
events throughout the year. We commenced unconscious bias
training for all employees and examined our processes to
address barriers to inclusion and develop further opportunities
to advance women, including in technical roles. We adopted
balanced panels in our recruiting processes and ensure each
shortlist includes at least one diverse candidate. In 2022, 27%
ofnew hires were women, and 54% of new hires were African.
Our strategy of hiring local nationals and advancing their
professional development as we continue to grow our business is
one of the most important ways we can meet our commitment to
the socioeconomic development of our host nations. Localisation
also serves our business objectives as it opens up a pool of
exceptionally talented and motivated people to join our Company.
Our objective in Ghana is to achieve 90% overall workforce
localisation. At the end of 2022, we achieved 75% overall
workforce localisation. Our refreshed localisation strategy sets
us on the path to reach our target in the next 3–5 years.
% of local nationals employed in Ghana
(includes Tullow colleagues and contractors)
2018 20172019202020212022
75%
81%
79%
76%
75%75%
Tullow Oil plc
2022 Annual Report and Accounts
38
Strategy in action
“
It’s important that all
employees can speak up,
challenge constructively
andbe open to diverse
viewsthatallows us to
continuouslyimprove.
”
Kwame Ofori Afreh
HR Manager – Ghana
Attractive Employer:
Nurturing a collaborative,
caring and open work
environment
Tullow Oil plc
2022 Annual Report and Accounts
39
Financial statements Supplementary informationStrategic Report Governance Report
Kwame Ofori Afreh
HR Manager – Ghana
Q&A
Kwame's story
What are your key responsibilities as HRManager – Ghana?
As the HR Manager, I collaborate with the Ghana leadership team in implementing strategic and
operational people priorities, delivering on Employee Value Proposition that is linked to overall
business strategy. I provide continuous leadership for our in-country HR agenda, aligning group-wide
integration and local responsiveness on all HR initiatives. Most critical key accountability is driving
our localisation performance in line with our workforce plans and regulatory (LI) requirements.
Additionally, delivering the employee experience to enable us to attract, recruit, develop and retain
toptalents.
How does your role contribute to nurturingacollaborative, caring and openworkenvironment?
Key to my role is ensuring that each employee can be their best here in Tullow and can contribute
positively to our business outcomes, irrespective of their role. This includes working closely with
leadership and line managers to model and articulate the behaviours that support our Values and
promote a diverse, inclusive and enabling culture. More importantly, creating opportunities for
employees to engage directly with leadership through various forums including the Employee
Engagement Forum (EEF), "Ghana Connect" and the "Ask Wissam" sessions. It’s important that all
employees can speak up, challenge constructively and be open to diverse views that allow us to
continuously improve. Wellbeing is a big part of the culture here at Tullow, but it’s a high performing
culture. Driving wellbeing initiatives is an important balance to strike.
How has your career developed at Tullow?
Tullow offers exciting experiences and professional challenges at the same. In the last five years,
Ihave had the opportunity to work through different roles and developed experiences unique and
relevant to upstream oil and gas HR operations. I have made a number of lateral and vertical moves;
engaging with experts and the best professionals you can find in the upstream market in Ghana.
What achievements are you most proud of in 2022?
Key to the 2022 achievements is the benchmarking of the base pay for Ghana employees to
USD.This is following feedback received through engagement surveys and leadership engagements
with employees over the years. In 2022, the Ghana Cedi depreciated more than 38% by the end of the
year. The response from the intervention has been great and well received by employees which has
improved employee engagement across all areas.
Tullow Oil plc
2022 Annual Report and Accounts
40
Risk oversight and governance
A risk focused culture and consistent risk management framework
is embedded across all levels at Tullow and is driven by the
Board.
The Board is responsible for overseeing the risk identification
,
assessment and mitigation process. To this end, the Board
undertakes a bi-annual assessment of the risks facing the
Company, including those risks that could threaten our business
strategy, operating model, performance, solvency and liquidity.
Emerging risks are discussed by the Board and the Senior
Leadership Team periodically throughout the year.
The Board is responsible for ensuring Tullow maintains an
effective risk management and internal control system and
works closely with Tullow’s Senior Leadership Team to ensure
this is in place. The Senior Leadership Team is collectively
responsible and accountable for the risk management process
inplace across the organisation, with individual members
takingownership for risks that fall in their business area.
Tullow recognises that risk cannot be fully eliminated and that
there are certain risks the Board and/or the Senior Leadership
Team accept when pursuing strategic business opportunities.
Acceptance of risk is made at an appropriate authority level
andwithin Tullow’s defined risk appetite and tolerance levels.
Tullow’s risk governance framework is illustrated below:
We proactively
manage risks
Governance and risk management
Board
- Oversees identification and assessment
of, and response to, principal risks
- Sets risk appetite
- Monitors effectiveness ofthe risk
management process
Senior Leadership Team (SLT)
- Sets the tone for aneffective risk
managementculture
- Identifies and assesses principal and
enterprise-wide risks
- Monitors effectiveness of risk
management actions for those risks
and decides the focus of effort
- Decides which risks require periodic
Board review
- Provides oversight, support and
challenge to the Extended Leadership
Team and business functions
Business functions
- Identifies and assesses business
delivery risks and raises these to the
leadership team
- Identifies and assesses respective
project risks
- Ensures effective risk mitigation
actions are planned and implemented
- Monitors effectiveness of risk
mitigation and response plans
Every layer of the organisation is responsible
for identifying key risks and managing them in
line with our risk appetite (as set by the Board).
Principal
risks
Business
delivery risks
Project
risks
Enterprise risks
Top-down/bottom-up risk management
At Tullow, we recognise that effectively
managing risks and opportunities is essential
to our long-term success. Our ability to
identify, assess and successfully manage
current and emerging risks is critical in
ensuring we achieve our strategic objectives
and protect shareholder value.
Tullow Oil plc
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41
Financial statements Supplementary informationStrategic Report Governance Report
Risk management process
Our risk management framework takes a ‘top-down, bottom-up’
approach. It is a rigorous method that ensures ownership and
responsibility for identification, assessment and management
ofkey risks and opportunities, and is embedded throughout the
business. The Board sets the context for risk management through
defining principal risks, setting the strategic direction and
establishing the appropriate risk appetite for the organisation.
Risk identification and assessment
Each Business Head and Head of Function is responsible,
andaccountable, for managing risk and risk mitigation within
their remit. Extended Leadership Team members review and
re-assess risk on at least a quarterly basis in their functional
areas to evaluate the strength of existing controls and determine
whether changes in risk reduction actions are needed to ensure
the risk level is within the risk appetite setbythe Board.
Consolidation of business risks
To facilitate assessment of the main risks facing the business,
Tullow’s leadership undertakes a bottom-up review of the key
risks faced by the business. The key risks in each area are
identified by the Business Heads and Heads of Functions,
including mitigating actions and any emerging risks. These are
consolidated upwards into the Business Unit risk registers and
assessed according to their likelihood of occurring, and the
potential consequences to Tullow in terms of safety, reputational,
financial, legal and regulatory impact.
From this, the Senior Leadership Team identifies the principal
and enterprise-wide risks which can be either a single risk or
aset of aggregated risks which, taken together, are significant
for Tullow. Members of the Senior Leadership Team have
ownership and accountability for stewardship of each of the
principal and enterprise-wide risks. As a collective, the Senior
Leadership Team reviews and discusses the risks bi-annually to
understand whether mitigations are being effectively executed
within the agreed timeframe.
The principal risks and mitigants are discussed by the Board
bi-annually to provide ‘top-down’ challenge and support.
Theresult of this review is communicated back down to the SLT
and Business Units to facilitate risk awareness and effective
decision making throughout the organisation.
Risk appetite
The Board sets Tullow’s risk appetite and acceptable risk tolerance
levels for each of the principal risk categories. In considering
Tullow’s risk appetite, the Board reviews the risk identification
process, the assessment of enterprise level risks, the existing
controls and mitigating actions and the residual risks. During
this process, the Board articulates which risks Tullow should
nottolerate, which risks should be managed to an acceptable
level and which risks are accepted in order to deliver our
business strategy.
The risk appetite is reviewed at least annually by the Board
toensure that it reflects the current external and market
conditions. A revised risk appetite was last reviewed by the
Board in March 2023.
Evolution of Tullow’s management of risk
Development of the risk management framework is an ongoing
process. During 2022 senior risk owners have been working to
promote a culture of risk awareness and challenge throughout
the business with an increased focus on managing risk. Further
consistency in risk identification, measurement and reporting
has been rolled out across the organisation.
Risk management framework
Principal risks 2022
Project risk registers feed into the enterprise risk
management process
Business Unit and functional
leadershipledreviewandoversight
Board-led scrutiny of principal risks
SLT-led principal and enterprise-wide
riskreviewandoversight
Finance risks
Legal and
compliance
risks
People and
sustainability
risks
Ghana
businessrisks
Non-operated
business risks
Kenya
businessrisks
Exploration
business risks
Tullow Oil plc
2022 Annual Report and Accounts
42
Governance and risk management continued
Categories of principal risks
Failure to deliver production targets (commercial and financial risk)
Risk details Risk mitigations
Tullow’s Business Plan is anchored on production from the Jubilee and
TEN fields in Ghana and non-operated fields in Côte d’Ivoire and Gabon.
A decline, or problems with the performance, of wells or facilities could
result in not meeting planned production levels which in turn would lead
to a reduction in revenue and cash flow ultimately impairing ourability
toreduce leverage.
- Robust control over operations & maintenance (O&M) contract as well
as the Jubilee O&M transformation projectsuccessfully completed in
July 2022
- Cross-discipline integrated performance management including clear
KPIs and forums
- Maintenance and integrity management plans covering allequipment
classes
- Management and oversight of JV Partners to ensure maintenance and
integrity plans are implemented effectively
A failure to grow the business via targeted investment in existing fields
and/or investment in new fields could ultimately impact our ability to
deliver the Business Plan and meet longer-term production targets.
- Jubilee Expansion project, Jubilee South East, North East and TEN
Enhancement Projects
- Exploration strategy focused on acreage close to existing infrastructure, to
enable discoveries to be converted to production quickly
- Continued investment in non-operated portfolio, including
accelerating projects where possible
- Mergers & acquisitions (M&A), inorganic growth with a focus on
producing assets
- Working to secure a long-term gas offtake commercialisation
contract in Ghana as agreed in principle by the Board
- Continued investment in the non-operated portfolio
Risk of an asset integrity breach (commercial and EHS or security risk)
Risk details Risk mitigations
A loss of asset integrity could be cause by failures to follow
ourprocedural requirements for operating equipment within safety
limits, equipment failure on the FPSO or lack of critical equipment or
spares. The effects could include reduction inproduction, revenue
andcash flow, damage to facilities anddamage to relationships with
JVPartners and hostgovernments.
- The FPSO vessels are subject to regular internal and
externalcertification
- Our asset and well integrity and maintenance programmes are
inplace, and overseen by senior managers
- When incidents do occur we complete a root cause analysis for
everyincident
- Robust control over operations & maintenance (O&M) contract as well
as the Jubilee O&M transformation project successfully completed in
July 2022
Tullow’s risk profile
The Company risk profile has been closely monitored throughout
the year, with consideration given to the risks to delivering the
Business Plan, as well as whether external factors such as the
war in Ukraine, inflationary pressures and oil price volatility have
resulted in any new risks or changes to existing risks. The impact
of these factors has been considered and managed across all
principal risks. The following table represents the Company’s
current principal risks.
Commercial
Stakeholder Cyber
Ethics and
conduct
Climate Financial
EHS or
security
People
Principal risk categories
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Financial statements Supplementary informationStrategic Report Governance Report
Risk of a major accident event (EHS or security risk)
Risk details Risk mitigations
A major incident could potentially result in asset integrity failures and/
or extensive damage to facilities. This may in turn lead to a loss of life,
environmental damage, increased costs and reputational damage.
- Risk management processes embedded at all levels of
theorganisation
- Asset and well integrity and maintenance programmes are in place,
including regular self-verification and external certification, audit
and assurance of integrity plans
- Root cause failure analysis processes in place for production
lossesand EHS incidents to prevent recurrence and ensure lessons
are learned
- Emergency Response Plans and Incident Management Framework
toaid in escalation when incidents do occur
A failure of our colleagues or contractors to meet safety standards or
adhere to procedural requirements could result in operation of
equipment outside safe operating limits leading to a major EHS or
operation incident.
- Tiered assurance activities ensuring all critical processes are
adhered to
- Robust EHS aspects are included at all stages of contract
management (from specification/pre-qualification through to
contract closure)
- Active contractor engagement on safety throughout life of contract
including EHS forums to enable direct participation
Failure to unlock value (stakeholder, commercial and financial risk)
Risk details Risk mitigations
Significant non-associated gas resource has been identified on current
licences and failure to secure gas market share could delay
development of these resources.
- A workstream has been established to assess commercialisation
opportunities in Ghana and the region that will enable development
ofthe identified resources while playing an important role for the
industrial development of Ghana
Delay in approval of a revised Field Development Plan (FDP) by the
Government of Kenya could impact a final investmentdecision.
- A revised FDP has been submitted to the Government of Kenya for
approval in line with the licence extension conditions
- Continued engagement with the Government of Kenya and regulators
to ensure timely approval of the revised FDP
Failure to secure a strategic partner would impact our ability
toprogress the Kenya project to final investment decision and
unlockvalue.
- The Kenya JV Partners via an ongoing farm-down process are
actively seeking a strategic partner to fund the next stage of
development and unlock value. Discussions are under way with
potential bidders around a range of commercial arrangements
The inability to successfully explore and add accretive upside value to
Tullow's assets through addition of reserves and resources around
producing assets could limit the return on the licences.
- Close collaboration focused on fully leveraging geoscience expertise
to identify and mature reserves and resources which have the
potential to rapidly unlock value for producing assets
- This is reinforced by an infrastructure-led exploration (ILX) strategy
to strengthen the portfolio, by focusing on opportunities near
producing assets, and create value through integration of assets,
expertise and regional knowledge
The inability to limit our capital exposure to historical exploration
commitments in selective emerging basins of Guyana and Argentina
may result in having to divert capital from producing assets.
- A number of farm-down processes are under way to limit capital
exposure on selective emerging basins by aiming to reduce our
equity share. This will ensure Tullow can participate at an equity
consistent with our capital allocation guidance
Tullow Oil plc
2022 Annual Report and Accounts
44
Governance and risk management continued
Failure to manage geopolitical risks (stakeholder and financial risk)
Risk details Risk mitigations
Political instability in the West Africa region, where our producing
assets are concentrated, could delay and impact decision making
byhost governments and local partners and may also impact
securityarrangements.
- An extensive relationship management plan is in place, to actively
manage senior relationships with host governments, including an
Advisory Board in Ghana
- We ensure alignment of our business plans with national priorities
and have developed a communication plan to inform stakeholders of
the positive impact of our activities on host nations and communities
- We maintain constructive non-partisan relationships with all political
parties in Ghana
Unreasonable fiscal or regulatory demands by host governments could
obstruct ecient operations, delay implementation of our growth plans
and cause increased costs and financial loss.
- We have robust stabilisation clauses in all our Petroleum Agreements
and Production Sharing Contracts with international dispute
resolution to protect us against unreasonable demands
Failure to manage climate change risks (climate risk)
Risk details Risk mitigations
Tullow recognises climate change as a material risk for our business.
There is a potential for climate-related risks, including regulatory
constraints, carbon pricing mechanisms, low oil price or conditional
access to capital, to affect Tullow’s ability to implement our strategy.
Challenges to our business strategy and failure to align with broader
energy transition goals could result in reduced or conditional access to
capital or shareholder/investor reluctance to invest.
Failure to deliver on our commitment to eliminate routine flaring by
2025 and thereby mitigate the carbon intensity of Tullow’s business or
tooff-set hard to abate emissions (e.g. through nature-based off-set
schemes, which we continue to investigate in Ghana) may lead to
erosion of stakeholder confidence and impact our ability to attract
andretain talent.
- There is recognition and support from the Board that decarbonisation
requires investment. We are implementing our plan to achieve Net
Zero by 2030 (Scope 1 and 2 net equity), through reducing our emissions
from routine flaring and offsetting hard to abate emissions
- We stress test our portfolio to ensure core assets are resilient in
different oil and carbon price environments
- There is ongoing engagement with host countries to understand
andalign with their long-term energy transition strategies, including
Paris Nationally Determined Contributions
- We are aligning our objectives with the Ghana Forestry Commission
and local stakeholders to implement a project, with a Final
Investment Decision expected in 2023
Risk of insucient liquidity and funding capacity to sustain and grow the business or failure to deliver a highly
cash-generative business (financial risk)
Risk details Risk mitigations
Tullow remains exposed to erosion of its balance sheet and revenues
due to oil price volatility, unexpected operational incidents, cost
inflation and failure to deliver targeted farm downs of exploration assets
and Kenya.
Failure to deliver our Business Plan could have a material negative
impact on cash flow and our ability to reduce debt and strengthen
thebalance sheet, which may affect our ability to meet our financial
obligations when they fall due.
- Business Plan in place and being delivered to deliver strong cash flow
and deleveraging
- Capital structure provides liquidity headroom through to
December2024 even in a low oil price environment
- Disciplined capital allocation prioritising high-return and short-
payback investments, and a strong focus on cost control
- Material commodity hedging programme protects against the impact
of a sustained low oil price environment
- Options and timings for refinancing are regularly reviewed
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Failure to develop, retain and attract capability (people risk)
Risk details Risk mitigations
There is a risk that critical staff leave the organisation resulting in
diculty to deliver against our Business Plan.
We operate a lean and agile structure and are dependent on a small
number of key and critical roles. Loss of staff would increase pressure
on remaining colleagues and could lead to deterioration in the wellbeing
of our colleagues, a poor working environment and, potentially,
furtherattrition.
We may be unable to recruit the skills needed due to the overheated
global labour market in oil & gas.
- The Employee Value Proposition (EVP) rolled out in 2021,
coveringculture, working environment, remuneration, learning
anddevelopment and performance management was further
developed in 2022
- Employee engagement initiatives are in place, including an employee
advisory panel, Tullow town halls, coffee mornings and employee
engagement surveys
- We have refreshed our Inclusion and Diversity (I&D) policy and hosted
a number of speakers during the year, to increase awareness and
re-arm our focus on I&D
- Succession plans are in place for critical roles. We have undertaken a
leadership capability review of the extended leadership team, to
ensure a focus on development and ensuring the right capability is in
the organisation
Risk of a compliance or regulatory breach (ethics and conduct risk)
Risk details Risk mitigations
Non-compliance with bribery and corruption legislation or
contractualobligations along with other applicable business conduct
requirements could expose the Company to penalties or
regulatoryoversight.
In particular, an unforeseen material compliance breach could lead to
regulatory action, an unsettled litigation/dispute or additional future
litigation that may result in unplanned cash outflow, penalty/fines,
reputational damage and a loss of stakeholder confidence
inManagement.
- Tullow maintains high ethical standards across the business. Strong
anti-bribery and corruption (ABC) governance processes/procedures
are in place as a core element of the Ethics and Conduct (E&C)
programme
- A mandatory annual Code of Ethical Conduct eLearning and
acknowledgement/certification process is in place for all employees.
Third-party due diligence procedures and assurance processes are
in place
- Investigation procedures and an associated misconduct and loss
reporting standard are in place
- Third-party due diligence and assurance processes are in place
- Anti-tax evasion risk assessments are undertaken with clear
mitigation actions identified, including targeted employee training
Risk of major cyber-attack (cyber risk)
Risk details Risk mitigations
The external cybersecurity threat environment is continuously evolving
and intensifying; therefore, the risk of a major cyber-attack is an
ongoing risk that requires constant monitoring and management.
Tullow may suffer an external cyber-attack which could have far
reaching consequences for the business. This could limit our ability to
operate, impact production, expose the Company to high ransomware
demands or potentially trigger a major incident. This could result in
financial loss, loss of stakeholder confidence, loss of production,
oradditional cost by way of fines or resolution of service.
- Security Incident Event Management (SIEM) system in place,
supported by an Advanced Security Operations Centre (SOC)
providing 24/7 network and device monitoring, alerting andresponse
- Security awareness programme in place supported by regular staff
susceptibility phishing training and testing. Annual mandatory
security awareness training for all staff
- An independent technical assurance programme is in place
Tullow Oil plc
2022 Annual Report and Accounts
46
Nature of assurance
- Assurance activities are put in place across the three lines
of defence to assure that control activities are effective in
mitigating risks to the business. These specifically focus
on areas where there are internal/external changes, control
failures and historical issues.
- Business management is the first line of defence and
isresponsible for ensuring their key risks have been
identified and that adequate controls are in place to
manage those risks.
- Business leadership, risk management and compliance
functions act as the second line of defence, providing
support, oversight and challenge to the business in
managing risks effectively, and providing assurance that
compliance with functional standards is being met.
- Internal Audit acts as the third line of defence and
isresponsible for providing independent assurance
through its risk-based internal audit programme. The
Internal Audit Plan and outputs are reviewed by the
AuditCommittee. Agreed actions for improving the
control environment and managing risk are owned by
assigned individuals and monitored through Tullow’s
actions tracking process. The Audit Committee monitors
the implementation of actions.
- Tullow’s risk management and assurance processes
provide the Board and the Management Team with
reasonable, but not absolute, assurance that our
assetsand reputation are protected.
Governance and risk management continued
Lines of defence
Third line of defence
Internal Audit (independent assurance)
- Provide independent assurance of respective
governance, internal control systems and controls
across all levels of the business.
- Assurance provided through risk-based internal
auditreviews.
Second line of defence
Business leadership, risk management and compliance
functions (oversight of risk management)
- Set the framework and support embedding of effective
risk management practices.
- Provide oversight and management challenge to
leadership on the identification and management
ofrisk.
- Monitor compliance with functional standards
(minimum controls).
- Provide assurance through periodic reporting and
focused reviews.
First line of defence
Business management
(ownership and management of risk)
- Own and manage business risks. Implement and
execute controls in business. Monitor risks and control
at business level.
- Assurance provided through self-reviews and focused
assurance reviews.
- Projects – implement and execute controls at site/project
level. Monitor risks and controls at site/project level.
Internal control
A foundation of effective governance, risk management
andcontrol exists throughout the organisation. The
effectiveness of the internal control framework is reviewed
through the risk management process and challenged as
described above. In addition to this, the Senior Leadership
Team and Audit Committee perform an annual review of the
effectiveness of internal control. This was last undertaken in
February 2023 and reported to the Audit Committee and the
Board on 28 February and 1 March, respectively.
Tullow Oil plc
2022 Annual Report and Accounts
47
Financial statements Supplementary informationStrategic Report Governance Report
Section 172(1) statement
Statement by the Directors in performance of their statutory duties in accordance with s172(1)
of the Companies Act 2006
The Directors are required by law to act in a way that promotes the success of the Company for the benefit of shareholders as a whole.
In so doing the Company must, in accordance with s172(1)(a-f) of the Companies Act 2006, also have regard to wider expectations of
responsible business behaviour, such as having due regard to the interests of, and actively engaging with, its employees; the need to
engage and foster business relationships with suppliers, customers and others; the need to act fairly as between Members of the Company;
the likely consequences of any decision in the long term; the desirability of maintaining a reputation for high standards of business
conduct; and the impact of the Company’s operations on the community and the wider environment. The section below further details
on how the Directors have fulfilled their duties.
During the year, the Board was closely involved in all key decisions of the Company. In addition to providing rigorous evaluation, risk
management and challenge to maintain strong governance, the Board also engaged with stakeholders to inform decisions. The Board
is aware that in some situations, stakeholders’ interests will be conflicted, however, the engagement enabled them to fully understand
the key issues relevant to our stakeholders. Further details on how the Board considered stakeholders during the decision-making
process, and how the stakeholder engagement fed into this process, are set out on the next few pages.
The Board consider, both individually and together, that they have acted in the way they consider, in good faith, would be most likely
topromote the success of the Company for the benefit of its shareholders as a whole in the decisions taken throughout the year ended
31December 2022.
Decision Production Sharing Contract for new offshore exploration licence in Côte d’Ivoire
In December 2022, the Company acquired a 90% interest in a new offshore exploration licence (CI-803) inCôted’Ivoire.
Context and link
to strategy
Tullow’s exploration strategy in Africa is focused on infrastructure-led exploration activities to create value. Tullowleveraged
itsdifferentiated understanding of the Tano Basin to secure the 90% interest in the new offshore exploration licence. The new
exploration licence, CI-803, along with the existing licence in Côte d’Ivoire (CI-524) provides Tullow with a strategic position in an
area adjacent to the Group’s producing fields, Jubilee and TEN in Ghana. A number of drill candidates are being matured on the
Tullow-operated CI-524 block, while preparations continue for an exploration well to be drilled during 2024.
Challenges
The addition of licence CI-803 strengthens the resource base in close proximity to the Group’s producing fields in Ghana, which
presents acompelling opportunity to leverage synergies during the exploration phase and in the event ofdiscoveries.
Stakeholder
considerations
In making its decision to acquire the 90% interest in the offshore exploration licence the Board considered the followingstakeholders:
- Host nations: The acquisition of the interest in the CI-803 licence provides synergies between two of theCompany’s
areasofoperation.
- Investors: The acquisition of licences adjacent to producing fields is consistent with the Company’s infrastructure-led
exploration strategy.
Link to KPIs
3. Production
6. Unlocking value
8. Total shareholder return
Tullow Oil plc
2022 Annual Report and Accounts
48
Section 172(1) statement continued
Decision Termination of proposed merger with Capricorn Energy
In September 2022, the Board decided that it would not increase its offer in respect of the proposed merger with
CapricornEnergy. The proposed merger was subsequently terminated in October 2022.
Context and link
to strategy
On 1 June 2022 Tullow entered into an agreement for a proposed all-share merger with Capricorn Energy PLC (Capricorn).
Theaim of the proposed merger was to create a leading African energy company and the merger would have enabled Tullow
toaccelerate debt deleveraging and investment in growth.
Challenges
The proposed merger was conditional on the approval of both Capricorn and Tullow shareholders. Tullow considered the
termsofthe proposed merger to be reasonable and of fair value to its shareholders. However, the proposed merger met a
significant amount of resistance from Capricorn's shareholders who were requesting improved terms. The Board decided to
adhere to the terms agreed, and confirmed on 29 September 2022 that it would not increase the value of Tullow's offer for
Capricorn or to elect to implement its offer by way of a contractual offer. The Board confirmed on 28 October 2022 that it will no
longer proceed with the combination.
Stakeholder
considerations
In making its decision to adhere to the agreed terms, the Board considered the following stakeholders:
- Investors: The Board considered the perceived value gap between the proposed terms and the potential terms required by
theCapricorn Board. In this context, they considered the value creation potential offered by Tullow on a standalone basis and
that of the combined Group, versus potential additional dilution for Tullow's shareholders related to any adjustment in terms.
The Board also considered the financial position of Tullow on a standalone basis.
- Creditors: The Board considered Tullow's balance sheet on a standalone basis, and Tullow's ability to address its debt
maturities as they fall due. In November 2022, Tullow reported a strengthened balance sheet, with free cash flow guidance
increased to $250million and gearing on track to be below 1.5x by 31 December 2022.
- Employees: The termination of the proposed merger, and adherence to the Company’s business plan offered stability
toTullow’s employees.
- Host nations: The Group had received approval form the Government of Ghana for the Capricorn transaction. With the
termination of the transaction, the Group reconfirmed its commitment to continue investing in its assets in Ghana.
Link to KPIs
8. Total shareholder return
Decision Interim Gas Sales Agreement in Ghana
In December 2022 Tullow signed an interim agreement with the Government of Ghana for the sale of 19 bcf (gross) of Jubilee gas.
The 19 bcf is expected to have been supplied by the middle of 2023, at an anticipated export rate in excess of 100 mmscfpd,
adding c.7 kboepd net production during the first half of the year. Further gas export will be contingent on reaching agreement
onacceptable commercial terms for future volumes.
Context and link
to strategy
The Foundation Gas Volume Agreement (JFGVA), agreed with the Government of Ghana in 2005 came to completion at the end of
2022. A new framework was required to allow for the continued supply of gas from Jubilee to the Government of Ghana, in line
with the Company’s strategy to commercialise gas resources in Ghana. The Interim Gas Sales Agreement is forecast to enable
continued export until the end of June 2023, when a long-term gas sales agreement is expected to be in place.
Challenges
The JFGVA provided free gas to the Government of Ghana. The volumes under the Interim Gas Sales Agreement are to be sold
atthe gas price agreed in the 2017 revision of the TEN Plan of Development.
Stakeholder
considerations
In making its decision to enter into an Interim Gas Sales Agreement, the Board considered the following stakeholders:
- Host nations: Ghana’s demand for gas is expected to triple by 2036. The Board considered that the Company is well positioned
to ensure a secure and reliable supply of gas at an attractive price, and therefore ease the cost burden on Ghanaian citizens.
- Investors: The Interim Gas Sales Agreement provides new revenues for the Company and partners, representing the first
commercialisation of gas from Jubilee or TEN since Tullow’s arrival in Ghana.
Link to KPIs
2. Financial performance
3. Production
5. Sustainability
6. Unlocking value
Tullow Oil plc
2022 Annual Report and Accounts
49
Financial statements Supplementary informationStrategic Report Governance Report
Decision Forestry Commission Letter of Intent
In December 2022, Tullow signed a Letter of Intent with the Forestry Commission in Ghana, initiating a 12- month exclusivity
period, where both parties will negotiate an Emissions Reductions Payment Agreement (ERPA). Tullow has committed
$0.682million to fund related activities to Final Investment Decision (FID), expected in 2023.
Context and link
to strategy
In 2021 Tullow committed to becoming a Net Zero Company by 2030 (scope 1 and 2 emissions), and to build a better future through
theresponsible development of oil and gas.
Challenges
andoutcome
The Company conducted a feasibility study to analyse the jurisdictional landscape in Ghana and identify causes of deforestation.
The study identified many drivers of deforestation, methods of intervention and implementers. The specific implementation
partners and roles will be defined during the investment readiness phase.
Stakeholder
considerations
When approving the signing of the Letter of Intent with the Forestry Commission, the Board considered the following stakeholders:
- Investors/creditors: The signing of the Letter of Intent provides investors with confidence that the Company is committed
tomeeting its Net Zero targets. The demonstration of this commitment upholds the Company’s reputation as a credible and
responsible oil & gas operator.
- Host nations: The Letter of Intent demonstrates a commitment to Ghana as a host nation. Ghana is a signatory to a landmark
agreement with the World Bank that rewards community efforts to implement projects that reduce carbon emissions from
deforestation and forest degradation. Ghana also has a REDD+ strategy that is designed to meet the requirements of the
Warsaw Framework and the United Nations Framework Convention on Climate Change (UNFCCC).
- JV Partners: The Company’s Net Zero strategy is aligned with the ambitions of its JV Partners in Ghana.
- Employees: It is important to Tullow's employees that the organisation they work for is proactively addressing climate
changeissues.
Link to KPIs
6. Sustainability
Decision Dollarisation of salaries for Ghanaian employees
Context and link
to strategy
In 2022 the Board made the decision to convert the currency equivalent of employee salaries in Ghana from the Ghanaian Cedi
(GHS) to theUS Dollar (USD). This decision followed Leadership engagement with employees via surveys and feedback from the
Tullow Employee Engagement Forum (EEF) and Tullow Advisory Panel (TAP), during which employees requested for their salaries
to bedenominated in USD. Achieving salary dollarisation in Ghana was a focus for Senior Leadership in 2022.
Challenges
GHS was the second poorest performing currency in 2022 and depreciated more than 18% between January and April 2022,
thelargest recorded depreciation in the country since 2016. With the continuous weakening of GHS and the macro-economic
indicators pointing to a decline in Ghana, the review into dollarisation was prioritised by Senior Leadership. This led to the
decision to convert all salaries to USD as a benchmark, payable in the GHS equivalent. A number of Tullow’s competitors in
theextractive industries were already aligned to this practice. This change replaced the potential annual payment for GHS
depreciation based on the Ghana inflation vs depreciation of the GHS against USD calculation, which had not been triggered
for2020 and 2021. The dollarisation of salaries took effect on 1stSeptember 2022. Any inflation increases going forward will
bebased on the USD market movement and inflation, and not localGhana inflation.
Stakeholder
considerations
In supporting this decision, the Board considered the following stakeholders:
- Employees: Considering the feedback received from the Tullow Advisory Panel; our employees in Ghana; market data
andeconomic indicators in order to provide a degree of financial stability and protection for employees.
- Investors: The change in policy will drive further employee aliation, retention and engagement, which will drive greater
performance and value on behalf of Tullow.
Link to KPIs
6. Sustainability
7. Leadership effectiveness
Tullow Oil plc
2022 Annual Report and Accounts
50
Viability statement
Assessment period
In accordance with the provisions of the UK Corporate Governance Code, the Board has assessed the prospects and the viability of
theGroup over a longer period than the 12 months required by the ‘Going Concern’ provision. The Board assesses the business over a
number of time horizons for different reasons, including the following: Annual Corporate Budget (i.e. 2023), Corporate Business Plan
(five years i.e. 2023–2027), long-term Business Plan (10 years). The Board’s period of assessment for the purpose of the viability
statement is five years considering maturity of bonds in 2025 and 2026.
Notwithstanding the assessment period selected for the viability statement the Group will continue to assess the business over all
time horizons noted above.
Assessment of the Group’s principal risks
In order to make an assessment of the Group’s viability, the Directors have made a detailed assessment of the Group’s principal risks,
and the potential implications these risks could have on the Group’s business delivery and liquidity over the assessment period. This
assessment included, where appropriate, detailed cash flow analysis, and the Directors also considered a number of reasonably
plausible downside scenarios, and combinations thereof, together with associated supporting analysis provided by the Group’s
Finance team. A summary of the key assumptions aligned to the Group’s principal risks and reasonably plausible downside scenarios
can be found below. It should be noted that some assumptions encompass multiple risks but have not been repeated to avoid
unnecessary duplication.
Principal risks Base case assumption Downside scenario
Failure to deliver
production targets
Production is assumed to be in line with the Corporate
Business Plan.
5% reduction in production in each year.
Failure to manage
geopolitical risks
The Group has assumed no cash outflow associated with tax
exposures and provisions.
The Group has included $72 million for potential outflows
related to settlement for legal claims in 2024. These are
currently not deemed to be probable but whose likelihood is
greater than remote.
Failure to manage
climate change
risks
The key impact of climate change on the Group’s portfolio of
assets is reflected in the oil price assumptions. See below.
The Directors have considered an oil price sensitivity in line
with the IEA 'Net Zero by 2050 Scenario'; see below.
The Group has also assessed the impact of carbon pricing;
refer to the TCFD disclosure.
Risk of insucient
liquidity and
funding capacity to
sustain and grow
the business /
failure to deliver a
highly cash
generative
business
Oil price assumptions are based on the forward curve at
31December 2022 for two years, followed by the Group’s
Corporate Business Plan assumption from 2025 onwards:
2023: $84/bbl 2024: $79/bbl 2025: $70/bbl 2026: $70/bbl
2027: $70/bbl.
Operating costs and capital investment are assumed to be
in line with the Corporate Business Plan.
The Group has analysed two downside oil price scenarios; the
first is based on the Directors’ assessment of a reasonably
plausible downside scenario: 2023: $70/bbl 2024: $70/bbl
2025: $65/bbl 2026: $65/bbl 2027: $65/bbl. The second is in
line with the IEA “Net Zero by 2050 Scenario”: 2023: $61/bbl
2024: $58/bbl 2025: $54/bbl 2026: $50/bbl 2027: $46/bbl
Operating cost are assumed to be 12% than those included in
the Corporate Business Plan.
For detailed information on risk mitigation, assurance and progress in 2022 refer to the detailed discussion of risks on page 40.
For 'Risk of an asset integrity breach', 'Failure to unlock value', 'Risk of a major EHS accident and Security', 'Risk of a compliance or
regulatory breach', 'Failure to develop, retain and attract capability', and 'Risk of major cyber-attack' the Group has assessed that there is
no reasonably plausible scenario that can be modelled in isolation or in combination with other risks from a cash flow perspective.
Tullow Oil plc
2022 Annual Report and Accounts
51
Financial statements Supplementary informationStrategic Report Governance Report
Conclusion
The Group has $2.5 billion notes outstanding, maturing in 2025 and 2026. The Corporate Business Plan does not project sucient free
cash flow generation to allow the Group to fully repay these notes when they fall due, and therefore it will need to access debt markets
within the viability assessment period.
In the base case, net debt and gearing are forecast to reduce suciently such that the Directors are confident that the Group will be
able to secure the funding required to maintain adequate liquidity headroom throughout the viability assessment period.
Under the two downside scenarios, which assume all risks arise simultaneously, execution of a refinancing would be challenging.
Management is focused on mitigating the risks around production, operating cost increases and potential outflows associated with
disputes in order to reduce the likelihood of these risks materialising, or their impact in the event these risks materialise. Furthermore,
the Directors have considered additional mitigating actions that may be available to the Group, such as incremental commodity hedging
executed in periods of higher oil prices, alternative funding options, further rationalisation of the Group’s cost base including cuts to
discretionary capital expenditure, M&A, portfolio management and careful management of stakeholder relationships.
Based on the results of the analysis and the ability to mitigate some of the risks associated with the downside scenarios, the Board of
Directors has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities, including through
refinancing activities, as they fall due over the five-year period of their assessment.
Tullow Oil plc
2022 Annual Report and Accounts
52
Non-financial reporting
Tullow aims to comply with the non-financial reporting requirements contained in sections
414CA and 414CB of the Companies Act 2006.The table below outlines to stakeholders Tullow’s
position, principal policies, main risks and KPIs on key non-financial areas.
Phuthuma Nhleko
Chair
8 March 2023
Adam Holland
Company Secretary
8 March 2023
Requirement Group approach and policies Documents Related KPIs Related principal risks
Environment
Further information: Environment,
see pages 34 and 35.
Oil and gas production carries a high risk of environmental impact and
incidents related to production processes.
Our product and the process associated with its production generate carbon
emissions which contribute to climate change. Tullow is working to reduce its
impact on the environment through its Net Zero 2030 commitment and through
its standards and policies.
- Climate Policy
- Safe and Sustainable Operations Policy
- Code of Ethical Conduct
- Non-Technical Risk Standard
Level 0 KPI: Embed Sustainability
across the organisation.
Level 1 KPI: Progress NetZero plan.
Climate risk on page 44
EHS or security risk on pages 42 and 43
Employees
Further information: Our People,
see pages 36 and 37.
Further information: Health and Safety,
see page 31.
Tullow aims to create an inclusive environment, free from discrimination,
whereindividual differences and the contributions of all our staff are recognised
and everybody is treated fairly. We have zero tolerance for any form of
discrimination and decisions related to recruitment selection, development
orpromotion are based upon aptitude and ability only.
- Code of Ethical Conduct
- Smart Working Policy
Level 0 KPI: Leadership effectiveness.
Level 1 KPIs: Improve employee
engagement: increase awareness and
knowledge of I&D; build capacity and
organisational effectiveness; refresh and
implement a new Employee Value
Proposition; maximise employee
performance/experience.
People risk on page 45
Ethics & conduct risk on page 45
Social policy
Further information: Community relations,
go to our Sustainability Report online.
We engage with communities early in the planning process to identify the
keyimpacts, both positive and negative, of our operations. We maintain
ongoing dialogue to provide information about Tullow’s activities and create
opportunities for people to contribute to decisions which affect them.
Wealways listen to feedback and concerns, answer enquiries and register
grievances made by community members.
- Code of Ethical Conduct
- Non-Technical Risk Standard
Level 1 KPIs: Socio-economic investment:
Deliver classrooms and dormitories for
1,500 new students in 2023; provide
scholarships and after school support for
6,100 students and train 150 STSEM
teachers; establish long-term credit
support and training for community
businesses; demonstrate Tullow's macro-
socioeconomic contribution.
Stakeholder risk on pages 43 and 44
Respect for human rights
Further information: Our Approach,
go to our Sustainability Report online.
Tullow respects and promotes internationally recognised human rights as set
out in the Universal Declaration of Human Rights and the International Labour
Organization Declaration on Fundamental Principles and Rights at Work. When
considering new investments, we review associated potential human rights
issues and their relationship to our operations.
- Human Rights Policy
- Code of Ethical Conduct
Level 2 KPI: Human Rights: enhance
Modern Slavery awareness internally and
with high risk suppliers.
Stakeholder risk onpage 43 and 44
Ethics & conduct risk on page 45
Anti-corruption and anti-bribery
Further information: Anti-corruption and
anti-bribery, see page 36.
Tullow has zero tolerance of any form of corruption. We conduct our business
honestly, fairly and transparently and we do not exercise improper influence
onany individual or entity. We are subject to many anti-bribery laws in the
jurisdictions within which we work and, as a UK registered company, are
required to comply with the UK Bribery Act (2010).
- Code of Ethical Conduct Level 2 KPI: Robust and effective controls
in place to manage material business risk:
review and establish the HR introduction
for new joiners, the essential processes
and training required for good governance.
Ethics & conduct risk on page 45
This Strategic Report and the information referred to herein have been approved by the Board and signed on its behalf by:
Tullow Oil plc
2022 Annual Report and Accounts
53
Financial statements Supplementary informationStrategic Report Governance Report
Requirement Group approach and policies Documents Related KPIs Related principal risks
Environment
Further information: Environment,
see pages 34 and 35.
Oil and gas production carries a high risk of environmental impact and
incidents related to production processes.
Our product and the process associated with its production generate carbon
emissions which contribute to climate change. Tullow is working to reduce its
impact on the environment through its Net Zero 2030 commitment and through
its standards and policies.
- Climate Policy
- Safe and Sustainable Operations Policy
- Code of Ethical Conduct
- Non-Technical Risk Standard
Level 0 KPI: Embed Sustainability
across the organisation.
Level 1 KPI: Progress NetZero plan.
Climate risk on page 44
EHS or security risk on pages 42 and 43
Employees
Further information: Our People,
see pages 36 and 37.
Further information: Health and Safety,
see page 31.
Tullow aims to create an inclusive environment, free from discrimination,
whereindividual differences and the contributions of all our staff are recognised
and everybody is treated fairly. We have zero tolerance for any form of
discrimination and decisions related to recruitment selection, development
orpromotion are based upon aptitude and ability only.
- Code of Ethical Conduct
- Smart Working Policy
Level 0 KPI: Leadership effectiveness.
Level 1 KPIs: Improve employee
engagement: increase awareness and
knowledge of I&D; build capacity and
organisational effectiveness; refresh and
implement a new Employee Value
Proposition; maximise employee
performance/experience.
People risk on page 45
Ethics & conduct risk on page 45
Social policy
Further information: Community relations,
go to our Sustainability Report online.
We engage with communities early in the planning process to identify the
keyimpacts, both positive and negative, of our operations. We maintain
ongoing dialogue to provide information about Tullow’s activities and create
opportunities for people to contribute to decisions which affect them.
Wealways listen to feedback and concerns, answer enquiries and register
grievances made by community members.
- Code of Ethical Conduct
- Non-Technical Risk Standard
Level 1 KPIs: Socio-economic investment:
Deliver classrooms and dormitories for
1,500 new students in 2023; provide
scholarships and after school support for
6,100 students and train 150 STSEM
teachers; establish long-term credit
support and training for community
businesses; demonstrate Tullow's macro-
socioeconomic contribution.
Stakeholder risk on pages 43 and 44
Respect for human rights
Further information: Our Approach,
go to our Sustainability Report online.
Tullow respects and promotes internationally recognised human rights as set
out in the Universal Declaration of Human Rights and the International Labour
Organization Declaration on Fundamental Principles and Rights at Work. When
considering new investments, we review associated potential human rights
issues and their relationship to our operations.
- Human Rights Policy
- Code of Ethical Conduct
Level 2 KPI: Human Rights: enhance
Modern Slavery awareness internally and
with high risk suppliers.
Stakeholder risk onpage 43 and 44
Ethics & conduct risk on page 45
Anti-corruption and anti-bribery
Further information: Anti-corruption and
anti-bribery, see page 36.
Tullow has zero tolerance of any form of corruption. We conduct our business
honestly, fairly and transparently and we do not exercise improper influence
onany individual or entity. We are subject to many anti-bribery laws in the
jurisdictions within which we work and, as a UK registered company, are
required to comply with the UK Bribery Act (2010).
- Code of Ethical Conduct Level 2 KPI: Robust and effective controls
in place to manage material business risk:
review and establish the HR introduction
for new joiners, the essential processes
and training required for good governance.
Ethics & conduct risk on page 45
This Strategic Report and the information referred to herein have been approved by the Board and signed on its behalf by:
Tullow Oil plc
2022 Annual Report and Accounts
54
Directors’ report
A framework for
corporategovernance
As a UK-listed company, Tullow Oil plc’s governance policies and
procedures are based on the Financial Reporting Council’s UK
Corporate Governance Code (the Code) and the Financial
Reporting Council’s Guidance on Board Effectiveness, both of
which can be found at www.frc.org.uk. This Directors’ Report
summarises how the Group has complied with the Code during
the year ended 31 December 2022 and describes changes to the
governance structure that took place before year end. The Code
sets out how governance is achieved through the application of
its five main principles and their supporting provisions:
- Board leadership and Company purpose;
- Division of responsibilities;
- Composition, succession and evaluation;
- Audit, risk and internal control; and
- Remuneration.
Board leadership and Company purpose
The Board is accountable to shareholders and the Group’s other
stakeholders for the creation and delivery of long-term, sustainable
operational and financial performance for the enhancement of
shareholder and stakeholder value. The Board meets these aims
through setting the Group’s objectives, Values and strategy and
ensuring that the necessary resources are available to achieve
the agreed strategic priorities. During 2022, the Group has been
focused on capital allocation and operational performance to
achieve a more reliable and consistent operating performance
and a sustainable improvement in operating margins. Our
purpose is to build a better future through responsible oil and
gas development.
The Board operates through a governance framework
withclearprocedures, lines of responsibility and delegated
authorities to ensure that strategy is implemented and key risks
are assessed and managed effectively. These are underpinned
by the Board’s work to set the Group’s core Values, behaviours,
culture and standards of business conduct and to ensure that
these are clearly understood by the workforce, shareholders
andother stakeholders.
The Board also ensures that there is sucient engagement with
the Group’s stakeholders such that their views can be considered
in Board decision making. The Group’s stakeholders are divided
into the following main groups: our investors, our host countries
and their communities, our people.
Division of responsibilities
The Chair is responsible for leadership of the Board and its
overall effectiveness whilst the Chief Executive Ocer is
responsible for the operational management of the business,
fordeveloping strategy in consultation with the Board and for
implementation of the strategy with the Senior Leadership Team.
One of the non-executive Directors has been selected by the
Board to be the Senior Independent Director. The Board is fully
satisfied that the Senior Independent Director demonstrates
complete independence and robustness of character in this role.
The Senior Independent Director is available to meet shareholders
if they have concerns that cannot be resolved through discussion
with the Chair or for matters where such contact would be
inappropriate. In addition, during the year the Senior Independent
Director meets with the other non-executive Directors, without
the Chair present, to discuss the Chair’s performance. The Chair
meets regularly with the other non-executive Directors, without
Executive Directors present,to review Board discussions and
engagement as wellas the performance of the Senior
LeadershipTeam.
The Chair offers governance meetings with shareholders at least
once a year to receive their direct feedback. In line with the
guidance issued by the Institute of Chartered Secretaries and
Administrators (ICSA), the Board has approved formal terms of
reference for a Committee of the Executive Directors. The
separation of responsibilities between the Chair, the Senior
Independent Director and the Chief Executive Ocer is clearly
defined and agreed by the Board and is published on the
Group’swebsite.
Until 20 October 2022, the Board consisted of seven independent
non-executive Directors and one Executive Director. As previously
announced by the Company, Jeremy Wilson, non-executive
Director completed nine years on the Board on 20 October 2022
but remained on the Board until the subsequent Board meeting
on 30 November 2022, after which he stepped down. It was resolved
by the Board that, given the events of the year, the Company
andthe Board would benefit from Mr Wilson’s attendance and
contribution at the Board meeting in November. Nonetheless,
inaccordance with Provision 10 of the UK Corporate Governance
Code, from 20 October 2022, he ceased to be considered an
independent Director by the Board, and accordingly, stepped
down as the Senior Independent Director and from the Nominations,
Remuneration and Audit Committees from that date.
As at the date of this Report, the Board consists of seven
independent non-executive Directors and two Executive
Directors. On 8 December 2022, the Company announced that
Richard Miller would be appointed as Chief Financial Ocer
andExecutive Director with effect from 1 January 2023. The
Company appointed Roald Goethe as an independent
non-executive Director with effect from 24 February 2023.
Tullow Oil plc
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Following the appointment of the Chair of the Board, the Board
undertook a review of the schedule of matters reserved for the
Board and also the division of responsibilities between the Chair of
the Board, the Chief Executive and the Senior Independent Director,
and all of these are available on our website.
The Board has reviewed the criteria set out in the
CorporateGovernance Code and the FRC’s Guidance on
BoardEffectiveness and considers each of the non-executive
Directors to be independent in character and judgement with no
conflicts of interest. In addition, the Board is satisfied that all
non-executive Directors have disclosed their other significant
commitments and confirmed that they have sucient time
todischarge their duties effectively. The Board is also of the
viewthat no one individual or group of individuals dominates
decision making.
As part of the governance framework, the Board has delegated
some of its responsibilities to four Committees: the Audit
Committee, the Nominations Committee, the Safety and
Sustainability Committee and the Remuneration Committee.
TheBoard is satisfied that the Committees have sucient time
and resources to carry out their duties effectively. Their terms of
reference are reviewed and approved annually by the Board and
the respective Committee Chairs report on their activities to the
Board. The individual Committee terms of reference can be
found on the Group’s website. Director attendance at Board and
Committee meetings is summarised in the table overleaf.
Committee Reports on pages 63 to 97
The Board of Directors
Chair, Executive Directors, Senior Independent Director and non-executive Directors
The Board operates under the leadership of the Chair and is collectively responsible for setting the Company’s strategy to deliver
long-term value to shareholders and other stakeholders. The Board ensures that the appropriate resources, leadership and
effective controls are in place to deliver the strategy. The Board also sets out the Company’s culture and Values, monitors business
performance, oversees risk management and determines the Company’s risk appetite. The Board delegates some ofits
responsibilities to the Board sub-committees. The Board is accountable for the stewardship of the Company’s business
totheshareholders and other stakeholders.
Audit
Committee
Responsible for financial
reporting, audit, internal
control and risk
management processes.
Nominations
Committee
Responsible for Board
composition, appointment
of Directors and
succession planning.
Safety and
Sustainability
Committee
Responsible for health,
safety, environment,
climate change, shared
prosperity, security and
business sustainability.
Remuneration
Committee
Responsible for reward and
compensation for the
Chair, Executive Directors
and Senior Managers
andreviewing
theremuneration
arrangements of
theworkforce.
Senior Leadership Team
Chief Executive Ocer, Chief Financial Ocer and three Senior Managers
The Senior Leadership Team operates under the leadership of the Chief Executive Ocer and is responsible for
thedeliveryandexecution of the Board’s strategy as well as the day-to-day management of the Company’s business
includingoperationalperformance. The Senior Leadership Team is accountable to the Board.
pages 63 to 68 pages 69 and 70 pages 71 and 72 pages 73 to 97
Tullow Oil plc
2022 Annual Report and Accounts
56
Board and Board Committee attendance 2022
Director Board (6)
Audit
Committee (5)
Nominations
Committee (3)
Safety and
Sustainability
Committee (6)
Remuneration
Committee (6)
Phuthuma Nhleko 6 3
Rahul Dhir 6
Mitchell Ingram 6 6 6
Jeremy Wilson
1
6 4 3 5
Mike Daly 6 5 3 6
Sheila Khama 6 6
Genevieve Sangudi 6 1
2
6 6
Martin Greenslade 6 5 1
2
1. Denotes Director(s) who are no longer Directors of the Company.
2. Denotes Director(s) who joined a committee part way through the year.
The Board is supported and advised by the Company Secretary
who ensures that it has the policies, processes, information, time
and resources it needs for it to function effectively and eciently.
The Company Secretary is also responsible for ensuring
compliance with all Board procedures and for providing advice
to Directors when required. The Company Secretary acts as
secretary to the Audit, Nominations, Safety and Sustainability
and Remuneration Committees and has direct access to the
Chairs of these Committees.
The Board typically meets six times a year, in person. One of
those meetings is devoted to an extensive review of the long-
term strategy of the business and another is usually held at an
overseas oce of the Group to provide the Board with deeper
insights into the Company’s operations and an opportunity to
engage with stakeholders. Due to the Board’s focus on the
potential corporate transaction with Capricorn during the course
of the year, itdid not travel as a group to an overseas oce.
However, the Chair of the Safety and Sustainability Committee
and also the Chair of the Audit Committee travelled together to
visit the Group’s oces, operations and certain stakeholders in
Ghana, including an overnight stay on the Group’s offshore facilities.
The Directors’ observations and feedback was provided to both
the Board and the business, and the business is implementing
certain actions in response to those observations, which are
being tracked by theBoard.
The focus of the Board’s meetings during the first half of the year
was on operational performance and the oversight of the
Business Plan. The second half of the year focused on capital
allocation and the Company’s long-term strategy, stakeholder
engagement, and the energy transition and sustainability. Later
inthe year, the Board focused on culture, and the Employee Value
Proposition. At various meetings during the year, the Board also
reviewed the key risks facing the Company and discussed the
Group’s appetite for those risks.
Directors’ report continued
Tullow Oil plc
2022 Annual Report and Accounts
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Capital structure and
capital allocation 20%
Safety and
sustainability
(including
stakeholder
engagement) 10%
Culture and
people 8%
Principal risks and
governance 12%
Composition, succession and evaluation
To ensure that serving Executive Directors and Senior Managers
of the Company continue to possess the necessary skills and
experience required for the strategy of the business, the Board
has established a Nominations Committee to oversee the process
of appointments and succession planning for Directors and other
Senior Managers. The role of the Nominations Committee is
critical in ensuring that the Group’s Board and Committee
composition and balance support both the Group’s business
ambitions and best practice in the area of corporate governance.
Upon joining the Board, Directors receive induction programmes
which are specifically designed to complement their
background, experience and knowledge with a more detailed
understanding of the upstream industry and other matters
regularly discussed by the Board. The programmes include
one-to-one meetings with Senior Management, functional
leaders and, where possible, visits to the Group’s principal oces
and operations. The Directors also receive an overview of their
duties, corporate governance policies and Board processes.
Directors are initially appointed for a term of three years.
Withthe exception of Mike Daly, who will have served nine years
on the Board by the end of May 2023, all of the Directors will
seekelection or re-election at the next Annual General Meeting.
The Board will set out in the Notice of Annual General Meeting its
reasons for supporting the election or re-election of each of the
Directors. In October 2022, Jeremy Wilson completed nine years
on the Board and retired from the Board at the end of the last
Board meeting of the year, on 30 November 2022.
Following an extensive search process assisted by the executive
search consultant, Cripps Sears & Partners, the Nominations
Committee recommended, and the Board appointed, Richard
Miller as an Executive Director and Chief Financial Ocer with
effect from 1 January 2023. Richard had previously served as
interim Chief Financial Ocer since Les Wood’s departure on
31March 2022 and, following a thorough search, including a
diverse and inclusive pool of external candidates, the Board was
delighted to appoint an internal candidate to the role, which
further demonstrates the Committee’s commitment to developing
a pipeline of future talent amongst its senior managers. Cripps
Sears & Partners is independent of the Company and its Group.
Audit, risk and internal control
The Board has delegated responsibility to the Audit Committee
tosatisfy itself on the integrity of the Financial Statements and
announcements on financial performance, overseeing the
relationship with the external auditor and reviewing significant
financial reporting and accounting policy issues.
The Audit Committee has also assumed responsibility for
overseeing the Group’s internal audit programme and the
process of identifying principal and emerging risks and ensuring
that they are managed effectively. As part of that process, the
Company’s internal financial controls and internal control and
risk management systems are assessed annually.
The Directors acknowledge their responsibility for the Group’s
systems of internal control which are designed to safeguard
theassets of the Group and to ensure the reliability of financial
information for both internal use and external publication and
tocomply with the requirements of the Code. Overall control is
ensured by a regular detailed reporting system covering both
operational and commercial performance and the state of the
Group’s financial affairs.
The Board has procedures for identifying, evaluating and
managing principal risks that impact the Group and these are
regularly reviewed. Tullow recognises that any systems of risk
management and internal control can only provide reasonable,
and not absolute, assurance that material financial irregularities
will be detected or that the risk of failure to achieve business
objectives is eliminated. However, the Board does seek to ensure
that Tullow has appropriate systems in place for the identification
and management of key risks, including emerging risks.
Inaccordance with the requirements of the Code, the Board has
established procedures to manage risk, oversee the internal
control framework and determine the nature and extent of the
principal risks the Company is willing to take in order to achieve
its long-term strategic objectives.
Board time* (%)
Strategy 20%
Business operations,
restructuring and
portfolio management 30%
Nominations Committee Report on pages 69 and 70
* Percentages are approximate.
Tullow Oil plc
2022 Annual Report and Accounts
58
Directors’ report continued
Safety and Sustainability Committee
The Board has delegated to this Committee the responsibility
and oversight of the Company’s occupational and process safety,
people and asset security, health and environmental stewardship.
The Committee monitors performance and key risks associated
with these areas. The Committee also provides oversight of the
implementation of the Company’s strategic priorities with respect
to sustainability, namely; a NetZero delivery plan, Safe Operations,
Shared Prosperity, Environmental Stewardship, and Equality
andTransparency.
Safety and Sustainability Committee Report pages 71 and 72
Audit Committee
The Audit Committee retains responsibility for oversight of the
external audit of reserves and resources. Board governance was
strengthened by the nomination of a non-executive Director
withappropriate technical expertise who has responsibility for
engagement with the Chief Petroleum Engineer on all matters
relating to reserves and resources. The same non-executive
Director is available to assist with technical concerns raised
through the Company’s confidential speaking-up service,
SafeCall, replaced by ComplianceLine in November 2022.
TheCompany’s external independent reserves auditor meets
withthe Audit Committee at least once a year to provide
theCommittee with an opportunity to ask questions and
providechallenge to Senior Management’s assumptions.
Audit Committee Report pages 63 to 68
Remuneration Committee
The policies and practices for determining the remuneration
ofthe Executive Directors and the Senior Managers have been
delegated to the Remuneration Committee. The principal role
ofthe Remuneration Committee is to develop and maintain a
Remuneration Policy that ensures Executive Directors and
Senior Managers are rewarded in a manner that closely aligns
with the successful delivery of the Company’s long-term purpose
and strategy as well as those of the shareholders andother
stakeholders, including the workforce.
Remuneration Committee Report pages 73 to 97
Board oversight of climate change and disclosures in
compliance with TCFD
Climate change remains one of Tullow’s nine Principal Risks with
governance over climate-related transition and physical risks
provided at Board, senior Management and operational levels.
The Board has ultimate accountability for ensuring Tullow maintains
sound climate risk management and internal control systems.
Our CEO, a Board member, is ultimately accountable for Tullow’s
strategic response to climate change and the energy transition.
Directors are responsible for ensuring they remain suciently
informed of climate related risks to Tullow and the broader
energy sector, required to be able to meet their fiduciary
dutiesunder the UK Companies Act 2006.
The Board:
- takes account of the financial impact on Tullow’s portfolio
arising from reduced oil price and demand, and potential
carbon taxes, identified in a range of climate scenarios used
totest the resilience of our business;
- ensures mitigation of climate change risks is embedded in
Tullow’s strategy, decision making on capital allocation and
Management compensation;
- monitors indications of any changes in Tullow’s access to and
cost of capital and debt stemming from shifts in investor
sentiment or regulator pressure on investors towards the oil
and gas sector in response to climate-related risks; and
- approves Tullow’s carbon management and performance,
including targets for emissions reductions and alignment
withhost nations’ strategies to manage climate change.
The Board undertakes these responsibilities primarily
throughthree sub-committees. The Safety and Sustainability
Committee provides full oversight and assurance in relation to
operational performance oncarbon emissions and management
of climate-related issues. Sustainability performance, which
includes implementation of decarbonisation initiatives and our
approach to offsetting hard to abate emissions to meet our Net
Zero Commitment, was a key focus for 2022. The Audit Committee
is responsible for ensuring the effectiveness of risk management
processes and internal control systems, including for
climate-related risks, and oversees the assessment of Tullow’s
financial resilience considering the forecasts of various scenarios
on ourportfolio and ensures the findings are appropriately and
transparently reflected in our financial disclosures. Through the
Remuneration Committee the Board ensures climate and sustainability
performance, including performance against our Net Zero target,
is embedded in the corporate scorecard and annual performance
KPIs. The Board approved the inclusion of a Sustainability KPI in
the 2023 Scorecard with a weighting of5%. The Board receives
reports from all three Committees at each Board meeting.
Tullow Oil plc
2022 Annual Report and Accounts
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Tullow’s approach to climate-related risk management is focused
on integrating the identification, assessment and management
of climate-related risk across the business and delegating
responsibility for achieving climate-related performance targets.
Further information on our carbon emissions, and our Net Zero
Pathway can be found in our Strategic Report.
Tullow’s Senior Leadership Team, led by the Group Director of
People & Sustainability, is responsible and accountable for
overseeing and monitoring risks that fall under their remit, and
for leading the incorporation of climate risks, opportunities, and
scenario assumptions into enterprise risk registers. This accounts
for the policy positions and regulations within our host nations.
The Ghana Managing Director isfurthermore accountable for
theimplementation of decarbonisation initiatives in our Ghana
operations. The Group Sustainability function, which reports to
the Director of People & Sustainability, is responsible for leading
the integration of climate-related transition and physical risk
management across the business. The function works closely
with Group Internal Audit & Risk, Finance, Legal, Commercial
andbusiness teams to enhance the identification, assessment
and management of climate risk and lead business teams in
understanding the transmission pathways which could affect
ourbusiness. Each part ofthe business therefore evaluates
climate-related risks and opportunities within their remit as
partof an ongoing risk review cycle; climate risk management
reflects Tullow’s ‘top-down, bottom-up’ approach to risk,
recognising the cross-cutting nature of physical and transition
climate risks which may affect other principal risk categories.
Audit Committee
Beyond its fiduciary duties in relation to the integrity of the
Company’s Financial Statements, the Audit Committee is also
responsible for ensuring there is a sucient level of assurance
provided on risk management and internal controls systems,
including for Climate Risk, and whether it is sucient for the
Board to satisfy itself that they are operating effectively. During
2022 this included a review of the climate scenario analysis and
methodologies used to test the resilience of our business, including
the potential financial impacts of climate-related transition and
physical risk. The Committee also reviewed the assurance and
audit process in support of annual climate-related disclosures.
Safety and Sustainability Committee
Tullow modified the scope of its standing EHS Committee to
include safety and sustainability in 2019 to reflect the material
nature of ESG and sustainability risks. Embedding sustainability
across the organisation, which includes progress against Tullow’s
Net Zero Commitment, was a key focus of the Committee for
2022. Among others, this included a review ofenterprise-wide
climate risk identification and management processes and the
third-party assurance process for annual disclosures.
Compliance
The Board is satisfied that the Group has complied in full with
theCode during the year ended 31 December 2022, with the
following exception:
- The Directors’ Remuneration Policy, approved by shareholders
in 2020, provided that Executive Director pension contributions
for new Executive Directors are aligned (as a percentage of
salary) with those available to the workforce. However, it
provided that pension contributions for existing Executive
Directors would be frozen at the 2019 cash amount and adjusted
downwards so they are aligned (as a percentage of salary) with
those available to the workforce by 1 January 2023. Between
1January 2022 and 31 March 2022, Les Wood (Executive Director
and Chief Financial Ocer) was paid pension contributions at
the frozen 2019 cash amount. This does not comply with
Provision 38 of the Code which requires these contributions
tobe aligned with those available to the workforce; however,
this is reflective of Provision 143 of the FRC’s Guidance on
Board Effectiveness, which acknowledges that it may not be
practical to alter existing contractual arrangements. The
Board confirms that the pension contributions for the Chief
Executive Ocer appointed in 2020and those of the new
ChiefFinancial Ocer appointed on1 January 2023 are aligned
(asa percentage of salary) withthose available to the workforce
and that, following the departure of Les Wood bymutual
agreement of the Board on31 March 2022, there is no longer
any Executive Director receiving pension contributions which
are not in line with the workforce, and therefore the Corporate
Governance Code.
Phuthuma Nhleko
Chair
7 March 2023
Tullow Oil plc
2022 Annual Report and Accounts
60
A
S
2. Rahul Dhir
Chief Executive Ocer
Age: 57
Tenure: 3 years
Appointment: July 2020
Independent: No
Key strengths
Upstream business, exploration,
development and operations, executive
leadership, capital markets, M&A,
environment, health, safety
andsustainability.
Experience
Rahul brings substantial leadership
experience in the oil and gas industry to
Tullow, having founded Delonex Energy,
an Africa-focused oil and gas company
in 2013. Prior to establishing Delonex,
Rahul spent six years at CairnIndia as
chief executive ocer and managing
director. Under his leadership Cairn
India successfully completed a $2 billion
IPO and grew to a market value of nearly
$13 billion with operated production of
over 200,000 barrels of oil equivalent
per day. Rahul started his career as a
Petroleum Engineer, before moving into
investment banking where he led teams
at Morgan Stanley and Merrill Lynch,
advising major oil & gas companies on
merger and acquisition and capital
market related issues.
Current external roles
Member of the International Board
ofAdvisors at the University of Texas
atAustin.
3. Richard Miller
Chief Financial Ocer
Age: 40
Tenure: < 1 year
Appointment: January 2023
Independent: No
Key strengths
Upstream oil and gas, capital markets,
M&A, financial management, audit
andassurance.
Experience
Richard brings extensive oil & gas and
financial experience to the role. He has
been acting as Interim CFO since April
2022 and has been with Tullow for over
11 years. During that time Richard led
the Tullow Finance team, supporting a
number of acquisitions, disposals and
capital markets transactions. Richard
played a significant role in the continued
turnaround of Tullow with the successful
rebasing of Tullow’s cost structure, the
resetting of the balance sheet and the
change to a more focused capital
allocation. Richard is a Chartered
Accountant and he joined Tullow from
Ernst and Young LLP where he worked
in the audit and assurance practice.
Current external roles
None.
1. Phuthuma Nhleko
Independent non-executive
Chair
Age: 62
Tenure: <2 years
Appointment: October 2021
Independent: Yes
Key strengths
Executive leadership, public company
governance and leadership, emerging
markets, engineering, investor
relations, corporate finance, business
development, risk management,
technology and innovation.
Experience
Phuthuma brings extensive emerging
markets experience to Tullow having
worked successfully across Africa over
the past three decades. Phuthuma was
Chief Executive of MTN Group, the
leading pan-African telecommunications
company, from 2002 to 2011. During his
time with MTN, the Group grew rapidly
in Africa and the Middle East, gaining
over 185 million subscribers tobecome
one of the largest listed companies in
Africa. In 2013, Phuthuma returned to
MTN as a non-executive Director and
Chairman until 2019. This included a
period as Executive Chairman from
2015 to 2017. He remained part of the
international advisory board for the
business until August 2021. After
stepping down asChief Executive of
MTN in 2011, Phuthuma was a
non-executive Director at BP plc (2011–16)
and Anglo-American plc (2011–15). He
also served previously on the Boards of
Nedbank and Old Mutual in South Africa.
Current external roles
Phuthuma is Chairman of Phembani
Group, an investment group which
hefounded in 1994, and is Chairman of
the Johannesburg Stock Exchange Ltd.
Phuthuma is also a non-executive
Director of South African downstream
energy company, Engen Petroleum, and
a non-executive Director of IHS Towers,
the NYSE-listed Emerging Markets
Telecom Infrastructure Provider.
Board of Directors
4. Mike Daly
Non-executive Director
Age: 69
Tenure: 8 years
Appointment: June 2014
Independent: Yes
Key strengths
Upstream business, exploration
andappraisal executive leadership,
business development, executive and
public company leadership, technology
and innovation, environment, health,
safety and sustainability.
Experience
Mike brings significant upstream
experience to Tullow from a 40-year
career in the oil and gas business. Mike
spent 28 years at BP plc where he held
a number of senior executive and
functional roles within the exploration
and production division across Europe,
South America, the Middle East and
Asia, including eight years as head of
exploration and new business
development. He also served on
BP’sexecutive team as executive vice
president exploration, accountable
forthe leadership of BP’s exploration
business. Mike was a member of the
World Economic Forum’s Global Agenda
Council on the Arctic and has served on
the advisory board of the British
Geological Survey. He is a visiting
professor at the Department of Earth
Sciences, Oxford University. He holds
aBSc in Geology from the University
College of Wales and a PhD in Geology
from Leeds University. Mike is also
agraduate of the Program for
Management Development, Harvard
Business School, and in 2014 was
awarded The Geological Society of
London’s Petroleum Group Medal.
Current external roles
Non-executive director of Compagnie
Générale de Géophysique, a global
provider of geoscience and geophysical
services to the oil and gasindustry,
where he is chair of thehealth, safety,
environment and sustainable
development committee and a member
of the investment committee. President
of the Geological Society of London,
aregistered UK charity.
N
1
2
3
S
N
4
A
5
A
9
6
S
R
7
S
R
8
N
R
Tullow Oil plc
2022 Annual Report and Accounts
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Industries Transparency Initiative.
Sheila holds a BA from the University
ofBotswana and an MBA from the
Edinburgh University Business School.
Current external roles
Sheila is currently a member of
theAdvisory Board of the Centre for
Sustainable Development Investment,
Columbia University, and the audit
committee of the United Nations Oce
of Operations, a non-executive director
of the Development Partner Institute,
anon-executive director of Base
Resources Limited and a non-executive
Director of The Metals Company, which
is listed on the NASDAQ Stock Exchange
in New York.
7. Mitchell Ingram
Non-executive Director
Age: 60
Tenure: 3 years
Appointment: September 2020
Independent: Yes
Key strengths
Upstream business, corporate finance,
accounting and audit, business
development, risk management,
executive leadership, investor and
government relations.
Experience
Mitchell brings a wealth of oil and gas
executive experience to Tullow, having
established a distinguished career
spanning over 28 years of experience in
the oil and natural gas industry. Mitchell
joined Anadarko in 2015 and became
executive vice-president of International,
Deep Water, and Exploration in 2018.
Prior to this, he served as development
director and then asset general
manager for the Karachaganack field in
Kazakhstan atBG Group, following his
time as managing director of QGC
Australia. Mitchell began his career at
Occidental and spent 22 years in a
number of technical and operational
roles in the UK North Sea, Qatar and
Libya. Mitchell holds a BSc in
Engineering Technology from Robert
Gordon University in Aberdeen.
Current external roles
None.
8. Genevieve Sangudi
Non-executive Director
Age: 46
Tenure: 4 years
Appointment: April 2019
Independent: Yes
Key strengths
Corporate finance, accounting and
audit, business development, risk
management, executive leadership
andinvestor relations.
Experience
Genevieve brings considerable
marketing, investment and fund
management experience to Tullow from
5. Martin Greenslade
Senior Independent Director
Age: 58
Tenure: 4 years
Appointment: November 2019
Independent: Yes
Key strengths
Corporate finance, accounting and audit,
risk management and executive and
public company leadership.
Experience
Martin, a chartered accountant,
bringsextensive corporate financial
experience to Tullow from a 35-year
career in the property, engineering and
financial sectors in the UK and across
Africa, Scandinavia and Europe. From
2005 to 2021 Martin waschief financial
ocer at Land Securities Group plc,
alisted UK real estate company.
Previously, he spent five years as
groupfinance director of Alvis plc, an
international defence and engineering
company. Martin holds an MA in
Computer and Natural Sciences from
Cambridge University and is also a
graduate of the Stanford Executive
Program, Stanford UniversityCalifornia.
Current external roles
Martin is a board trustee of the UK
armof International Justice Mission,
ahuman rights charity focused on
protecting the poor from violence
andending human slavery.
6. Sheila Khama
Non-executive Director
Age: 65
Tenure: 4 years
Appointment: April 2019
Independent: Yes
Key strengths
Extractives project and policy
reform,executive leadership,
corporategovernance, business
development, public–private
partnership and sustainability.
Experience
Sheila brings to Tullow a wealth of
executive experience in the banking
and natural resources sectors across
Africa. Sheila served as the chief
executive ocer of De Beers Botswana
from 2005 to 2010, after which she
served as a director of the extractives
advisory programme at the African
Centre for Economic Transformation.
In2013, Sheila took up a position as
director of the Natural Resources
Centre at the African Development
Bank, Abidjan, Côte d’Ivoire. Sheila
subsequently became a policy adviser
at the World Bank in Washington in
2016. In both roles she advised host
governments on sustainable
development policies for natural
resources. During this time she also
represented the African Development
Bank as an observer on the international
board of directors of the Extractive
Committee membership key
Committee Chair
A
Audit Committee
N
Nominations Committee
R
Remuneration Committee
S
Safety and Sustainability Committee
Board composition
statistics
a 22-year career in the financial sector
in the US and across Africa. Genevieve
began her career in business
development as a marketing executive
at Procter & Gamble, Boston, before
joining Emerging Capital Partners, a
pan-African private equity firm, as
apartner and managing director. At
Emerging Capital Partners Genevieve
served on the boards of portfolio
companies working closely with the
executive teams and set up the
company’s operations in Nigeria. Since
2011, Genevieve has been managing
director, Sub-Saharan Africa, for the
American private equity company
Carlyle Group, based in Johannesburg,
South Africa, leading on a number of
significant transactions in Gabon,
Tanzania, Nigeria and Uganda.
Genevieve holds aBA from Macalester
College, St Paul, Minnesota, an MA in
International Affairs from Columbia
University, New York, and an MBA from
the Columbia Business School,
Columbia University.
Current external roles
Genevieve is currently managing
director, Sub-Saharan Africa, for the
American private equity company
Carlyle Group.
9. Roald Goethe
Non-executive Director
Age: 63
Tenure: <1 year
Appointment: February 2023
Independent: Yes
Key strengths
Upstream business, finance,
development, executive leadership,
capital markets, M&A.
Experience
Roald is a highly experienced oil and
gas executive with extensive commercial
knowledge of the energy industry in
Africa. In 2006 he founded Delaney
Petroleum Ltd, trading crude oil and
petroleum products predominantly
within West Africa and the Middle East.
Prior to establishing Delaney, Roald
spent 11 years at Trafigura Group,
wherehe had an integral role in the
development of the group’s oil trading
activities, primarily in West Africa.
Roald has an excellent understanding
ofTullow’s business and vision, and he
will provide a unique commercial
andentrepreneurial perspective to
Tullow’sBoard.
Current external roles
Roald is a Director of ROFGO
RacingLimited.
3 Years
average
tenure
0–5 Years 8
6–10 Years 1
Tenure
58 Years
average
age
40–50 Years 2
51–60 Years 3
61–70 Years 4
Age
23%
female
Male 7
Female 2
Gender
British 5
Motswana 1
South African 1
Tanzanian 1
German 1
Nationality
77%
independent
Independent 7
Non-independent 2
Independence
Tullow Oil plc
2022 Annual Report and Accounts
62
Stakeholder engagement
Engaging with our
stakeholders
- Throughout the year, Tullow management and the
Investor Relations team met both virtually and
physically with investors to discuss operational
and financial performance. Significant
engagement was also carried out with regards to
the proposed combination with Capricorn, which
was terminated in October 2022.
- Tullow attended a number of equity and debt
conferences during the year; and hosted a large
number of group and 1-2-1 meetings with current
or prospective investors. This included a dedicated
webinar for Retail Investors to engage with this
important part of our shareholder base.
- The Chair and Senior Independent Director
metwith major shareholders to discuss
governance issues.
- Tullow hosted a hybrid Annual General Meeting
which was also attended by the Directors and a
number of investors. At the AGM on 25 May 2022,
asignificant number of votes were cast against
Special Resolution 14 (43.95%) to authorise the
Board to allot or sell equity securities for cash) and
Special Resolution 16 (24.44%) to authorise the
Company to make market purchases of its own
shares. Members of the Board have since engaged
with our major shareholders who voted against the
resolutions and have received their feedback,
which will be incorporated into the Board’s
considerations and communications in the lead
upto the next AGM in 2023.
- The Chair had the opportunity to meet H.E. the
President of Ghana and other government ocials
in April. The CEO also had quarterly updates with
H.E. the President in Accra and London.
Additionally, the CEO, other senior business leaders
proactively engaged with several other government
ocials, including the Minister of Energy, Minister
of Finance, Minister of State for Finance, and senior
ocials of Petroleum Commission, Ghana National
Petroleum Corporation and Ghana National Gas
Company Ltd., among others.
- The Non-Executive Board members Martin
Greenslade and Mitchell Ingram also engaged with
the Vice President of Ghana during a working visit
to Ghana in November. Members of the Tullow
Ghana Advisory Board also had the opportunity to
engage with HE the President of Ghana, the
Minister of Energy, Bank of Ghana and other senior
government ocials.
- In November, Tullow held its inaugural “Ghana
Energy Evening” in London. The event, hosted
jointly by the CEO and Ghana’s High Commissioner
to the United Kingdom and the Republic of Ireland,
was Tullow’s maiden platform to engage with
Ghanaian diaspora in the United Kingdom.
- The CEO and other senior business leaders met the
Minister of Mines, Hydrocarbon and Energy for Côte
d’Ivoire at Africa Oil Week in Capetown.
- The CEO met Gabon’s Minister of Water, Forest, the
Sea and Environment, the Minister of Foreign
Affairs and the Secretary General of the Presidency
in London during the Commonwealth Gabonese
flag raising event.
- Additionally, the CEO met virtually with many of our
key stakeholders across our business in connection
with Tullow’s major transactions during the year.
- In 2023, Tullow’s Chair will meet with a range of
keystakeholders from across Tullow’s countries
ofoperations.
- Non-executive Directors of the Board met
withmembers of the Tullow Advisory Panel on
fouroccasions during the course of the year.
Thesemeetings provided an opportunity to gather
feedback from employees to help shape decisions
with regards to improving our overall Employee
Value Proposition. Such feedback led to the launch
of some significant initiatives to improve further
the Tullow employee experience in areas such as
performance management, hybrid working and
compensation policies.
- The CEO and the Senior Leadership Team hosted
regular virtual town hall events which included
open Q&A throughout the year, which was
complemented by an Employee Engagement
Survey conducted in the second quarter of 2022.
- As travel restrictions lifted, the CEO and Senior
Leadership Team were able to meet with our
employees across our locations in person, hosting
many small group discussions.
Our investors
Our host nations
Our people
Our key stakeholders How the Board engaged
Strong relationships built on trust remain key to
thedelivery of the Company’s strategy and goals.
During2022 frequent engagement was carried out with
our investors, host nations and Tullow staff. This was
carriedout by the Chairman, Executive Directors and
non-executive Directors. Feedback was then regularly
communicated to the Board as a whole and taken into
consideration during Board decision making.
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Tullow Oil plc
2022 Annual Report and Accounts
63
Financial statements Supplementary informationStrategic Report Governance Report
Audit Committee report
Dear shareholder
The Audit Committee continues to focus on ensuring that Tullow
has a strong system of financial and non-financial controls, risk
management processes and internal audit programme. In
particular, the Audit Committee’s activities in 2022 included
oversight of Tullow’s financial reports, disclosures in key
transactional documents, as well as assessing the effectiveness
of the Company’s risk management and internal control
processes. In this report, I also outline key areas of financial
judgement and estimation, which were considered in Tullow’s
accounts and the action taken by the Committee to ensure they
fairly reflect Tullow’s financial position. In 2022 particular focus
was given to judgements made in respect of tax treatments and
the Group’s going concern assessment. The Committee
continued to review the performance of our finance and supply
chain outsourcing partner and reviewed climate risk, including
its TCFD analysis, scenarios and disclosure.
The Committee has monitored the performance of Ernst & Young
LLP as the Company’s statutory external auditor. We continue to
be encouraged by the focus and insight provided by Ernst & Young,
especially in the areas of significant judgements and their use of
data analytics.
The Committee oversaw the appointment of the new Head of
Internal Audit and Risk in 2022. This was particularly important
due to the significant changes that occurred within the
organisational structure of the business and that of the internal
audit function during 2020 and 2021. The focus on delivery of
Internal Audit in 2022 led to an increase in the number of internal
audits performed, with 15 completed in 2022 and one in progress
at the year end.
The Committee also met with the Group Head of Ethics and
Compliance and received updates on matters including the Code
of Ethical Conduct, avenues available to our staff and suppliers
for speaking up, and procedures for the detection and prevention
of fraud.
Based on the results of the annual effectiveness review of risk
management and internal control, the Audit Committee
concluded that the system of internal controls operated
effectively throughout the financial year and up to the date on
which the Financial Statements were signed. There were areas
identified for improvement and the Audit Committee is confident
that they are in the process of being addressed.
During 2022, the Financial Reporting Council (FRC) reviewed
Tullow’s Annual Report and Accounts for 2021 in their sample
forthe thematic review of judgement and estimate disclosures.
We are pleased with the outcome of the review and no questions
or queries were reported by the FRC. It did, however, suggest
some improvements around the Group’s disclosures on certain
areas of judgement and uncertainty, which have been addressed
in our 2022 Annual Report where material and relevant. The FRC’s
role is to consider compliance with reporting standards and is
not to verify the information provided. Therefore, given the scope
and inherent limitations of their review, which does not benefit from
any detailed knowledge of the Group, it would not be appropriate
to infer any assurance from their review that our 2021 Annual
Report and Accounts are correct in all material respects.
Before advising the Board on the approval of the 2022 Annual Report
and Accounts, the Committee asked the Senior Leadership Team
to demonstrate to the Committee its processes and procedures for
ensuring that the report contains the relevant information necessary
for shareholders to assess Tullow’s position, performance, business
model and strategy and that it is fair, balanced and understandable.
Furthermore, the Committee, in conjunction with the Board
provided detailed feedback to Management on the 2021 Annual
Report and Accounts process, which has been addressed
through the 2022 process.
Martin Greenslade
Chair of the Audit Committee
7 March 2023
Martin Greenslade
Chair of the Audit Committee
“
The Committee continued to
review the performance of
the Group’s control
environment and
strengthened risk
management process.
”
Martin Greenslade
Chair of the Audit Committee
Audit Committee Report
Tullow Oil plc
2022 Annual Report and Accounts
64
Governance
Martin Greenslade was appointed Audit Committee Chair in 2020
following the AGM. Martin is a Chartered Accountant. He was
Chief Financial Ocer at Land Securities Group plc from 2005
to2021 thus meeting the requirement of the UK Corporate
Governance Code for the Audit Committee to have at least one
member who has recent and relevant financial experience.
Theother members of the Audit Committee during the year
wereMike Daly, Genevieve Sangudi and Jeremy Wilson.
Genevieve Sangudi joined the Committee in September in
advance of Jeremy Wilson stepping off the Committee in
October. Together, the members of the Committee demonstrate
competence in finance, the oil and gas industry and investing in
Africa. Mike Daly has significant prior experience in oil and gas
companies and Genevieve Sangudi has considerable pan-African
and North American marketing, investment and fund management
experience. The Company Secretary serves as the secretary
tothe Committee.
The Chief Financial Ocer, the Group General Counsel, the Group
Financial Controller, the Head of Internal Audit and Risk and
representatives of the external auditor are invited to attend each
meeting of the Committee and participated in all of the meetings
during 2022. The Chair of the Board and the CEO also attend
meetings of the Committee by invitation and were present at
most of the meetings in 2022. The external auditor and the
Headof Internal Audit and Risk have unrestricted access to
theCommittee Chair.
In 2022, the Committee met on five occasions and also held
conference calls between meetings to consider specific items.
Meetings are scheduled to allow sucient time for full
discussion of key topics and to enable early identification and
resolution of risks and issues. Meetings are aligned with the
Group’s financial reporting calendar.
The Committee reviewed its terms of reference during the year
to ensure they comply with relevant regulation, including the UK
Corporate Governance Code 2018, the Companies Act 2006, the
FRC’s 2016 Guidance on Audit Committees, the FRC’s 2014
Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting and the FRC’s Revised Ethical
Standards 2019. The Audit Committee’s terms of reference can be
accessed via the corporate website. The Board most recently
approved the terms of reference on 30 November 2022.
Summary of responsibilities
The Committee’s detailed responsibilities are described in its
terms of reference and include:
- monitor the integrity of the Financial Statements of the Group,
reviewing and reporting to the Board on significant financial
reporting issues and judgements including going concern and
viability statement assessments;
- review and, where necessary, challenge the consistency of
significant accounting policies, and whether appropriate
accounting standards have been used;
- review the content of the Annual Report and Accounts and
advise the Board on whether it is fair, balanced and
understandable and if it provides the information necessary
for shareholders to assess Tullow’s position, performance,
business model and strategy;
- monitor and review the adequacy and effectiveness of the
Company’s internal financial controls and internal control and
risk management systems;
- consider the level of assurance being provided on the risk
management and internal controls systems and whether it
issucient for the Board to satisfy itself that they are
operating effectively;
- review the adequacy of the whistleblowing system, and the
Company’s procedures for detecting and preventing fraud;
- review and assess the annual Internal Audit Plan, its alignment
with key risks of the business and coordination with other
assurance providers and receive a report on the results of the
Internal Audit function’s work on a periodic basis;
- oversee its relationship with the external auditor including
assessing its independence and objectivity, review the annual
audit plan to ensure it is consistent with the scope of the audit
engagement, and review the findings of the audit;
- meet with the Chief Petroleum Engineer and receive reports
from the independent reserves auditor (TRACS);
- assess the qualifications, expertise and resources of the
external auditor and the effectiveness of the audit process; and
- oversee the system of ethics and compliance, including its
procedures to prevent bribery and corruption, and response to
any significant instances of non-compliance.
Key areas reviewed in 2022
The Committee fully discharged its responsibilities during the
year and the following describes the work completed by the
Audit Committee in 2022:
Annual Report
For the Audit Committee and the Board to be satisfied with the
overall fairness, balance and clarity of the final report, the
following steps are taken:
- collaborative approach taken by the Group, with support
fromthe Executives and Group functions and direct input
fromthe Board;
- a central dedicated project team working closely with our
external auditor;
- early engagement and planning, taking into consideration
investors’ feedback, regulatory changes and leading practice;
- comprehensive guidance issued to key report contributors
across the Group;
- validation of data and information included in the report both
internally and by the external auditor;
- a series of key proof dates for comprehensive review across
different levels in the Group that aim to ensure consistency
and overall balance;
- the approach by management and resultant disclosure
associated with climate change and TCFD; and
- Senior Management and Board review and sign-off.
Audit Committee report continued
Tullow Oil plc
2022 Annual Report and Accounts
65
Financial statements Supplementary informationStrategic Report Governance Report
Financial reporting
As part of the financial reporting process, the Committee kept under review ongoing and emerging financial reporting risks and
judgements. The Committee met in September 2022 to review half-year Financial Statements and in November 2022 to discuss an
initial view of key financial reporting risks and judgements before the year end process. Finally, the Committee met for the full-year
accounts approval in February 2023. At each stage of the process, the Committee considered the key risks identified as being
significant to the 2022 Annual Report and Accounts as well as accounting policy changes and their most appropriate treatment
anddisclosure. The primary areas of judgement considered by the Committee in relation to the 2022 accounts and how these were
addressed are detailed below. The related Group accounting policies can be found on pages 119 to 130.
Significant financial judgements
and areas ofestimation How the Committee addressed thesejudgements and areas of estimation
Carrying value of
intangible exploration
and evaluation assets
A detailed accounting paper was received by the Committee from Management on the Group’s exploration and
evaluation assets, with a separate paper for Kenya, given its materiality. The papers documented Management’s
assessment of indicators for impairment and, if required, showed calculations for the impairments. The Committee
reviewed these papers and challenged Management’s position, with particular focus on the Kenya development
project given key changes to the project in 2022, at the February 2023 Audit Committee meeting.
The Committee supported Management’s assessment that an impairment was not required in respect of Kenya based
on the judgemental assessment performed.
Carrying value of
property, plant and
equipment (PP&E)
The Committee received and reviewed the papers prepared by Management on the Group’s oil price and discount rate
assumptions, which are used in the assessment of the carrying value of PP&E. At the September 2022, November 2022
and February 2023 Audit Committee meetings these assumptions were challenged by the Committee compared to
independent oil price forecasts. The Committee also challenged the Company’s calculation of discount rates, with
particular focus on the asset and exploration risk adjustments made by Management to a peer group weighted
average cost of capital.
At the September and February Audit Committee meetings the Audit Committee reviewed and challenged detailed
papers on Management’s assessment of impairment triggers and resulting impairment tests for PP&E. The Committee
gave particular focus to TEN, given the materiality of historical impairments made to that asset. The Committee also
discussed the Group’s reserves and resources with the Group’s principal external reserves auditor, TRACS, at the
February Committee meeting to gain comfort over Management’s view of the carrying value of PP&E. The Committee
concurred with the impairments proposed by Management and ensured there was an adequate disclosure of this
judgement in the Annual Report and Accounts.
Going concern
andviability
A detailed accounting paper and cash flow analysis was prepared by Management and provided to the Committee,
which then reviewed and challenged the assumptions and judgements in the underlying going concern and viability
statement forecast cash flows. The Committee discussed with Management the risks, sensitivities and mitigations
identified by Management to ensure the Company can continue as a going concern. The Committee also discussed the
five-year time horizon used by Management for the viability statement which extends beyond the revised debt
maturities following the refinancing in 2021.
The Committee concurred with Management’s assessment and ensured there was an adequate disclosure of this
judgement in the Annual Report and Accounts.
Ghana Pre-emption
A detailed paper was prepared by Management and reviewed by the Committee documenting the background and the
accounting treatment of Tullow’s acquisition of additional interest in TEN and Jubilee fields in Ghana and its impact on
the Group results. The acquisition of additional interests in TEN and Jubilee by the Group has met the definition of a
business combination under IFRS 3 and has been accounted for using the acquisition method. This required the Group
to fair value assets acquired and liabilities assumed at the acquisition date which gave rise to a gain on bargain
purchase recognised in the income statement during the year.
Provisions
A detailed accounting paper was prepared by Management on provisions and reviewed by the Committee.
Thisincluded a summary of independent legal advice on such disputes where appropriate. The Committee regularly
monitors the risk by receiving regular summaries of all open litigations and disputes as part of the Group’s Quarterly
Performance reporting. The Committee challenged Management’s position at the December and March Audit
Committee meetings. The Committee concurred with Management’s assessment and ensured there was
anadequatedisclosure of this judgement in the Annual Report and Accounts.
Uncertain tax
andregulatory
treatments
Detailed accounting papers on all tax and regulatory exposures were prepared by Management for the Committee’s
review. Where relevant, the papers included summaries of external legal or tax advice on particular tax claims and
assessments received. The Committee also met with the Head of Tax in the September and February meetings to
discuss and challenge the key judgements and estimates made including the likelihood of success and the quantum of
the total exposure for which provision had been made. The Committee concurred with Management’s assessment and
ensured there was an adequate disclosure of this judgement in the Annual Report and Accounts.
Tullow Oil plc
2022 Annual Report and Accounts
66
Audit Committee report continued
External auditor
Making recommendations to the Board on the appointment or
re-appointment of the Group’s external auditor, overseeing the
Board’s relationship with the external auditor and overseeing
theselection of a new external auditor, and assessing the
effectiveness of the external audit process is a key responsibility
of the Audit Committee.
- The UK Corporate Governance Code states that the Audit
Committee should have primary responsibility for making a
recommendation on the appointment, re-appointment or
removal of the external auditor. On the basis of the competitive
tender process carried out in 2018, the Committee
recommended to the Board the appointment of Ernst & Young
LLP as Tullow’s statutory auditor for the 2021 financial year,
which was approved by shareholders at the 2021 AGM. Under
current regulations, the Group will be required to retender the
audit by no later than the 2030 financial year.
- The external auditor is required to rotate the audit partner
responsible for the Group audit every five years. Mr Paul Wallek
is Ernst & Young LLP’s lead audit partner with effect from 2020.
- The Audit Committee assessed the qualifications, expertise
and resources, and independence of Ernst & Young LLP as well
as the effectiveness of the audit process. This review covered
all aspects of the audit service provided by Ernst & Young LLP,
including obtaining a report on the audit firm’s own internal
quality control procedures and consideration of the audit
firm’s annual transparency reports in line with the UK
Corporate Governance Code. The Audit Committee also approved
the external audit terms of engagement and remuneration.
During 2022 the Committee held private meetings with the
external auditor. The Audit Committee Chairalso maintained
regular contact with the audit partner, Mr Paul Wallek,
throughout the year. These meetings provide an opportunity
for open dialogue with the external auditor without
Management being present.
- Matters discussed included the auditor’s assessment of
significant financial risks and the performance of Management
in addressing these risks, the auditor’s opinion of
Management’s role in fulfilling obligations for the maintenance
of internal controls, the transparency and responsiveness of
interactions with Management, confirmation that no
restrictions have been placed on it by Management,
maintaining the independence of the audit, and how it has
exercised professional challenge.
- In order to ensure the effectiveness of the external audit
process, Ernst & Young LLP conducts an audit risk identification
process at the start of the audit cycle. This plan is presented
tothe Audit Committee for its review and approval and, for the
2022 audit, the key audit risks identified included: oil and gas
reserve estimation; impairment of Kenya exploration and
evaluation (‘E&E’) assets; impairment and impairment reversal
assessment of Oil & Gas assets; manipulation of period-end
manual journals in order to overstate revenue and management
override of controls; accounting for Ghana pre-emption rights
and uncertain tax treatments. These and other identified risks
are reviewed through the year and reported at Audit Committee
meetings where the Committee challenges the work completed
by the auditor and tests Management’s assumptions and
estimates in relation to these risks. The Committee also seeks
an assessment from Management of the effectiveness of the
external audit process. In addition, a separate questionnaire
addressed to all attendees of the Audit Committee and
SeniorFinance Managers is used to assess external audit
effectiveness. As a result of these reviews, the Audit Committee
considered the external audit process to be operating effectively.
- The Committee closely monitors the level of audit and
non-audit services provided by the external auditor to the
Group. Non-audit services are normally limited to assignments
that are closely related to the annual audit or where the work is
of such a nature that a detailed understanding of the Group is
necessary. An internal Tullow standard for the engagement of
the external auditor to supply non-audit services is in place to
formalise these arrangements. It was revised in January 2022
and is reviewed bi-annually. It requires Audit Committee
approval for all non-trivial categories of non-audit work.
Abreakdown of the fees paid in 2022 to the external auditor
inrespect of audit and non-audit work is included in note 4 to
the Financial Statements and summarised on the next page.
- In addition to processes put in place to ensure segregation
ofaudit and non-audit roles, Ernst & Young LLP is required,
aspart of the assurance process in relation to the audit, to
confirm to the Committee that it has both the appropriate
independence and the objectivity to allow it to continue to
serve the Members of the Company. This confirmation is
received every six months and no matters of concern were
identified by the Committee.
Allocation of Audit Committee time* (%)
Oversight of relationship with
the external auditor 5%
Risk management
process and
internal controls
10%
Internal Audit 10%
Financial
reporting and
judgements 70%
Ethics and
compliance 5%
* Percentages are approximate.
Tullow Oil plc
2022 Annual Report and Accounts
67
Financial statements Supplementary informationStrategic Report Governance Report
Internal controls and risk management
Responsibility for reviewing the effectiveness of the Group’s risk
management and internal control is delegated to the Audit
Committee by the Board.
In 2022, the Audit Committee reviewed, discussed and briefed
the Board on risks, controls and assurance, including the annual
assessment of the system of risk management and internal
control, to monitor the effectiveness of the procedures for
internal control over financial reporting, compliance and
operational matters.
The Audit Committee obtained comfort over the effectiveness
ofthe Group’s risk management and internal control systems
through various assurance activities that included:
- audits undertaken by the Internal Audit team;
- enterprise risk management and assurance processes;
- the external auditor’s observations on internal financial
controls identified as part of its audit; and
- regular performance, risk and assurance reporting by the
Business Unit and Corporate teams to the Board.
During the year, in concert with the Board, the Audit Committee
completed a robust assessment of the significant risks facing
the Company, including those that would threaten its business
model, future performance, solvency or liquidity. This
assessment included the identification of emerging risks.
Theassessment process included engagements with the Senior
Leadership Team helping to support understanding, ownership
and accountability of enterprise-wide risks across all layers of
the Company. For each of the principal risk categories, the Board
reviewed the risk strategies to ensure they were still valid and
their associated risk appetites.
Internal Audit periodically presented its findings to the Audit
Committee over delivery of the assurance plan, progress of
issues raised and their timely resolution. On occasions, Senior
Management representatives from the business were also
invited to the Audit Committee to provide updates on key matters
such as the annual tax strategy review and TCFD reporting.
In addition, during the year, the Audit Committee received
reports from the principal independent reserves auditor TRACS
and reviewed the arrangements in place for managing cyber risk
relating to the Group’s critical information systems.
All identified findings were assessed, with no indications of
fraudnoted.
Based on the results of the annual effectiveness review of risk
management and internal control systems, the Audit Committee
concluded that the system of internal controls operated
effectively throughout the financial year and up to the date on
which the Financial Statements were signed. There were areas
identified for improvement and the Audit Committee is confident
that they are in the process of being addressed.
Internal audit requirements
The Audit Committee’s role is to consider how the Group’s
internal audit requirements are satisfied and make relevant
recommendations to the Board. Throughout 2022 the Committee
requested and received reports from Management on its resource
and budget planning for the Internal Audit function in order to
assess the effectiveness of internal audit and satisfy itself that
the quality, experience and expertise of the function is appropriate
for the business. The level of internal resource available to the
function was in line with target from March. Inaddition, the
internal audit function uses external expertise forspecialist
reviews and so the Committee challenged Management to
ensure sucient budget was made available foradditional
external resource where required. The Committee also regularly
provided feedback on progress against the 2022 internal audit
plan and guidance on the prioritisation of certain audits focused
on the effectiveness of the control environment and approved
changes to the Internal Audit plan throughout the year to meet
emerging demands.
- A new Head of Internal Audit and Risk joined the Group in
March 2022. The position’s responsibilities include evaluating
the Group’s assessment of the overall control environment.
- The Committee reviewed and challenged the 2022 programme
of internal audit work developed to address both financial and
overall risk management objectives identified within the Group
during the planning phase. The plan was subsequently
adopted with progress reported at the Audit Committee
meetings. A total of 16 internal audits were planned for 2022
ofwhich 15 were completed with one in progress at the year
end. The plan is dynamic and changes are approved by the
Committee. The primary changes in the plan were due to
re-assessments of the priorities of the organisation and
results of audits completed. Based on the nature of the audits
completed, the assurance performed by Management and
subsequently assessed by the Committee and the scale of
organisation, the Committee believes an appropriate level
ofassurance has been performed over the Group’s internal
control environment.
- Internal Audit also ran a systematic programme of audits of
suppliers’ compliance with commercial and business ethics
clauses, including bribery and corruption, with a focus on
significant and high-risk contracts.
Fees payable to auditor (%)
Non-audit
– Corporate
finance 24%
Audit services
64%
Non-audit
half-year review–
12%
Tullow Oil plc
2022 Annual Report and Accounts
68
Audit Committee report continued
Internal audit requirements continued
- Detailed results from the internal audits were reported to
Management and in summary to the Audit Committee during
the year. Where required, the Audit Committee receives full
reports and details on any key findings. The Audit Committee
receives regular reports on the status of the implementation of
Internal Audit recommendations.
- The Audit Committee assessed the effectiveness of Internal
Audit through meeting with the Head of Internal Audit, its
review and assessment of the Internal Audit Plan and the
results of audits reported.
Whistleblowing procedure
We ensure that an effective whistleblowing procedure is in place.
- In line with best practice and to ensure Tullow works to the
highest ethical standards, an independent whistleblowing
procedure was established in 2011 and operated throughout
2022 to allow staff to confidentially raise any concerns about
business practices. This procedure complements established
internal reporting processes. A new provider to support the
whistleblowing procedure was engaged during 2022. The
whistleblowing policy is included in the Code of Ethical
Conduct which is available to all staff in printed form and on
the corporate intranet. Each member of staff is annually
required to complete an online awareness course to refresh
their knowledge of key provisions of Tullow’s Code of Ethical
Conduct, which was included as a Group-wide KPI. The
Committee considers the whistleblowing procedures to
beappropriate for the size and scale of the Group.
- The Committee receives from the Group Ethics and
Compliance Manager summaries of investigations of
significant known or suspected misconduct by third parties
and employees including ongoing monitoring and following up
of internal investigations.
Review of effectiveness of the Audit Committee
- In late November 2022, the Audit Committee undertook a
review ofits effectiveness during 2022, with the results
reported to the Board. The Committee was considered to be
operating effectively and in accordance with the UK Corporate
Governance Code and the relevant guidance. The feedback
provided has been used to shape the agendas and the annual
rolling agenda of the Committee in 2023.
Tullow Oil plc
2022 Annual Report and Accounts
69
Financial statements Supplementary informationStrategic Report Governance Report
Nominations Committee report
appointment is testament to the Committee and Company’s work
to ensure there is a pipeline of managers who will occupy the
most senior positions in the Company in the future.
The externally facilitated evaluation of the performance of the
Board, its Committees, the Chair and individual Directors was
assisted by Heidrick & Struggles. Among a number of other
search consultants, Heidrick & Struggles have carried out search
processes on behalf of the Company and its Group before, but
have no other connection with the Company. The evaluation was
conducted by first setting out the scope of the evaluation, which
would include assisting the Committee build a view on the skills
and experience it should seek in the next appointments to the
Board, to achieve an appropriate composition to deliver the
Company’s strategy. The process then included individual
interviews, a desktop review of Board materials and an
anonymous online survey tool completed by each of the
Directors and certain key contributors to the Board and
Committees, including the members of the Senior Leadership
Team and the Company Secretary. The facilitator presented its
findings to the Chairman and then the Board. Key strengths
identified were a clear understanding and alignment on the
purpose and strategy of the business but further consideration
should be given to articulating, energising and galvanising both
internally and externally the longer-term strategy of the business
through the energy transition. Another key strength identified
was the quality of debate, challenge and dialogue amongst the
Board members, but further consideration should be given to
providing more opportunities for engagement among the Board
members, and the Board members with the Senior Leadership
Team, staff and stakeholders since the risks associated with the
COVID-19 pandemic have subsided in our areas of operation.
Another strength identified was the diversity of experience and
capabilities on the Board but consideration should be given to
focusing on long term succession planning of the Board, looking
years in advance for both Executives and Non-Executives, to
ensure spaced rotations.
Dear shareholder
The main function of the Nominations Committee is to
ensurethat the Board and its Committees are appropriately
constituted and have the necessary skills and expertise to
support the Company’s current and future activities and deliver
its strategy for sustainable long-term success. Below Board
level, the Committee focuses on the recruitment, development
and retention of a diverse pipeline of managers who will occupy
the most senior positions in the Company in the future.
The diversity of a board contributes to its success and I am
pleased that we continue to have a strong African membership
and a strong female membership on the Board.
The key activities of the Committee in 2022 were 1) the search
foranew Chief Financial Ocer and Executive Director, which
resulted in the appointment of Richard Miller with effect from
1January 2023 and 2) commissioning the externally facilitated
evaluation of the performance of the Board, its committees, the
Chair and individual directors.
The appointment of Richard Miller as CFO followed an extensive
externally facilitated search process, assisted by Cripps Sears &
Partners. Among a number of other search consultants, Cripps
Sears & Partners have carried out search processes on behalf of
the Company and its Group before, but have no other connection
with the Company. A diverse and inclusive group of candidates
were shortlisted and interviewed for the CFO role and the
Committee was pleased to ultimately appoint Richard who was
an internal candidate, having previously served as Interim CFO
since April 2022 and Group Financial Controller. Richard brings
extensive oil & gas and financial experience to the role and has
been with Tullow for over 11 years. During that time Richard led
the Tullow Finance team, supporting a number of acquisitions,
disposals and capital markets transactions. Richard played a
significant role in the continued turnaround of Tullow with the
successful rebasing of Tullow’s cost structure, the resetting of
the balance sheet and the change to a more focused capital
allocation. He is a proven leader of Tullow’s culture and his
Phuthuma Nhleko
Chair of the Nominations Committee
“
Identifying and obtaining
theright balance of
competencies to deliver on
our strategy is a priority for
the Committee.
”
Phuthuma Nhleko
Chair of the Nominations Committee
Nominations Committee Report
Tullow Oil plc
2022 Annual Report and Accounts
70
Nominations Committee report continued
A number of these suggestions for consideration have already
resulted in action and response from the Board, including
planning for the Board’s long-term strategy session in July, visits
by our Non-Executive Directors to our overseas oces in Accra,
including facilities at Takoradi and an offshore FPSO, and the
appointment of recruitment consultants to initiate searches for
anew Non-Executive Director and certain roles within Senior
Management. Several further initiatives have been included
intothe Board’s annual rolling agenda and timetable of events to
address the suggested considerations, and the Chair has also
implemented one on one meetings with each of the Directors
todiscuss their individual feedback.
The Committee is also responsible for ensuring there are plansin
place for the orderly succession of Senior Manager positions
within the business. The Committee and the Board reviewed the
proposals and arrangements for the recruitment, development
and retention of managers occupying the seniorpositions in the
Company. In 2023, the Committee willcontinue in this work and
will be particularly focused on ensuring the team has the
necessary skills and expertise to deliver the future business
strategy whilst achieving a diverse and inclusive workforce
population with a nationality mix whichis representative of our
assets’ geographic footprint and improves our gender diversity.
Further details of our Inclusion and Diversity policy and how it
has been implemented in 2022, including our diversity statistics,
can be found on pages 36 and 37. The Committee is conscious
that, following the resignation of Dorothy Thompson from the
Board on 31 December 2021, the Board is no longer composed of
at least 33% women. However it is pleased that, following my
appointment, the Board has increased its diversity of
nationalities and is more representative of our assets’
geographic footprint. The Committee will continue to review the
diversity of skills and experience at the Board, and the need for
gender diversity remains one of the priorities.
Phuthuma Nhleko
Chair of the Nominations Committee
7 March 2023
Committee’s role
The Committee reviews the composition and balance of the
Board and Senior Managers on a regular basis. It also ensures
robust succession plans are in place for all Directors and Senior
Managers. When recruiting new Executive or non-executive
Directors, the Committee appoints external search consultants
to provide a list of possible candidates, from which a shortlist is
produced. External consultants are instructed that diversity is
one of the criteria that the Committee will take into consideration
inits selection of the shortlist. The Committee’s terms of reference
are reviewed annually and are set out on the corporate website.
Committee’s main responsibilities
The Committee’s main duties are:
- reviewing the structure, size and composition of the Board
(including the skills, knowledge, experience and diversity of its
members) and making recommendations to the Board about
any changes required;
- identifying and nominating, for Board approval, candidates
tofill Board vacancies as and when they arise;
- succession planning for Directors and other SeniorManagers;
- reviewing annually the time commitment required of
non-executive Directors; and
- making recommendations to the Board regarding membership
of the Audit, Remuneration and other Committees in
consultation with the Chair of each Committee.
Committee membership and meetings
The membership and attendance of the Committee meetings
held in 2022 are shown on page 56.
In addition to three formal meetings, the Committee held several
informal discussions, telephone conference calls and interviews
during the year and were assisted in the critical decisions arising
from these discussions through consultation with the whole Board.
Tullow Oil plc
2022 Annual Report and Accounts
71
Financial statements Supplementary informationStrategic Report Governance Report
Safety and Sustainability Committee report
The Committee continued to the review the progress of the Net
Zero Plan; the decarbonisation initiatives identified to reduce
emissions and eliminate routing flaring on Jubilee and TEN and
progress in identifying nature-based carbon offset opportunities
in Ghana, that included the completion of a Feasibility Study
andsigning of a Letter of Intent with the Forestry Commission in
late2022.
Mitch Ingram
Chair of the Safety and Sustainability Committee
7 March 2023
Dear shareholder
The Safety and Sustainability Committee monitors the
performance and sets the forward-looking agenda for the
Company in relation to Safe Operations, Shared Prosperity,
Environmental Stewardship and Equality and Transparency.
The Committee also executes in-depth reviews of strategically
important areas of concern for the Group. In 2022 the Committee
continued to recognise the importance of process safety and
particularly the need for a focus on asset integrity and maintenance
in Ghana with performance reviewed at each Committee
meeting. There was also renewed focus on maximising the
learning from both occupational and process safety related
incidents across every part of the business, including the
non-operated part of our activities.
The Committee also had several deep dives relating to progress
on taking over the operations and maintenance (O&M) of the
KNKFPSO in Ghana from mid-2022. The Committee reviewed
theplans for implementation ahead of the project and also
continues to monitor progress since the transfer of operatorship
took place.
Tullow continued to review its overall approach to sustainability,
with a focus on embedding sustainability in the organisation.
This involved regular review of the performance of our Net Zero
plan; our socio-economic investments; our local content plans
and also the performance of our teams and their engagement.
The Group reviewed its business for a fourth year against the
recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD) and was particularly pleased when the
Financial Reporting Council, recognised our disclosure as an
example of better practice in articulating the likely timing of any
impacts of climate change.
Mitch Ingram
Chair of Safety and Sustainability Committee
“
The Committee continued to
review the Groups safety and
environmental performance
and the progress achieved
throught the year,
embeddingSustainability
inour organisation.
”
Mitch Ingram
Chair of the Safety and Sustainability
Committee
Safety and Sustainability Committee report
Tullow Oil plc
2022 Annual Report and Accounts
72
Safety and Sustainability Committee report continued
Committee’s role
The Committee’s role is to monitor the performance and key
risksthat the Company faces in relation to safety and sustainability.
The Committee oversees the processes and systems put in place
by the Company to meet our stated objectives of protecting
employees, the communities in which we operate and the
naturalenvironment, and potential future changes in external
market drivers.
Additionally, it monitors the effectiveness of operational
organisations across the Company in delivering continuous
improvement in EHS through reviewing a wide range of EHS
leading and lagging indicators to gain an insight into how EHS
policies, standards and practices are being implemented.
The Committee continues to review high-potential incidents
(seven in 2022), especially where they have occurred repeatedly
in one location or activity.
During 2022 we reviewed incident trends, including events
where there was a loss of containment of a hazardous fluid in
order to identify common causations and ensure that improvement
activities, including initiatives/campaigns, were appropriately
targeted. The Committee also scrutinises the outcome of audits
and investigations and importantly the closure of related actions.
Additionally, the Committee reviews Tullow’s broader sustainability
performance against our goals, aligned to our overall purpose
and business strategy. This includes receiving updates on
Tullow’s performance as evaluated by ESG ratings agencies,
ourshared prosperity performance, progress of our Net Zero
strategy and also the health of the organisation through
employee engagements.
Committee’s main responsibilities
The Committee’s main responsibilities are:
- to review and provide advice regarding the Safety and
Sustainability, Climate and Human Rights policies of
theCompany;
- to monitor the performance, including regulatory compliance,
of the Company in the progressive implementation of its
environmental, health, security and asset protection, and
safety policies, including process safety management;
- to review matters relating to material environmental, health,
security and asset protection, and safety risks, and to consider
material regulatory and technical developments in the fields
ofenvironmental, health, security and asset protection, and
safety management;
- to review the pathways to decarbonise Tullow’s operations,
and the associated costs and risks and to approve the
timeframe in which Tullow intends to achieve Net Zero; and
- to review Tullow’s approach to delivering shared
prosperity,including local content, social investment
andsocial performance.
The Committee’s terms of reference are reviewed annually and
are available on the corporate website.
The Committee currently comprises four non-executive
Directors. The membership of the Committee and attendance
throughout the year is set out on page 56. The Committee is
supported by the Company Secretary and the principal members
of the Senior Leadership Team who report to the Committee are
Julia Ross, Director of People and Sustainability and Wissam
Al-Monthiry, Ghana MD.
The safety and sustainability related KPIs that the Company
measured its performance on in 2022 can be found on pages 79
and 80 of this report.
The Committee’s focus in 2023
- A continuing emphasis on process safety, the asset integrity in
Ghana, topsides and subsea.
- Continually improving performance of safety, operational,
environmental and risk management.
- Reviewing the capability and organisation to deliver safety and
sustainability performance.
- Ensuring sustainable value creation through the delivery of the
sustainability strategy.
- A continuing focus on progress of the Net Zero delivery plan in
the near term (elimination of flaring by 2025) and the long-
term Net Zero on scope 1 and 2 emissions, on a net equity basis
by 2030.-
For our SECR disclosures, please go to pages 36 and 37 of the
Strategic Report.
Tullow Oil plc
2022 Annual Report and Accounts
73
Financial statements Supplementary informationStrategic Report Governance Report
Remuneration report
The Remuneration Committee is focused on
ensuring Executive Directors and Senior
Managers are rewarded for promoting the
long-term sustainable success of the Company
and delivering on its strategy.
Dear shareholder
On behalf of the Board, I am presenting the Remuneration
Committee’s report for 2022 on Directors’ remuneration.
Thereport is divided into three main sections:
- this Annual Statement, which contains a summary of
performance and pay for 2022, the Committee’s activities
during the year, and the proposed changes to the Directors’
Remuneration Policy for 2023;
- the 2022 Annual Report on Remuneration, which provides
details of the remuneration earned by Directors in the year
ended 31 December 2022 and how the Policy will be operated
in 2023; and
- the Directors’ Remuneration Policy Report, which will be
subject to a binding vote at the 2023 AGM and sets out the
forward-looking Directors’ Remuneration Policy for the
Company for the next three years.
2022 context
The year has been one of continued progress, with strong
operational delivery and rigorous focus on costs and capital
discipline. This resulted in free cash flow of $267m, beating
expectations and accelerating the Group’s deleveraging towards
a net debt to EBITDAX ratio of 1.3 times and liquidity headroom of
c.$1.1 billion by the year-end. This performance was driven by
revenues of c.$1.7 billion (including hedge costs of c.$313 million)
at an average realised oil price (post hedging) of $87/bbl.
2022 was the second successive year of industry top quartile
safety performance, with no recordable incidents in the year and
one Tier 2 LOPC.
There were significant operational achievements, with Ghana
facilities uptime of c.97% and four Jubilee wells and two Enyenra
wells brought online and the transition of operatorship on the
Jubilee FPSO to our internal teams resulting in increased uptime
and reduced operating costs. We also executed an Interim Gas
Sales Agreement for 19 bcf of Jubilee gas in December,
representing the first commercialisation of Jubilee gas.
We have also made progress on our ESG strategy, with
decarbonisation work continuing across the portfolio and a
Letter of Intent signed with the Ghana Forestry Commission in
December for a nature-based carbon offset project. The Final
Investment Decision for this project is expected in 2023. During
2022, Tullow continued to invest in education and enterprise
across our host nations, supporting a range of programmes from
primary to tertiary education and creating new entrepreneurship
opportunities in Ghana and Kenya. Thousands of beneficiaries of
these programmes are now leveraging new knowledge and skills
as productive members of their communities. Tullow’s multi-year
flagship senior high school programme has provided accommodation
and classroom facilities for 3,000 pupils, increasing school enrolment.
Earlier in 2022 we announced the intention to enter a combination
with Capricorn Energy. The Board were disappointed that
Capricorn subsequently withdrew its support for this proposal.
Despite this, the teams have remained focused on delivery of our
plans, and we are pleased with the operational and financial
progress made during the year to position Tullow for growth.
Genevieve Sangudi
Chair of Remuneration Committee
“
The Remuneration
Committee seeks to
alignreward with the
Company’s strategy, culture
and deliveryof long-term
shareholdervalue.
”
Genevieve Sangudi
Chair of the Remuneration Committee
Annual statement onremuneration
Summary of Executive Director remuneration for 2022
Following the end of the year the Committee reviewed the
performance achieved against the KPI scorecard. The assessment
of 30% of maximum for 2022 reflects the continued progress led
by the Executive Directors to strengthen Tullow and to position
the Group to create long-term value. The details of the KPI
scorecard can be found on page 15. It was noted that there had
been strong performance across a number of our KPIsincluding
safety, production, business plan implementation and
sustainability. As such, the Committee felt it appropriate to
award a TIP to Rahul Dhir of 120% of salary (i.e. 30% of the
maximum 400% of salary potential), which takes into account
theprogress against annual KPIs and the TSR measurement
period, which commenced 1 July 2020 and ended 31 December
2022. Inline with the Policy, 50% of the TIP award is paid in cash,
with the remaining 50% deferred into shares which vest after
fiveyears.
Board changes
As reported last year, Les Wood stepped down from the Board
on31 March 2022. In line with the terms disclosed last year, he
remained eligible for a TIP award in respect of the 1 January to
31March 2022 period. Based on the scorecard performance
achieved (discussed above), Les received a pro-rated cash TIP
award of 30% of salary. In accordance with the Policy and TIP
rules hedid not receive an award of deferred shares.
In March 2022 we announced that Jonathan Swinney would
joinTullow as Chief Financial Ocer later in the year, and that
Richard Miller would act as interim CFO until that time. Due to the
subsequent discussions with Capricorn regarding the potential
combination, it was mutually agreed with Jonathan that he
would not take up the role at Tullow. The Board were pleased to
confirm in December that Richard would be appointed as CFO
and an Executive Director with effect from 1 January 2023.
Details on Richard’s remuneration for the coming year is
foundon page 85.
Directors’ Remuneration Policy
The current Directors’ Remuneration Policy was approved by
shareholders at the 2020 AGM and therefore expires at the 2023
AGM. Therefore, the Committee undertook a comprehensive
review of the approach to remuneration at Tullow during the
course of 2022. The primary aim of the review was to ensure
thatexecutive remuneration supported and incentivised
performance that delivered long-term value growth.
The current TIP is an unusual structure that was introduced
inadifferent phase of Tullow’s development. From a practical
perspective the Committee has had to adapt the plan to operate
effectively in recruitment scenarios. Following feedback from
focus groups with the wider management team and input from
our major shareholders it was agreed that Tullow should move
away from this structure to better incentivise future value growth.
During 2022 the Committee explored a number of potential
approaches, and subsequently discussed proposals with a
number of ourshareholders with interest representing over 40%
of share capital. Iwould like to take the opportunity to thank
those shareholders for taking the time to review our proposals
and provide comments for the Committee to consider. Based on
this feedback, the proposal has one central element:
Transition from the TIP to a bonus and LTIP model
We intend to move the ongoing incentive package from the TIPto
separate annual bonus and LTIP plans which are more aligned
with market practice amongst our peers and with
theexpectations of our shareholders. The LTIP structure will also
provide a better incentive to achieve forward-looking multi-year
growth targets than the TIP with its backward-looking multi-year
performanceassessment.
This will be a simpler and more transparent approach and willbe
structured in accordance with good practice guidance with
features that align management to the experience of our
shareholders. At least one third of annual bonus awards will
bedeferred into shares for three years and LTIP awards will
besubject to a three-year performance period followed by
atwo-year holding period.
The overall maximum incentive opportunity will remain
unchanged at 400% of salary for Executive Directors but will be
divided up between an annual bonus of up to 150% of salary and
an LTIP award of up to 250% of salary to increase the weighting
toward long-term performance.
The performance measures will be set based on the strategic
priorities at the time. The first LTIP award to be granted in 2023
will be subject to stretching TSR conditions, split between
relative performance (50% weighting) and absolute performance
(50% weighting). Details of the relative TSR peer group and the
absolute TSR targets are found on page 85.
It is proposed that the transition from the TIP to this structure for
our CEO is undertaken in a measured and balanced way, with no
gaps or overlaps in the performance periods that apply to
awards. Therefore for 2023 and 2024 the TIP will continue to be
assessed for our CEO in accordance with the current Policy. The
first LTIP awards will be granted in 2023 and will vest based on
performance to the end of 2025. For our CEO, the first separate
annual bonus award will be made based on performance in 2025.
Our CFO, as a newly appointed Executive Director, will participate
in the annual bonus from 2023 (see illustration on page 93).
Tullow Oil plc
2022 Annual Report and Accounts
74
Remuneration report continued
The proposal has been developed based on the feedback from a
number of our largest shareholders and best practice principles.
The Committee believes that the separate LTIP and annual bonus
will provide for an incentive structure that would more closely
align our management team with the interest of shareholders
and would provide appropriate reward for achieving stretching
value growth targets.
In order to facilitate these awards, we will put forward a resolution
at the 2023 AGM for the 2023 Tullow Executive Share Plan that
will be used to make LTIP awards and deferred bonus awards.
We hope that you are able to support the Policy and this resolution.
Summary of Executive Director remuneration for 2023
Considering the higher inflation environment, the typical pay
increase awarded to UK based employees will be 6.5% and the
Committee has agreed a 3.5% increase for Rahul Dhir which will
apply with effect from 1st April 2023
We have finalised our KPI scorecard for 2023 with a focus on
production, safety, cash flow, sustainability, and unlocking value
through the delivery of critical activities. Details can be found on
page 15. We believe all targets to be suitably challenging.
As discussed above, performance for the 2021 to 2023 period
willcontinue to be rewarded through the TIP, which will be based
50% on relative TSR over three years, and 50% on the KPI
scorecard performance in 2023.
If approved by shareholders, the LTIP awards for 2023 will be
granted following the 2023 AGM, with TSR performance assessed
from 1 January 2023. Details can be found on page 90.
Remuneration arrangements for the wider workforce
As noted in the statement last year, the Committee reviewed the
revised Employee Value Proposition in December 2020 and was
pleased to report its alignment with the Values and culture of the
Company. The Committee has monitored the implementation
and effectiveness of the new arrangements throughout 2021 and
2022 and is confident that the new arrangement continues to
support the high-performance culture encouraged in the
Company. The Committee will continue to consider the
alignment of remuneration arrangements through the workforce
ensuring all employees are rewarded fairly and consistently for
their contribution to the overall Company performance.
Following a review of Ghana remuneration, the committee
supported a workforce pay arrangement which led to the
salaries of our Ghanaian employees being denominated into USD,
with monthly payments converted into and paid in GHS at
prevailing rate. This was due to the ongoing depreciation of the
GHS, inflation increases and following employee feedback and
engagement. The conversion was implemented 1st September
2022 and has been widely appreciated by our employees
inGhana.
Employee engagement and well-being were very much in the
minds of the committee this year and with high levels of inflation
and cost of living challenges impacting our employee, the
committee supported a one-off cost of living payment to
employee’s whose salary was below £50,000 or equivalent.
Tullow Oil plc
2022 Annual Report and Accounts
75
Financial statements Supplementary informationStrategic Report Governance Report
Stakeholder engagement
During the year, members of the Committee met with the
workforce Tullow Advisory Panel (TAP), a staff panel, which
collectively represents Tullow’s global workforce. These
meetings provided an opportunity to gather feedback from
employees to help shape decisions with regards to the ongoing
implementation of the new Employee Value Proposition. Such
feedback led to the launch of some significant initiatives to
improve further the Tullow employee experience in areas
including benefits and compensation policies.
Concluding thoughts
On behalf of the Committee, I would like to again thank
shareholders for providing comments and shaping the final
proposals presented in this report. I hope you are able to
continue to support our approach to remuneration at the 2023
AGM. If you have any comments or questions on any element of
the report, please contact me via our Company Secretary,
AdamHolland, at companysecretary@tullowoil.com.
Genevieve Sangudi
Chair of the Remuneration Committee
7 March 2023
Executive remuneration at a glance
Assessment of TIP Awards
Safety Financial Performance Production Business Plan Implementation
Sustainability Unlocking Value Leadership Effectiveness Total Shareholder Return
100%
0% 10% 20% 30% 40% 50% 60% 70% 80%
90%
Target %
Achieved %
Target
100%
Achieved
30%
5.0% 10%
6.3%
10.0%
4.8%
5.0% 50.0%7.5%
5.6%
5.0%7.5%
5.6%
1.9% 2.6% 3.2%
0.0%
Tullow Oil plc
2022 Annual Report and Accounts
76
Remuneration report continued
Annual Report on Remuneration
Directors’ remuneration (audited)
The remuneration of the Directors for the year ended 31 December 2022 payable by Group companies in respect of qualifying services
and comparative figures for 2021 and 2022 are shown in the table below:
Fixed pay Tullow Incentive Plan
Salary/fees
1
£
Pensions
2
£
Taxable
benefits
3
£
TIP cash
£
Deferred
TIP shares
4
£
Total
£
Total
fixed
pay
Total
variable
pay
Executive Directors
Rahul Dhir 2022 593,050 88,958 20,513 358,440 358,440 1,419,400 702,520 716,880
2021 580,000 87,000 7,010 580,000 606,796 1,860,806 674,010 1,186,796
Les Wood
5
2022 115,374 28,843 32,129 138,449 – 314,795 176,346 134,449
2021 461,500 115,374 78,291 461,495 482,816 1,599,476 655,165 944,311
Subtotal 2022 2022 708,430 117,801 52,642 496,889 358,440 1,734,195 878,867 855,329
Subtotal 2021 2021 1,041,500 202,374 85,301 1,041,495 1,089,612 3,460,282 1,329,175 2,131,107
Non-executive Directors
Dorothy Thompson
6
2022 – – – – – – – n/a
2021 300,000 – – – – 300,000 300,000 n/a
Mike Daly 2022 65,000 – 256 – – 65,256 65,256 n/a
2021 65,000 – – – – 65,000 65,000 n/a
Jeremy Wilson 2022 77,718 – – – – 77,718 77,718 n/a
2021 95,000 – 890 – – 95,890 95,890 n/a
Genevieve Sangudi 2022 73,981 – 10,242 – – 84,223 84,223 n/a
2021 65,000 – – – – 65,000 65,000 n/a
Sheila Khama 2022 65,000 – 9,311 – – 74,311 74,311 n/a
2021 65,000 – – – – 65,000 65,000 n/a
Martin Greenslade 2022 87,962 – 279 – – 88,241 88,241 n/a
2021 85,000 – – – – 85,000 85,000 n/a
Mitchell Ingram 2022 80,000 – 4,210 – – 84,210 84,210 n/a
2021 80,000 – – – – 80,000 80,000 n/a
Phuthuma Nhleko
8
2022 300,000 – 31,064 – – 331,064 331,064 n/a
2021 11,082 – – – – 11,082 11,082 n/a
Subtotal 2022 2022 749,661 – 55,362 – – 805,023 805,023 n/a
Subtotal 2021
(includes former
non-executiveDirectors) 2021 766,082 – 890 – – 766,972 766,972 n/a
Total 2022 1,458,090 117,801 108,004 496,889 358,440 2,539,218 1,683,889 885,329
Total (includes former
non-executiveDirectors) 2021 1,807,582 202,374 86,191 1,041,495 1,089,612 4,227,254 2,096,147 2,131,107
1. Base salaries of the Executive Directors have been rounded up to the nearest £10 for payment purposes, in line with established policy.
2. None of the Executive Directors have a prospective entitlement to a defined benefit pension by reference to qualifying services. Both Rahul Dhir and Les Wood receive
cash in lieu of pension contribution.
3. Taxable benefits comprise private medical insurance for all Executive Directors and any other taxable expenses. Travel and subsistence benefits provided to Executive
Directors and NEDs have also been included on a grossed-up basis as Tullow meets the UK tax liability on their behalf.
4. These figures represent that part of the TIP Award required to be deferred into shares.
5. 2021 benefits for Les Wood include a cash buyout of five days, annual leave equating to £8,875. This was an arrangement forallemployees as a response to the COVID-19
pandemic and the ability to utilise annual leave. Expenses include outplacement services in relation to his planneddeparture.
6. Dorothy Thompson stepped down from the Board on 31 December 2021.
7. Genevieve Sangudi was appointed Chair of the Remuneration Committee following the AGM on 25 May 2022.
8, Phuthuma Nhleko was appointed Non-Executive Director and Chair Designate effective 25 October 2021 and Non-Executive Chair effective 1 January 2022.
9. Jeremy Wilson stepped down from the Board on October 20, 2022.
Tullow Oil plc
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Annual Report on Remuneration continued
Material contracts
There have been no contracts or arrangements during the financial year in which a Director of the Company was materially interested
and/or which were significant in relation to the Group’s business.
Payments to past Directors
No payments were made to past Directors in 2022.
Payments for loss of oce
As announced September 2021, Les Wood stepped down from the Board on 31 March 2022 following publication of Tullow’s
2021results.
Les Wood continued to receive his base salary, pension and benefits through to his departure date. A payment of £265,361 was made
in relation to his base salary, pension and benefits for the remaining 5⁄ months of his notice period. He remained eligible for a TIP
award for service in 2022, subject to performance criteria assessed at the end of the year, as set out in the section below, and
pro-rated for the period of service rendered.
Les was treated as a good leaver for the purposes of outstanding TIP awards. As per the TIP rules, these awards will continue to vest
on their normal vesting dates. Shares will continue to be subject to the post-cessation shareholding requirement for a period of two
years after cessation. The shares that Les holds pursuant to the HMRC tax favoured Tullow Share Incentive Plan will be released on
termination of his employment. Les will also receive a capped contribution of £7,500 towards his legal fees and has been provided
outplacement services.
Determination of 2023 TIP Award based on performance to 31 December 2022 (audited)
The corporate scorecard is made up of a collection of Key Performance Indicators (KPIs) which indicate the Company’s overall
performance across a range of operational, financial, and non-financial measures. The corporate scorecard is central to Tullow’s
approach to performance management and the 2022 indicators were agreed with the Board and focus on targets that were deemed
important for the year. Each KPI measured has a percentage weighting and financial indicators have trigger, base, and stretch
performance targets.
For the Executive Directors, an additional TSR metric was included, which represents a weighting of 50% of the total Company
Scorecard. The Group’s progress against its corporate scorecard is tracked during the year to assess its performance against its
strategy. Following the end of the 2022 financial year, the corporate scorecard KPI performance was assessed as 60% of the
maximum for the workforce and 30% for the Executive Directors taking into account the additional TSR metric. The Committee
issatisfied with the outcome based on the broader view of performance and stakeholder experience.
Tullow Oil plc
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78
Remuneration report continued
Details of variable pay earned in the year
Determination of 2023 TIP Award based on performance to 31 December 2022 (audited)
Details of the performance targets and performance against those targets are as follows:
Performance metric Performance
% of award
(% of salary
maximum)
Actual
Rahul Dhir
Actual
Les Wood
Safety
Measure of Total
Recordable Incident
Rate (TRIR) and Lossof
Primary Containment
(LOPC) Tier 1& 2 as per
IOGP
Health and safety of our staff and everyone who is associated with our operations.
Wehave maintained our strong EHS performance in 2022.
Trigger Base Stretch
2022
Performance
TRIR as per IOGP 0.78 0.64 0.51 0.00
Payout 0% 50% 100% 100%
Trigger Base Stretch
2022
Performance
Number of LOPC Tier 1 & 2
asper IOGP
Tier 1: 1
Tier 2: 2
Tier 1: 0
Tier 2: 1
Tier 1: 0
Tier 2: 0
Tier 1: 0
Tier 2: 1
Payout 0% 50% 100% 50%
In 2022 there were no recordable injuries (versus 2 in 2021) and no process safety events
related to Loss of Primary Containment (LOPC) at Tier 1. There was one Tier 2 LOPC
recorded in 2022.
7.5%
(30)%
5.6%
(23)%
1.4%
(6)%
Financial Performance Key value driver for our business and the delivery of this KPI is driven by cost and
working capitalmanagement.
Trigger Base Stretch
2022
Performance
Operating Cash Flow (OCF)
($mm) 513 570 627 557
Payout 0% 50% 100% 39%
Normalised operating cash flow of $557 million (from our absolute OCF of $972 million) is
close to the midpoint. This has been achieved despite inflationary cost pressure during
the year.
5%
(20)%
2.0%
(8)%
0.5%
(2)%
Production
Targets related to oil
production and vessel
eciency
Trigger Base Stretch
2022
Performance
Group production (kbopb) 55 59 61 57.4
Payout 25% 87% 100% 60%
Trigger Base Stretch
2022
Performance
Jubilee production eciency
(% of uptime) 96% 97% 98% 96.6%
Payout 25% 75% 100% 65%
Trigger Base Stretch
2022
Performance
TEN production eciency
(% of uptime) 97% 98% 99% 97.7%
Payout 25% 75% 100% 67%
The percentage of the award which is payable for the Base level of performance differs
for each measure to reflect the relative challenge associated with each performance
target.
Normalised production of 57.4 kbopb for 2022 (after benefit of the Ghana pre-emption is
deducted from absolute production of 61.1 kbopb). Strong production growth at Jubilee
offsets the production declines at TEN.
10%
(40)%
6.3%
(25)%
1.6%
(6)%
Tullow Oil plc
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Annual Report on Remuneration continued
Details of variable pay earned in the year continued
Determination of 2023 TIP Award based on performance to 31 December 2022 (audited) continued
Performance metric Performance
% of award
(% of salary
maximum)
Actual
Rahul Dhir
Actual
Les Wood
Business Plan
implementation
Budget Adherence
Trigger Base Stretch
2022
Performance
Budget Adherence 1.1 x Mid $426m
2
0.9 x Mid $362m
Payout 0% 50% 100% 100%
Work Programme achieved considering Capex & Performance
Trigger Base Stretch
2022
Performance
Adherence to work
programme 90% 95% 100% 95%
Payout 0% 50% 100% 48%
In 2022 we implemented 95% of the planned activity for the year and below Budget.
7.5%
(30)%
5.6%
(22%)
1.4%
(6%)
Sustainability
Embed
Sustainability
across the
organisation
In 2022, we progressed our Net Zero plan with the continued implementation of our
decarbonisation initiatives and the signing of a Letter of Intent (LoI) with the Ghana Forestry
Commission (FC). The LoI is a key milestone for Tullow in developing a long-term supply of
carbon offsets.
During 2022, Tullow supported STEM education through a range of programmes from primary
to tertiary education across its countries of operation and created new entrepreneurship
opportunities in Ghana and Kenya. Thousands of beneficiaries of these programmes are now
leveraging new knowledge and skills as productive members of their communities.
Tullow’s multi-year flagship senior high school programme has provided accommodation
and
classroom facilities for 3,000 pupils, increasing school enrolment.
There has also been increased focus on local content in 2022 with several new initiatives
with the supplier base in our host countries to raise awareness of business opportunities,
provide practical assistance for businesses and enhance supply chain transparency. Tullow
received the 2022 Ghana Oil and Gas Local Content award in recognition of these efforts.
The above performance delivered in overall accordance with the base target set and
provides a solid foundation on which to build in the future, therefore, a score of 2.6% out of
a possible 5% was deemed as reasonable.
5%
(20)%
2.6%
(10)%
0.6%
(3%)
Unlocking Value Progress in 2022 against the 6 critical actions:
1. Deliver Kenya License extension and farm-down: Engagements to secure a strategic
partner for the development project in Kenya are ongoing
2. Resolve GRA exposure: Tullow continues to engage with the Government of Ghana,
including the GRA, with the aim of resolving these disputes on a mutually acceptable basis
3. Deliver O&M transformation: Successful transition to self-operate on the Jubilee FPSO in
July 2022
4. Implement Ghana gas commercialisation plan: An Interim Gas Sales Agreement for 19bcf
of Jubilee gas was executed in December 2022
5. Complete Ghana pre-emption: Deal completed in March 2022
6. Optimise non-op and exploration portfolio: Targeted resource addition achieved through
securing new licences in Gabon and Côte d’Ivoire and portfolio prospect maturation.
10%
(40)%
4.8%
(19)%
1.2%
(5)%
Leadership
Effectiveness
The Board made a judgement on the performance and decision making of the senior
leadership team over the year. They considered several factors, including the strength and
cohesiveness of the leadership team, a clear strategy being set and understood across the
organisation, a fully engaged workforce, and the successful delivery of business activities
in 2022. The strong performance in 2022 has been driven by the unrelenting focus on
business performance and the hard work and dedication of the entire Tullow team,
resulting in a score of 3.25%
The leadership team has worked in 2022 to position the organisation for future
sustainablesuccess.
5%
(20)%
3.2%
(13)%
0.8%
(3)%
Relative Total
Shareholder Return
(TSR)
Performance against a bespoke group of listed exploration and production companies
measured from July 2020 to 31 December 2022 - 25% is payable at median, increasing to
100% payable at upper quartile.
Tullow placed below median.
50%
(200%)
0%
(0%)
0%
(0%)
Tullow Oil plc
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Remuneration report continued
Performance metric Performance
% of award
(% of salary
maximum)
Actual
Rahul Dhir
Actual
Les Wood
Total 100%
(400%)
30%
(120%)
7.5%
(30%)
1. This is defined as percentage of work programme delivered, assessing Capex eciency and performance against pre-set objectives and milestones.
2. Normalised to a budget comparable value. $449m times percentage adherence to work programme
3. The TSR comparator group for the 2022 TIP Award was as follows: Africa Oil, Aker BP, APA, Capricorn Energy, DNO, Energean, Enquest, Genel Energy, Harbour Energy,
Kosmos Energy, Pharos Energy, Seplat Energy (NSA), and Santos.
4. The calculation for Les Wood reflects a pro-rated TIP award for the 2022 performance year.
In line with the Policy, the TIP outcomes are divided evenly between cash and deferred shares up to the first 200% of base salary.Any
amount above 200% of base salary is awarded entirely in deferred shares. Deferred shares are normally subject to deferral until the fifth
anniversary of grant, normally subject to continued service. The table below shows the values for the ExecutiveDirectors:
Director Cash TIP Deferred TIP
Rahul Dhir £358,440 £358,440
Les Wood £138,449 –
UK SIP shares awarded in 2022 (audited)
The UK SIP is a tax-favoured all-employee plan that enables UK employees to save out of pre-tax salary. Quarterly contributions are
used by the plan trustee to buy Tullow Oil plc shares (partnership shares). The Group funds an award of an equal number of shares
(matching shares). The current maximum contribution is £150 per month. Shares held in the plan for five years will be free of income
tax and national insurance, as well as Capital Gains tax if retained in the plan until sold. Details of shares purchased and awarded to
Executive Directors under the UK SIP are as follows:
Director
Shares held
01.01.22
Partnership
shares acquired
in year
Matching
shares awarded
in year
Total shares
held 31.12.22
(including dividend
shares)
Dividend
shares acquired
in the year
SIP shares that
became
unrestricted
in year
Total unrestricted
shares held at
31.12.22
1
Les Wood 37,367 917 917 – – – –
1. Unrestricted shares (which are included in the total shares held at 31 December 2021) are those which no longer attract a tax liability if they are withdrawn from theplan.
Executive Director and non-executive Director terms of appointment
Director
Year
appointed
Number of
complete
years on
the Board
Date of current
engagement
commenced
Expiry of
current term
Rahul Dhir 2020 2 01.07.20 n/a
Richard Miller 2023 0 01.01.23 n/a
Phuthuma Nhleko 2021 1 25.10.21 24.10.24
Mike Daly 2014 8 30.05.20 31.05.23
Martin Greenslade 2019 3 01.11.19 31.10.24
Sheila Khama 2019 3 26.04.19 26.04.25
Mitchell Ingram 2020 2 09.09.20 08.09.23
Genevieve Sangudi 2019 3 26.04.19 25.04.25
Roald Goethe 2023 0 24.02.23 23.02.26
In the case of each non-executive Director, the appointment is renewable thereafter if agreed by the Director and the Board. The
appointment of any non-executive Director may be terminated by either party on three months’ notice. There are no arrangements
under which any non-executive Director is entitled to receive compensation upon the early termination of his or her appointment.
Tullow Oil plc
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Annual Report on Remuneration continued
CEO – total pay versus TSR
For 2022 the CEO total pay is based on the summation of the actual base pay, pension, benefits and TIP cash bonus and share award
equivalent value for Rahul Dhir for the financial year ending 31 December 2022.
2013 2014 2015 2016 2017 2018 2022
2020 2021
2019 2013 2014 2015 2016 2017 2018 2019 20222020 2021
Return index
CEO total pay
Tullow
FTSE 250
120 5,000
TOTAL SHAREHOLDER RETURN CEO – TOTAL PAY VERSUS RI
300
CEO pay £000Return index
96
72
48
24
0
4,000
3,000
2,000
1,000
0
250
200
150
50
100
0
Comparison of overall performance and pay
The Remuneration Committee has chosen to compare the TSR of the Company’s ordinary shares against the FTSE 250 index; whilst
the Company was placed outside of the index in 2021, we believe the size and complexity of the organisation still makes this a
comparable index. The values indicated in the graph above show the share price growth plus re-invested dividends for the period 2013
to 2022 from a £100 hypothetical holding of ordinary shares in Tullow Oil plc and in the index.
The total remuneration figures for the Chief Executive during each of the last 10 financial years are shown in the tables below. Thetotal
remuneration figure includes the annual bonus based on that year’s performance (2013 to 2022), PSP awards based on three-year
performance periods ending in the relevant year (2013) and the value of TIP Awards based on the performance period ending in the
relevant year (2013 to 2022). The annual bonus payout, PSP vesting level and TIP Award, as a percentage of the maximum opportunity,
are also shown for each of these years.
Year ending in
Aidan Heavey
1
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Total
remuneration £2,750,273 £2,378,316 £2,835,709 £2,893,232 £1,717,276 – – – – –
Annual bonus – – – – – – – – – –
PSP vesting – – – – – – – – – –
TIP 30% 23% 38% 39% 40% – – – – –
Year ending in
Paul McDade
2
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Total
remuneration n/a n/a n/a n/a £1,416,281 £2,759,684 £986,706 – – –
TIP n/a n/a n/a n/a 40% 60.3% 0% – – –
Year ending in
Dorothy Thompson
3
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Total
remuneration n/a n/a n/a n/a n/a n/a 37,704 418,452 n/a –
Year ending in
Rahul Dhir
4
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Total
remuneration n/a n/a n/a n/a n/a n/a n/a £686,519 £1,860,806 £1,419,400
TIP n/a n/a n/a n/a n/a n/a n/a 20% 51.2% 30%
Tullow Oil plc
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Remuneration report continued
1 & 2. For 2017, total remuneration figures are shown for Aidan Heavey based on the period he held the oce of Chief Executive Ocer and for the transition period up to
31October 2017 and for Paul McDade from 27 April 2017 when he commenced in his oce of Chief Executive.
3. For 2020, total remuneration is shown for Dorothy Thompson for the period she served as Executive Chair, i.e. 1 January 2020 to 8 September 2020. For 2019, the
amount shown is the Executive Chair fee prorata for the period 9 December 2019 to 31 December 2019. Dorothy Thompson did not participate in any incentive plans
whilst serving as Executive Chair.
4. For 2020, total remuneration is shown for Rahul Dhir from the commencement of his appointment as Chief Executive Ocer on 1 July 2020.
Additional statutory information – percentage change in remuneration for executive and non-executive Directors
The table below shows the percentage change in each of the Directors total remuneration (for Executive Directors excluding thevalue
of any pension benefits receivable in the year) between the financial year ended 31 December 2020, 31 December 2021 and
31December 2022, compared to that of the average for all employees of the Group.
% change from 2021 to 2022 % change from 2020 to 2021 % change from 2019 to 2020
Salary/fees Benefits Bonus Salary/fees Benefits Bonus Salary/fees Benefits Bonus
Phuthuma Nhleko
1
2607% n/a n/a n/a n/a n/a n/a n/a n/a
Rahul Dhir 2% 193% (40%) 99% 379% 232% n/a n/a n/a
Les Wood (75%) (59%) (70%) 0% 622%
3
149% 0% 629%
2
n/a
Dorothy Thompson (100%) (100%) n/a (41%)
3
n/a n/a 59% n/a n/a
Jeremy Wilson (18%) (100%) n/a 0% (78%)
5
n/a 5% (60%)
5
n/a
Mike Daly 0% n/a n/a (19%)
4
n/a n/a 0% n/a n/a
Martin Greenslade
7
3% n/a n/a 8% n/a n/a 625% n/a n/a
Mitchell Ingram
6
0% n/a n/a 295% n/a n/a n/a n/a n/a
Genevieve Sangudi 14% 1051% n/a 0% (100%)
5
n/a 46% (83%)
5
n/a
Sheila Khama 0% n/a n/a 0% (100%)
5
n/a 46% (56%)
5
n/a
Average employees 5.4% 5.7% (11.7%) 2.8% 7.0% 119.9% (2.7%) 11% (35.2)%
1. Phuthuma Nhleko joined late 2021 therefore shows high movement for 2022.
2. Increase in benefits for Rahul due to increased travel and subsistence post the COVID-19 pandemic.
3. Increase in benefits for Les Wood is due to holiday cash out for 2021 due to the COVID-19 pandemic and outplacement services provided in relation to his planned
departure.
4. The decrease in fees for Mike Daly is due to him stepping down from Chair of the Safety & Sustainability Committee on 31 December 2020.
5. Benefits have reduced due to reduced travel during the COVID-19 pandemic.
6. The increase in fees for Mitchell Ingram reflect his appointed to the Board in late 2020, and him also becoming Chair of the Safety & Sustainability Committee from
1January 2021.
7. The increase in fees for Martin Greenslade reflect a full year in role as Chair of the Audit Committee in 2021 and his appointment as Senior Independent Director.
8. The increase in fees for Genevieve Sangudi reflect her appointment as Chair of the Remuneration Committee after the 2022 AGM. Benefits have increase due increased
travel and subsistence post the COVID-19 pandemic.
8. Increase in average employee benefits is driven by changes to annual medical insurance premiums.
CEO pay ratio 2022
Year Method
25th percentile
pay ratio
Median
pay ratio
75th percentile
pay ratio
2022 A 12:1 8:1 6:1
2021 A 16:1 10:1 8:1
2020 A 7:1 5:1 3:1
2019 A 8:1 5:1 4:1
2018 (voluntary disclosure) A 23:1 15:1 10:1
Tullow has calculated the CEO pay ratio using the methodology described as ‘Option A’ in the Regulations, as Tullow recognises that
this is the most statistically accurate form of calculation.
For each UK employee the STFR has been calculated as a summation of base pay, benefits, employer pension contributions receivable
during the year ended 31 December 2022 and cash bonus payable and value of share awards to be granted for the 2022 performance
year. The STFR at 25th percentile is £119,884, £183,913 at median and £249,639 at 75th percentile. The wages component at 25th
percentile is £85,000, £142,000 at median and £175,130 at 75th percentile.
Tullow Oil plc
2022 Annual Report and Accounts
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Annual Report on Remuneration continued
CEO pay ratio 2022 continued
In setting both our CEO remuneration and the remuneration structures for the wider UK workforce, Tullow has adopted a remuneration
structure which includes the same core components for employees at all levels (base pay, benefits, pension, cash bonus and share
awards). Whilst all employees receive a base salary commensurate to our position in the market, the differences exist in the quantum
of variable pay achievable by our Executives and Senior Management; at these levels there is a greater emphasis placed on variable pay
given their opportunity to impact directly on Company performance. Based on this distinction, the Company believes taking into
account Company performance in a particular financial year and the impact on variable pay, that the median pay ratio is consistent
with and reflective of the wider pay, reward and progression policies impacting our UK employees. Performance for 2022 resulted in
lower TIP awards and consequently lower pay ratios. The Committee will continue to monitor longer-term trends.
1. All STFRs have been based on a full-time equivalent and annualised to provide a dataset for the full year 31 December 2022.
Relative importance of spend on pay
The following table shows the Group’s actual spend on pay for all employees relative to tax and retained profits.
Staff costs have been compared to tax expense and retained profits in order to provide a measure of their scale compared to other
key elements of the Group’s financial metrics.
2021 2022 % change
Staff costs (£m) 60.4 63.9 6%
Tax (credit)/expense (£m)
1
206.1 324.3 57%
Retained profits (£m)
1
(1,681.6) (1,808.9) 8%
1. Voluntary disclosure.
Summary of past share awards
Details of share awards granted to Executive Directors:
Director
Award grant
date
Share price on
grant date
As at
01.01.22
Granted
during
the year
Exercised
during
the year
As at
31.12.22
Earliest date
shares can be
acquired
Latest date
shares can
be acquired
Les Wood
1
27.04.17 214p 101,249 – 101,249 0 27.04.20 27.07.27
08.02.18 187p 148,802 – – 148,802 08.02.23 08.02.28
14.02.19 219p 288,617 – – 288,617 14.02.24 14.02.29
15.03.21 54.7p 338,765 – – 338,765 15.03.26 15.03.31
14.03.22 55.95p – 878,646 – 878,646 14.03.27 14.03.32
Dividend equivalents
08.02.18 10.05.19 187p 2,605 – – 2,605 08.02.23 08.02.28
14.02.19 10.05.19 219p 5,052 – – 5,052 14.02.24 14.02.29
08.02.18 17.10.19 187p 1,372 – – 1,372 08.02.23 08.02.28
14.02.19 17.10.19 219p 2,661 – – 2,661 14.02.24 14.02.29
889,123 878,646 101,249 1,666,520
Rahul Dhir
2
05.08.20 27.68p 9,000,000 – – 9,000,000 01.07.25 30.06.30
15.03.21 54.7p 319,316 – – 319,316 15.03.26 15.03.31
14.03.22 55.95p – 1,104,269 – 1,104,269 14.03.27 14.03.32
1. Les Wood – all awards granted to Les Wood are TIP Awards.
2. Rahul Dhir – share awards granted on 05 August 2020 represent ‘Buy-out Awards’ to replace share arrangements that were forfeited upon leaving his former employer
(full details of which are available in 2020 Directors’ Remuneration Report). The awards granted in 2021 and 2022 are TIP awards.
Share price range
During 2022, the highest mid-market price of the Company’s shares was 64.24p and the lowest was 34.96p. The year end price
was36.92p.
The interests of the Directors (all of which were beneficial), who held oce during FY 2022, are set out in the table below:
Tullow Oil plc
2022 Annual Report and Accounts
84
Remuneration report continued
Ordinary shares held
% of salary
under 2022
Remuneration
Policy
shareholding
guidelines
1
TIP Awards Buyout Awards SIP SIP total
01.01.22 31.12.22 Unvested Vested Unvested Vested Restricted Unrestricted 31.12.22
Executive Directors
Rahul Dhir
2
1,346,000 1,346,000 223% 1,423,585 – 9,000,000 – – – –
Les Wood
3
198,457 237,658 1,666,520 – – – – – –
Non-executive Directors
Mike Daly 4,795 4,795 – – – – – – – –
Jeremy Wilson 87,959 87,959 – – – – – – – –
Genevieve Sangudi – – – – – – – – – –
Sheila Khama – 7,070 – – – – – – – –
Martin Greenslade – 60,000 – – – – – – – –
Mitchell Ingram 50,000 50,000 – – – – – – – –
Phuthuma Nhleko – – – – – – – – – –
1. Calculated using share price of 36.92p at year end. Under the Company’s shareholding guidelines, each Executive Director is required to build up their shareholdings in the
Company’s shares to at least 400% of their current salary. Further details of the minimum shareholding requirement are set out in the Remuneration Policy Report.
2. Ordinary shares and unvested awards held by Rahul Dhir are in respect of his Buyout Award granted on commencement of employment.
3. Retired part way through the year
4. Roald Goethe was appointed as a non-executive director Director on 24 February 2023 and disclosed that he or persons closely associated to him hold 22,000,000
ordinary shares of 10p each in the Company and $2,500,000 Senior Notes due 2025.
There have been no changes in the interests of any Director between 1 January 2023 and the date of this report.
Implementation of Policy for Executive Directors for 2023
The Remuneration Policy will be implemented during 2023 as follows:
- Base salary for Rahul Dhir will be increased by 3.5%, well below the typical increases awarded to UK based employees for 2023. Base
salary for Richard Miller was set upon his appointment at £366,000 and is not expected to be increased during 2023.
- Pension provision will be 15% of salary for Rahul Dhir and 10% of salary for Richard Miller (workforce aligned); and
- TIP Award for Rahul Dhir with a maximum opportunity of 400% of salary based on: Safety (7.5%), Financial Performance (5.0%),
Production (10.0%), Business Plan Implementation (7.5%), Sustainability (5.0%), Unlocking Value (10.0%), Leadership Effectiveness
(5.0%) and Relative TSR (50%) for the 2021-2023 performance period.
- If approved, LTIP Award for Rahul Dhir with a maximum opportunity of 250% of salary based 50% on our relative and 50% on our
absolute total shareholder returns during the 2023-2025 performance period:
- If approved, LTIP Award for Richard Miller with a maximum opportunity of 250% of salary based 50% on our relative and 50% on our
absolute total shareholder returns during the 2023-2025 performance period:
- If approved, the TSR comparator group for the both the TIP and 2023-2025 LTIP Awards will be as follows: Africa Oil, BW Energy
Capricorn Energy, Diversified Energy Co., Energean, EnQuest, Harbour Energy, Kosmos Energy, Maurel and Prom, Pharos Energy
and Seplat Energy (NSA).
- If approved, our absolute total shareholder return target for the 2023-2025 LTIP Award will be on average 20% per annum at
Threshold and on average 30% per annum at Maximum. Our relative total shareholder return target for the 2023-2025 LTIP Award
will be comparator group Median at Threshold and comparator group Upper Quartile at Maximum.
- If approved, 2023 Annual Bonus opportunity for Richard Miller with a maximum of 150% of salary based on the safety, financial
performance, production, business plan implementation, sustainability, unlocking value and leadership effectiveness targets
mentioned above.
Please see page 15 of this report for further disclosure and details of the 2023 targets and how they are linked to our strategy.
- No changes will be made to the Chair nor the non-executive Director fees from 2022 levels.
Tullow Oil plc
2022 Annual Report and Accounts
85
Financial statements Supplementary informationStrategic Report Governance Report
Governance
Remuneration Committee members
Genevieve Sangudi (Committee Chair), Mitchell Ingram and Martin Greenslade
Remuneration Committee membership and attendance
Genevieve Sangudi became Committee Chair on 25 May 2022 taking over from Jeremy Wilson. Jeremy Wilson subsequently stepped
down as a member on 20 October 2022 with Martin Greenslade assuming membership in his stead. All members of the Committee are
independent non-executive Directors. None of the Committee members has day-to-day involvement with the business and nor do
they have any personal financial interest, except as shareholders, in the matters to be recommended. The number of formal meetings
held and the attendance by each member is shown in the table on page 54. The Committee also held informal discussions as required.
The Group Company Secretary acts as Secretary to the Committee and is available to assist the members of the Committee as
required, ensuring that timely and accurate information is distributed accordingly. The Chief Executive and other members of the
Management Team may be invited to attend Committee meetings to provide business context and performance updates.
However,nomember of Management is present when their own remuneration is determined.
Advice received from the Committee during 2022
The Committee received external advice from both FIT Remuneration Consultants (FIT) and Deloitte LLP (Deloitte) during 2022.
Duringthe year the Committee reviewed it advisers and following a competitive tender process appointed Deloitte as the Committee’s
advisers. Both Deloitte and FIT are members of the Remuneration Consultants Group and are a signatories to its Code of Conduct.
During the year Deloitte and FIT provided no other services to the Company. Fees (ex VAT) paid to Deloitte respectively for advice
provided during 2022 amounted to £77,300, and fees paid to FIT amounted to £27,095. Neither Deloitte or FIT have any other
connections to the Company or the Directors that affect their independence. The Committee evaluates the services provided by
external advisers and is satisfied that the advice received from Deloitte and FIT was objective and independent.
Activities of the Committee during 2022
A summary of the main Committee activities during 2022 are set out below:
- Setting an appropriately stretching set of key performance metrics for the 2022 KPI scorecard;
- Monitoring progress against the 2022 KPI scorecard;
- Reviewing feedback received from shareholders at the 2022 AGM;
- Undertaking a review of the Directors’ Remuneration Policy, including consideration of alternative incentive structures,
performance measures, and other Policy elements;
- Review of changes in remuneration-related guidance, shareholder policies and governance matters;
- Reviewing the remuneration arrangements, including benchmarking of Total Remuneration for Senior Managers and reviewing
theimplementation of the revised pay philosophy and principles for the wider workforce;
- Review of the Committee’s performance and terms of reference; and
- Review of draft KPIs for 2023 to align with strategy and culture of Tullow.
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Principles of Executive Director remuneration
The Committee seeks to ensure that the Directors Remuneration Policy and its practices are consistent with the six factors set out in
Provision 40 of the new UK Corporate Governance Code:
Clarity
Our Policy is well understood by our Senior Executive Team and has been clearly articulated to our shareholders and representative
bodies (both on an ongoing basis and during the recent consultation exercise).
Simplicity
The Committee is mindful of the need to avoid overly complex remuneration structures which can be misunderstood and deliver
unintended outcomes. Therefore, a key objective of the Committee is to ensure that our Executive remuneration policies and practices
are straightforward to communicate and operate.
Risk
Our Policy has been designed to ensure that inappropriate risk taking is discouraged and will not be rewarded via: (i) the balanced use
of both annual and three-year performance periods which employ a blend of financial, non-financial and shareholder return targets;
(ii) the significant role played by deferred equity in our incentive plans (together with in-employment and post-cessation shareholding
guidelines and five-year vesting period); (iii) malus/clawback provisions; and (iv) the ability to exercise negative discretion to
remuneration outcomes.
Predictability
The TIP and proposed Annual Bonus and LTIP are subject to an individual annual cap and market standard dilution limits.
Proportionality
There is a clear link between individual awards, delivery of strategy and our long-term performance. In addition, the significant role
played by incentive/‘at-risk’ pay, together with the structure of the Executive Directors’ service contracts, ensures that poor
performance is not rewarded.
Alignment to culture
Our Executive pay policies are fully aligned to Tullow’s culture through the use of metrics in the TIP that measure how we perform
against our financial and non-financial KPIs.
Shareholder voting at the AGM
At last year’s AGM on 25 May 2022 the remuneration-related resolutions received the following votes from shareholders:
2021 Annual Statement and Annual Report on Remuneration
Total number of votes % of votes cast
For 830,260,073 91.69
Against 75,227,640 8.31
Total number of votes % of ISC votes
Total votes cast (for and against) 905,487,713 62.98%
Votes withheld 8,123,770
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Summary Directors’ Remuneration Policy
Base salary
Purpose and link to strategy Operation Maximum opportunity
To provide an appropriate level of
fixed cash income.
To attract and retain individuals
with the personal attributes, skills
and experience required to deliver
our strategy
Generally reviewed annually. Base salaries will be set by the
Committee taking into account:
- Generally reviewed annually. Base salaries will be set by
the Committee taking into account:
- the scale, scope and responsibility of the role;
- the skills and experience of the individual;
- the base salary of other employees, including increases
awarded to the wider population; and
- the base salary of individuals undertaking similar roles in
companies of comparable size and
- complexity. This may include international oil and gas
sector companies or a broader group of FTSE-listed
organisations.
Any increases to current Executive Director
salaries, presented in the ‘Application of
Policy in 2023’ column below this Policy table,
will not normally exceed the average increase
awarded to other UK-based employees.
Increases may be above this level in certain
circumstances, for instance if there is an
increase in the scale, scope or responsibility
of the role or to allow the base salary of newly
appointed Executives to move towards
market norms as their experience and
contribution increase.
Performance and provisions for the recovery
A broad assessment of individual and business performance is used as part of the salary review.
No recovery provisions apply.
Directors’ Remuneration Policy Report
This section of the report sets out the Remuneration Policy (the
“Policy”) for Executive and Non-Executive Directors which will be
put forward for shareholder approval at the 2023 AGM on 24 May
2023. The Committee intends that the Policy will come into effect
from the date of the AGM and will apply for a period of up to
threeyears.
Policy overview
The principles of the Remuneration Committee are to ensure
thatremuneration is linked to Tullow’s strategy and promote
theattraction, motivation and retention of the highest quality
executives who are key to delivering sustainable long-term
valuegrowth and substantial returns to shareholders.
Policy review process
The Committee undertook a review of Directors’ Remuneration
Policy to ensure that it is appropriate to support our strategy.
This review included consideration of the effectiveness of the
current TIP approach, the Company’s experience of operating
theTIP since 2017. The central focus of the Committee was
developing an incentive structure that would reward growth
andvalue creation and align management with shareholders.
Before the proposal was finalised the relevant members of the
senior management team were consulted on the proposed
changes to the policy. Importantly the Committee Chair spoke
with a number of our major shareholders and their feedback
influenced the structure of the proposed Policy.
The Committee was mindful in its deliberations on the new
Remuneration Policy of any potential conflicts of interest and
sought to minimise them through an open and transparent
internal consultation process, by seeking independent advice
from its external advisers and by undertaking a broad
shareholder consultation exercise.
Policy changes
The main change under this Policy is the transition from the
Tullow Incentive Plan to the grant of separate annual bonus and
LTIP awards. This transition will be structured to ensure that
there are no overlaps or gaps in performance assessment for
Executive Directors appointed prior to 2023.
For the current CEO the TIP will continue for 2023 (capturing the
2021-23 performance period) and 2024 (capturing 2022- 24
performance period) in accordance with the structure approved
by shareholders at the 2020 AGM. No TIP awards will be made
after 2024. Other executive directors will not participate in the
TIP for 2023 and 2024.
Executive Directors appointed from 2023 onwards, including the
current CFO, will be eligible for an annual bonus award from 2023
onwards. Our current CEO will be eligible for an annual bonus
award from 2025 onwards. The maximum opportunity will be
150% of salary and one third of any bonus earned will normally be
deferred into Tullow shares for three years.
All Executive Directors will be eligible for an LTIP award from
2023 onwards. The first grant will capture performance over
the2023-25 period. The maximum award will be 250% of
salary,and awards will be subject to a two year holding period
following vesting.
The policy has also updated for developments in corporate
governance and feedback received from our shareholders.
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Pension and benefits
Purpose and link to strategy Operation Maximum opportunity
To attract and retain individuals
with the personal attributes, skills
and experience required to deliver
our strategy.
Defined contribution pension scheme or salary supplement
in lieu of pension. The Company does notoperate or have
any legacy defined benefit pensionschemes.
Medical insurance, income protection and life assurance.
Additional benefits may be provided as appropriate.
Executive Directors may participate in the Tullow UK Share
Incentive Plan (SIP) and the Tullow Sharesave (SAYE) plan.
Pension: Workforce aligned for Executive
Directors (as a percentage of salary).
Employees currently receive an employer
contribution of 10% of salary, increasing to
15% of salary for employees over 50.
Benefits: The range of benefits that may be
provided is set by the Committee after taking
into account local market practice in the
country where the Executive is based. No
monetary maximum is given for benefits
provided to the Executive Directors as the
cost will depend on individual circumstances.
Tullow UK SIP and SAYE: Up to HM Revenue &
Customs (HMRC) limits. Maximum participation
l
evels and matching levels for all staff, including
Executive Directors, are set by reference to
the rules of the plan and relevant legislation.
Performance and provisions for the recovery
Not applicable
Legacy Tullow Incentive Plan (TIP) – applicable only for current CEO and for 2023 and 2024 only
Purpose and link to strategy Operation Maximum opportunity
To provide a simple, competitive,
performance-linked incentive
planthat:
- aligns the interests of
- management and shareholders;
- promotes the long-term success
of the Company;
- provides a real incentive to
achieve our strategic objectives
- and deliver superior
- shareholder returns; and
- will attract, retain and motivate
individuals with the required
- personal attributes, skills
andexperience.
The current CEO is eligible to receive a TIP award, subject to
performance, for 2023 (for the 2021-23 period) and 2024 (for
the 2022-24 period). No further TIP awards will be granted
after 2024, and any Executive Directors appointed from
2023 onwards, including the current CFO, are not eligible to
participate in the plan
An annual TIP award consisting of up to 400% of base salary
which is divided evenly between cash and deferred shares
up to the first 200% of base salary.
Any amount above 200%of base salary is awarded entirely
in deferred shares.
Deferred shares are normally subject to deferral until the
fifth anniversary of grant, normally subject to continued
service.
TIP awards are non-pensionable and will be made in line
with the Committee’s assessment of performance targets.
At the discretion of the Committee, any portion of the cash
component of a TIP award can be satisfied by granting
deferred shares with a vesting date set by the Committee
being not earlier than the first anniversary of grant.
400% of salary.
Dividend equivalents will accrue on TIP
deferred shares over the vesting period.
Performance and provisions for the recovery
A balanced scorecard of stretching financial and operational objectives, linked to the achievement of Tullow’s long-term strategy, will be used
toassess TIP outcomes which may include targets relating to: relative or absolute total shareholder return (TSR); earnings per share (EPS);
environmental, health and safety (EHS); financial; production; operations; project; exploration; or specific strategic and personal objectives.
Performance will typically be measured over one year for all measures apart from TSR and EPS, which, if adopted, will normally be measured over
the three financial years prior to grant.
No more than 25% of the maximum TIP opportunity will be payable for threshold performance.
Recovery provisions apply (see below).
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Annual bonus
Purpose and link to strategy Operation Maximum opportunity
The executive bonus scheme
rewards Executive Directors for
achieving financial and strategic
targets in the relevant year by
reference to operational targets
and individual objectives.
The Current CEO will be eligible to participate in the Annual
Bonus plan from 2025 onwards.
The current CFO and any newly appointed Executive
Directors will be eligible to participant from 2023 onwards.
Targets are reviewed annually and any pay-out is
determined by the Committee after the year end based on
targets set for the financial period.
The Committee has discretion to amend the pay-out should
any formulaic output not reflect the Committee’s
assessment of overall business performance or if the
Committee considers the formulaic outturn is not
appropriate in the context of other factors considered by
the Committee to be relevant.
One third of any bonus earned will normally be deferred into
shares for a period of three years. Deferred bonus awards
may take the form of nil cost options, conditional awards of
shares or such other form as has a similar economic effect.
Additional shares may be delivered in respect of shares
subject to deferred bonus awards to reflect the value of
dividends paid during the period beginning with the date of
grant and ending with the date of vesting (this payment
may assume that dividends had been reinvested in Tullow
shares on a cumulative basis).
Up to 150% of salary.
Performance and provisions for the recovery
A balanced scorecard of stretching financial and operational objectives, linked to the achievement of Tullow’s long-term strategy, will be used to
assess Annual Bonus outcomes. Performance will typically be measured over one year.
No more than 25% of the maximum opportunity will be payable for threshold performance.
Recovery provisions apply (see below).
Long Term Incentive Plan (LTIP)
Purpose and link to strategy Operation Maximum opportunity
The LTIP provides a clear link
between the remuneration of the
Executive Directors and the
creation of value for shareholders
by rewarding the Executive
Directors for the achievement of
longer term objectives aligned to
shareholders’ interests.
Executive Directors will be eligible to be granted LTIP award
from 2023 onwards.
Awards are normally made on an annual basis and normally
vest three years from grant subject to continued
employment and the satisfaction of challenging three-year
performance targets.
A two-year holding period following LTIP vesting applies to
grants to Executive Directors. In total, this results in a
five-year combined vesting and holding period.
The Committee has discretion to vary the formulaic vesting
outturn if it considers that the outturn does not reflect the
Committee’s assessment of performance or is not
appropriate in the context of other factors considered by
the Committee to be relevant.
Additional shares may be delivered in respect of shares
which vest under the LTIP to reflect the value of dividends,
which would have been paid on those shares during the
period beginning with the date of grant and ending with the
vesting date (this payment may assume that dividends had
been reinvested in Tullow shares on a cumulative basis).
Up to 250% of salary.
Performance and provisions for the recovery
Performance is usually measured over a three-year period.
Performance measures for LTIP awards will include financial measures which may include, but are not limited to, total shareholder return (“TSR”),
and may include strategic measures (which may include ESG measures).
Subject to the Committee’s discretion to override formulaic outturns, awards will normally vest as to 25% for threshold performance, increasing to
100% for maximum performance.
Recovery provisions apply (see below).
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Shareholding guidelines
Purpose and link to strategy Operation Minimum requirement
To align the interests of management
and shareholders and promote a
long-term approach to performance
and risk management.
Executive Directors are required to retain at least 100% of
post-tax share awards until a minimum shareholding
e
quivalent to 400% of base salary is achieved in owned shares.
Unvested TIP, LTIP and Deferred Bonus shares net of applicable
taxes count towards the minimum shareholding requirement.
Shares included in this calculation are those held
beneficially by the Executive Director and his or her
spouse/civil partner.
50% of the shareholding guideline (i.e. 200% of salary) will
need to be retained by Executive Directors for two years
post cessation.
400% of salary.
Performance and provisions for the recovery
Not applicable.
Non-executive Directors
Purpose and link to strategy Operation Maximum opportunity
To provide an appropriate fee level
To attract individuals with the
necessary experience and ability
To make a significant contribution
to the Group’s activities while also
reflecting the time commitment
and responsibility of the role.
The Chair is paid an annual fee and the non-executive
Directors are paid a base fee and additional responsibility
fees, for example for the role of Senior Independent Director
or for chairing a Board Committee.
Fees are normally reviewed annually.
Each non-executive Director is also entitled to a
reimbursement of necessary travel and other expenses
including associated tax costs.
Non-executive Directors do not participate in any share
scheme or annual bonus scheme and are not eligible to join
the Group’s pension schemes.
Non-executive Director remuneration is
determined within the limits set by the
Articles ofAssociation.
There is no maximum prescribed fee increase
although fee increases for non-executive
Directors will not normally exceed the average
increase awarded to Executive Directors.
Increases may be above this level if there is an
increase in the scale, scope or responsibility
of the role.
Performance and provisions for the recovery
Not applicable.
Operation of share plans
The Committee will operate the TIP, LTIP and Deferred Bonus in accordance with the Plan rules, Listing Rules and HMRC rules where
relevant. The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and
administration of the plans in relation to Senior Management, including Executive Directors. These include (but are not limited to) the
following (albeit with the level of award restricted as set out in the Directors’ Remuneration Policy):
- who participates;
- the timing of grant of awards and/or payment;
- the size of awards and/or payment;
- discretion relating to the measurement of performance in the event of a change of control or reconstruction;
- determination of a good leaver (in addition to any specified categories) for incentive plan purposes and a good leaver’s treatment;
- adjustments to awards required in certain circumstances (e.g. Rights Issues, corporate restructuring and special dividends); and
- the ability to adjust existing performance conditions for exceptional events so that they can still fulfil their original purpose.
The choice of the performance metrics applicable to the TIP and LTIP awards, which are set by the Committee at the start of the
relevant financial year, reflects the Committee’s belief that any incentive compensation should be appropriately challenging and tied
to the delivery of stretching financial, operational and TSR-related objectives, explicitly linked to the achievement of Tullow’s long-
term strategy.
In addition to the TIP, LTIP and Deferred Bonus, Executive Directors are also eligible to participate in the UK SIP or any other all
employee share plans on the same terms as other employees. All-employee share plans do not operate performance conditions.
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Calculation of TIP awards
In addition to base salary and other benefits described in the Remuneration Policy, for 2023 and 2024 Executive Director shall be
eligible to receive an award issued under the rules of the TIP (a TIP Award). The TIP combines short- and long-term incentive-based
pay and includes a cash bonus component and a deferred share award component.
At the beginning of the 2023 and 2024 financial years, the Committee will determine a multiple of base salary, subject to the limits
established under this Policy, to apply to a TIP Award. At the same time the Committee will also determine a balanced corporate
scorecard of performance metrics applicable to any TIP Award. The choice of the performance metrics and the weightings given to
them, which are set by the Committee at the start of the relevant financial year normally, reflect the Committee’s belief that any
incentive compensation should be appropriately challenging and tied to the delivery of stretching financial, operational and total
shareholder return (TSR) related objectives, explicitly linked to the achievement of Tullow’s long-term strategy.
Following completion of the financial year, the Committee will review the Company’s performance against the corporate scorecard
resulting in a percentage score. The multiple set by the Committee is then applied to the percentage score to determine the total TIP
Award amount. A TIP Award is divided equally between cash bonus and deferred shares up to the first 200% of base salary. Any portion
ofa TIP Award above 200% of base salary shall be satisfied in deferred shares only. Deferred shares forming part of a TIP Award are
normally deferred for five years and are subject to malus and clawback. In its discretion, the Committee may elect to satisfy any portion
ofthe cash bonus element of a TIP Award in deferred shares which will be deferred for a period determined by the Committee, being not
less than one year from the date of grant. Deferred shares issued in lieu of any portion of the cash bonus component of a TIP Award shall
be subject to malus, clawback and the minimum shareholding requirements set out on page 89 of this report.
Performance measures for LTIP and annual bonus awards
The choice of the performance metrics and range of targets applicable to the annual bonus plan for Executive Directors reflect the
committee’s belief that any incentive compensation should be appropriately challenging and tied to both the delivery of robust
performance relating to the Group’s financial key performance indicators and, where appropriate, specific individual / strategic
objectives (including ESG objectives). Performance metrics applicable to the LTIP are selected to support Company strategy and
provide shareholder alignment. Targets applying to the annual bonus and LTIP are reviewed annually, based on a range of internal and
external reference points. Performance targets are set to be stretching but achievable, with regard to the particular strategic priorities
and business environment in a given year.
Legacy remuneration
For the avoidance of doubt, the Committee reserves the right to make any remuneration payments and/or payments for loss of oce
(including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with
the 2023 Remuneration Policy set out in the document where the terms of the payment were agreed (i) before the 2023 Remuneration
Policy came into effect, provided that the terms of the payment were consistent with any applicable shareholder-approved Directors’
Remuneration Policy in force at the time they were agreed or were otherwise approved by shareholders; or (ii) at a time when the
relevant individual was not a Director of the Company (or other persons to whom the Policy set out above applies) and, in the opinion
of the Committee, the payment was not in consideration for the individual becoming a Director of the Company or such other person.
For these purposes “payments” includes the Committee satisfying awards of variable remuneration and, in relation to an award over
shares, the terms of the payment are “agreed” no later than the time the award is granted. This Policy applies equally to any individual
who is required to be treated as a Director under the applicable regulations.
Discretion
The Committee reserves the right to exercise its discretion in the event of exceptional and unforeseen positive or negative
developments during the performance period. In addition, the Committee reserves the right to reduce the TIP, annual bonus or LTIP
payment where the Committee considers that the level of payment is not commensurate with overall corporate performance and
returns delivered to shareholders over the performance period.
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Recovery provisions
TIP Awards are subject to malus and clawback. The Committee retains discretion to apply malus and clawback to both the cash and
deferred share elements of the TIP during the five-year vesting period, triggers are outlined in the TIP rules, including but not limited
to a material adverse restatement of the financial accounts or reserves, a catastrophic failure of operational, EHS and risk
management or corporate failure or insolvency.
Annual bonus and LTIP awards are subject to malus and clawback. The Committee retains discretion to apply malus and clawback to
the cash bonus, deferred bonus and LTIP awards up to three years after the payment or vesting of awards. Malus and clawback
triggers are outlined in the plan rules and include but are not limited to a material adverse restatement of the financial accounts or
reserves, a catastrophic failure of operational, EHS and risk management or corporate failure or insolvency.
Illustration of remuneration scenarios of Executive Directors
2023 and 2024
The charts below show how the composition of the Executive Directors’ remuneration packages varies at different levels of
performance under the Remuneration Policy, as a percentage of total remuneration opportunity and as a total value for the current
CEO and CFO for 2023 and 2024:
£0.0m £0.5m £1.0m £1.5m £2.0m £2.5m £3.0m £3.5m £4.0m £4.5m
Fixed
Rahul DhirRichard Miller
Fixed
Target
Fixed pay TIP (Cash) TIP (Deferred shares) Annual bonus LTIP
Target
Maximum
Maximum
Maximum +50% share price growth
Maximum +50% share price growth
1. Base salary is effective as at 1 April 2023.
2. Fixed pay includes pension in line with wider workforce.
3. For the CEO, the target TIP Award is taken to be 50% of the maximum annual opportunity for 2023 (200% of salary).The maximum value of the TIP is taken to be 400% of
salary (i.e. the maximum annual opportunity) for 2023.
4. For the CFO, the target Annual Bonus and LTIP Award is taken to be 50% of the maximum opportunity for 2023 (Annual Bonus: 75% of salary; LTIP Award: 125% of salary).
The maximum value of the Annual Bonus is taken to be 150% and LTIP Award is taken to be 250% of salary (i.e. the maximum annual opportunity).
5. No share price appreciation has been assumed for the fixed, target and maximum scenarios.
6. The Committee is aware of the regulations requiring an indication of the impact of 50% share price appreciation on the maximum scenario in the chart above. For the
TIP, given that TSR performance is measured over three years prior to grant of award, share price appreciation over the performance period would not impact on the
value of the maximum award.
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Directors’ Remuneration Policy Report continued
Illustration of remuneration scenarios of Executive Directors continued
2025 onwards
The charts below show how the composition of the Executive Directors’ remuneration packages varies at different levels of
performance under the Remuneration Policy, as a percentage of total remuneration opportunity and as a total value for the current
CEO and CFO for 2025:
£0.0m £0.5m £1.0m £1.5m £2.0m £2.5m £3.0m £3.5m £4.0m £4.5m
Fixed
Rahul DhirRichard Miller
Fixed
Target
Fixed pay Annual bonus LTIP
Target
Maximum
Maximum
Maximum +50% share price growth
Maximum +50% share price growth
1. Base salary is effective as at 1 April 2023.
2. Fixed pay includes pension in line with wider workforce.
3. The target Annual Bonus and LTIP Award is taken to be 50% of the maximum opportunity for 2023 (Annual Bonus: 75% of salary; LTIP Award: 125% of salary).The
maximum value of the Annual Bonus is taken to be 150% and LTIP Award is taken to be 250% of salary (i.e. the maximum annual opportunity).
4. No share price appreciation has been assumed for the fixed, target and maximum scenarios. 50% share price appreciation is applied to the maximum scenario in the
chart above.
Service agreements
Executive Director service agreements set out restrictions on the ability of the Director to participate in businesses competing with
those of the Group or to entice or solicit away from the Group any senior employees in the six months after ceasing employment.
Theabove reflects the Committee’s policy that service contracts should be structured to reflect the interests of the Group and the
individuals concerned, while also taking due account of market and best practice.
The term of each service contract is not fixed. Each agreement is terminable by the Director on six months’ notice and by the
employing company on 12 months’ notice.
The Executive Directors’ service agreements and the appointment letters of the non-executive Directors are available for inspection
by shareholders at the Company’s registered oce.
External appointments
The Board operates a formal policy in relation to the external directorships that an Executive Director may hold. Whilst the policy does
not prescribe a maximum number of external appointments, it sets out guidance that an Executive Director should not hold more than
one non-executive director position in a FTSE 350 company.
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Policy for new appointments
The remuneration of a new Executive Director will normally include salary, benefits, pension and participation in the annual bonus and LTIP
arrangements in accordance with the policy for Executive Directors’ remuneration. A newly appointed Executive Director would not
participate in the TIP. In addition, the Committee has discretion to include any other remuneration component or award which it feels is
appropriate taking into account the specific circumstances of the recruitment, subject to the principles and limits set out below. The key
terms and rationale for any such component would be disclosed as appropriate in the Directors’ remuneration report for the relevant year.
Policy
Salary Salary will be set taking into account the individual’s experience and skills, prevailing market rates in companies
of comparable size and complexity and internal relativities.
Where appropriate the Committee may set the initial salary below the market level (e.g. if the individual has
limited PLC Board experience or is new to the role), with the intention to make phased pay increases over a
number of years, which may be above those of the wider workforce, to achieve the desired market positioning.
These increases will be subject to continued development in the role.
Buy-out awards Where an individual forfeits outstanding variable pay opportunities or contractual rights at a previous employer
as a result of appointment, the Committee may offer compensatory payments or awards, in such form as the
Committee considers appropriate, taking into account all relevant factors including the form of awards, expected
value and vesting time frame of forfeited opportunities.
When determining any such buy-out, the guiding principle would be that awards would generally be on a
like-for-like basis unless this is considered by the Committee not to be practical or appropriate.
Award may be facilitated under the existing incentive plans where possible, but also using Rule 9.4.2. of the
Listing Rules, if necessary.
Maximum level
of variable
remuneration
The Committee will not offer non-performance-related variable remuneration and the maximum level of variable
remuneration which may be granted (excluding buyout awards) is 400% of base salary, which is in line with the
current maximum limit under the annual bonus and LTIP.
Other elements
of remuneration
Other elements may be included in the following circumstances:
- An interim appointment being made to fill an Executive Director role on a short-term basis.
- If exceptional circumstances require that the Chair or a Non-Executive Director takes on an executive function
on a short-term basis.
- If an Executive Director is recruited at a time in the year when it would be inappropriate to provide an annual
bonus or LTIP award for that year. Subject to the limit on variable remuneration set out above, the quantum in
respect of the period employed during the year may be transferred to the subsequent year.
- If the Executive Director is required to relocate, reasonable relocation, travel and subsistence payments may be
provided (either via one-off or ongoing payments or benefits).
For an internal Executive Director appointment, any variable pay element awarded in respect of the prior role may be allowed to pay
out according to its terms, adjusted as relevant to take account of the appointment. In addition, any other ongoing remuneration
obligations existing prior to appointment may continue. For external and internal appointments, the Committee may agree that the
Company will meet certain relocation and/or incidental expenses as appropriate.
Fee levels for non-executive Director appointments will take into account the expected time commitment of the role and the current
fee structure in place at that time.
Policy for loss of oce
Executive Directors’ service contracts are terminable by the Director on six months’ notice and by the relevant employing company on
12 months’ notice. There are no specific provisions under which Executive Directors are entitled to receive compensation upon early
termination, other than in accordance with the notice period.
On termination of an Executive Director’s service contract, the Committee will take into account the departing Director’s duty to
mitigate his loss when determining the amount of any compensation. Disbursements such as legal and outplacement costs and
incidental expenses may be payable where appropriate, and payments may be made for accrued holiday, outplacement.
The Committee reserves the right to make payments by way of settlement of any claim arising in connection with the cessation
ofemployment.
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Directors’ Remuneration Policy Report continued
Policy for loss of oce continued
The following payments may also be made to departing Executive Directors:
Cessation of employment due to death, injury, disability, retirement (for TIP awards only),
redundancy, the participant’s employing company or business for which they work
beingsold out of the Company’s Group or in other circumstances at the discretion
oftheCommittee.
Cessation of employment due to other reasons
(e.g.termination for cause)
TIP (cash) Cessation during a financial year, or after the year but prior to the
normal TIP Award date, may, at the discretion of the Committee, result
in the cash part of the TIP being paid following the date of cessation
(pro-rated for the proportion of the year worked).
No entitlement to the cash part of the TIP
following the date notice is served.
TIP (shares) Cessation during a financial year, or after the year but prior to the
normal TIP Award date, may, at the discretion of the Committee, result
in an award of deferred shares being made (pro-rated for the
proportion of the year worked). Unvested TIP shares generally vest at
the normal vesting date (except on death or retirement – see below)
unless the Committee determines they should vest at cessation. On
death, TIP shares generally vest immediately unless the Committee
determines that they should vest at the normal vesting date. On
retirement (as evidenced to the satisfaction of the Committee), TIP
shares will vest at the earlier of the normal vesting date and three
years from retirement unless the Committee determines they should
vest at cessation.
Unvested TIP shares lapse. No entitlement
to the deferred share element of the TIP
following the date notice is served.
Annual bonus
The Executive Director will normally be considered for a bonus payment.
It is the Committee’s policy to ensure that any bonus payment reflects
the departing Executive Director’s performance. Unless the
Committee determines otherwise, any bonus payment will be paid at
the usual time following the determination of performance measures
and be subject to a pro rata reduction for time served during the
performance period.
No entitlement to annual bonus award
following date notice is served.
Deferred bonus
shares
Unvested awards will continue and will vest at the normal vesting
date. In exceptional circumstances, the Committee may decide that
the Executive Director’s deferred share awards will vest at the date of
cessation of employment.
Unvested awards will normally lapse on
cessation of employment.
LTIP awards Unvested awards will continue and will remain capable of vesting at
the normal vesting date. To the extent that the awards vest, a
two-year holding period would then normally apply.
In exceptional circumstances, the Committee may decide that the
Executive Director’s awards will vest and be released early at the date
of cessation of employment or at some other time (e.g. following the
end of the performance period).
In either case, vesting will depend on the extent to which the
performance measures have been satisfied and will be subject to a
pro rata reduction of the awards for time served from the grant date
to the date of cessation of employment (although the Committee has
discretion to disapply time pro rating if the circumstances warrant it).
Unvested awards will normally lapse on
cessation of employment.
If an Executive Director leaves for any
reason after an award has vested but
before it has been released (i.e. during a
holding period), their award will ordinarily
continue to be released at the normal
release date.
The terms applying to any buyout awards on cessation of employment or change of control would be determined when the award
isgranted. Such terms would normally be consistent with the principles outlined above.
In the event of a change of control deferred bonus shares will vest in full. LTIP awards will vest early in the event of change of control.
The level of vesting will be determined taking into account the extent to which performance measures are satisfied at the date of the
relevant event and, unless the Committee determines otherwise, awards will be pro-rated for time served from the grant date to the
date of the relevant event. TIP awards will be treated in line with the plan rules.
Tullow Oil plc
2022 Annual Report and Accounts
96
Remuneration report continued
Consideration of shareholder’s views
The Committee considers shareholder feedback received at the AGM each year and, more generally, guidance from shareholder
representative bodies. This feedback, plus any additional feedback received during any meetings from time to time, is considered as
part of the Company’s annual review of the continuing appropriateness of the Remuneration Policy.
Prior to the finalisation of this Policy the Committee consulted with all major shareholders on the proposals. This feedback helped
inform the final Policy put forward for shareholder approval. The Committee will seek to engage directly with major shareholders and
their representative bodies should any material changes be proposed to be made to the Remuneration Policy.
Employment conditions elsewhere in the Group
In setting the Remuneration Policy and remuneration levels for Executive Directors, the Committee is cognisant of the approach to
rewarding employees in the Group and levels of pay increases generally. The Committee does not currently formally consult directly
with employees on the executive pay policy, but it does receive regular updates from the Company Secretary and the Director, People
and Sustainability. During the year this included updates on discussions with the Executive Leadership Team and the Senior
Leadership Team on the proposed changes to the Directors’ Remuneration Policy and how these changes would apply more widely to
other employees.
Non-executive Directors terms of appointment
Non-executive Director
Year
appointed
Number of
complete
years on the
Board
Date of current
engagement
commenced
Expiry of
current term
Phuthuma Nhleko 2021 1 25.10.21 24.10.24
Mike Daly 2014 8 30.05.20 31.05.23
Martin Greenslade 2019 3 01.11.19 31.10.24
Sheila Khama 2019 3 26.04.19 26.04.25
Mitchell Ingram 2020 2 09.09.20 08.09.23
Genevieve Sangudi 2019 3 26.04.19 25.04.25
Roald Goethe 2023 0 24.02.23 23.02.26
In each case, the appointment is renewable thereafter if agreed by the Director and the Board. The appointment of any non-executive
Director may be terminated by either party on three months’ notice. There are no arrangements under which any non-executive
Director is entitled to receive compensation upon the early termination of his or her appointment.
Genevieve Sangudi
Chair of the Remuneration Committee
7 March 2023
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Tullow Oil plc
2022 Annual Report and Accounts
98
Other statutory information
The Directors present their Annual Report and audited Financial
Statements for the Group for the year ended 31December 2022.
Principal activities
Tullow is an independent oil and gas, exploration and production
group, quoted on the London and Ghana stock exchanges.
TheGroup has interests in over 30exploration and production
licences across six countries.
Strategic Report
The Group is required by section 414A of the Companies Act 2006
to present a Strategic Report in the Annual Report. This can
befound on pages 1 to 53. The Strategic Report contains an
indication of the Directors’ view on likely future developments in
the business of the Group. In addition, following the introduction
of the EU Non-Financial Reporting Directive, the Strategic Report
also provides direction on where information on the impact of
activities on employees, social and environmental matters,
human rights and anti-corruption and anti-bribery matters can
be found within the Annual Report and Financial Statements, as
well as a description of the Group’s policies and where these are
located. The Corporate Governance Report on pages 54 to 97
isthe corporate governance statement for the purposes of
Disclosure Guidance and Transparency Rule 7.2.1. The Annual
Report and Financial Statements use financial and non-financial
KPIs wherever possible and appropriate.
Delisting from Euronext exchange in Dublin
On 10 October 2022, Tullow delisted from the Euronext exchange
in Dublin. During this process, a Q&A was made available on our
website for any Irish shareholders with concerns.
Listing of Notes
Tullow’s Senior Secured Notes due 2026 and Senior Notes due
2025 are listed on the Luxembourg Stock Exchange.
Results and Dividends
The profit on ordinary activities after taxation of the Group for
the year ended 31 December 2022 was $49 million (2021: loss
of$81 million). In 2022, the Board recommended that no interim
and final dividend would be paid.
Subsequent events since 31 December 2022
As announced on 14 February 2023, throughout 2021 and 2022,
Tullow has received revised and new tax assessments from
theGhana Revenue Authority (GRA). Tullow believes these
assessments are without merit and filed requests for arbitration
with the International Chamber of Commerce in London, in
accordance with the dispute resolution process set out in the
Petroleum Agreements which govern TGL’s activities in Ghana.
Notwithstanding this formal step, Tullow intends to continue
toengage with the Government of Ghana, including the GRA,
withthe aim of resolving these disputes on a mutually
acceptable basis.
In March 2023, Tullow and its JV Partners submitted an updated
Field Development Plan to the Ministry of Energy and Petroleum
and the Energy and Petroleum Regulatory Commission Authority
in Kenya, for their approval. This is currently under review by the
relevant authorities.
In 2023, there were two new appointments:
Richard Miller appointed as Chief Financial Ocer (CFO) from
January 2023.
Roald Goethe appointed as independent non-executive Director
from February 2023.
There have not been any other events since 31 December 2022
that have resulted in a material impact on the year end results.
There have not been any other events since 31 December 2022
that have resulted in a material impact on the year end results.
Share capital
As at 7 March 2023, the Company had an allotted and fully paid
up share capital of 1,441,255,150 ordinary shares each with a
nominal value of £0.10.
Substantial shareholdings
As at 31 December 2022, the Company had been notified in
accordance with the requirements of provision 5.1.2 of the
Financial Conduct Authority’s Disclosure Guidance and
Transparency Rules of the following significant holdings in
theCompany’s ordinary share capital:
Shareholder Number of shares
% of issued
capital (as at
date of
notification)
Petrolin Group
(Samuel Dossou-Aworet) 1,408,609,725 13.07%
Azvalor Asset Management
S.G.I.I.C., S.A. 173,325,714 12.05%
RWC Asset Management LLP 71,022,015 5.09%
Summerhill Trust Company
(Isle of Man) Limited 58,838,104 4.19%
The Goldman Sachs Group, Inc 40,116,703 2.79%
Shareholders’ rights
The rights and obligations of shareholders are set out in the
Company’s Articles of Association (which can be amended by
special resolution). The rights and obligations attaching to the
Company’s shares are as follows:
- dividend rights – holders of the Company’s shares may, by
ordinary resolution, declare dividends but may not declare
dividends in excess of the amount recommended by the
Directors. The Directors may also pay interim dividends.
Nodividend may be paid other than out of profits available
fordistribution. Subject to shareholder approval, payment
orsatisfaction of a dividend may be made wholly or partly
bydistribution of specific assets;
- voting rights – voting at any general meeting may be
conducted by a show of hands unless a poll is duly demanded.
On a show of hands every shareholder who is present in
personat a general meeting (and every proxy or corporate
representative appointed by a shareholder and present at a
general meeting) has one vote regardless of the number of
shares held by the shareholder (or represented by the proxy
orcorporate representative). If a proxy has been appointed by
Tullow Oil plc
2022 Annual Report and Accounts
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more than one shareholder and has been instructed by one or
more of those shareholders to vote ‘for’ the resolution and by
one or more of those shareholders to vote ‘against’ a particular
resolution, the proxy shall have one vote for and one vote
against that resolution. On a poll, every shareholder who is
present in person has one vote for every share held bythat
shareholder and a proxy has one vote for every share in
respect of which he has been appointed as proxy (the deadline
for exercising voting rights by proxy is set out in theform of
proxy). On a poll, a corporate representative may exercise all
the powers of the Company that has authorisedhim;
- a poll may be demanded by any of the following: (a) the
Chairman of the meeting; (b) at least five shareholders entitled
to vote and present in person or by proxy or represented by a
duly authorised corporate representative at the meeting;
(c)any shareholder or shareholders present in person or by proxy
or represented by a duly authorised corporate representative
and holding shares or being a representative in respect of a
holder of shares representing in the aggregate not less than
one-tenth of the total voting rights of all shareholders entitled
to attend and vote at the meeting; or (d) any shareholder or
shareholders present in person or by proxy or represented by
aduly authorised corporate representative and holding shares
or being a representative in respect of a holder of shares
conferring a right to attend and vote at the meeting on which
there have been paid up sums in the aggregate equal to not
less than one-tenth of the total sums paid up on all the shares
conferring that right;
- return of capital – in the event of the liquidation of the
Company, after payment of all liabilities and deductions taking
priority, the balance of assets available for distribution will be
distributed among the holders of ordinary shares according to
the amounts paid up on the shares held by them. A liquidator
may, with the authority of a special resolution, divide among
the shareholders the whole or any part of the Company’s
assets, or vest the Company’s assets in whole or in part in
trustees upon such trusts for the benefit of shareholders, but
no shareholder is compelled to accept any property in respect
of which there is a liability;
- control rights under employee share schemes – the Company
operates a number of employee share schemes. Under some
of these arrangements, shares are held by trustees on behalf of
employees. The employees are not entitled to exercise directly
any voting or other control rights. The trustees will generally
vote in accordance with employees’ instructions and abstain
where no instructions are received. Unallocated shares are
generally voted at the discretion of the trustees;and
- restrictions on holding securities – there are no restrictions
under the Company’s Articles of Association or under UK law
that either restrict the rights of UK resident shareholders
tohold shares or limit the rights of non-resident or foreign
shareholders to hold or vote the Company’s ordinary shares.
There are no UK foreign exchange control restrictions on
thepayment of dividends to US persons on the Company’s
ordinaryshares.
Material agreements containing
‘changeofcontrol’provisions
The following significant agreements will, in the event of a
‘change of control’ of the Company, be affected as follows:
- to the extent that a ‘change of control’ occurs, as a result of:
(i)a disposal of all or substantially all the properties or assets
of the Company and all its restricted subsidiaries (other than
through a merger or consolidation) in one or a series of related
transactions; (ii) a plan being adopted relating to the
liquidation or dissolution of the Company; or (iii) any person
becoming the beneficial owner, directly or indirectly, of shares
of the Company which grant that person more than 50% of the
voting rights of the Company;
- under the $600 million senior secured revolving facility
agreement between, among others, the Company and certain
subsidiaries of the Company, ABSA Bank, Barclays, BNP
Paribas, DNB (UK), JP Morgan, ING Belgium, Nedbank, Standard
Chartered Bank, Standard Bank of South Africa, Glas Trust
Corporation and the lenders specified there in, the Company is
obliged to notify the agent (who notifies the lenders) upon the
occurrence of a change of control. Each lender shall be
entitled to repayment of all outstanding amounts owed by the
Company and certain subsidiaries of the Company to it under
the agreement and any connected finance document. Each
lender shall be entitled to cancel its commitments immediately
under the agreement. So long as such lender states its
requirement to be repaid within 30days of being notified by
the agent, the repayment amount will become due and payable
by no later than 30 days after the agent has notified the
Company to request suchpayments;
- under an Indenture relating to $1.8 billion of 10.25% senior
secured notes due in 2026 between, among others, the
Company, certain subsidiaries of the Company and Deutsche
Trustee Company Limited as the Trustee, the Company must
make an offer to noteholders to repurchase all or any part the
notes at 101% of the aggregate principle amount of the notes,
plus accrued and unpaid interest on the notes repurchased to
the date of purchase in the event that a change of control of
the Company occurs. The repurchase offer must be made by
the Company to all noteholders within 30 days following the
change of control and the repurchase must take place no
earlier than du days and no later than 60 days from the date
ofthe repurchase offer; and
- relating to $800 million of 7% Senior Notes due in 2025
between, among others, the Company certain subsidiaries
ofthe Company and Deutsche Trustee Company Limited as
theTrustee, the Company must make an offer to noteholders
to repurchase all the notes at 101% of the aggregate principle
amount of the notes, plus accrued and unpaid interest in the
event that a change of control of the Company occurs.
Therepurchase offer must be made by the Company to all
noteholders within 30 days following the change of control and
the repurchase must take place no earlier than 10 days and no
later than 60 days from the date the repurchase offer is made.
Each noteholder may take up the offer in respect of all or part
of its notes.
Tullow Oil plc
2022 Annual Report and Accounts
100
Directors
The biographical details of the Directors of the Company at the
date of this report are given on pages 60 and 61.
Details of Directors’ service agreements and letters of
appointment can be found on page 81. Details of the Directors’
interests in the ordinary shares of the Company and in the
Group’s long term incentive and other share option schemes are
set out on page 85 in the Directors’ Remuneration Report.
Directors’ indemnities and insurance cover
As at the date of this report, indemnities are in force under which
the Company has agreed to indemnify the Directors, tothe extent
permitted by the Companies Act 2006, against claims from third
parties in respect of certain liabilities arising out of, or in
connection with, the execution of their powers, duties and
responsibilities as Directors of the Company or any of its
subsidiaries. The Directors are also indemnified against the cost
of defending a criminal prosecution or a claim by the Company,
its subsidiaries or a regulator provided that where the defence is
unsuccessful the Director must repay those defence costs. The
Company also maintains directors’ and ocers’ liability
insurance cover, the level of which is reviewedannually.
Conflicts of interest
A Director has a duty to avoid a situation in which he or she has,
or can have, a direct or indirect interest that conflicts, or possibly
may conflict, with the interests of the Group. The Board requires
Directors to declare all appointments and other situations that
could result in a possible conflict of interest and has adopted
appropriate procedures to manage and, if appropriate, approve
any such conflicts. The Board is satisfied that there is no
compromise to the independence of those Directors who have
appointments on the boards of, or relationships with, companies
outside the Group.
Powers of Directors
The general powers of the Directors are set out in Article 104 of
the Articles of Association of the Company. It provides that the
business of the Company shall be managed by the Board which
may exercise all the powers of the Company whether relating
tothe management of the business of the Company or not.
Thispower is subject to any limitations imposed on the Company
by applicable legislation. It is also limited by the provisions of the
Articles of Association of the Company and any directions given
by special resolution of the shareholders of the Company which
are applicable on the date that any power is exercised.
Please note the following specific provisions relevant to the
exercise of power by the Directors:
- Pre-emptive rights and new issues of shares – the holders of
ordinary shares have no pre-emptive rights under the Articles of
Association of the Company. However, the ability of the
Directors to cause the Company to issue shares, securities
convertible into shares or rights to shares, otherwise than
pursuant to an employee share scheme, is restricted under the
Companies Act 2006 which provides that the directors of a
company are, with certain exceptions, unable to allot any
equity securities without express authorisation, which may be
contained in a company’s articles of association or given by its
shareholders in general meeting, but which in either event
cannot last for more than five years. Under the Companies Act
2006, the Company may also not allot shares for cash
(otherwise than pursuant to an employee share scheme)
without first making an offer on a pre-emptive basis to
existing shareholders, unless this requirement is waived by a
special resolution of the shareholders;
- Repurchase of shares – subject to authorisation by
shareholder resolution, the Company may purchase its own
shares in accordance with the Companies Act 2006. Any
shares that have been bought back may be held as treasury
shares or must be cancelled immediately upon completion
ofthe purchase. The Company received authority at the last
Annual General Meeting to purchase up to a maximum of
143,623,893 ordinary shares. The authority lasts until the
earlier of the conclusion of the Annual General Meeting of the
Company in 2023 or 30 June 2023; and
- Borrowing powers – the net external borrowings of the Group
outstanding at any time shall not exceed an amount equal to
four times the aggregate of the Group’s adjusted capital and
reserves calculated in the manner prescribed in Article 105 of
the Company’s Articles of Association, unless sanctioned by an
ordinary resolution of the Company’s shareholders.
Appointment and replacement of Directors
The Company shall appoint (disregarding Alternate Directors) no
fewer than two and no more than 15 Directors. The appointment
and replacement of Directors may be made asfollows:
- the shareholders may by ordinary resolution elect any person
who is willing to act to be a Director;
- the Board may elect any person who is willing to act to be a
Director. Any Director so appointed shall hold oce only until
the next Annual General Meeting and shall then be eligible
forelection;
- each Director is required in terms of the Articles of Association
to retire from oce at the third Annual General Meeting after
the Annual General Meeting at which he or she was last elected
or re-elected, although he or she may be re-elected by
ordinary resolution if eligible and willing. However, to comply
with the principles of best corporate governance, the Board
intends that each Director will submit him or herself for
re-election on an annual basis;
- the Company may by special resolution remove any Director
before the expiration of his or her period of oce or may, by
ordinary resolution, remove a Director where special notice
has been given and the necessary statutory procedures are
complied with; and
- there are a number of other grounds on which a Director’s
oce may cease, namely voluntary resignation, where all the
other Directors (being at least three in number) request his
orher resignation, where he or she suffers physical or mental
incapacity, where he or she is absent from meetings of the
Board without permission of the Board for six consecutive
months, becomes bankrupt or compounds with his or her
creditors or where he or she is prohibited by law from being
aDirector.
Other statutory information continued
Tullow Oil plc
2022 Annual Report and Accounts
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Financial statements Supplementary informationStrategic Report Governance Report
Encouraging diversity in our workforce
Tullow is committed to eliminating discrimination and
encouraging diversity amongst its workforce. Decisions related
to recruitment selection, development or promotion are based
upon merit and ability to adequately meet the requirements of
the job, and are not influenced by factors such as gender, marital
status, race, ethnic origin, colour, nationality, religion, sexual
orientation, age or disability.
We want our workforce to be truly representative of all sections
of society and for all our employees to feel respected and able to
reach their potential. Our commitment to these aims and
detailed approach are set out in Tullow’s Code of Ethical Conduct
and Equal Opportunities Policy.
We aim to provide an optimal working environment to suit the
needs of all employees, including those of employees with
disabilities. For employees who become disabled during their
time with the Group, Tullow will provide support to help them
remain safely in continuous employment.
Employee involvement and engagement
We use a range of methods to inform and consult with
employeesabout significant business issues and our performance.
These include webcasts, the Group’s intranet and town hall
meetings. In2019, we established the workforce Tullow Advisory
Panel (TAP) in conjunction with existing means to continue
engaging with our workforce. Further details on the TAP and
employee engagement are described on page 62 of this report.
We have an employee share plan for all permanent employees,
which gives employees a direct interest in the business’success.
Political donations
In line with Group policy, no donations were made for
politicalpurposes.
Corporate responsibility
The Group works to achieve high standards of environmental,
health and safety management. Our performance in these areas
can be found on pages 30 to 37 of this report. Further information
is available on the Group website: www.tullowoil.com, and our
2022 Sustainability Report.
Auditor and disclosure of relevant audit information
Having made the requisite enquiries, so far as the Directors are
aware, there is no relevant audit information (as defined by
section 418(3) of the Companies Act 2006) of which the
Company’s auditor is unaware and each Director has taken all
steps that ought to have been taken to make him or herself
aware of any relevant audit information and to establish that the
Company’s auditor is aware of that information.
A resolution to re-appoint Ernst & Young as the Company’s
auditor will be proposed at the 2023 AGM on 24 May 2023.
Moreinformation can be found in the Audit Committee Report
onpages 63-68.
Annual General Meeting
The AGM is expected to be held on Wednesday 24May 2023. The
Notice of Annual General Meeting will set out the resolutions to
be proposed at the forthcoming AGM, which will be sent to
shareholders in due course and in accordance the the
requirement of the Listing Rules.
This Corporate Governance Report (which includes the Directors’
Remuneration Report) and the information referred to herein
have been approved by the Board and signed on its behalf by:
Adam Holland
Company Secretary
7 March 2023
Registered oce:
9 Chiswick Park
566 Chiswick High Road
London W4 5XT
Company registered in England and Wales No. 3919249
Tullow Oil plc
2022 Annual Report and Accounts
102
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable
United Kingdom law and regulations.
Company law requires the directors to prepare Financial
Statements for each financial year. Under that law the
directorshave elected to prepare the Group and Parent Company
financial statements in accordance with UK-adopted
international accounting standards (IFRSs), and the Parent
Company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law), including
Financial Reporting Standard 101 Reduced Disclosure Framework
(FRS 101). Under company law the directors must not approve the
Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group and the Company
for that period.
Under the Financial Conduct Authority’s Disclosure Guidance and
Transparency Rules and the Transparency (Directive 2004/109/
EC) Regulations 207 (as amended), Group Financial Statements
are required to be prepared in accordance with UK adopted
international accounting standards and international Financial
Reporting Standards adopted pursuant to Regulation (EC) No.
1606/2002 as it applies in the European Union.
In preparing these Financial Statements the Directors are
required to:
- select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;
- make judgements and accounting estimates that are
reasonable and prudent;
- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
- provide additional disclosures when compliance with the
specific requirements in IFRSs and in respect of the Parent
Company Financial Statements, FRS 101 is insucient to
enable users to understand the impact of particular
transactions, other events and conditions on the Group and
Company financial position and financial performance;
- in respect of the Group Financial Statements, state whether
UK-adopted international accounting standards and IFRSs
adopted pursuant to Regulation (EC) No. 1606/2002 as it
applies in the European Union;
- have been followed, subject to any material departures
disclosed and explained in the Financial Statements;
- in respect of the Parent Company Financial Statements, state
whether applicable UK Accounting Standards, including
FRS101, have been followed, subject to any material departures
disclosed and explained in the Financial Statements; and
- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company and/or
the Group will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sucient to show and explain the Company’s
and Group’s transactions and disclose with reasonable accuracy
at any time the financial position of the Company and the Group
and enable them to ensure that the Company and the Group
Financial Statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets ofthe Group and
Parent Company and hence for taking reasonable steps for the
prevention and detection of fraud andother irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a strategic report, Directors’ report,
Directors’ remuneration report and corporate governance
statement that comply with that law and those regulations.
TheDirectors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website.
Directors’ responsibility statement (DTR 4.1 and the
Transparency (Directive 2004/109/EC) Regulations
(asamended))
The Directors confirm, to the best of their knowledge:
- that the consolidated Financial Statements, prepared
inaccordance with UK-adopted international accounting
standards and IFRSs adopted pursuant to Regulation (EC)
No.1606/2002 as it applies in the European Union;
- give a true and fair view of the assets, liabilities, financial
position and profit of the Parent Company and undertakings
included in the consolidation taken as a whole;
- that the Annual Report, including the Strategic Report,
includes a fair review of the development and performance of
the business and the position of the Company and
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face; and
- that they consider the Annual Report, taken as a whole, isfair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position,
performance, business model andstrategy.
Rahul Dhir
Chief Executive Ocer
7 March 2023
Tullow Oil plc
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Financial statements Supplementary informationStrategic Report Governance Report
Opinion
In our opinion:
- Tullow Oil plc’s group financial statements and parent company financial statements (the “financial statements”) give a true and
fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2022 and of the group’s profit for the
year then ended;
- the group financial statements have been properly prepared in accordance with UK adopted international accounting standards and
International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union;
- the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
- the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Tullow Oil plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended
31December 2022 which comprise:
Group Parent company
Group balance sheet as at 31 December 2022 Company balance sheet as at 31 December 2022
Group income statement for the year then ended Company statement of changes in equity for the year then ended
Group statement of comprehensive income and expense for the
yearthenended
Related notes 1 to 7 to the financial statements including a
summary of significant accounting policies
Group statement of changes in equity for the year then ended
Group cash flow statement for the year then ended
Related notes 1 to 31 to the financial statements, including a
summary of significant accounting policies
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and
UKadopted international accounting standards and International Financial Reporting Standards adopted pursuant to Regulation (EC)
No. 1606/2002 as it applies in the European Union. The financial reporting framework that has been applied in the preparation of the
parent company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced
Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our
report. We believe that the audit evidence we have obtained is sucient and appropriate to provide a basis for our opinion
Independence
We are independent of the group and parent in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain
independent of the group and the parent company in conducting the audit.
Independent auditor’s report
to the members of Tullow Oil plc
Tullow Oil plc
2022 Annual Report and Accounts
104
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s ability to
continue to adopt the going concern basis of accounting included:
- evaluating whether management’s going concern period, of 12 months from signing of the financial statements, was appropriate;
- with the assistance of our business modelling specialists reviewing the integrity of management’s corporate model by checking
consistency of the central assumptions and formulas;
- comparing the forecasted cash expenditure incorporated in the model with the board approved budget to ensure consistency;
- assessing historical forecasting accuracy through comparing forecast versus actual analysis;
- ensuring assumptions, such as hedging, provision utilisation and decommissioning escrow payments, were consistent with other
areas of our audit;
- checking that the cash flows assumptions used in the going concern model were consistent with those used for impairment testing
purposes and ensuring any differences were appropriate;
- ensuring the commercial reserves profile used in the impairment testing is consistent the model used to determine the availability
of the Revolving Credit Facility (‘RCF’);
- evaluating the reasonableness of management’s downside scenario;
- evaluating the sensitivity of the RCF availability to reductions in future oil prices to determine the impact on available liquidity under
different price scenarios;
- performing independent reverse stress test analysis on the cash flow forecasts to assess the oil price at which a drawdown on the
RCF would become necessary;
- confirming that the forecast decarbonisation costs were included in the model; and
- reviewing management’s proposed disclosures to ensure that they were appropriate and met current accounting requirements.
Our key observations
In forming our conclusions, we have considered the 2021 refinancing of debt, which has extended maturities of borrowings to 2025
and 2026 with annual capital payments of $100m. Considering the maturities of the bonds is in 2025 and 2026, we consider the
goingconcern period of 12 months to be reasonable. Forecast oil prices and the hedge position of the Group provides significant
headroom under the base case and downside case. The Group has access to a committed Revolving Credit Facility (RCF) of up to
$500m throughout the going concern period and it is considered remote that this will not be available for the remainder of the going
concern period. Under management’s reverse stress test, a drawdown on the RCF would be required at an oil price of $20/bbl for the
going concern period.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern
foraperiod up to March 2024.
In relation to the group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of
this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s
ability to continue as a going concern.
Overview of our audit approach
Audit scope - We performed an audit of the complete financial information of 4 components and audit procedures on
specific balances for a further 7 components.
- The components where we performed full or specific audit procedures accounted for 99% of Adjusted
EBITDAX, 100% of Revenue and 99% of Total assets.
Key audit matters - Recoverability of Kenya intangible exploration and evaluation asset
- Uncertain Tax Treatments
- Recoverability of Property plant and equipment
- Fair valuation of additional interest acquired in Ghana assets
- Impairment reversal of investment in subsidiaries (parent company only)
Independent auditor’s report
to the members of Tullow Oil plc continued
Tullow Oil plc
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Financial statements Supplementary informationStrategic Report Governance Report
Materiality - Overall Group materiality of £26.2m which represents 2.5% of average normalised Adjusted Earnings
before Interest Tax Depreciation Amortisation and Exploration (‘EBITDAX’).
An overview of the scope of the parent company and group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope
foreach company within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements.
Wetake into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the
business environment the potential impact of climate change and other factors such as recent Internal audit results when assessing
the level of work to be performed at each company.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements, of the 48 reporting components of the Group, we selected 14 components
covering entities within Australia, Argentina, Côte D’Ivoire, Gabon, Ghana, Guyana, Kenya, Netherlands and the United Kingdom, which
represent the principal business units within the Group.
Of the 11 components selected, we performed an audit of the complete financial information of 4 components (“full scope components”)
which were selected based on their size or risk characteristics. For the remaining 7 components (“specific scope components”), we
performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact
on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 97% (2021: 96%) of the Group’s Adjusted EBITDAX, 97%
(2021: 92%) of the Group’s Revenue and 90% (2021: 97%%) of the Group’s Total assets. For the current year, the full scope components
contributed 103% (2021: 101%) of the Group’s Adjusted EBITDAX, 99% (2021: 92%) of the Group’s Revenue and 83% (2021: 64%) of the
Group’s Total assets. The specific scope component contributed -6% (2021: -1%) of the Group’s Adjusted EBITDAX, -2% (2021: 0%) of
the Group’s Revenue and 7% (2021: 27%) of the Group’s Total assets. The audit scope of these components may not have included
testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the
Group. We also performed specified procedures over certain aspects of Revenue, Intangible Exploration and Evaluation assets and
Non-Current Provisions at 3 locations.
The remaining 37 components together represent 3% of the Group’s Adjusted EBITDAX. For these components, we performed other
procedures, including analytical review and testing of consolidation journals and intercompany eliminations to respond to any
potential risks of material misstatement to the Group financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
Adjusted EBITDAX
103% – Full scope components
-6% – Specific scope components
3% – Other procedures
Revenue
99% – Full scope components
-2% – Specific scope components
3% – Other procedures
Total assets
83% – Full scope components
7% – Specific scope components
10% – Other procedures
Tullow Oil plc
2022 Annual Report and Accounts
106
Changes from the prior year
We have reduced the number of full scope components by 1 this year, as all the hedging positions of the Group were concentrated in
the Parent company. For other scopes, we have updated our assessment this year to remove entities which are no longer material,
due to sale, liquidation, settlements or write-offs. This has limited impact on coverage.
In a change in approach from the prior year, audit work for the Ghana component, which covers 2 full scope components, has been
performed by an integrated primary audit team comprising of team members from EY UK and EY Ghana and led by the Senior
Statutory Auditor (“primary audit team”).
During the current year’s audit cycle, visits were undertaken by the Group audit team to Ghana in November 2022 and February 2023.
These visits involved meetings with local management, including members of finance, legal and commercial teams. We held
discussions on the audit approach, reviewed working papers to validate that the required procedures have been performed and
discussed the issues arising in the component audit.
All audit work performed for the purposes of the audit was undertaken by the Group audit team.
In the prior year this audit work was performed by a separate Ghana component team.
Climate change
Stakeholders are increasingly interested in how climate change will impact Tullow Oil Plc. The Group has determined that the most
significant future impacts from climate change on their operations will be from potential falls in oil prices, carbon pricing mechanisms,
accessibility to debt and equity funding and ability to retain employee and stakeholder confidence in their commitments. These are
explained on page 27 in the Task Force for Climate related Financial Disclosures and on pages 42 to 45 in the principal risks and
uncertainties. They have also explained their climate commitments on pages 36 to 39. All of these disclosures form part of the “Other
information,” rather than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted solely
of considering whether they are materially inconsistent with the financial statements, or our knowledge obtained in the course of the
audit or otherwise appear to be materially misstated, in line with our responsibilities on “Other information”.
In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any
consequential material impact on its financial statements.
The Group has explained in note 26 how they have reflected the impact of climate change in their financial statements including how
this aligns with their commitment to being Net Zero on Scope 1 and Scope 2 emissions on a net equity basis by 2030 supporting the
goal of limiting global temperature rise to well below 2o C as per Article 2 of the Paris Agreement. Significant judgements and
estimates relating to climate change are included in note 26. These disclosures also explain where governmental and societal
responses to climate change risks are still developing, and where the degree of certainty of these changes means that they cannot be
taken into account when determining asset and liability valuations under the requirements of UK adopted international accounting
standards and International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the
European Union. In note 26 to the financial statements supplementary sensitivity disclosures of the impact of changes in oil price
under IEA scenario-Net Zero Emission by 2050 have been provided.
Our audit effort in considering the impact of climate change on the financial statements was focused on evaluating management’s
assessment of the impact of climate risk, physical and transition, their climate commitments, the effects of material climate risks
disclosed on pages 42 to 45 and the significant judgements and estimates disclosed in note 26 and whether these have been
appropriately reflected in asset values where these are impacted by future cash flows and associated sensitivity disclosures (see
note26), and in the timing and nature of liabilities recognised, (see note 26) following the requirements of UK adopted international
accounting standards and International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it
applies in the European Union. As part of this evaluation, we performed our own risk assessment, supported by our climate change
internal specialists. This included making inquiries of Head of Sustainability and Group Finance teams, and a review of peer
disclosures and sector guidance on climate change and energy transition to determine the risks of material misstatement in the
financial statements from climate change which needed to be considered in our audit.
We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and viability and
associated disclosures. Where considerations of climate change were relevant to our assessment of going concern, these are
described above.
Based on our work we have considered the impact of climate change on the financial statements to impact certain key audit matters.
Details of our procedures and findings are included in our explanation of key audit matters below.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit
ofthe financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Independent auditor’s report
to the members of Tullow Oil plc continued
Tullow Oil plc
2022 Annual Report and Accounts
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Key audit matters continued
Risk Our response to the risk
Key observations communicated to the
AuditCommittee
Recoverability of Kenya Intangible
Exploration and Evaluation Asset
(‘E&E’)
This is an estimate based on uncertain
outcomes. The recoverability of the
Kenya E&E asset carries inherent risks
that the project does not progress to
development, requiring the write-off or
impairment of the related capitalised
costs or the reversal of previously
recorded impairment charges, when the
relevant IFRS requirements are met.
Refer to the Audit Committee Report
(page 65); Accounting policies (page 119);
and Note 9 of the Consolidated Financial
Statements (page 129)
Determining the recoverable value of the
Kenya E&E asset is judgemental given
the uncertainties surrounding the
progression of the project to Final
Investment Decision (‘FID’). Management
has performed an impairment assessment
under the value-in-use (‘VIU’) methodology
where estimates are made for key
inputs including oil prices; discount
rates; inflation rates; production profiles;
cost profiles and fiscal terms. The VIU
recoverable value is risk-adjusted for
uncertainties associated with the
Group’s ability to recover the value of
theasset.
These uncertainties include securing a
strategic partner, obtaining government
deliverables (for example access to land
and water and improved fiscal terms),
and arranging financing to develop the
asset, which represent a source of
potential management bias.
As a result of these factors, there is
significant judgement relating to the
Kenya E&E asset and whether an
impairment or impairment reversal is
required at year end. As disclosed in
Note 9, changes in significant
assumptions can result in a material
impairment charge, or impairment
reversal. No impairment or impairment
reversal has been recorded.
We consider that the risk associated
with this key audit matter has remained
consistent with the previous year.
Our procedures included, amongst others:
- obtaining, reviewing and comparing the draft
Field Development Plan (‘FDP’) submitted to the
Government of Kenya in December 2021 and the
revised FDP in March 2023;
- reconciling the oil and gas resources and cost
estimates used in the model to the resources
report produced by management’s external expert
and included in the FDP;
- engaging an EY partner with significant oil
andgas reserves expertise to review the
resources reports generated by management’s
external expert;
- evaluating the professional qualifications and
objectivity of management’s external experts who
performed the detailed preparation of the
reserveestimates;
- engaging our valuation specialists to test the
mathematical accuracy and formulae integrity
ofmanagement’s model;
- evaluating the appropriateness of management’s
discount rate for Kenya based on an independent
re-calculation of the discount rate including an
assessment of country specific risks;
- evaluating the appropriateness of the oil prices
used in management’s model;
- sensitising the valuation based on less favourable
fiscal terms, oil price and discount rate and
auditing sensitivities performed by Tullow
including using the IEA’s Net Zero Emissions oil
price forecast post 2030;
- engaging our valuation specialists to evaluate
management’s probabilistic methodology for
reflecting certain risks in the valuation.
- assessing the appropriateness of the probabilistic
assessment used to adjust for the uncertainties in
computing the recoverable amount of the asset by
independently evaluating each uncertainty’s facts
and circumstances through inspection of
supporting evidence including communications
with a potential farm down partner and the
Government of Kenya and discussions with
management outside of the finance function;
- assessing potential physical risks arising from
climate change and carbon intensity of the project
and whether this may impact the chances of
development; and
- assessing whether the disclosures provided in
thefinancial statements reflect management’s
judgements, risks and uncertainties of the project.
The audit procedures were primarily performed by
our group engagement team with the assistance of
valuation specialists.
We consider acceptable the
judgements used by management in
calculating a gross NPV and then
applying probabilities to reflect the
remaining project uncertainties to
calculate the recoverable amount
We also reported that costs relating
to carbon offset projects for the
Kenya project to be carbon neutral
have not yet been assessed by
management and are therefore not
incorporated into the recoverable
value of the asset.
On sensitivity disclosures,
management appropriately disclosed
the impact on the value of the Kenya
asset under the IEA’s NZE scenario.
Tullow Oil plc
2022 Annual Report and Accounts
108
Key audit matters continued
Risk Our response to the risk
Key observations communicated to the
AuditCommittee
Uncertain Tax Treatments
This is an estimate based on uncertain
outcomes. The risk is that tax provisions
are not appropriate given the nature of
the tax matter.
Refer to the Audit Committee Report
(page 65); Accounting policies (page
120-121); and Note 6 of the Consolidated
Financial Statements (pages 126-127)
Auditing the uncertain tax treatments
and the related provisions is subjective
because the estimation requires
significant judgement, including
evaluating the outcome of the tax
matter, the timescale for resolution and
the need to negotiate with various
stakeholders. Furthermore, the outcome
of the tax matter in most instances is
outside of Tullow’s control.
As described in note 1(ag) of the
accounting policies to the Consolidated
Financial Statements Tullow’s
contingent liabilities in respect to
uncertain tax matters amounts to
$1024.0 million. Tullow have recognised
a total provision of $127.9 million, which
issplit into an income tax payable of
$70.6 million and $35.8 million in
provisions. Outcomes not in Management’s
favour, that are not provided for
appropriately, could result in material
charges through the Group’s profit and
loss once settled.
The risk has increased this year due to
increased engagement and new
disputes raised by the tax authorities.
Our procedures included, amongst others:
- obtained correspondence with tax authorities and
when required used our local teams and tax
specialists on specific regimes to assess
management’s assumptions and judgements
regarding the level of provisions made;
- inspecting external legal and tax opinions, where
considered necessary, to corroborate
management’s assessment of the risk profile in
respect of tax claims;
- evaluating the professional qualifications and
objectivity of management’s external experts;
- discussed the likelihood and quantum of any
potential settlement with management outside
the finance/tax function including the General
Counsel, CEO and Chair;
- reviewed publicly available information regarding
other significant tax claims against multi-nationals
in Ghana, in particular MTN, to understand the
basis of the claim and the outcome;
- obtained direct confirmation from external legal
counsel to corroborate the status and
management position for material litigation;
- obtained Tullow’s uncertain tax treatment
assessments and audited the associated
workings, including assessing any exposures and
provisions were appropriately extrapolated for
periods which have yet to be audited; and
- considered the relevant disclosures made within
the financial statements to ensure they
appropriately reflect the facts and circumstances
of the tax exposures and are in accordance with
the requirements of IAS 37 Provisions, IAS 12
Income Taxes and IFRIC 23 Uncertainty over
Income tax treatments.
Our audit responses was executed by the primary
audit team, with support from our Ghana tax team.
Our audit procedures over this risk area covers 100%
of the reported risk amount.
Based on the evidence obtained and
audit procedures performed,
including inspecting external legal
and tax opinions on the most
significant exposures, we are
satisfied that the accounting
treatment in respect of potential tax
exposures is appropriate.
We also concluded that the
disclosures made in the financial
statements are appropriate.
Independent auditor’s report
to the members of Tullow Oil plc continued
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Key audit matters continued
Risk Our response to the risk
Key observations communicated to the
AuditCommittee
Recoverability of Property, Plant
and Equipment (‘PP&E’)
This is a forecast-based estimate. The
risk is that potential impairments are
not identified on a timely basis. The risk
is similar to 2021 given lower reservoir
performance in TEN offset by additions
to reserves following the acquisition of
additional stakes in the Ghana assets.
Refer to the Audit Committee Report
(page 65); Accounting policies (pages
119-120); and Note 10 of the Consolidated
Financial Statements (pages 130-131)
Auditing the impairment of PP&E
involves estimation of key inputs in
particular commodity price assumptions
and discount rates. Changes to any of
these key inputs could lead to a further
impairment or a reversal of impairment,
hence this is considered a key audit
matter. Following the identification of
indicators of impairment in the TEN CGU
and impairment reversals for Group’s
remaining CGUs, the carrying values
were tested for impairment or
impairment reversal. A net impairment
of $391.2 million was recorded.
We consider that the risk associated
with this key audit matter has remained
consistent with the previous year.
Our procedures included, amongst others:
- confirming our understanding of Tullow’s
impairment testing process, as well as the control
environment implemented by management by
performing a walkthrough of the process;
- engaging our valuation specialists to test the
mathematical accuracy and formulae integrity of
management’s model;
- comparing Tullow’s commodity price scenarios to
assessments provided by our valuation specialists
and to prices used by peer companies. We also
compared Tullow’s prices to the IEA’s Net Zero
Emissions 2050 (NZE) and to the Announced
Pledges Scenario (APS) price assumptions as
potential contradictory evidence for best
estimates of future oil prices;
- assessing the appropriateness of management’s
impairment discount rates including an independent
re-calculation of the discount rate including an
assessment of country specific risks;
- reconciling production profiles used in the
impairment model to the reserves report
produced by management’s external expert;
- evaluating the professional expertise and
objectivity of management’s external experts;
- performing benchmarking on cost estimate
profiles, the inflation rate and foreign exchange
rates based on comparison with recent actuals
and our understanding obtained from other areas
of the audit;
- tested whether decarbonisation costs were
incorporated in the models; and
- auditing sensitivities performed by Tullow
including using the IEA’s Net Zero Emissions oil
price forecast.
The audit procedures were performed by our
groupengagement team with the assistance of
valuation specialists.
We reported to the Audit Committee
that, based on our testing performed
and the subsequent adjustments
made by management, we
considered the current period
impairment charge is fairly stated.
We also reported that management
had appropriately included costs
fordecarbonisation projects
identified within the Ghana asset
impairment models.
On sensitivity disclosures,
management appropriately disclosed
the impact on the value of PP&E
under the IEA’s NZE scenario.
Tullow Oil plc
2022 Annual Report and Accounts
110
Key audit matters continued
Risk Our response to the risk
Key observations communicated to the
AuditCommittee
Fair valuation of additional
interest acquired in Ghana assets
This is a forecast-based estimate. The
risk is that fair value recorded is not
appropriate considering significant
estimation involved and judgement
required in determining technical
accounting considerations.
Refer to the Audit Committee Report
(pages 63 to 69); Business combinations
(page 120); Accounting policies (pages 119
to 130); and Note 15 of the Consolidated
Financial Statements (pages 142 t0 143)
Auditing the fair valuation of the
additional interest involves estimation of
key inputs including commodity price
assumptions, discount rates,
commercial reserves and related costs
profiles. This is consistent with the
estimates referred to above in the
Recoverability of Kenya Intangible
Exploration and Evaluation Asset (‘E&E’)
and Recoverability of Property, Plant
and Equipment (‘PP&E’). A gain on
bargain purchase of $196.8m was
recorded in the profit and loss account.
Changes to any of these key inputs could
result in material changes to asset
values, hence this is considered a key
audit matter.
Our procedures included, amongst others:
- reading the SPA between Tullow and the seller to
ensure Management’s calculation and narrative
was consistent with the underlying agreements;
- assessing whether the acquisition of an additional
stake in the TEN and Jubilee where Tullow has
existing interests, and where no change of control
has taken place, qualifies as a business combination;
- agreeing consideration paid to bank statements;
- in auditing the valuation of the acquired tangible
oil and gas assets refer to the key audit matters
onRecoverability of PP&E and Recoverability of
E&E with respect to procedures performed on the
key assumptions;
- assessing the appropriateness of management’s
approach in relying on estimates produced for
31December 2021 Annual Report and Accounts
and challenging management on whether key
assumptions such as prices had changed between
31 December 2021 and the acquisition date; and
- reviewing management’s proposed IFRS 3
disclosures for appropriateness; assessed the
appropriateness of management’s methodology
of assigning fair value to legal exposures taken
onby Tullow;
The audit procedures were performed by our
groupengagement team with the assistance of
valuation specialists.
The acquisition of an additional
interest in the TEN and Jubilee fields
meets the definition of a business
under accounting standards resulting
in the fair valuation of the additional
interest acquired. The previously
held interest does not require a fair
value assessment as there was no
change in joint control status.
We considered management bias
and potential incentive in using the
2021 year-end assumptions as
management’s prices and discount
rate were at the low end of our ranges.
We have carried out a sensitivity
using a middle of the range oil price
and adjusting discount rate for changes
in macro factors, which supports the
fair value computed by management.
We concluded that the final bargain
gain of $197m recognised , and
associated disclosures are appropriate
Independent auditor’s report
to the members of Tullow Oil plc continued
Tullow Oil plc
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Key audit matters continued
Risk Our response to the risk
Key observations communicated to the
AuditCommittee
Impairment Reversal of
Investment in Subsidiaries
(Parentcompany only)
This is a forecast-based estimate.
Therisk is that potential impairments
triggers at the subsidiary level are not
identified on a timely basis and would
impact the recoverability of the parent
company’s investments in subsidiaries.
Refer to Parent Accounting policies (page
159); and Note 1 of the Parent Financial
Statements (page 160)
Investments in subsidiaries in parent
company financial statements are more
sensitive to changes in recoverable
value than the Group’s underlying assets
because certain assets have not been
subject to impairment in the past.
The principle driver of the recoverable
amount of investments in subsidiaries is
the estimated value of underlying net
assets held by the Group’s subsidiaries.
Refer to Recoverability of PP&E and
Recoverability of E&E above for related
key audit matters.
Changes to assumptions could lead to
material changes in estimated recoverable
amounts, resulting in either impairment
(2022 aggregate impairment taken of
$502.5 million) or reversals or
impairment taken (2021 aggregate
impairment reversal of $1017.6million).
We consider that the risk associated
with this key audit matter has remained
consistent with the prior year.
Our procedures included, amongst others:
- assessing the methodology used by management
to estimate the recoverable value of each
investment for which an impairment test was
performed, to ensure that it was consistent with
the accounting standards;
- testing that the relevant assets and liabilities of
each investment have been appropriately included
in the assessment of recoverable value, including
the effects of intercompany balances;
- testing the appropriateness of correction of prior
year restatement and associated disclosures; and
- refer to the key audit matters on Recoverability of
PP&E and Recoverability of E&E with respect to
procedures performed on the recoverable value of
individual assets tested for impairment, including
our consideration of climate change.
The audit procedures were performed by our
groupengagement team with the assistance of
valuation specialists.
We confirmed that our observations
with respect to the recoverable
amount of underlying assets are also
relevant for the recoverable amount
of investments in subsidiaries.
We agree with the impairment recorded.
We agree that the final disclosures in
the parent Company financial
statements are appropriate.
In the prior year, our auditor’s report included a key audit matter in relation to the Estimation of Ghana decommissioning provision.
Inthe current year, this has not been considered as a KAM following the reduction in executive involvement and lower allocation
ofresources. This was due to the reduced level of judgement involved in the decommissioning estimation process in the current
yearas management’s base cost estimate has not changed from the prior year. There were limited movements in the Ghana
decommissioning provisions other than changes from discount rate and inflation rate and therefore did not require significant
effortand time from the audit team.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements
ontheaudit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our
audit procedures.
We determined materiality for the Group to be $26.2 million (2021: $24 million), which is 2.5% (2022: 2.4%) of normalised Adjusted EBITDAX.
Our key criterion in determining materiality remains our perception of the needs of Tullow’s stakeholders. We consider which
earnings, activity or capital-based measure aligns best with the expectations of the users of Tullow’s financial statements. In doing
so,we apply a ‘reasonable investor perspective’, which reflects our understanding of the common financial information needs of the
members of Tullow as a group. We believe that Adjusted EBITDAX provides us with the most appropriate measure upon which to
calculate materiality as it represents a key performance indicator used by Tullow’s investors.
Tullow Oil plc
2022 Annual Report and Accounts
112
Our application of materiality continued
Materiality continued
We have determined that the basis of planning materiality should be normalised Adjusted EBITDAX (i.e. excluding non-recurring
items), calculated as the average of 2020 and 2021 actuals as well as management’s 2022 budget (2021: normalised adjusted EBITDAX)
to account for short term oil and gas price volatility experienced in 2022. In determining the use of a normalised measure, we
recognised oil & gas prices are volatile caused by the pandemic receding and the war in Ukraine. The views of economists and market
participants are that short term increase in oil prices is from the management of supply of oil in the market which will be addressed
over time. Given this, we believed it was important that, in setting materiality, we did not overact to what is expected to be a temporary
phenomenon – especially when Tullow continues to be the same company structurally.
By applying a normalised approach, large year-on-year swings in materiality are minimised. We have excluded non-recurring items
such as impairments of E&E assets and producing oil & gas assets, non-cash movements in provisions and gains on sale to ensure
weare using a consistent measure representative of the underlying business.
The non-recurring items excluded in 2022 were impairment of E&E assets ($105 million), impairment of oil and gas assets ($391 million)
and non-cash movement in provisions ($4 million) offset by gains on disposal and gains on hedging instruments ($1 million).
The non-recurring items excluded in 2021 were impairment of E&E assets ($60 million), impairment of oil and gas assets ($54 million),
non-cash movement in provisions ($59 million) and restructuring costs ($3 million), offset by gains on disposal ($120 million).
The non-recurring items excluded in 2020 were impairment of E&E assets ($987 million), impairment of oil and gas assets
($251million), non-cash movement in provisions (nil), and restructuring costs ($92 million), offset by gains on disposal ($3.4 million)
and gains on hedging instruments ($1 million).
We determined materiality for the Parent Company to be $28.2 million (2021: $25.7 million), which is 1.4% (2021: 1.4%) of equity.
During the course of our audit, we reassessed initial materiality and concluded that the Group’s actual performance in 2022 did not
affect our initial materiality. As such, our materiality was unchanged from planning.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was
that performance materiality was 50% (2021: 50%) of our planning materiality, namely $13.1m (2021: $12m). We have set performance
materiality at this percentage due to our assessment of the nature, number and impact of the adjusted and unadjusted audit
differences identified in 2021 audit.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is
undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on
the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component.
In the current year, the range of performance materiality allocated to components was $2.6m to $13.1m (2021: $2.7m to $11.5m).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $1.3m (2021: $1.2m),
which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report set out on pages 1 to 93 and 164 to 167 including
Strategic report, Corporate Governance and Supplementary information, other than the financial statements and our auditor’s report
thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated.
Ifwe identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there
isa material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Independent auditor’s report
to the members of Tullow Oil plc continued
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Financial statements Supplementary informationStrategic Report Governance Report
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
- the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
- the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you
if, in our opinion:
- adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
- the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
- certain disclosures of directors’ remuneration specified by law are not made; or
- we have not received all the information and explanations we require for our audit
Corporate Governance Statement
We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the group and company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
- Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 93;
- Directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the period is
appropriate set out on pages 110 to 111;
- Director’s statement on whether it has a reasonable expectation that the group will be able to continue in operation and meets its
liabilities set out on page 111;
- Directors’ statement on fair, balanced and understandable set out on page 93;
- Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 67;
- The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out
on page 67; and;
- The section describing the work of the audit committee set out on page 63
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 93, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to
do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Tullow Oil plc
2022 Annual Report and Accounts
114
Auditor’s responsibilities for the audit of the financial statements continued
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the
company and management.
- We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the
most significant are those that related to the reporting framework (UK-adopted IAS, IFRS, Companies Act 2006, the UK Corporate
Governance Code and Listing Rules of the UK Listing Authority) and the relevant tax compliance regulations in the jurisdictions in
which Tullow operates. In addition, we concluded that there are certain significant laws and regulations that may have an effect
onthe determination of the amounts and disclosures in the financial statements and those laws and regulations relating to health
and safety, employee matters, environmental matters and bribery and corruption practices. We understood how Tullow Oil plc is
complying with those frameworks by making inquiries of management, internal audit and those responsible for legal and compliance
procedures. We corroborated our enquiries through review of board minutes, papers provided to Audit committees and
correspondence received from regulatory bodies
- Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations.
Ourprocedures involved journal entry testing, with a focus on journals meeting defined risk criteria based on our understanding
ofthe business; inquiries with legal counsel, group management, internal audit and all full and specific scope management; review
of volume and nature of whistleblowing complaints received during the year. Where instances of non-compliance were identified,
weconsulted the relevant EY local teams and EY specialists who aided us in determining sucient, and executing appropriate,
procedures to respond to the risk identified.
- We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by
meeting with management together with our forensic specialists. We gained an understanding of where there was susceptibility to
fraud, how the company is complying with international tax laws and regulations, procedures in place to address the risk of bribery
and corruption in high-risk countries, procedures around setting key performance indicators and assessment of whistleblowing
incidences for those with a potential financial reporting impact.
- In addition, we utilised internal and external information to perform a fraud risk assessment for each of the countries of operation.
We considered the risk of fraud and the possibility of fraudulent or corrupt payments made through the purchase to pay process
through management override and, in response, we incorporated data analytics across manual journal entries into our audit approach.
Where exceptions and instances of risk behaviour patterns were identified, we tested of transactions back to the source information.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
- Following the recommendation from the audit committee we were appointed by the company on 21 July 2020 to audit the financial
statements for the year ending 31 December 2020 and subsequent financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments is 3 years, covering the years ending 2020 to 2022.
- The audit opinion is consistent with the additional report to the audit committee.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Paul Wallek (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
7 March 2023
Independent auditor’s report
to the members of Tullow Oil plc continued
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115
Financial statements Supplementary informationStrategic Report Governance Report
Notes
2022
$m
2021
Restated
1
$m
Continuing activities
Revenue 2 1, 783. 1 1,285. 4
Cost of sales 4 (697 .5 ) (638. 9 )
Gross profit 1,085.6 646.5
Administrative expenses 4 (51.0 ) (64. 1 )
Gain on bargain purchase 15 196.8 –
Gain on disposals 8 – 120.3
Other gains and losses 19 3 .1 –
Exploration costs written off 9 (105.2 ) (59 .9 )
Impairment of property, plant and equipment, net 10 (391.2 ) (54.3 )
Restructuring costs and other provisions 4 (4.2 ) (6 1.8 )
Operating profit 733. 9 5 26 .7
Gain on hedging instruments 18 0.8 –
Finance income 5 4 2 .9 44.3
Finance costs 5 (335.5 ) (356. 1 )
Profit from continuing activities before tax 4 4 2 .1 214. 9
Income tax expense 6 (393.0 ) (295.6 )
Profit/(loss) for the year from continuing activities 4 9.1 (80. 7 )
Attributable to:
Owners of the Company 4 9.1 (80. 7 )
Earnings/(loss) per ordinary share from continuing activities 7 ¢ ¢
Basic 3.4 (5. 7 )
Diluted 3.3 (5.7 )
1. Refer to Note 6 for details on prior year restatement.
Group statement of comprehensive income and expense
Year ended 31 December 2022
Group income statement
Year ended 31 December 2022
Notes
2022
$m
2021
$m
Profit/(loss) for the year 4 9.1 (80. 7 )
Items that may be reclassified to the income statement in subsequent periods
Cash flow hedges
Loss arising in the year 18 (399 .5 ) (159 .3 )
Gains/ (losses) arising in the year – time value 18 21.7 (182. 1 )
Reclassification adjustments for items included in profit on realisation 18 288.5 112.3
Reclassification adjustments for items included in loss on realisation – time value 18 30.8 4 0 .7
Exchange differences on translation of foreign operations 10.2 (1.4 )
Other comprehensive expense (48.3 ) (189 .8 )
Tax relating to components of other comprehensive expense – 2.7
Net other comprehensive expense for the year (48.3 ) (187 . 1 )
Total comprehensive income/(expense) for the year 0.8 (267 .8 )
Attributable to:
Owners of the Company 0.8 (267 .8 )
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2022 Annual Report and Accounts
116
Notes
2022
$m
2021
$m
ASSETS
Non-current assets
Intangible exploration and evaluation assets 9 288.6 354.6
Property, plant and equipment 10 2, 981.4 2, 914.6
Other non-current assets 11 327 . 1 489 . 1
Deferred tax assets 21 14.5 354.4
Current assets
Inventories 12 181.6 134.8
Trade receivables 13 26 .8 99 .8
Other current assets 11 5 6 7. 9 704.5
Current tax assets 6 15.4 1 9. 7
Cash and cash equivalents 14 636.3 4 6 9. 1
Total assets 5,039 .6 5,540 .6
LIABILITIES
Current liabilities
Trade and other payables 16 (750.2 ) (751. 1 )
Borrowings 17 (100.0 ) (100.0 )
Provisions 20 (98.8 ) (296.5 )
Current tax liabilities (186.0 ) (115. 1 )
Derivative financial instruments 18 (186.3 ) (80. 9 )
(1,321.3 ) (1,343.6 )
Non-current liabilities
Trade and other payables 16 (780.0 ) (987 . 1 )
Borrowings 17 (2, 372.8 ) (2,468. 7 )
Provisions 20 (4 15.6 ) (431.0 )
Deferred tax liabilities 21 (551.5 ) (677 .3 )
Derivative financial instruments 18 (57 . 9 ) (9 9. 0 )
(4, 177 .8 ) (4,663. 1 )
Total liabilities (5,499 . 1 ) (6,006. 7 )
Net liabilities (45 9 .5 ) (466. 1 )
EQUITY
Called-up share capital 22 215.2 214.2
Share premium 22 1,294. 7 1,294. 7
Foreign currency translation reserve (238.6 ) (248.8 )
Hedge reserve 18 (150.3 ) (39 .3 )
Hedge reserve – time value 18 (94.4 ) (146. 9 )
Merger reserve 755.2 755.2
Retained earnings (2,241.3 ) (2,295.2 )
Equity attributable to equity holders of the Company (45 9 .5 ) (466. 1 )
Total equity (45 9 .5 ) (466. 1 )
Approved by the Board and authorised for issue on 7 March 2023.
Rahul Dhir Richard Miller
Chief Executive Ocer Chief Financial Ocer
7 March 2023 7 March 2023
Group balance sheet
As at 31 December 2022
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Financial statements Supplementary informationStrategic Report Governance Report
Notes
Share
capital
$m
Share
premium
$m
Equity
component
of
convertible
bonds
$m
Foreign
currency
translation
reserve
1
$m
Hedge
reserve
2
$m
Hedge
reserve
– time
value
2
$m
Merger
reserve
$m
Retained
earnings
$m
Total
equity
$m
At 1 January 2021 211. 7 1,294. 7 48. 4 (2 4 7. 4 ) 4.8 (5.4 ) 755.2 (2,272.0 ) (210. 0 )
Loss for the year – – – – – – – (80. 7 ) (80. 7 )
Hedges, net of tax 18 – – – – (44. 1 ) (141.5 ) – – (185.6 )
Derecognition of the
convertible bond
3
17 – – (48. 4 ) – – – – 48. 4 –
Currency translation
adjustments – – – (1.4 ) – – – – (1. 4 )
Exercise of employee
share options 22 2.5 – – – – – – (2.5 ) –
Share-based
payment charges 23 – – – – – – – 11.6 11.6
At 1 January 2022 214.2 1,294. 7 – (248.8 ) (39 .3 ) (146.9 ) 755.2 (2,295.2 ) (466. 1 )
Profit for the year – – – – – – – 4 9.1 4 9.1
Hedges, net of tax 18 – – – – (111.0 ) 52.5 – – (58.5 )
Currency translation
adjustments – – – 10.2 – – – – 10.2
Exercise of employee
share options 22 1.0 – – – – – – (1.0 ) –
Share-based
payment charges 23 – – – – – – – 5.8 5.8
At 31 December 2022 215.2 1,294. 7 – (238.6 ) (150.3 ) (94.4 ) 755.2 (2,24 1.3 ) (459 .5 )
1. The foreign currency translation reserve represents exchange gains and losses arising on translation of foreign currency subsidiaries, monetary items receivable from
or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation.
2. The hedge reserve represents gains and losses on derivatives classified as effective cash flow hedges.
3. On 12 July 2021 Tullow repaid the $300 million Convertible Bond due 2021 (note 17). As the conversion option was not exercised, the equity component of $48.4 million has
been transferred from the separate reserve to retained earnings.
Group statement of changes in equity
Year ended 31 December 2022
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Group cash flow statement
Year ended 31 December 2022
Notes
2022
$m
2021
Restated
1
$m
Cash flows from operating activities
Profit from continuing activities before tax 4 4 2 .1 214. 9
Adjustments for:
Depreciation, depletion and amortisation 10 425.8 378. 9
Gain on bargain purchase 15 (196.8 ) –
Gain on disposals 8 – (120.3 )
Other gains and losses 19 (3. 1 ) –
Taxes paid in kind 6 (21.4 ) (12 .2 )
Exploration costs written off 9 105.2 5 9. 9
Impairment of property, plant and equipment, net 10 391.2 54.3
Restructuring costs and other provisions 4.2 61.8
Payment under restructuring costs and other provisions (127 .3 ) (12.6 )
Decommissioning expenditure (57 .7 ) (52.8 )
Share-based payment charge 23 5.8 11.6
Gain on hedging instruments 18 (0. 8 ) –
Finance income 5 (4 2 .9 ) (44.3 )
Finance costs 5 335.5 356. 1
Operating cash flow before working capital movements 1,259 .8 895.3
Decrease/ (increase) in trade and other receivables 288.4 (17 .9 )
Increase in inventories (48. 0 ) (4 1 .9 )
(Decrease)/ increase in trade payables (193. 1 ) 7. 5
Cash generated from operating activities 1,307 . 1 843.0
Income taxes paid (229 .3 ) (56. 1 )
Net cash from operating activities 1,077 .8 786. 9
Cash flows from investing activities
Proceeds from disposals 11 68. 1 132.8
Purchase of additional interest in joint operation 15 (126 .8 ) –
Purchase of intangible exploration and evaluation assets 28 (4 2 .6 ) (86. 1 )
Purchase of property, plant and equipment 28 (263.8 ) (150.4 )
Interest received 8 .9 2.0
Net cash used in investing activities (356.2 ) (101. 7 )
Cash flows from financing activities
Debt arrangement fees 28 – (56.6 )
Repayment of borrowings 28 (100.0 ) (2,379 . 9 )
Drawdown of borrowings 28 – 1,800.0
Payment of obligations under leases (203.8 ) (155. 9 )
Finance costs paid (2 4 9. 0 ) (234. 9 )
Net cash used in financing activities (552.0 ) (1,027 .3 )
Net increase/ (decrease) in cash and cash equivalents 168.8 (342. 1 )
Cash and cash equivalents at beginning of year 4 6 9.1 805.4
Foreign exchange gain (1.6 ) 5.8
Cash and cash equivalents at end of year 14 636.3 4 6 9.1
1. Refer to Note 6 for details on prior year restatement.
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Notes to the Group Financial Statements
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Notes to the Group Financial Statements continued
Year ended 31 December 2022
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Company balance sheet
As at 31 December 2022
Notes
2022
$m
2021
Restated
1
$m
ASSETS
Non-current assets
Investments 1 4,863.7 4,700.6
4,863.7 4,700.6
Current assets
Other current assets 3 9.1 544.8
Cash at bank 54.5 74.1
63.6 618.9
Total assets 4,927.3 5,319.5
LIABILITIES
Current liabilities
Trade and other payables 4 (194.4) (389.4)
Borrowings 5 (100.0) (100.0)
Derivative financial instruments (186.3) (73.1)
(480.7) (562.5)
Non-current liabilities
Borrowings 5 (2,372.8) (2,468.7)
Derivative financial instruments 5 (58.2) (99.0)
(2,431.0) (2,567.7)
Total liabilities (2,911.7) (3,130.2)
Net assets 2,015.6 2,189.3
Capital and reserves
Called-up share capital 7 215.2 214.2
Share premium 7 1,294.7 1,294.7
Foreign currency translation reserve 194.5 194.5
Merger reserves 671.5 671.5
Retained earnings (360.3) (185.6)
Total equity 2,015.6 2,189.3
1. Refer to Note 1 for details on prior year restatement.
During the year the Company made a loss of $179.5 million (2021: $1,614.1 million profit).
Approved by the Board and authorised for issue on 7 March 2023.
Rahul Dhir Richard Miller
Chief Executive Ocer Chief Financial Ocer
7 March 2023 7 March 2023
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Company statement of changes in equity
Year ended 31 December 2022
Share
capital
$m
Share
premium
$m
Foreign
currency
translation
reserve
$m
Merger
reserves
$m
Retained
earnings
$m
Total
equity
$m
At 1 January 2021 (as previously reported) 211.7 1,294.7 194.5 671.5 (1,808.8) 563.6
Profit for the year (restated) – – – – 1,614.1 1,614.1
Exercising of employee share options 2.5 – – – (2.5) –
Share-based payment charges – – – – 11.6 11.6
As 1 January 2022 (as adjusted) 214.2 1,294.7 194.5 671.5 (185.6) 2,189.3
Loss for the year – – – – (179.5) (179.5)
Exercising of employee share options 1.0 – – – (1.0) –
Share-based payment charges – – – – 5.8 5.8
At 31 December 2022 215.2 1,294.7 194.5 671.5 (360.3) 2,015.6
Refer to Note 1 for details on prior year restatement.
Tullow Oil plc
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166
Company accounting policies
As at 31 December 2022
(a) General information
Tullow Oil plc, Building 9, Chiswick Park, 566 Chiswick High Road, London W4 5XT. The Financial Statements are presented in US dollars
and all values are rounded to the nearest $0.1 million, except where otherwise stated. Tullow Oil plc is the ultimate Parent of the Group.
(b) Basis of preparation
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial
Reporting Council. The Financial Statements have therefore been prepared in accordance with Financial Reporting Standard 101
(FRS101) Reduced Disclosure Framework as issued by the Financial Reporting Council.
The following exemptions from the requirements of IFRS have been applied in the preparation of these Financial Statements, in
accordance with FRS 101:
- paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based Payment (details of the number and weighted average exercise prices of share
options, and how the fair value of goods or services received was determined);
- IFRS 7 Financial Instruments: Disclosures;
- paragraphs 91 to 99 of IFRS 13 Fair Value Measurement (disclosure of valuation techniques and inputs used for fair value
measurement of assets and liabilities); and
- paragraph 38 of IAS 1 Presentation of Financial Statements – comparative information requirements in respect of certain assets.
The following paragraphs of IAS 1 Presentation of Financial Statements:
- 10(d) (statement of cash flows);
- 111 (cash flow statement information);
- 134–136 (capital management disclosures);
- IAS 7 Statement of Cash Flows;
- paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;
- paragraph 17 of IAS 24 Related Party Disclosures (Key Management compensation); and
- the requirements in IAS 24 Related Party Disclosures, to disclose related party transactions entered into between two or more
members of a group. Where relevant, equivalent disclosures have been given in the Group accounts.
The Financial Statements have been prepared on the historical cost basis, except for derivative financial instruments that have been
measured at fair value.
The Company has applied the exemption from the requirement to publish a separate profit and loss account for the Parent Company
set out in section 408 of the Companies Act 2006.
During the year the Company made a loss of $179.5 million (2021: $1,614.1 million profit).
(c) Going concern
Refer to the Basis of preparation in the Accounting Policies section of the Group accounts.
(d) Foreign currencies
The US dollar is the functional and presentational currency of the Company. Transactions in foreign currencies are translated at the
rates of exchange ruling at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into
US dollars at the rates of exchange ruling at the balance sheet date, with a corresponding charge or credit to the income statement.
However, exchange gains and losses arising on long-term foreign currency borrowings, which are a hedge against the Company’s
overseas investments, are dealt with in reserves.
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(e) Share-based payments
The Company has applied the requirements of IFRS 2 Share-based Payments. The Company has share-based awards that are equity
settled and cash settled as defined by IFRS 2. The fair value of the equity settled awards has been determined at the date of grant of
the award allowing for the effect of any market-based performance conditions. This fair value, adjusted by the Company’s estimate of
the number of awards that will eventually vest as a result of non-market conditions, is expensed uniformly over the vesting period.
The fair values were calculated using a binomial option pricing model with suitable modifications to allow for employee turnover after
vesting and early exercise. Where necessary, this model is supplemented with a Monte Carlo model. The inputs to the models include:
the share price at date of grant; exercise price; expected volatility; expected dividends; risk-free rate of interest; and patterns of
exercise of the plan participants.
For cash settled awards, a liability is recognised for the goods or service acquired, measured initially at the fair value of the liability.
Ateach balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with
any changes in fair value recognised in the income statement.
(f) Investments
Investments in subsidiaries are accounted for at cost less any provision for impairment.
(g) Financial assets
The Company classifies its financial assets in the following categories: at fair value through profit or loss; and loans and receivables.
The classification depends on the purpose for which the financial assets were acquired.
Management determines the classification of its financial assets at initial recognition. As of 31 December 2022, all financial assets
were classified at amortised cost.
Assets are classified and measured at amortised cost when the business model of the Company is to collect contractual cash flows
and the contractual terms give rise to cash flows that are solely payments of principal and interest. These assets are carried at
amortised cost using the effective interest method if the time value of money is significant. Gains and losses are recognised in profit
or loss when the assets are derecognised, modified or impaired.
(h) Financial liabilities
The measurement of financial liabilities is determined by the initial classification.
i) Financial liabilities at fair value through profit or loss:
Those balances that meet the definition of being held for trading are measured at fair value through profit or loss. Such liabilities are
carried on the balance sheet at fair value with gains or losses recognised in the income statement.
Intercompany derivative liabilities fall under this category of financial instruments.
ii) Financial liabilities measured at amortised cost:
All financial liabilities not meeting the criteria of being classified at fair value through profit or loss are classified as financial liabilities
measured at amortised cost. The instruments are initially recognised at their fair value net of transaction costs that are directly
attributable to the issue of financial liability. Subsequent to initial recognition, financial liabilities are measured at amortised cost
using the effective interest method.
Borrowings and trade creditors fall under this category of financial instruments.
(i) Share issue expenses
Costs of share issues are written off against the premium arising on the issues of share capital.
(j) Finance costs of debt
Finance costs of debt are recognised in the profit and loss account over the term of the related debt at a constant rate on the
carryingamount.
Interest-bearing borrowings are recorded as the proceeds received, net of direct issue costs. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement using the
effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period
in which they arise.
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2022 Annual Report and Accounts
168
(k) Taxation
Current and deferred tax, including UK corporation tax and overseas corporation tax, are provided at amounts expected to be paid using
the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred corporation tax is recognised
on all temporary differences that have originated but not reversed at the balance sheet date where transactions or events that result in an
obligation to pay more, or right to pay less, tax in the future have occurred at the balance sheet date. Deferred tax assets are recognised
only to the extent that it is considered more likely than not that there will be suitable taxable profits from which the underlying temporary
differences can be deducted. Deferred tax is measured on a non-discounted basis.
Deferred tax is provided on temporary differences arising on acquisitions that are categorised as business combinations. Deferred tax is
recognised at acquisition as part of the assessment of the fair value of assets and liabilities acquired. Any deferred tax is charged or
credited in the income statement as the underlying temporary difference is reversed.
(l) Capital management
The Company defines capital as the total equity of the Company. Capital is managed in order to provide returns for shareholders and
benefits to stakeholders and to safeguard the Company’s ability to continue as a going concern. Tullow is not subject to any externally
imposed capital requirements. To maintain or adjust the capital structure, the Company may adjust the dividend payment to
shareholders, return capital, issue new shares for cash, repay debt, and put in place new debt facilities.
(m) Critical accounting judgements and key sources of estimation uncertainty
The Group assesses critical accounting judgements annually. The following are the critical judgements, apart from those involving
estimations which are dealt with in policy (ag), that the Directors have made in the process of applying the Group’s accounting policies
and that have the most significant effect on the amounts recognised in the Financial Statements.
Investments (note 1):
The Company is required to assess the carrying values of each of its investments in subsidiaries for impairment. The net assets
ofcertain of the Company’s subsidiaries are predominantly intangible exploration and evaluation (E&E) and property, plant and
equipment assets.
Where facts and circumstances indicate that the carrying amount of an E&E asset held by a subsidiary may exceed its recoverable
amount, by reference to the specific indicators of impairment of E&E assets, an impairment test of the asset is performed by the
subsidiary undertaking and the asset is impaired by any difference between its carrying value and its recoverable amount.
Therecognition of such an impairment by a subsidiary is used by the Company as the primary basis for determining whether or not
there are indications that the investment in the related subsidiary may also be impaired, and thus whether an impairment test of the
investment carrying value needs to be performed. The results of exploration activities are inherently uncertain and the assessment
ofimpairment of E&E assets by the subsidiary, and that of the related investment by the Company, is judgemental.
For property, plant and equipment, the value of assets/fields supporting the investment value is assessed by estimating the
discounted future cash flows based on Management’s expectations of future oil and gas prices and future costs.
In order to discount the future cash flows the Group calculates CGU-specific discount rates. The discount rates are based on an
assessment of a relevant peer group’s post-tax weighted average cost of capital (WACC). The post-tax WACC is subsequently grossed
up to a pre-tax rate. The Group then deducts any exploration risk premium which is implicit within a peer group’s WACC and
subsequently applies additional country risk premium for all CGUs, an element of which is determined by whether the assets are
onshore or offshore. Refer to Notes 9 and 10 to the Group Financial Statements.
Where there is evidence of economic interdependency between fields, such as common infrastructure, the fields are grouped as a
single CGU for impairment purposes.
Amounts due from subsidiary undertakings (note 3):
The Company is required to assess the carrying values of each of the amounts due from subsidiary undertakings, considering the
requirements established by IFRS 9 Financial Instruments.
The IFRS 9 impairment model requires the recognition of ‘expected credit losses’, in contrast to the requirement to recognise
‘incurred credit losses’ under IAS 39. Where conditions exist for impairment on amounts due from subsidiary undertakings expected
credit losses assume that repayment of a loan is demanded at the reporting date. If the subsidiary has sucient liquid assets
torepaythe loan if demanded at the reporting date, the expected credit loss is likely to be immaterial. However, if the subsidiary
cannotdemonstrate the ability to repay the loan, if demanded at the reporting date, the Company calculates an expected credit loss.
Thiscalculation considers the percentage of loss of the amount due from subsidiary undertakings, which involves judgement around
how amounts would likely be recovered, and over what time they would be recovered.
Company accounting policies continued
As at 31 December 2022
Tullow Oil plc
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Financial statements Supplementary informationStrategic Report Governance Report
Note 1. Investments
2022
$m
2021
Restated
$m
Subsidiary undertakings 4,863.7 4,700.6
4,863.7 4,700.6
The movement in Company's investment in subsidiaries of $163.1 million (2021: $1,334.6 million) is due to additions of $665.6 million
(2021: $317.0 million) and impairment charge of $502.5 million (2021: $1,017.6 impairment reversal) which was recognised against the
Company’s investments in subsidiaries in relation to losses incurred by Group service companies and exploration companies and
underlying value of the Group’s production companies. (Refer to notes 9 and 10 in the Notes to the Group Financial Statements.)
Trigger for
2022
impairment
2022
Impairment
$m
2022
Remaining
recoverable
amount
$m
2021
Impairment/
(reversal)
Restated
$m
2021
Remaining
recoverable
amount
Restated
$m
Tullow Oil (Jersey) Limited a – – 0.1 –
Tullow Oil SK Limited a – – 17.4 –
Tullow Group Services Limited a 5.4 – 11.1 –
Tullow Overseas Holdings B.V. a,b 497.1 4,786.6 (1,106.2) 4,623.5
Tullow Oil SPE Limited n/a – 65.3 – 65.3
Tullow Gabon Holdings Limited n/a – 11.8 – 11.8
Tullow Oil Finance Limited a – – 60.0 –
Total 502.5 4,863.7 (1,017.6) 4,700.6
a. Reduction in net asset value as a result of impairment of direct and indirect subsidiaries.
b. Impact of loss making subsidiaries.
Comparative information in respect of impairment reversal and remaining recoverable amount has been restated in relation to the
recognition of an additional impairment reversal of investments in subsidiaries due to an error in the calculating the recoverable value
Tullow Oil Plc's investment in Tullow Overseas Holdings B.V. The investment in subsidiaries as at 31 December 2021 and impairment
reversal for the year ended 31 December 2021 was understated by $350.4 million. As a result of the correction, investment in subsidiaries
as at 31 December 2021 increased from $4.350.3 million to $4,700.6 million and Profit for the year increased from $1,263.8 million to
$1,614.1 million.
The Company’s subsidiary undertakings as at 31 December 2022 are listed on pages 160 to 161. The principal activity of all companies
relates to oil and gas exploration, development and production.
Sensitivities
The value of property, plant and equipment and E&E assets supporting the investment value will be affected by the potential future
changes to oil prices and discount rates. All impairment assessments are prepared on a VIU basis using discounted future cash flows
based on 2P reserves profiles. A reduction or increase in the two-year forward curve of $5/bbl, based on the approximate range of
annualised average oil price over recent history, and a reduction or increase in the medium and long-term price assumptions of
$5/bbl, based on the range of annualised average historical prices, are considered to be reasonably possible changes for the purposes
of sensitivity analysis. Decreases to oil prices specified in note 10 to the Group Financial Statements would increase the investment
impairment charge by $555.0, whilst increases to oil prices specified above would result in a credit to the investment impairment
charge of $527.3 million. A 1% change in the pre-tax discount rate would increase the impairment by $235.8 million. The Company
believes a 1% change in the pre-tax discount rate to be a reasonable possibility based on historical analysis of the Company’s and peer
group of companies’ impairments.
Climate change
The value of property, plant and equipment and E&E assets supporting the investment value will be affected by the potential future
impact of Climate Change. The Company estimates that the impact on oil and carbon prices as contained in the NZE scenarios on the
value of assets held by subsidiaries could result in a potential write off of investments of up to $2,810.2 million. Refer to note 26 to the
Group Financial Statements.
Note 2. Deferred tax
The Company has tax losses of $1,289.5 million (2021: $874.7 million) that are available indefinitely for offset against future non-ring-
fenced taxable profits in the Company. A deferred tax asset of $nil (2021: $nil) has been recognised in respect of these losses on the
basis that the Company does not anticipate making non-ring-fenced profits in the foreseeable future.
Notes to the Company Financial Statements
Year ended 31 December 2022
Tullow Oil plc
2022 Annual Report and Accounts
170
Note 3. Other current assets
Amounts falling due within one year
2022
$m
2021
$m
Other debtors 4.9 7.3
Due from subsidiary undertakings 4.2 537.5
9.1 544.8
The decrease in amounts due from subsidiary undertakings of $533.3 million is mostly due to a repayment of the interest bearing
loanfrom Tullow Overseas Holdings B.V (2021: $564.2 million). The loan incurred interest at SOFR plus 4.78% (2021: LIBOR plus 4.5%).
The remaining amounts due from subsidiaries accrue no interest. All amounts are repayable on demand. At 31 December 2022
aprovision of $nil (2021: $26.7 million) was held in respect of the recoverability of amounts due from subsidiary undertakings.
Note 4. Trade and other payables
Amounts falling due within one year
2022
$m
2021
$m
Accrued interest 40.9 42.2
Accruals 9.0 1.2
Provisions – 1.6
Due to subsidiary undertakings 144.5 344.4
194.4 389.4
Note 5. Borrowings
2022
$m
2021
$m
Current
Borrowings – within one year
10.25% Senior Secured Notes due 2026 100.0 100.0
100.0 100.0
Non-current
Borrowings – after one year but within five years
7.00% Senior Notes due 2025 792.8 792.1
10.25% Senior Secured Notes due 2026 1,580.0 1,676.6
2,372.8 2,468.7
Carrying value of total borrowings 2,472.8 2,568.7
The Company’s capital structure includes $1.7bn Senior Secured Notes due 2026 (2026 Notes), $800 million Senior Notes due 2025
(2025 Notes) and a $500 million Super Senior Revolving Credit Facility (SSRCF).
The 2026 Notes, maturing in May 2026, require an annual prepayment of $100 million, in May, of the outstanding principal amount plus
accrued and unpaid interest, with the balance due on maturity.
The 2025 Notes are due in a single payment in March 2025.
The SSRCF, maturing in December 2024, comprises of (i) a $500 million revolving credit facility and (ii) a $100 million letter of
creditfacility. The revolving credit facility remains undrawn as at 31 December 2022. Letters of credit amounting to $44 million
(2021:$20million) have been issued under the facility.
Unamortised debt arrangement fees for the 2026 Notes, the Senior Notes due 2025 and the SSRCF are $20.0 million, $7.0 million and
$4.8 million respectively.
The 2026 Notes and the SSRCF are senior secured obligations of Tullow Oil plc and are guaranteed by certain subsidiaries of the Group.
The Company or its aliates may, at any time and from time to time, seek to retire or purchase outstanding debt through cash
purchases and/or exchanges, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or
exchanges, if any, will be upon such terms and at such prices as management may determine, and will depend on prevailing market
conditions, liquidity requirements, contractual restrictions and other factors.
Notes to the Company Financial Statements continued
Year ended 31 December 2022
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Note 6. Financial instruments
Disclosure exemptions adopted
Where equivalent disclosures for the requirements of IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair Value Measurements
have been included in the 2022 Annual Report and Accounts of Tullow Oil plc, the Company has adopted the disclosure exemptions
available to the Company’s accounts.
Financial risk management objectives
The Company follows the Group’s policies for managing all its financial risks.
Fair values of derivative instruments
All derivatives are recognised at fair value on the balance sheet with valuation changes recognised immediately in the income
statement. Fair value is the amount for which the asset or liability could be exchanged in an arm’s-length transaction at the relevant
date. Where available, fair values are determined using quoted prices in active markets. To the extent that market prices are not
available, fair values are estimated by reference to market-based transactions, or using standard valuation techniques for the
applicable instruments and commodities involved.
The Company’s derivative carrying and fair values were as follows:
Assets/liabilities
2022
Less than
1 year
$m
2022
1–3 years
$m
2022
Total
$m
2021
Less than
1 year
$m
2021
1–3 years
$m
2021
Total
$m
Option market value
Oil derivatives (162.1) (50.0) (212.1) (51.0) (66.6) (117.6)
Deferred premium
Oil derivatives (24.2) (8.2) (32.4) (22.1) (32.4) (54.5)
Total assets – – – – – –
Total liabilities (186.3) (58.2) (244.5) (73.1) (99.0) (172.1)
The following provides an analysis of the Company’s financial instruments measured at fair value, grouped into Levels 1 to 3 based on
the degree to which the fair value is observable:
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 which are observable
for the asset or liability, either directly or indirectly; and
Level 3: fair value measurements are those derived from valuation techniques which include inputs for the asset or liability that are
not based on observable market data.
All of the Company’s derivatives are Level 2 (2021: Level 2). There were no transfers between fair value levels during the year.
For financial instruments which are recognised on a recurring basis, the Company determines whether transfers have occurred
between levels by re-assessing categorisation (based on the lowest-level input which is significant to the fair value measurement
asawhole) at the end of each reporting period.
Income statement summary
Derivative fair value movements during the year which have been recognised in the income statement were as follows:
Loss on derivative instruments
2022
$m
2021
$m
Oil derivatives 72.4 (172.1)
Cash flow and interest rate risk
The interest rate profile of the Company’s financial assets and liabilities, excluding trade and other receivables and trade and other
payables, at 31 December 2022 and 31 December 2021 was as follows:
2022
Cash at bank
$m
2022
Fixed rate
debt
$m
2022
Total
$m
2021
Cash at bank
$m
2021
Fixed rate
debt
$m
2021
Total
$m
US$ 54.5 (2,500.0) (2,445.5) 74.1 (2,600.0) (2,525.9)
54.5 (2,500.0) (2,445.5) 74.1 (2,600.0) (2,525.9)
Cash and cash equivalents consisted of $50.0 million (2021: $20.8 million) of short-term deposits that are readily convertible to
knownamounts of cash with insignificant risk of change in value. The Company only deposits cash with major banks of high-quality
credit standing.
Tullow Oil plc
2022 Annual Report and Accounts
172
Note 6. Financial instruments continued
Liquidity risk
The following table details the Company’s remaining contractual maturities for its non-derivative financial liabilities with agreed
repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest
date on which the Company can be required to pay.
Weighted
average
effective
interest rate
Less than
1 month
$m
1–3
months
$m
3 months
to 1 year
$m
1–5
years
$m
5+
years
$m
Total
$m
31 December 2022
Non-interest bearing n/a – 18.7 175.7 – – 194.4
Fixed interest rate instruments 9.7%
Principal repayments – – 100.0 2,400.0 – 2,500.0
Interest charge – 28.0 197.0 464.0 – 689.0
– 46.7 472.7 2,864.0 0 3,383.4
Weighted
average
effective
interest rate
Less than
1 month
$m
1–3
months
$m
3 months
to 1 year
$m
1–5
years
$m
5+
years
$m
Total
$m
31 December 2021
Non-interest bearing n/a – 18.7 370.7 – – 389.4
Fixed interest rate instruments 9.7%
Principal repayments – – 100.0 2,500.0 – 2,600.0
Interest charge – 28.0 207.0 689.0 – 924.0
– 46.7 677.7 3,189.0 – 3,913.4
Note 7. Called-up equity share capital and share premium account
Allotted equity share capital and share premium
Equity share
capital allotted
and fully paid
Number
Share
capital
$m
Share
premium
$m
At 1 January 2021 1,414,071,777 211.7 1,294.7
Issued during the year
Exercise of share options 18,008,320 2.5 –
At 1 January 2022 1,432,080,097 214.2 1,294.7
Issued during the year
Exercise of share options 7,525,898 1.0 –
At 31 December 2022 1,439,605,995 215.2 1,294.7
The Company does not have an authorised share capital. The par value of the Company’s shares is 10p.
Notes to the Company Financial Statements continued
Year ended 31 December 2022
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Financial statements Supplementary informationStrategic Report Governance Report
The Group uses certain measures of performance that are not
specifically defined under IFRS or other generally accepted
accounting principles. These non-IFRS measures include capital
investment, net debt, gearing, adjusted EBITDAX, underlying
cash operating costs, free cash flow, underlying operating cash
flow and pre-financing cash flow.
Capital investment
Capital investment is defined as additions to property, plant and
equipment and intangible exploration and evaluation assets less
decommissioning asset additions, right-of-use asset additions,
capitalised share-based payment charge, capitalised finance
costs, additions to administrative assets, Norwegian tax refund
and certain other adjustments. The Directors believe that capital
investment is a useful indicator of the Group’s organic
expenditure on exploration and appraisal assets and oil and gas
assets incurred during a period because it eliminates certain
accounting adjustments such as capitalised finance costs and
decommissioning asset additions.
2022
$m
2021
$m
Additions to property, plant and
equipment
370.7
148.1
Additions to intangible exploration and
evaluation assets 39.2 46.3
Less:
Changes to Decommissioning asset
estimates (19.9) (134.8)
Right-of-use asset additions 63.5 73.5
Lease payments related to capital
activities (40.2) (26.8)
Additions to administrative assets 2.0 1.6
Other non-cash capital expenditure 50.4 17.7
Capital investment 354.1 263.2
Movement in working capital (49.7) (28.3)
Additions to administrative assets 2.0 1.6
Cash capital expenditure
per the cash flow statement
306.4
236.5
Net debt
Net debt is a useful indicator of the Group’s indebtedness,
financial flexibility and capital structure because it indicates the
level of cash borrowings after taking account of cash and cash
equivalents within the Group’s business that could be utilised to
pay down the outstanding cash borrowings. Net debt is defined
as current and non-current borrowings plus non-cash
adjustments, less cash and cash equivalents. Non-cash
adjustments include unamortised arrangement fees, adjustment
to convertible bonds, and other adjustments. The Group’s
definition of net debt does not include the Group’s leases as the
Group’s focus is the management of cash borrowings and a lease
is viewed as deferred capital investment.
The value of the Group’s lease liabilities as at 31 December 2022 was
$251.2 million current and $732.9 million non-current; it should be
noted that these balances are recorded gross for operated assets
and are therefore not representative of the Group’s net exposure
under these contracts.
2022
$m
2021
$m
Borrowings 2,472.8 2,568.7
Non-cash adjustments 27.2 31.3
Less cash and cash equivalents (636.3) (469.1)
Net debt 1,863.7 2,130.9
Gearing and adjusted EBITDAX
Gearing is a useful indicator of the Group’s indebtedness,
financial flexibility and capital structure and can assist securities
analysts, investors and other parties to evaluate the Group.
Gearing is defined as net debt divided by adjusted EBITDAX.
Adjusted EBITDAX is defined as profit/(loss) from continuing
activities adjusted for income tax (expense)/credit, finance costs,
finance revenue, gain on hedging instruments, depreciation,
depletion and amortisation, share-based payment charge,
restructuring costs, gain/(loss) on disposal, exploration costs
written off, impairment of property, plant and equipment net, and
provision for onerous service contracts.
2022
$m
2021
Restated
1
$m
Profit/(Loss) from continuing activities 49.1 (80.7)
Adjusted for:
Income tax expense 393.0 295.6
Finance costs 335.5 356.1
Finance revenue (42.9) (44.3)
Gain on hedging instruments (0.8) –
Gain on bargain purchase (196.8) -
Depreciation, depletion and
amortisation 425.8 378.9
Share-based payment charge 5.8 11.6
Restructuring costs and provisions for
onerous contracts 4.2 61.8
Gain on disposal (0.4) (120.3)
Exploration costs written off 105.2 59.9
Impairment of property, plant and
equipment, net 391.2 54.3
Adjusted EBITDAX 1,468.9 972.9
Net debt 1,863.7 2,130.9
Gearing (times) 1.3 2.2
1. Revenue from crude oil sales has been restated following a revision to the
Group's accounting policy. This resulted in an increase to the revenue for the
year ended 31 December 2022 of $21.4 million (2021: 12.2 million), and a
corresponding increase to the income tax expense. Refer to note 6.
Alternative performance measures
Tullow Oil plc
2022 Annual Report and Accounts
174
Underlying cash operating costs
Underlying cash operating costs is a useful indicator of the
Group’s costs incurred to produce oil and gas. Underlying cash
operating costs eliminates certain non-cash accounting
adjustments to the Group’s cost of sales to produce oil and gas.
Underlying cash operating costs is defined as cost of sales less
operating lease expense, depletion and amortisation of oil and gas
assets, underlift, overlift and oil stock movements, share-based
payment charge included in cost of sales, royalties and certain
other cost of sales. Underlying cash operating costs are divided
by production to determine underlying cash operating costs per
boe. In 2021 and 2022, Tullow incurred abnormal non- recurring
costs which are presented separately below. The adjusted
normalised cash operating costs are a helpful indicator to the
forward underlying costs of the business.
2022
$m
2021
$m
Cost of sales 697.5 638.9
Less:
Depletion and amortisation of oil and
gas and leased assets 410.7 360.9
Underlift, overlift and oil stock
movements (46.3) (20.0)
Share-based payment charge included
in cost of sales 0.4 0.5
Royalties 61.7 40.0
Other cost of sales 4.4 (11.7)
Underlying cash operating costs 266.5 268.7
Non-recurring costs (14.7) (7.9)
Total normalised cash operating
costs 251.8 260.8
Production (mmboe) 21.6 21.6
Underlying cash operating costs per
boe ($/boe) 12.3 12.4
Normalised cash operating costs per
boe ($/boe) 11.3 12.1
Free cash flow
Free cash flow is a useful indicator of the Group’s ability to
generate cash flow to fund the business and strategic acquisitions,
reduce borrowings and provide returns to shareholders through
dividends. Free cash flow is defined as net cash from operating
activities, and net cash used in investing activities, less debt
arrangement fees, repayment of obligations under leases,
finance costs paid, and foreign exchange gain.
2022
$m
2021
$m
Net cash from operating activities 1,059.8 786.9
Net cash used in investing activities (356.2) (101.7)
Repayment of obligations under leases (203.8) (155.9)
Finance costs paid (230.5) (234.9)
Debt arrangement fees — (56.6)
Foreign exchange gain (1.6) 6.9
Free cash flow 267.2 244.7
Underlying operating cash flow
This is a useful indicator of the Group’s assets ability to generate
cash flow to fund further investment in the business, reduce
borrowing and provide returns to shareholders. Underlying
operating cash flow is defined as net cash from operating
activities less repayments of obligations under leases plus
decommissioning expenditure.
Pre-financing free cash flow
This is a useful indicator of the Group’s ability to generate cash
flow to reduce borrowings and provide returns to shareholders
through dividends. Pre-financing free cash flow is defined as net
cash from operating activities, and net cash used in investing
activities, less repayment of obligations under leases and foreign
exchange gain.
2022 2021
Net cash from operating activities 1,077.8 786.9
Less:
Decommissioning expenditure 57.7 52.8
Lease payments related to capital
activities 40.2 26.8
Plus:
Repayment of obligations under
leases (203.8) (155.9)
Underlying operating cash flow 971.9 710.6
Net cash used in investing activities (356.2) (101.7)
Decommissioning expenditure (57.7) (52.8)
Lease payments related to capital
activities (40.2) (26.8)
Pre-financing free cash flow 517.8 529.3
Alternative performance measures continued
Tullow Oil plc
2022 Annual Report and Accounts
175
Financial statements Supplementary informationStrategic Report Governance Report
Shareholder information
Financial calendar
2022 full year results announced 8 March 2023
Annual General Meeting 24 May 2023
AGM trading update 24 May 2023
Trading statement and operational update 12 July 2023
2023 half-year results announced 13 September 2023
November trading update 15 November 2023
Shareholder enquiries
All enquiries concerning shareholdings, including notification of
change of address, loss of a share certificate or dividend
payments, should be made to the Company’s registrar.
For shareholders on the UK register, Computershare provides a
range of services through its online portal, Investor Centre, which
can be accessed free of charge at www.investorcentre.co.uk.
Once registered, this service, accessible from anywhere in the
world, enables shareholders to check details of their shareholdings
or dividends, download forms to notify changes in personal details
and access other relevant information.
United Kingdom registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZY
Tel – UK shareholders: 0370 703 6242
Tel – overseas shareholders: +44 870 703 6242
Contact: www.investorcentre.co.uk/contactus
Ghana registrar
The Central Securities Depository (Ghana) Limited
4th Floor, Cedi House, P.M.B CT 465 Cantonments, Accra, Ghana
Tel – Ghana shareholders: + 233 303 972 254/302 689 313
Contact: info@csd.com.gh
Share dealing service
A telephone share dealing service has been established for
shareholders with Computershare for the sale and purchase of
Tullow Oil shares. Shareholders who are interested in using this
service can obtain further details by calling the appropriate
telephone number below:
UK shareholders: 0370 703 0084
If you live outside the UK and wish to trade you can do so through
the Computershare Trading Account. To find out more or to open
an account, please visit
www.computershare-sharedealing.co.uk or phone
Computershare on +44 870 707 1606.
ShareGift
If you have a small number of shares whose value makes it
uneconomical to sell, you may wish to consider donating them
toShareGift which is a UK registered charity specialising
inrealising the value locked up in small shareholdings for
charitable purposes. The resulting proceeds are donated to
arange of charities, reflecting suggestions received from
donors. Should you wish to donate your Tullow Oil plc shares in
this way, please download and complete a transfer form from
www.sharegift.org/forms, sign it and send it together with the
share certificate to ShareGift, PO Box 72253, London SW1P 9LQ. For
more information regarding this charity, visit www.sharegift.org.
Electronic communication
To reduce impact on the environment, the Company encourages
all shareholders to receive their shareholder communications,
including Annual Reports and notices of meetings, electronically.
Once registered for electronic communications, shareholders
will be sent an email each time the Company publishes statutory
documents, providing a link to the information.
Tullow actively supports Woodland Trust, the UK’s leading
woodland conservation charity. Computershare, together with
Woodland Trust, has established eTree, an environmental
programme designed to promote electronic shareholder
communications. Under this programme, the Company makes a
donation to eTree for every shareholder who registers for
electronic communication. To register for this service, simply
visit http://www.investorcentre.co.uk/etreeuk/tullowoilplc with
your shareholder number and email address to hand.
Shareholder security
Shareholders are advised to be cautious about any unsolicited
financial advice, offers to buy shares at a discount or offers of
free Company reports. More detailed information can be found
athttp://scamsmart.fca.org.uk/ and in the Shareholder
Servicessection of the Investors area of the Tullow website:
www.tullowoil.com.
Corporate brokers
Barclays
5 North Colonnade, Canary Wharf, London E14 4BB
Peel Hunt
120 London Wall, London EC2Y 5ET
Tullow Oil plc
2022 Annual Report and Accounts
176
Ghana Non-Operated Kenya Exploration Total
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
bcf
Oil
mmbbl
Gas
7
bcf
Petroleum
mmboe
Commercial reserves
1 January 2022 168.3 138.9 38.8 7.1 – – – – 207.1 145.9 231.4
Revisions
3,4,6
(4.5) 4.3 4.8 (0.6) – – – – 0.4 3.8 1.0
Production (16.2) – (5.8) (1.4) – – – – (22.1) (1.4) (22.3)
W.I. change 16.7 14.1 – – – – – – 16.7 14.1 19.0
31 December 2022 164.3 157.3 37.8 5.1 – – – – 202.1 162.4 229.1
Contingent resources
2
1 January 2022 212.1 585.2 29.7 0.9 231.4 – 54.5 – 527.6 586.1 625.4
Revisions
3,4,6
(47.8) (77.1) 6.3 7.7 – – – – (41.4) (69.4) (53.0)
W.I. change 20.7 69.7 – – – – – – 20.7 69.7 32.3
31 December 2022 185.0 577.8 36.0 8.6 231.4 – 54.5 – 506.9 586.4 604.6
Total
31 December 2022 349.3 735.1 73.8 13.7 231.4 – 54.5 – 709.0 748.8 833.7
1. Proven and Probable Reserves above are as audited and reported by independent third-party reserve auditors. The auditor was provided with all the significant data up
until 31 December 2022.
2. Proven and Probable Contingent Resources above are also as audited and reported by independent third-party auditors based on best available information as of
31December 2022. Numbers represent the working interest net to Tullow.
3. Reserves and Resources revisions in Ghana relate to successful infill drilling and good field performance in Jubilee and the maturation of a number of projects including:
the Tweneboa Oil development, infill well on Ntomme and the Enyenra South extension development. This is balanced by a downward revision of Ntomme and Enyenra
reflecting field production performance and removal of reserves associated with the two (dry) TEN Riser Base wells drilled in 2022.
4. Reserves revisions in Gabon mainly relate to development progress in Tchatamba, and reserves in Etame.
5. Resource estimates for Kenya are from independent evaluation of resources by independent third-party reserve auditors.
6. A gas conversion factor of 6 Mscf/boe is used to calculate the total Petroleum Mmboe.
7. The Working Interest change in Ghana relates to the pre-emptive acquisition of Occidental's interest in Jubilee and TEN. This transaction increased Tullow’s equity
interests to 39.0% in the Jubilee field and to 54.8% in the TEN fields.
The Group provides for depletion and amortisation of tangible fixed assets on a net entitlements basis, which reflects the terms
oftheProduction Sharing Contracts related to each field. Total net entitlement reserves were 219.6 mmboe at 31 December 2022
(31December 2021: 222.0 mmboe).
Contingent Resources relate to resources in respect of which development plans are in the course of preparation or further evaluation
is under way with a view to future development.
Commercial reserves and contingent resources summary
(unaudited) working interest basis
RESULTS, REPORTS ANDPRESENTATIONS
Financial results, corporate Annual Reports, webcasts and
factbooks are allstored in the Investor Relations section ofour
website: www.tullowoil.com/reports.
E-COMMUNICATIONS
All documents on the website are available to view without any
particular software requirement other than the software which is
available on the Group’s website.
For every shareholder who signs up forelectronic
communications, a donation is made to the eTree initiative
runby Woodland Trust. You can register for email
communication at: www.etree.com/tullowoilplc.
COMPANY SECRETARY AND REGISTERED OFFICE
Adam Holland
Tullow Oil plc
9 Chiswick Park
566 Chiswick High Road
London
W4 5XT
United Kingdom
To contact any of Tullow’s principal subsidiary
undertakings,please findaddress details on
www.tullowoil.com/contacts
or send ‘in care of’ to Tullow’s registered address.
Stay up to date
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Tullow Oil plc’s commitment to environmental issues is reflected in this
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CBP017685
Tullow Oil plc
9 Chiswick Park
566 Chiswick High Road
London W4 5XT
United Kingdom
Email: info@tullowoil.com
Website: www.tullowoil.com