KPIs

A year of solid performance

The Group’s progress against its corporate scorecard is tracked to assess our performance against our strategy.

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

The scorecard is central to Tullow’s approach to performance management and the 2017 indicators were agreed with the Board. Each year, targets within the scorecard may change to reflect the most material strategic objectives and associated risks the Group faces, as well as measures to deliver on the longer-term strategy of the Company. Tullow’s performance against the scorecard is tracked and reviewed at quarterly performance management meetings, which are attended by Executive Directors and senior leaders. The Group’s ongoing performance is cascaded quarterly to staff through management briefings and internal communications.

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

In 2017, a decision was taken to introduce a discretionary component to the Group scorecard of 10 per cent. This was introduced to recognise unplanned events or initiatives that required significant discretionary effort on the part of our employees.

Each objective measured has a percentage weighting, and financial and operational indicators have trigger, base and stretch performance targets. As reflected in the adjoining table, in 2017, Tullow’s overall performance was 39.7 per cent. The ‘relative’ Total Shareholder Return (TSR) tracks our performance over a three-year period. For 2017 performance, our share price during the fourth quarter of 2014 is compared to the fourth quarter of 2017, with the intervening period not accounted for. For these two periods we remain below the median and therefore score nil out of the possible score of 50 per cent. However, the delivery of the majority of remaining targets reflects strong performance in maintaining liquidity, sustaining cash flows, operating safely, reducing our costs and overall operational delivery.

2017 Annual Report & Accounts

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Strategic Financing (9.5/10)

Relevance to strategy:

Supporting our growth strategy with the appropriate financing and liquidity to meet our capital commitments. Deleveraging the balance sheet is critical to achieving our growth strategy.

performance

• Refinanced $2.5 billion seven-year RBL facility

• Extended $800 million RCF by one year and voluntarily reduced commitment by $200 million ahead of amortisation schedule

• Deleveraged balance sheet through $750 million Rights Issue

• Generated $543 million of free cash flow, reducing gearing to 2.6x net debt/adjusted EBITDAX

• Debt down by $1.3 billion to $3.5 billion

Safe, sustainable & efficient operations

Production (4/4%)

Relevance to strategy:

Production revenues generate high-margin cash flow which in turn funds exploration and development investment opportunities, can be re‑invested in our portfolio of assets and pays down debt.

 

performance:

• Group production exceeded the stretch target and guidance was revised upwards due to strong performance from the TEN and Jubilee fields
• Non-operated West Africa portfolio performed ahead of budget
• Year-end total, excluding barrels covered by business interruption insurance was 87,300 boepd

Safe, sustainable & efficient operations

Operating expenditure / per barrel (1/1%)

Relevance to strategy:

Maintaining competitive operating expenditure helps deliver higher-margin production revenues. The cost of producing a single barrel of oil is influenced by industry costs, inflation, fixed costs and production output.

Performance:

• The Group achieved an operating cost of $11.1/boe, significantly exceeding the stretch target
• Increased production due to strong performance on Jubilee and TEN fields and the Jubilee shut-down being moved to 2018 contributed to exceeding targets
• Operating costs also benefited from contract renegotiation, synergies within service providers and synergies with TEN and Jubilee operations

Safe, sustainable & efficient operations

Net G&A (1/1%)

Relevance to strategy:

Maintaining lean running costs for the business influences both the profitability and efficiency of our business. Net G&A is the Company’s corporate costs, which are not off-set against licence activity.

performance:

• Net G&A was managed well during the year resulting in a Net G&A for the year of $95 million, significantly beating our stretch target

Safe, sustainable & efficient operations

Capital Expenditure (1/1%)

Relevance to strategy:

Investing capital expenditure is required to maintain and grow the business and is directed to the development costs of major projects and exploration campaigns. We are working to reduce capital expenditure in order to reduce our current debt levels.

performance:

• Capex was reduced significantly during the year to $225 million, excluding the Uganda expenditure. This includes a $69 million accrual reversal in Ghana

Safe, sustainable & efficient operations

Safe & sustainable operations (3.4/5%)

Relevance to strategy:

Protecting our people, communities, facilities and the environment impacted by our activities ensures we work safely and sustainably and maintains our good reputation. We measure this KPI through process safety events, asset integrity, Lost Time Injury Frequency (LTIF), number of malaria cases, resolution of community grievances and spending appropriate levels of our goods and services budgets with local suppliers.

performance:

• Four Lost Time Injuries have negatively impacted LTIF performance
• 38 minor process safety events were recorded
• 12,349 lost man hours due to community work‑related incidents
• No regulatory non-compliance notices received
• No new malaria cases for 2017
• 87 per cent progress against our Asset Integrity/Process Safety key performance indicators

Business development & growth

West Africa (3.5/5%)

Relevance to strategy:

Our Ghana business continues to hold our most important and strategic producing assets and the ITLOS ruling allows us to pursue future exploration opportunities whilst returning the Jubilee field to plateau production levels, preparing for exploration drilling and enhancing the value of the West Africa non-operated business.

performance:

• Government of Ghana approval was secured for the Greater Jubilee Full Field Development Plan
• Rig contracted in preparation for return to drilling on TEN and Jubilee in early 2018
• Non-operated business growth plan for Gabon was developed
• Decommissioning activities in the Southern North Sea progressed
• 20 mmbbls of new resources were booked

Business development & growth

East Africa (3.5/5%)

Relevance to strategy:

Commercialising oil in Kenya and Uganda is a key objective of our strategy which is being pursued through appropriate equity holdings in the respective assets. This KPI measured progress of the Kenya development project for FID; completing the Uganda
farm-down; and progressing the Uganda development to FID.

performance:

• Strong operational performance was maintained with initiatives being prepared and focus on community relations and capacity building to support local content
• In Kenya, strategic direction shifted to focusing on a phased development as a preferred value proposition
• A Joint Development Agreement to construct an oil pipeline has been signed with government
• In Uganda our Partners, Total and CNOOC, have signed the Sales and Purchase Agreement to farm-down our interest and completion is expected in 2018. We are working towards achieving FID around mid-2018

Business development & growth

Exploration (3.8/5%)

Relevance to strategy:

Creating value through new exploration at the right licence equity levels and securing new acreage ensure that we maintain a balanced portfolio to pursue growth opportunities. This KPI measured new acreage secured; managing appropriate equity
levels in existing licences; maturing commercially attractive prospects for future drilling campaigns; and drilling the Araku well in Suriname safely, efficiently and cost-effectively.

performance:

• Performance focus was on securing new acreage and developing prospectivity
• New licences in Côte d’Ivoire and Peru were secured
• Equity reductions secured in licences in Mauritania, Suriname, Namibia, Jamaica
and Pakistan
• The exit from Madagascar and Greenland was completed
• Progress was made on prospects in Suriname
• All operations in Jamaica, Uruguay, Guyana, Zambia, Suriname and Mauritania completed safely and under budget

Organisation (2/3%)

Relevance to strategy:

Our organisation strategy aims to be inclusive and engage and motivate employees while ensuring that we have robust governance processes in place. This KPI targeted improvements in staff engagement, Diversity & Inclusion and Ethics & Compliance.

Performance:

• A mini staff survey conducted in Q3 showed that actions taken as a result of the feedback from the biennial engagement survey in 2016 were yielding results
• A Diversity & Inclusion (D&I) workshop was held with the new Executive Team to endorse the forward plan of management and a new Executive Sub-Group was agreed to promote the D&I aims
• All employees completed the Code of Ethical Conduct online course and our administrative Code Certification process. There were two breaches of compliance regarding the Company’s Expenditure related to Public Officials (ExPo) Standard

Discretionary Award (7%/10%)

Relevance to strategy

The discretionary award is effective for specific actions that have resulted in value creation. This element was introduced in 2017 to take account of unforeseen events; business performance management and leadership; in-year external commentary regarding the business and our share price; and value created through superior performance.

Performance

The following were taken into consideration for the discretionary award: Executive Team transition; Ghana/Cote d'Ivoire ITLOS preparation; free cash flow generation; exiting Congo and the Netherlands; settling a tax dispute in one of our West African host countries; investor sentiment; progress on the Kenya development; and finance processes

Total shareholder return (0/50%)

Relevance to strategy

Our strategy is to build long-term sustainable value growth resulting in returns to our shareholders. The TSR component is based on our performance relative to our European and US E&P peers over a three-year period.

 

performance

• We achieved a zero score for TSR because our share price, including the adjustment for the Rights Issue, performed below the median against our industry peer group over a three‑year period