Tullow Oil plc 2016 Annual Report and Accounts

184 Pages·2017·10.53 MB·English

by  Design Portfolio

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Our purpose
Tullow’s purpose is to build
a better future through
responsible oil and gas
development
Who we are
Tullow Oil is an independent oil and gas exploration
and production company. We have producing assets
in West Africa, with material positions in discovered
resources in Kenya and emerging basins in Latin America.
UK
We are headquartered in London and our shares are
listed on the London, Irish and Ghana stock exchanges.
Tullow also pursues near-field exploration opportunities
in and around its producing and development assets.
Key:
 Exploration  Development
 Production  Decommissioning
Mauritania
Guyana Ghana
Côte d’Ivoire
Gabon
Kenya
Argentina
2021 key metrics
Strategic report
Group working interest production S
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59,200 boepd 2021 key metrics 1 RA
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What we do 2 G
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2020: 74,900 boepd Our stakeholders 3 RE
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Our investment case 3 OR
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Our strategy 4
Chair’s statement 6
Operating cash flow
Chief Executive Officer’s statement 8
$711m
Business model 10
Markets 12
2020: $598m
A balanced scorecard 14
Operations review 16
Chief Financial Officer’s statement 21
Adjusted EBITDAX Finance review 24
$1.0bn
Sustainability 28
Governance and risk management 36
2020: $0.8bn Section 172(1) statement 43
Viability statement 48
Non-financial reporting 50
Loss after tax
Corporate governance
$(81)m
Directors’ report 52
Board of Directors 58
2020: $(1,222)m
Stakeholder engagement 60
Audit Committee report 61
Nominations Committee report 67
Capital investment
Safety and Sustainability
$263m
Committee report 69
Remuneration report 71
2020: $288m Other statutory information 88
Financial Statements
Net debt Statement of Directors’
$2.1bn responsibilities 92
Independent auditor’s report
to the members of Tullow Oil plc 93
2020: $2.4bn
Group Financial Statements 105
Company Financial Statements 152
Free cash flow
Supplementary information
$245m
Alternative performance measures 161
Shareholder information 163
2020: $432m
Commercial reserves and contingent
resources summary (unaudited)
working interest basis 164
Gearing
2.2 times
2020: 3.0 times
Tullow Oil plc 2021 Annual Report and Accounts 1
What we do
Tullow is an exploration and production (E&P) company focused on Africa and South America.
We are a full cycle upstream oil and gas company, operating assets through the lifecycle of
exploration and appraisal, through to the development and production phase to decommissioning
at the end of life. Our business is focused on finding, or acquiring assets to extract, oil and gas
which is then sold in the global commodity market.
By doing the above, Tullow is able to unlock and maximise value from the hydrocarbon resources of its host nations. We are
committed to doing this efficiently and safely, while minimising our environmental impact. Through our work, we also deliver
shared prosperity and value for our investors, host nations and people.
Upstream
Tullow’s activities
Exploration and appraisal Development Production
2–5 years 3 years + 25 years +
Identify Explore Identify Develop Identify Produce
Exploration is the process of identifying Developments require host Government The extraction and sale of hydrocarbons
potential hydrocarbons and involves approval and need to be commercially, can last decades, bringing material
acquiring seismic and drilling prospects. technically, environmentally and socially value to host nations through tax and
This may be followed by appraisal wells viable. Developments are capital royalties while providing revenue to the
to better understand the size and intensive, requiring spend on new participating oil and gas companies.
quality of a geological play. infrastructure as well as investment in When production ceases, facilities
local jobs and suppliers. are decommissioned, and the site is
fully remediated.
Tullow’s activities: Tullow’s activities: Tullow’s activities:
In addition to selective exploration in Our development activities are We have a goal to become a leading
emerging basins, we are focused on focused on preparing capital efficient West African operator and we are
leveraging our geoscience expertise development plans that enable the striving for top quartile operating
to enhance the value of our core production of discovered resources. For performance in terms of safety,
assets. This is largely done through Tullow, this primarily relates to Project emissions, reliability and costs.
‘Infrastructure-led exploration’, which Oil Kenya and further developments of We operate both the Jubilee and
involves identifying new resources near our existing producing fields such as TEN fields in Ghana and work in
existing infrastructure. the Jubilee South East Development. partnership with the operators of
our non-operated assets.
2 Tullow Oil plc 2021 Annual Report and Accounts
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Our stakeholders TR
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OUR INVESTORS OUR HOST NATIONS ODreuetlrui vriennrvsie nosgnt oscruassp:tiatainlable OCruera htionsgt snhaatrioends p:rosperity OPwruoorrvk pideinogp lae :great place to REPORT
OUR PEOPLE
Our investment case
Responsible, safe and reliable Generate material free
operations cash flow from production
West African
Engineering and subsurface production base Plan to reach gearing of 1.5x
technical expertise net debt: EBITDAX by 2025 at
Over 3 billion bbls of oil in place
$65/bbl
with <50% produced to date
Cost focus and capital Deliver tangible social and
discipline economic benefits to our
host nations
Unlocking upside value
Prudent financial strategy with Significantly reduce carbon
Realise value from discovered
revenues protected by hedging emissions from our operations
resources in Kenya, positions in
emerging exploration basins
and M&A
Commitment to Net Zero by Create value for our investors,
2030 (Scope 1 & 2 net equity host nations and people
emissions)
Managing our risks
Commercial See more on page 38 & 39 Financial See more on pages 38, 39 & 40
Stakeholder See more on page 39 People See more on page 40
Climate See more on page 40 Ethics & Conduct See more on page 41
EHS or security See more on page 39 Cyber See more on page 41
Tullow Oil plc 2021 Annual Report and Accounts 3
Our strategy
A strategy to fulfil our purpose
Over the past year, Tullow has refined its strategy in light of growing
climate pressures, and we believe the oil and gas industry can, and should
be, an engine of development for developing economies, particularly in Africa.
As long as global hydrocarbon demand exists, it is imperative that Africa’s oil
and gas assets are managed responsibly, efficiently and transparently and that
oil and gas production in developing economies creates long-lasting economic
and social benefits. Tullow has a long and strong history in Africa and is well
positioned to continue as a leader in the continent’s oil and gas industry.
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4 Tullow Oil plc 2021 Annual Report and Accounts
We intend to fulfil our purpose through the following strategy:
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1 To produce and develop oil and gas resources in Africa IC
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We believe that reliable and adequate energy supplies are critical for world economic and political stability and that E
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fossil fuels will remain an integral part of the energy mix for some time. Therefore, oil and gas resources need to be O
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developed and produced responsibly. Africa continues to suffer from extreme energy poverty and there is a strong T
case for a fair transition where African economies have the opportunity (like much of the world until now) to benefit
from the responsible development of their resources.
2 To grow our business through the development of discovered resources, near field exploration and M&A
The Jubilee and TEN fields in Ghana provide a set of highly profitable investment opportunities through a combination
of infill drilling, facilities expansion, production from currently undeveloped parts of the fields and near field exploration.
Tullow’s non-operated production in Gabon and Côte d’Ivoire also provides infrastructure-led (ILX) exploration
opportunities and a number of diverse low-risk investment projects. Tullow will also seek to realise upside through
its discovered resources in Kenya and unlock value from its exploration assets. As many companies allocate capital
away from the upstream business and divest assets, Tullow also has potential to grow its business through acquisitions.
3 To continue to focus on cost management and capital efficiency to deliver a robust balance sheet
We continue to carefully manage our costs and believe that every barrel matters and every dollar counts.
The issuance of $1.8 billion of Senior Secured Notes with a $500 million revolving credit facility in May 2021 has
put Tullow on a much firmer financial footing and the Group now has a pathway to invest in its assets to maximise
their value.
4 To be a competitive operator, renowned for operational excellence, strong safety standards and leading
geoscience expertise
We must achieve low cost and capital efficient operations to produce barrels competitively while ensuring the safety
and wellbeing of our people and minimising our environmental impact. Delivering reliable asset performance is critical
to this, carrying out timely maintenance and having the right processes and people in place to maximise uptime.
5 To be a trusted partner, supporting the economic development of emerging, oil-exporting economies
Tullow’s assets generate material revenues for governments through the production and sale of oil and gas. Our
assets also have the potential to allow us to partner with governments to contribute towards domestic energy needs
and help alleviate energy poverty in Africa. This must be achieved with high standards of compliance, zero tolerance
for corruption and continuous tax transparency to maintain and develop quality relationships with our host
governments.
6 To maintain our social license to operate and ensure continued access to capital through environmental
stewardship and our commitment to shared prosperity
Tullow is committed to developing local content and investing in social projects to improve the everyday life of the
people in our host nations. With a target to achieve Net Zero by 2030 on Scope 1 and 2 net equity emissions and
an emphasis on responsible operations, Tullow will ensure that the oil and gas resources of host countries are
developed efficiently and safely while minimising the environmental impact. Through our work, we will deliver
shared prosperity and create value for our investors, staff, host nations and communities.
7 To create a collaborative, supportive and transparent work environment where our people have a breadth
of opportunities to grow and develop
We are fostering an open team culture, with good engagement from our people. Equality and transparency
are central to the way we operate and to helping us earn the trust of all those with whom we interact. Tullow
is becoming more performance focused, empowering our people to deliver and be valued for their contribution.
We also have a renewed focus on diversity and inclusion, recognising that collectively leveraging our individually
diverse backgrounds and experiences will make us a more successful organisation.
Tullow Oil plc 2021 Annual Report and Accounts 5
Chair’s statement
Positioned to build a
positive and sustainable
future in Africa
Phuthuma Nhleko joined Tullow in October 2021 as a non-executive Director and became
Chair of the Group in January 2022. Phuthuma brings extensive emerging markets experience
to Tullow having worked successfully across Africa over the past three decades. He discusses
his initial reflections and ambitions for Tullow.
It is an honour to serve as Chair of your Company and I believe
that Tullow has an important and significant role to play in
Africa in developing and producing host nations’ hydrocarbon
resources. I have followed Tullow with much interest since its
inception and I have been particularly impressed with the
successful operational turnaround and transformational
refinancing achieved in 2021. Your Company is now well
positioned for a positive and sustainable future, building on
its strong position and reputation in the African oil and gas
sector. I am privileged to succeed Dorothy Thompson who
ably steered Tullow through some difficult and turbulent
times and Dorothy leaves Tullow with our best wishes and
“2 021 has been a transformational thanks for a job well done.
year for the Company and I am A new direction and delivery in 2021
At the Capital Markets Day held in November 2020, Rahul and
excited to join at this important
the team set out a new direction for Tullow. The long-term
stage in its development. With Business Plan focuses our capital principally on the large
resources that underpin our producing assets, while also
a stable balance sheet and a
seeking to unlock value from our material positions in Kenya
and emerging basins. With a singular focus on costs, the team
clear strategy underpinned by
is working to deliver high margins and cash flows to fund our
a commitment to Net Zero by investments and reduce debt. A disciplined approach to
capital allocation is ensuring high returns and rapid paybacks.
2030 and to responsible and
Our strong geoscience and subsurface skills are enabling us
safe operations, Tullow is to maximise recovery and add additional resources to provide
further value from our producing base.
well positioned to re-establish
I am pleased to report that in 2021 the team have made
itself as a leader in Africa.” demonstrable progress in delivering the Corporate Business
Plan. Nearly $1 billion in self-help was delivered through cost
savings and the successful sale of non-core assets. This,
Phuthuma Nhleko
along with the early evidence of operational improvements,
Chair
positioned us for a transformational $1.8 billion bond issuance
in May which has provided a pathway for the Company to
invest in its assets to maximise their value. A relentless focus
on operations is delivering strong performance at both FPSOs
in Ghana and successful drilling campaigns in Ghana and Gabon.
Notable production growth came from Jubilee in Ghana and
Simba in Gabon, but production was lower than expected from
TEN and Espoir. At the same time, oil prices have recovered
from historical lows in April 2020, to over $120 per barrel
today. All together, the Group is on a far stronger financial and
operational footing.
6 Tullow Oil plc 2021 Annual Report and Accounts
Financial discipline I look forward to bringing my experience from doing business
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I have been struck by the team’s commitment to cost in Africa to Tullow and to building relationships with our key TR
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management and capital discipline. There has been a lot of stakeholders across our countries of operation. One of my T
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enthusiasm around Rahul’s encouragement to our staff to key areas of focus will be Ghana, where I hope to positively GIC
treat every dollar of spend as if it was their own. I am very contribute to the delivery of the ‘Ghana Value Maximisation R
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supportive of this approach given that Tullow’s debt remains Plan’ and delivering shared prosperity to our host nation. PO
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elevated. Achieving an optimum and sustainable capital I am also pleased to note the constructive relationship T
structure and making the balance sheet more robust remains between Tullow and the Government of Ghana, even where
one of the Board’s top priorities. Furthermore, the now we have material differences of opinion in certain areas, and
evident inflationary pressures in the oil services sector continued strengthening of our partnership will be one of my
underline the importance of tight cost control. key areas of focus going forward.
Les Wood Conclusion and outlook
As previously announced, Les Wood, Chief Financial Officer, will 2021 has been a transformational year for your Company and
step down from the Board and leave Tullow on 31 March 2022, I am excited to have joined Tullow at this important stage in its
having been Chief Financial Officer since 2017. Les’s leadership development. With a stable balance sheet and a clear strategy
of the finance team culminated in last year’s comprehensive underpinned by a commitment to Net Zero by 2030 and to
debt refinancing. We thank Les for his significant contribution responsible and safe operations, Tullow is well positioned to
to Tullow and wish him the best in his future endeavours. re-establish itself as a leader in Africa. I look forward to
As at the date of this Report, Tullow’s recruitment of a new working with Rahul and his team as they grow the business,
CFO and Executive Director to replace Les is ongoing and deliver Shared Prosperity and create value for our investors,
the process is expected to conclude shortly. The Nominations staff, host nations and communities.
Committee has approved the appointment of Richard Miller,
Group Financial Controller, as interim CFO with effect from
1 April 2022. Richard is a chartered accountant and has
worked in a number of senior roles within Finance since
he joined Tullow in 2011.
Tullow – a leader in Africa
Phuthuma Nhleko
Notwithstanding the ongoing focus on reducing the use of
Chair
fossil fuels, the world will consume more energy going
forward and fossil fuels will remain an integral part of the 8 March 2022
energy mix for the foreseeable future. There is a need for oil
and gas resources to be developed and produced, but this
has to be done responsibly and with minimal environmental
impact. To this end at Tullow, we have a responsibility to
reduce and, in time, eliminate the emissions under our
control. Our Net Zero commitment underscores the
seriousness of our intent.
Through my extensive experience of heading the MTN
Executive team as we established telecommunication
infrastructure across many African countries, I have
witnessed the positive impact of the oil and gas industry on
economic development. At the same time, Africa continues
to suffer from extreme energy poverty, with a minimal
contribution to global emissions. So, I believe there is a strong
case for an energy transition where African economies have
the opportunity to benefit from the responsible development
of their resources. This was aptly highlighted by HE Nana
Akufo-Addo, the President of Ghana, in his speech at COP26
in Glasgow, when he said: “We believe that a balance must
be struck and maintained between our social, economic
and environmental imperatives”.
Today, Tullow is uniquely placed to be a leader in Africa
and deliver the balance that was highlighted by President
Akufo-Addo. As many companies look to exit or reduce their
exposure to Africa, we have renewed our commitment to the
continent and are seeking to grow. Through the safe and
efficient delivery of our business plan, we will bring shared
prosperity to our host nations and communities, while
reducing our environmental impact.
Tullow Oil plc 2021 Annual Report and Accounts 7
Chief Executive Officer’s statement
A year of progress,
delivery and operational
improvement
In 2021, Tullow underwent further transformation under the lead of Rahul Dhir,
Chief Executive Officer. Rahul outlines the progress Tullow has made and how the Group
is well positioned to reach its full potential.
I am delighted to welcome Phuthuma Nhleko as our new
Chairman. Phuthuma is a widely acclaimed business leader
with a deep understanding of doing business in Africa, having
contributed to building a successful and truly pan-African
business. He also brings experience from listed companies
across international markets, including the UK and Africa.
As at the date of this Report, our recruitment process of a
new CFO and Executive Director is ongoing and the process
is expected to conclude shortly.
I look forward to working closely with both Phuthuma and our
new CFO when appointed as we re-establish Tullow as the
“ We believe that oil and gas leading oil and gas company in Africa.
production can, and should Our performance in 2021
As ever, my first priority is the health and safety of our staff and
be, a driver of long-lasting
everyone who is associated with our operations. There has been
economic and social change a marked improvement in our EHS performance relative to
last year, despite increased activity levels. This has been achieved
in developing economies.”
through the implementation of a safety improvement plan,
active leadership interventions and a good reporting culture.
Rahul Dhir
Unsurprisingly, COVID-19 mitigation remained top of mind
Chief Executive Officer
across our entire business. We experienced a small number
of positive COVID-19 cases offshore and took rapid and
decisive action, including temporarily reducing manning.
This has been a year of profound change and transformation
Consequently, there was no impact on safe production
for Tullow. I am very proud of the progress achieved in the
operations and the potential for contagion was contained.
midst of existential challenges facing our industry and the
100% of our core crew in Ghana are now vaccinated.
COVID-19 pandemic. We began the year in refinancing talks
with our lending banks and bond holders and had reached a The successful refinancing of our debt was the highlight of the
firm financial footing by year end. The delivery of our long-term first half of the year. Substantial self-help in the form of cost
Business Plan is progressing well, and our performance is at reductions and asset sales, strong operational performance,
the upper end of expectations with significant improvements and improved market conditions allowed us to address our
in safety, operating efficiency and drilling performance. near-term debt maturities. The longer maturities of our
current debt provide the financial headroom and afford us
Board changes time to invest in our assets and deliver production and value.
Tullow’s transformation owes much to two colleagues who This was a transformational transaction. I am indebted to all
are leaving Tullow. Dorothy Thompson, who very ably led those in the Company who worked on the project and our
Tullow through the end of 2019 as non-Executive Chair and external advisers for successfully executing this transaction.
until 8 September 2020 as Executive Chair, stepped down Our improved financial situation has been further enhanced by
from the Board on 31 December 2021. Les Wood, our our operational performance and I am very pleased to report
Chief Financial Officer, who has delivered Tullow’s financial that Tullow performed well in 2021 with improvements in
strategy during this critical time, will step down on FPSO uptime, gas offtake and water injection. This strong
31 March 2022. I am deeply grateful to both Dorothy and operational performance was also reflected in our drilling
Les for their tremendous contribution to Tullow and for programme that saw Tullow successfully drill and complete
their support to me in my first 18 months as CEO. Please four wells (three at Jubilee; one at TEN) in 2021 and allowed
join me in wishing them well for the future. us to achieve notable production growth at Jubilee where
8 Tullow Oil plc 2021 Annual Report and Accounts