TU017_Cover_vAW2.qxd:13331_Tullow_Oil_Cov 30/3/09 16:45 Page 1 Tullow Oil plc Oil plc Tullow Tullow Oil plc 2008 Annual Report and Accounts 3rd Floor, Building 11, Chiswick Park, 566 Chiswick High Road London W4 5YS The next phase Tel: +44 20 8996 1000 Fax: +44 20 8994 5332 2008 Annual Report and Account Email: [email protected] of growth Website: www.tullowoil.com s This report is produced on material which contains 50% recycled and de-inked pulp from post consumer waste. The remaining pulp contains FSC credited material from well-managed forests. Designed by Black Sun Plc Printed by St Ives Westerham Press TU017_IFC-p3_vAW5.qxp:Layout 1 30/3/09 14:30 Page b Tullow Oil plc is one of the largest independent oil and gas exploration and production companies in Europe. The Group is entering its next phase of growth with a major focus on Africa, where Tullow is already a dominant player. Key to achieving the Group’s growth ambitions is the effective execution and delivery of first oil in Ghana by 2010, and developing the significant resource base established in Uganda. Group overview Directors’ report: Business review Tullow has maintained its outstanding exploration record Tullow has a clear vision to be the leading independent and made excellent progress in developing its world-class global exploration and production company. Here you can basins in Ghana and Uganda in 2008. The Group is focused read about how well positioned we are for the next phase on future growth and in this section you will learn about our of growth, how we are realising our vision, executing our operations, performance and outlook. strategy and measuring our progress. 2 Operational highlights 10 Chief Executive’s review 3 Financial highlights 14 Vision and strategy 4 What we do 16 Organised to deliver 6 Where we operate 18 Key Performance Indicators 8 Chairman’s statement Read about our operational performance for the year. We believe we have developed a unique set of 20 Operations review: Africa characteristics and competencies that will help 32 Operations review: Rest of the World us deliver the next phase of growth for Tullow. 12 Entrepreneurial spirit Review our record results, enhanced financial flexibility 24 Excellent execution and comprehensive risk management systems. 28 Right skills 40 Finance review 36 Proven expertise 44 Risk management and risk factors Read about our commitment to our people and our embedded approach to our Corporate Social Responsibilities (CSR) in the following sections. 48 Tullow people 50 Corporate Social Responsibility Summary glossary bbl Barrel FPSO Floating Production Storage and Offtake vessel P&D Production and Development boe Barrels of oil equivalent KPI Key Performance Indicator PSC Production Sharing Contract boepd Barrels of oil equivalent per day LTI Lost Time Incident sq km Square kilometres bopd Barrels of oil per day LTIFR LTI Frequency Rate measured in LTIs per tcf Trillion cubic feet CSR Corporate Social Responsibility million hours worked toes Tullow Oil Environmental Standards E&A Exploration and Appraisal mmbbl Million barrels TSR Total Shareholder Return EHS Environment, Health and Safety mmboe Million barrels of oil equivalent EPS Early Production System mmscfd Million standard cubic feet per day Cover image: The Nabors 221 rig drilling in the Lake Albert Rift Basin in Uganda. This page: The OGEC land rig drilling in the Butiaba region of Block 1 Uganda. TU017_IFC-p3_vAW5.qxp:Layout 1 27/3/09 21:52 Page 1 Directors’ report: Corporate governance Financial statements Read how Tullow operates within a clear framework for This section contains statutory information on Group and the management of the Group, the safety of its operations, company accounts, a summary of the Group’s performance the successful execution of its strategy and delivery of over five years, a current licence list and information on shareholder value. Tullow’s commercial reserves and contingent resources. 54 Chairman’s introduction 80 Statement of Directors’ responsibilities 56 Board of Directors 81 Independent auditors’ report for the Group financial statements 58 Corporate governance 82 Group financial statements 66 Directors’ remuneration report 115 Independent auditors’ report for the Company 76 Other statutory information financial statements 116 Company financial statements 126 Five year financial summary 127 Licence interests 131 Commercial reserves and contingent resources summary Supplementary information In this section you will find information for shareholders about dividends, dealing services and e-communication together with Group contacts and senior management. An index and glossary are also included to help users understand our business. 132 Shareholder information 133 Senior management 134 Contacts 135 Index 136 Glossary For more information on Tullow Oil plc and CSR activities visit: www.tullowoil.com Tullow Oil plc 2008 Annual Report and Accounts 1 TU017_IFC-p3_vAW5.qxp:Layout 1 27/3/09 21:52 Page 2 Group overview Operational highlights 100% exploration success record The Group achieved a 100% exploration success rate in Ghana and Uganda, which significantly de-risks these major development projects. Drilling riser on Eirik Raude rig, offshore Ghana. Jubilee on target for first oil in 2010 Phase 1 of the Jubilee field development in Ghana remains on track for first oil in 2010, just three years after the first discovery well. James Byrne, EHS Advisor, on the Blackford Dolphin rig. Block 1, Uganda. Successful equity Excellent health placing and financing and safety results In early 2009, Tullow raised gross A strong focus throughout the year proceeds of £402 million through on health and safety delivered the an equity share placing and secured Group’s best ever performance, US$2 billion of bank facilities. placing Tullow in the top quartile in the industry. The central processing complex on the Hewett field, in the UK’s Southern North Sea. £210 million sale of UK assets During the year, Tullow sold its 51.69% interest in the offshore Hewett Unit fields and related infrastructure, including the onshore Bacton terminal. Tullow employees working at the Takoradi pipe-yard in Ghana. 2 Tullow Oil plc 2008 Annual Report and Accounts TU017_IFC-p3_vAW5.qxp:Layout 1 27/3/09 21:52 Page 3 Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Financial highlights Record results and delivery Tullow has delivered record results for 2008, driven by a strong operational performance, higher oil and gas pricing compared with 2007 and profitable portfolio management. Read more starting on page 8 Sales revenue (£ million) Operating profit (£ million) 300 692 £692 million £300 million 639 Higher commodity prices during the 263 Operating profit increased 59%, 579 year, partly offset by marginally lower principally due to higher commodity sales volumes, resulted in an 8% 189 prices and profits of £244 million increase in sales revenue in 2008. in relation to asset disposals, offset by £227 million exploration costs written-off. 06 07 08 06 07 08 Profit after tax (£ million) Operating cash flow (£ million) 519 226 £226 million £519 million 474 A gain on hedging instruments of 447 Tullow generated record cash flows in £43 million compared with a loss of 2008, 9% ahead of 2007. This facilitated 157 £29 million in 2007 and a lower effective £460 million investment in exploration 2008 tax rate are the principal reasons and development activities, dividend for a 330% increase in profit after tax. payments, servicing of debt facilities 53 and a £60 million reduction in net debt. 06 07 08 06 07 08 Basic earnings per share (pence) Dividend per share (pence) 30.9 6.0 30.9 pence 6.0 6.0 pence Basic earnings per share increased 5.5 Due to the Group’s requirement for 24.2 335% in 2008. This represents a strong major capital investment in 2009 and recovery in earnings after a sharp given the current economic uncertainty, decline in 2007 and reflects the Group’s the Board feels that it is prudent to strong results for the year. maintain the dividend at the 2007 level. 7.1 06 07 08 06 07 08 Tullow Oil plc 2008 Annual Report and Accounts 3 TU017_p4-5_vAW6.qxp:Layout 1 27/3/09 21:54 Page 4 Group overview What we do A leading independent oil and gas company Tullow has a large portfolio of exploration and production assets with a focus on balanced long-term growth. In the near term, Tullow is concentrating on executing major projects in Ghana and Uganda and continuing to build a powerful presence in Africa. Exploration and Appraisal 2008 was another outstanding year for exploration success at Tullow. The Group’s overall success rate was 77% with 17 discoveries from 22 wells, and a 100% success rate in Ghana and Uganda. In Ghana, major resource potential was confirmed at the Jubilee field, with most likely reserves of 1.2 billion barrels of oil. In Uganda, a series of significant discoveries means the Lake Albert Rift Basin has passed the commercial volume threshold required for development and is now being fast-tracked. 2009 Challenges Operations on Ngassa-1 well, Uganda. Tullow’s focus in 2009 is on selective high-impact Exploration and Appraisal (E&A) campaigns. These include: • Appraising the extent of the Jubilee field to prove reserves and mature resources, which will support 77% Exploration success rate in 2008, with 17 discoveries long-term funding and infrastructure development from a 22-well exploration programme during the year. for this new industry offshore Ghana; • Increasing the resource inventory of the Lake Albert Rift Basin, with a focus on delivering further material discoveries; • Following up on the successful Tweneboa-1 well Total reserves and resources by oil and gas (mmboe) with a campaign of E&A wells; and • Planning core play campaigns for 2010 onwards, Total reserves and resources of in particular, material stratigraphic traps in the 265 825 mmboe, up 50% in 2008.