Strategy risk Link to KPI/scorecard - business development and growth |
Risk of lack of balance between short and long-term investments, insufficient diversification of assets, the inability to manage the portfolio or grow the business during significant changes to market and industry conditions including evolving regulation and taxes related to climate change or caused by shift in oil demand resulting from substitution of hydrocarbons with renewable energy sources. |
1. Risk of inability to make new significant oil discoveries
and replenish exploration and subsurface portfolio Executive owner: Ian Cloke |
Tullow has exciting high-impact exploration prospects and keeps refreshing and replenishing its exploration portfolio in Africa and South America. These opportunities may not be successful due to a lack of maturity of oil industries in new countries we enter or due to less well developed relationships with key stakeholders. Also, due to the nature of the exploration risk, Tullow's exploration programme may not make the next significant oil discovery, inhibiting its growth and resulting in exploration write-offs. By taking this risk Tullow expects that over time the exploration programme should result in a significant success, which would be rewarding to shareholders. |
Potential causes |
Potential impact |
Risk mitigation
and assurance |
2018 outcomes and
ongoing actions |
- Exploration drilling is based on seismic data, which can only approximate geological structures and their characteristics. - Oil industry may lack maturity in new countries where Tullow invests, or relationships with key stakeholders may be less well developed. |
- Failure to access new acreage. - Unsuccessful exploration. - Inability to grow the business. - Capital write-offs. |
- High-grading of exploration portfolio. - Disciplined capital allocation model. - Risk-sharing with Joint Venture Partners. |
- The Cormorant-1 wildcat in Namibia was unsuccessful. The cost was mitigated by a farmout and excellent execution. - Geophysical Operations were conducted safely and to budget in Africa and South America. - Risk sharing was actioned in Suriname, Côte d'Ivoire and Jamaica. - New acreage was added in Côte d'Ivoire, Suriname and the Comoros. |
2. Risk of failure to deliver commercially attractive
and timely Kenya development Executive owner: Mark MacFarlane |
Tullow has progressed the Project past the select/define stage that precedes the Final Investment Decision (FID). The Early Oil Pilot Scheme and the appraisal programme have significantly reduced the risk to the Project in subsurface and non-technical areas. However, several uncertainties still remain which, if not addressed, may result in the Project being less economically attractive in a sustained low oil price market. |
Potential causes |
Potential impact |
Risk mitigation
and assurance |
2018 outcomes and
ongoing actions |
- Oil price may be lower than required for FID. - Reservoir complexity may impact planned production volumes. - Access to land and delivery of infrastructure may be delayed due to lack of national or community support. - Changes to legislation and regulations leading to commercial uncertainties. |
- Development of the Project may get delayed. - Capex/Opex may be higher than anticipated. - EHS/security risks. - Unplanned shut-downs of operations. - Erosion of value. - National and international reputational harm. |
- Fully operational Early Oil Pilot Scheme has sufficiently defined reservoir performance and effectiveness of operations. - Stage gate reviews and capital discipline. - Focused and significant community, National and County Government engagement. - Environmental and Social Impact Assessments completed. |
- Phase 1 of upstream and midstream FEEDs completed, with Phase 2 FEEDs due in 2019. - ESIAs to be submitted to the Government. - Plan agreed with Government of Kenya for their delivery of commercial framework agreements, upstream and midstream land titles and water supply. |
3. Risk of failure to deliver commercially attractive
and timely Uganda Development Executive owner: Mark MacFarlane |
Tullow has reached an agreement with JV Partners to farm down its interest in Uganda and the transaction is pending Government of Uganda approval and agreement on tax treatment of the transaction. The Uganda Project provides an opportunity to contribute significant cash flow to Tullow; however, prolonged discussions between JV Partners, Government of Uganda and other key stakeholders may cause the transaction to be further delayed and the Project to stall reducing the anticipated value and cash contribution of the Project. |
Potential causes |
Potential impact |
Risk mitigation
and assurance |
2018 outcomes and
ongoing actions |
- Misaligned expectations between Tullow, Government and key stakeholders. - Lack of funding for infrastructure development. - Community unrest and asset security. |
- Completion of the farm-down transaction and development of the Project may get delayed. - Capex may be higher than planned. - National and international reputational harm. - Loss of licence to operate. |
- Ongoing engagements with the Government to reach alignment on Capital Gains Tax. - Project being driven by a Supermajor, for which Uganda is a priority project. - JV Partner collaboration to define appropriate upstream and midstream commercial structure. - Regular joint project reviews to monitor project progress. |
- Partner workshops to reach alignment on key FID milestones and prerequisites. - Defined transition plan in place to re-align roles of JV Partners after farm-down. - FID Management Committee to be established comprising Government of Uganda and Joint Venture personnel, to oversee pathway to FID. |
Stakeholder risk Link to KPI/scorecard - safe, sustainable and efficient operations,
business development and growth |
Risk of loss or damage to relationships with host governments, JV Partners, investors or other stakeholders, jeopardising our ability to conduct business. |
4. Risk of disruption to business due to
political/regulatory influence in Ghana Executive owner: Gary Thompson |
Tullow invested material amounts of capital in Jubilee and TEN assets in Ghana and continues to invest in the ongoing operations and new growth. The value of those investments may be eroded by the fiscal interventions by the Government or changes in regulatory environment. |
Potential causes |
Potential impact |
Risk mitigation
and assurance |
2018 outcomes and
ongoing actions |
- Increase in fiscal asks by the Government amidst reduced contribution
of oil revenue. - Not meeting expectations of national content/localisation
by the Government. - Changes to Ghana's legislation and oil and gas regulation post
award of Petroleum Agreements. |
- Regulatory and tax change affect profitability and lead
to value erosion. - Significant fines and penalties leading to reputational harm. - Disputes with Government of Ghana leading to civil or criminal prosecution. |
- Stabilisation clauses in all Petroleum Agreements. - Non-technical risk standard sets minimum stakeholder management requirements. - Engagement with Petroleum Commission
to align on localisation and local content expectations. |
- Proactive stakeholder engagement and management. - Joint working group established with key stakeholders. - Regular engagement with Government on new oil industry legislation. |
5. Risk of disruption to business due to community
and political influence in Kenya Executive owner: Mark MacFarlane |
Kenya development, as an onshore project, attracts greater economic and social interest from local communities and county governments. Expectations from stakeholders may continue to grow, which may lead to development delays or operational disruption if expectations are not met. |
Potential causes |
Potential impact |
Risk mitigation
and assurance |
2018 outcomes and
ongoing actions |
- Increasing activism due to lack of community understanding of the project's social and economic impact. - Misalignment between Government and counties. - Legacy community marginalisation issues. |
- Key development decisions delayed. - Operational disruption and unplanned costs. - Reputational harm. - Loss of licence to operate. |
- Community Outreach Programme in place. - Local Content and Capacity Building Framework issued. - Turkana Grievance Management Committee and Inter-Ministerial Management Committee established and operational. - Focused communications strategy operational to ensure stakeholders are informed about the project and its benefits. |
- Completion of IFC compliant ESIA(s) and implementation of Environmental and Social Management Systems controls. - Lessons from Early Oil Pilot Scheme incorporated into full field development risk analysis. - Agreement on strategic partnerships and shared infrastructure. - Dedicated team to ensure the Tullow Value of Shared Prosperity is fully integrated across the business. |
EHS or security risk Link to KPI/scorecard - safe, sustainable and efficient operations |
Risk of any incident resulting in fatalities and/or extensive damage to facilities, the environment, or communities in which Tullow operates. |
6. Risk of major process safety or EHS failure in Ghana Executive owner: Gary Thompson |
Given Tullow's offshore Jubilee and TEN operatorship, this risk, due to its nature, cannot be entirely eliminated or transferred. However, its likelihood has been reduced to as low as reasonably possible (ALARP) and major steps are undertaken to ensure Tullow maintains an excellent EHS track record. |
Potential causes |
Potential impact |
Risk mitigation
and assurance |
2018 outcomes and
ongoing actions |
- Inadequate maintenance of safety-critical equipment on board Jubilee/TEN FPSOs. - Ineffective EHS procedures, competence of personnel or lack
of training. - Inadequate contractor selection and quality assurance. |
- Fatalities, serious environmental or
asset damage. - Significant financial loss, operational disruption and reputational harm. |
- Independently verified safety cases to demonstrate risks reduced to ALARP. - Asset and well integrity maintenance with regular assurance over FPSO systems and asset integrity. - Comprehensive all-risk insurance. |
- Jubilee Safety Case reissued. - Jubilee FPSO shut down
for maintenance and inspections. - Planning for TEN FPSO 2019 shut down for maintenance and inspections. - Comprehensive assurance over Computerised Maintenance Management System. - Jubilee commenced a
10-month Asset Integrity Programme. - Re-aligned responsibilities and accountabilities over FPSO operatorship with MODEC. |
Cyber risk Link to KPI/scorecard - safe, sustainable and efficient operations |
Risk of a serious cyber-attack, which could involve the loss of confidentiality, integrity and/or availability of business information and/or disruption to our operations and industrial control systems. |
7. Risk of major cyber or information security incident Executive owner: Angus McCoss |
External cyber-attacks resulting in network compromise, network or Industrial Control System disruption and/or internal theft/loss of confidential information is an ongoing risk and continuously evolving. Tullow takes a range of layered steps to keep ahead of the threat, centralising its security operations through an Advanced Security Operations Centre, delivery of an ongoing security programme and by working with specialist consultancies and government. |
Potential causes |
Potential impact |
Risk mitigation
and assurance |
2018 outcomes and
ongoing actions |
- External cyber-attack resulting in network compromise or disruptive impact to Industrial Control Systems. - Deliberate or accidental theft or loss of confidential information. |
- Disruption to business. - Loss of intellectual property and competitiveness. - Reputation damage to JV or Government relationship. |
- Advanced Security Operations Centre in place and live threat monitoring. - Advanced network security detection and data encryption. - Security awareness programme. - Assurance programme using specialist third-party providers. |
- Joint Tullow/MODEC Offshore Control Systems Cyber Security Steerco established. - Operational and offshore Cyber Security Standard approved by Tullow and MODEC. - Tullow staff susceptibility to phishing regularly tested. |
Financial risk Link to KPI/scorecard - strategic financing |
Risk of erosion of financial strength and value, through revenue deterioration and inadequate liquidity/funding due to adverse oil price movements, poor capital and cost discipline and poor balance sheet management. |
8. Insufficient liquidity and funding capacity Executive owner: Les Wood |
Tullow has reset its operations to be viable in a low oil price environment and currently operates at sufficient levels of liquidity and capital to fund its operations and budgeted growth plans. However, the Company is still exposed to erosion
of its balance sheet and revenues due to the oil price volatility and may be exposed to unexpected costs resulting from operational incidents. |
Potential causes |
Potential impact |
Risk mitigation
and assurance |
2018 outcomes and
ongoing actions |
- Oil price volatility due to global supply/demand imbalances reducing revenues and value of underlying assets. - Unplanned outages in hydrocarbon production. - Significant damage or loss of asset beyond ordinary wear and tear. |
- Reduced revenue, cash flows, EBITDA, asset value and debt capacity. - Insufficient funds to support investment programme. |
- Multi-year oil hedge programme with access to upside, approved by the Board annually. - Comprehensive insurance package including property damage, business interruption and well control incident risk. |
- 2018 year-end facility headroom and free cash of $1 billion; net debt of $3.1 billion; net debt/EBITDAX 1.9x. - Approx. 60 per cent of 2019 oil entitlement hedged at an average floor price of $56.24/bbl at YE2018. |
Organisation risk Link to KPI/scorecard - organisation |
Risk of poor business performance or failing to deliver the Tullow long-term vision and strategy resulting in an unsustainable workforce lacking diversity and balance, ineffective operating structure, and/or fragmented organisational culture. |
9. Risk of failure to have a sustainable, balanced, diverse workforce
and attractive employee proposition Executive owner: Claire Hawkings |
Tullow's success depends on the quality of talent it can attract and retain, a strong ethically minded and performance-focused culture and clear organisation model, which enables the delivery of Tullow's strategy. Tullow may be unable to maintain or improve operational performance and pursue growth if the Company is unable to maintain, evolve and sustain its organisational capabilities. |
Potential causes |
Potential impact |
Risk mitigation
and assurance |
2018 outcomes and
ongoing actions |
- Tullow culture and Values not embedded in the organisation. - Diversity and localisation plans not effectively implemented. - Ineffective career development. - Ineffective total reward. |
- Increased staff turnover. - Loss of core skills and capabilities. - Failure to deliver localisation and succession plans. - Reputational harm. |
- Succession planning, localisation and diversity objectives set and monitored. - Regular engagement surveys. - Regular review of talent and people development opportunities. |
- Enhanced career and personal development planning. - Smart and flexible working arrangements. - Diversity targets approved, to be introduced in 2019. - Salary review considering gender and equal pay. |
Conduct risk Link to KPI/scorecard - organisation |
Risk of a major breach of Tullow Values, Tullow Code of Ethical Conduct, petroleum agreements or major laws and regulations with a potential to seriously damage Tullow's reputation or result in criminal prosecution, severe fines or material unexpected costs. |
10. Risk of major breach of business conduct standards or non-compliance
with major contracts or legal/regulatory obligations Executive owner: Les Wood |
Tullow operates in high-risk geographies on the Transparency International Corruption Index map. Tullow maintains high ethical standards across our business, without which the Company could be exposed to increased risk of non-compliance with bribery and corruption legislation and associated prosecutions and fines. Tullow, due to the nature of its activities, is also exposed, albeit to a much lesser extent, to other compliance risks. |
Potential causes |
Potential impact |
Risk mitigation
and assurance |
2018 outcomes and
ongoing actions |
- Poor leadership behaviour and lack of understanding of ethics and compliance risks in key business areas. - Organisation culture may not support 'speaking up'. - Failure to adequately respond to non-compliance allegations. |
- Unethical behaviours or breach of anti-corruption laws leading to prosecutions and fines. - Breach of a major contract with a host government and JV Partners leading to disputes, claims and unplanned costs. - Reputational harm. |
- Code of Ethical Conduct and adequate procedures in place. - Third-party due diligence procedures. - Annual certification by all staff of compliance with the Code of Ethical Conduct. - Confidential speak up line available to all staff. |
- Code of Ethical Conduct updated for anti-tax evasion. - Tullow Values actively rolled out by the Executive Team. - Recorded and investigated 66 speak up cases. - Continued local fraud awareness training. |