Measuring our progress
Tullow has seven KPIs which are closely aligned with the Group’s growth strategy. Delivering against these KPIs will ensure strong progress with our strategic objectives and creation of shareholder value.
The bonus element of the Executive Directors’ remuneration is directly linked to LTIFR, working interest production, reserves and resources replacement, cash operating costs per barrel of oil equivalent and TSR performance.
Lost Time Incident Frequency Rate (LTIFR)
Three Lost Time Incidents in 6.15 million hours worked across the Group in 2008 resulted in a LTIFR of 0.49 – Tullow’s best ever performance.
Aim: Tullow’s top operational priority is to keep people safe – employees, contractors and local communities. The Group’s aim is to deliver a performance that is in the top quartile for the industry.
Measurement: Detailed, disciplined and consistent incident reporting procedures are in place throughout the Group, incorporating follow-up and remedial measures as appropriate. H&S performance measures are reported to the Board monthly and annually.
Risk management: H&S management is a complex issue given the nature of the industry, the geographic location of Group activities and the scale of its operations. Tullow has clear H&S policies and procedures supported by strong leadership, accountability and commitment at each level of the organisation.
Staff turnover (%) new
Tullow has a strong track record of retention, with 2.3% staff turnover and a 95% employee satisfaction rating in 2008.
Aim: Tullow’s aim is to be the employer of choice in the industry so that the Group has the right people with the right skills in place at the right time to support the continued growth and development of the business.
Measurement: Systems are in place to identify issues early. Detailed induction programmes and support are offered. Debrief processes for leavers helps Tullow improve employee policies. Key measures are staff turnover, satisfaction ratings and the increase in number of employees.
Risk management: An open, engaging and empowering culture, career potential and reward, succession planning and the continued success of the Group are Tullow’s best defence against the disruption to the business of a people skills shortage or unexpected departures.
Working interest production (boepd)
Focused capital investment on major development projects resulted in a reduction of 9% in production output in 2008.
Aim: Production is key to revenue and cash generation. Operational excellence underpins delivery of production in line with the Group’s annual budget and external market guidance.
Measurement: Daily and weekly production is monitored from key producing assets. Production is reported weekly and monthly to senior management and forecast updates are prepared regularly during the year.
Risk management: Strong operational capabilities, detailed production planning and monitoring, and a balanced spread of key producing assets mitigate against key production risks including unplanned interruptions, over concentration of production on certain fields and the natural decline of mature fields.
Reserves and resources replacement (%)
Exceptional exploration and appraisal success achieved record reserves and resources replacement of 1,232%. Reserves replacement for the year was 582%.
Aim: Replacement of reserves and resources is focused on continuing to grow the Group’s production potential. Tullow aims for 100% annual organic reserves and resources replacement.
Measurement: Reserves estimates for each field are reviewed by an independent engineer, based on significant new data or material change, with a review of each field undertaken every two years. Resources are based on the Group’s reserves report, also produced by an independent engineer.
Risk management: Maximising reservoir performance in producing fields through operational and technical capability, and continued exploration success based on focused material campaigns, manages replacement risk.
Cash operating costs per boe (£)
Lower Group production and cost inflation in the industry led to a 17% increase in cash operating costs per barrel of oil equivalent during the year.
Aim: Cash operating costs per barrel of oil equivalent are a function of industry costs, inflation, the Group’s fixed cost base and production output. Tullow’s aim is to maintain these costs within predefined limits through strict cost management.
Measurement: Cash operating costs are reported monthly on an asset basis and are monitored closely to ensure that they are within preset parameters.
Risk management: A comprehensive annual budgeting process covering all expenditure is prepared. Monthly reporting highlights any variances and corrective action is taken to mitigate against the potential effects of cost increases.
Operating cash flow before working capital (£ million)
Record operating cash flow facilitated the Group’s 2008 capital investment, dividend payments, debt service and a reduction of over £60 million in net debt.
Aim: Tullow’s business is capital and cash intensive and the Group’s aim is to ensure that capital expenditure together with debt and dividend commitments can be serviced from strong operating cash flow.
Measurement: Operating cash flow is reported monthly with regular forecasting for longer periods to support long-range planning and investment decisions. Detailed annual and project budgets require Board approval.
Risk management: Strong financial and operating management, disciplined monitoring and reporting across the business, long-range cash flow forecasting and strong banking and equity relationships assist the Group in managing liquidity risk.
Total Shareholder Return (%)
Tullow was the 9th best performer in the FTSE 100 for 2008 and a clear leader in the oil and gas sector. The Group has delivered TSR of over 700% since 2004.
Aim: Tullow has a clear vision and a consistent strategy. The Group’s strategic objective is to achieve top quintile TSR growth versus its industry peer group, as set out in the Remuneration report.
Measurement: TSR – share price movement and dividend payments – is reported monthly and on an annual basis at year end to the Board.
Risk management: Excellent execution of a clear strategy achieved through entrepreneurial leadership, combined with open and honest communication with the capital markets help in the delivery of a consistent TSR performance.
