Managing risk responsibly
Tullow has comprehensive risk management systems in place, with clear targets and responsibility.
Effective risk management is critical to achieving the Group’s strategic objectives and protecting its people and reputation. Tullow manages and mitigates risk by maintaining a balanced portfolio, compliance with the terms of its licences, the application of policies and procedures appropriate for an international oil and gas company of its size and scale, and through the recruitment and retention of skilled personnel throughout its business.
The Group has a systematic approach to risk identification and management combining both a ‘top-down’ (driven by the Board) and a ‘bottom-up’ (originating from the business units and operations) review and approval process.
Detailed assessment in 2008
The Board completed a detailed update of strategy during 2008 and a key component of this process was an assessment of risks critical to strategic delivery. This assessment was completed with each Board member and senior managers from production, exploration and finance.
One of the main outcomes is that responsibility for managing and monitoring key risks has been assigned to individual Executive Directors and senior managers.
Other key outcomes are that risk management is now integrated with the Group’s performance management tools and will be reported on a quarterly basis to the Board.
Assigned responsibility
While the Tullow Board and Executives have collective responsibility for the management of risk, the Group has Board sponsors with responsibility for key risks and these are outlined here.
Aidan Heavey, Chief Executive Officer, has responsibility along with the executive team for strategic delivery consistent with shareholders’ expectations.
Cost and capital discipline is the responsibility of Paul McDade, Chief Operating Officer and Angus McCoss, Exploration Director. 70% of 2009 capital expenditure is allocated to P&D and 30% to E&A activities. Paul, with the Head of EHS, Graham Brunton, has responsibility for ensuring the Group achieves its EHS targets and maintains the security of its employees, contractors and operations.
In addition, P&D has direct operational responsibility for the specific targets to achieve the fast-track development of major projects in Ghana and Uganda.
Ian Springett, Chief Financial Officer, has responsibility for managing liquidity and developing the Group’s longer-term financing strategy. He is also responsible for external risks such as cost inflation and oil and gas price volatility and internally focuses on ensuring the Group’s processes and systems develop in line with the increased scale of Tullow.
Graham Martin, General Counsel and Company Secretary, is responsible for legal and governance issues, and along with Aidan Heavey, he is also tasked with developing and maintaining successful relationships with governments and developing the Group’s political risk profiling process.
In each area the Executive Directors are supported by members of the senior management team or managers with key functional responsibilities.
Performance reporting processes
Tullow undertakes a detailed annual business planning and budget process. This includes annual objectives and targets covering production, development, exploration, EHS and financial performance, which are set at a business unit and asset level with key risks to the delivery of these targets identified. Actual performance is reported on a monthly basis with narrative explaining key variances. On a quarterly basis senior management assess the Group’s performance through a series of reviews with business units. These reviews include an assessment of risks to delivery of targets and performance, and measures being implemented to manage these potential risks.
Dedicated major project management
Dedicated teams have been established to manage developments in Ghana and Uganda. Project milestones have been established with progress reported on an ongoing basis. Risk identification, mitigation and monitoring are completed as part of the day-to-day management of the developments. Detailed risk analysis is completed with input from partners as appropriate to identify key risks to project costs and timetable delivery. Plans to mitigate these risks are developed, monitored and reported regularly by the project teams to the Executives and the Board.
Appropriate policies and procedures
Detailed procedures support risk management across Tullow and the application and consistency of these procedures is regularly reviewed by the Group’s Internal Audit function. These procedures include:
- Delegation of authority covering commitment and approval limits for work programmes, activities and expenditure;
- Integrated Management Systems which set minimum business standards to be used throughout Tullow including risk management guidelines;
- Business ethics includes a code of business conduct and ethics and integrity and whistleblowing policies;
- Human resource policies establish a consistent set of values and standards for managing employees and contractors throughout the Group;
- Contract and procurement detail procedures for tendering, evaluation, selection and award of contracts; and
- Exploration business procedures integrate technical, portfolio and financial controls with associated assurance and approval processes.
Further, Tullow has successfully applied for external certification of critical processes such as International Organization for Standardization (ISO) 14001 certification for environmental management in the UK, Dublin, Cape Town, Bangladesh, Pakistan and Mauritania. The review process for this standard involves an assessment of the management of material risks and business and operational controls employed to mitigate such risks.
Tullow groups risk into strategic, financial, operational and external risks. Risks identified are closely aligned with the Group’s KPIs.
