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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Tullow Oil Plc | LSE:TLW | London | Ordinary Share | GB0001500809 | ORD 10P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-0.38 | -1.05% | 35.82 | 35.80 | 35.94 | 37.00 | 35.80 | 36.00 | 6,482,435 | 16:35:01 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Crude Petroleum & Natural Gs | 1.63B | -109.6M | -0.0754 | -4.75 | 520.58M |
TIDMTLW TIDMTTM TIDMTTM
RNS Number : 8466T
Tullow Oil PLC
30 March 2021
TULLOW OIL PLC
Annual report and accounts
Tullow Oil plc ("Tullow" or the "Company")
30 March 2021 - Following the release on 10 March 2021 of the Company's preliminary full year results announcement for the year ended 31 December 2020 (the "Preliminary Announcement"), the Company announces it has published its Annual Report and Accounts for this period (the "Annual Report and Accounts").
A copy of the Annual Reports and Accounts are available to view on the Company's website: www.tullowoil.com
The Company is also pleased to announce it has published its Sustainability Report and Climate Risk & Resilience Report, which is also available on the Company's website: www.tullowoil.com .
The Company's 2021 Annual General Meeting will be on a date to be confirmed in due course.
In accordance with Disclosure Guidance and Transparency Rule 6.3.5(2)(b), additional information is set out in the appendices to this announcement. This information is extracted in full unedited text from the Annual Report and Accounts.
The Preliminary Announcement included a set of condensed financial statements and a fair review of the development and performance of the business and position of the Company and its group.
In accordance with Listing Rule 9.6.1, a copy of the Annual Report and Accounts have been submitted to the Financial Conduct Authority via the National Storage Mechanism and will be available for viewing shortly at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
In addition, all of the above documents have been submitted to Euronext Dublin and the Ghana Stock Exchange, and therefore will shortly be available for inspection at Euronext Dublin (Exchange Buildings, Foster Place, Dublin 2) and will be available to shareholders located in Ghana by contacting the Company's registrar: Central Securities Depository (GH) Limited, 4th Floor, Cedi House, PMB CT 465 Cantonments, Accra, Ghana (Telephone: +233 (0)302 906 576).
CONTACTS =========================================== =================== Tullow Oil plc Murrays (London) (Dublin) (+44 20 3249 9000) (+353 1 498 0300) George Cazenove (Media) Pat Walsh Matthew Evans and Chris Perry (Investors) Joe Heron =========================================== ===================
Notes to editors
Tullow is an independent oil & gas, exploration and production group which is quoted on the London, Irish and Ghanaian stock exchanges (symbol: TLW) and is a constituent of the FTSE250 index. The Group has interests in over 50 exploration and production licences across 11 countries including Ghana where it operates the Jubilee and TEN fields. In March 2021, Tullow committed to becoming Net Zero on its Scope 1 and 2 emissions by 2030.
Follow Tullow on:
Twitter: www.twitter.com/TullowOilplc
YouTube: www.youtube.com/TullowOilplc
Facebook: www.facebook.com/TullowOilplc
LinkedIn: www.linkedin.com/company/Tullow-Oil
Appendices
Appendix A : Directors' responsibility statement
The following directors' responsibility statement is extracted from the Annual Report and Accounts (page 79).
Directors' responsibility statement required by DTR 4.1.12R
The Directors confirm, to the best of their knowledge:
- that the consolidated Financial Statements, prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and IFRSs adopted pursuant to Regulation (EC) No.1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Parent Company and undertakings included in the consolidation taken as a whole;
- that the Annual Report, including the Strategic Report, includes a fair review of the development and performance of the business and the position of the Company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
- that they consider the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position, performance, business model and strategy.
By order of the Board
Rahul Dhir Les Wood Chief Executive Chair Chief Financial Officer 9 March 2021 9 March 2021 Appendix B: A description of the principal risks and uncertainties that the Company faces
The following description of the principal risks and uncertainties that the Company faces is extracted from the Annual Report and Accounts (pages 31 to 35).
Risk appetite
The Board sets Tullow's risk appetite and acceptable risk tolerance levels for each of the principal risk categories. In considering Tullow's risk appetite, the Board reviewed the risk process, the assessment of enterprise level risks and the existing controls and mitigating actions that drive towards residual risk. During this process, the Board articulated which risks Tullow should not tolerate, which should be managed to an acceptable level and which should be accepted in order to deliver our business strategy.
The risk appetite is reviewed at least annually by the Board to ensure that it reflects the current external and market conditions. The Board last reviewed the risk appetites in February 2020. The Senior Leadership Team reviewed the risk appetite statements in February 2021 against the revised principal risks and the Board will next review the risk appetite statements in March 2021.
Internal control
A foundation of effective governance, risk management and control has been established throughout the organisation. Core to this is our Integrated Management System (IMS) which sets out all mandatory policies, standards and controls necessary to manage our activities and associated risks. The effectiveness of the internal control framework is reviewed through the risk management process and challenged as described above. In addition to this, the Senior Leadership Team and Audit Committee perform an annual review of the effectiveness of internal control.
Nature of assurance
-- Assurance activities are put in place across the three lines of defence to assure against key risks. These specifically focus on areas where there are internal/external changes, control failures and historical issues.
-- Business leadership acts as the first line of defence and is responsible for ensuring their key risks are being managed effectively and that adequate controls are in place to manage those risks.
-- Group oversight acts as a second line of defence and as well as setting functional standards is responsible for ensuring compliance with them. They obtain assurance through periodic reporting and focused assurance reviews. They are also responsible for identifying and managing risks that fall under their remit. Given the change in business structure and reporting lines the assurance provided over the second line of defence is currently under review.
-- Internal Audit acts as the third line of defence and is responsible for providing independent assurance through its risk-based internal audit programme. The Internal Audit Plan and outputs are reviewed by the Audit Committee. Agreed actions for improving the control environment and managing risk are owned by assigned individuals and monitored through Tullow's performance review process. The Audit Committee monitors the implementation for recommendations arising.
-- Tullow's risk management and assurance processes provide the Board and the Management Team with reasonable, but not absolute, assurance that our assets and reputation are protected.
Evolution of Tullow's management of risk and control
Organisational and strategic changes made throughout the year have redefined ownership and point of decision making across the business. The changes aimed to promote accountability and challenge at a senior level and remove the need for multiple layers of review as Tullow becomes a more agile business.
During 2020 the risk management and control framework has been evolved to align to the new ways of working and this will continue to evolve into 2021. Although the controls have been in place to mitigate key risks throughout 2020 the nature of these controls has changed and the business has launched a programme of transformation to review key processes and the IMS to make sure it continues to be fit-for-purpose for the new business structure.
The risk framework has been realigned to the new business reporting lines and senior risk owners have been identified to ensure that a greater culture of risk awareness and challenge is instilled throughout the business with an increased focus on mitigating actions. This will continue into 2021 including updating the accountability framework and reviewing the assurance processes in place over the newly defined key controls.
Tullow's risk profile
The Company risk profile has been closely monitored throughout the year, with consideration given to the risks to delivering the Business Plan as well as whether the COVID-19 pandemic or oil price volatility resulted in any new risks or changes to existing risks. Risks associated with COVID-19 have been considered and managed across all principal risk categories.
Strategy risk Link to 2021 scorecard - Business Plan Implementation ------------------------------------------------------------------------------------------------------------------------------ Risk of failure to deliver operations, development and subsurface objectives Risk owner: Rahul Dhir ----------------------------------------------------------- ----------------------------------------------------------------- Risk details Risk mitigations ----------------------------------------------------------- ----------------------------------------------------------------- Tullow has developed a Business Plan to deliver material value and * Well defined and integrated plan to deliver the cash flow. This will help Tullow necessary inputs needed to achieve Business Plan reduce leverage and create value objectives for our shareholders. The success of the plan is reliant on delivery of * Clear KPIs and accountability defined clear targets and disciplined allocation of capital and our human resources. Failure to achieve the * Ongoing business performance review process to objectives will impair value and monitor performance loss of shareholder confidence and support. Key execution risks not * Large portfolio of high-return drilling and addressed elsewhere include: investment opportunities defined with JV support in * Lack of ability to increase oil production and Ghana and across non-operated assets replenish our resource base will reduce our ability to deliver value and cash flow and could ultimately impair our ability to reduce leverage * Improvements in facilities' reliability through targeted interventions * Operational and subsurface challenges prevent us from achieving our planned oil production * Simplified well design and reduced completion complexity * Ghana gas market constraints reduce our planned gas offtake which would impact oil production and our * Integrated planning across subsurface, drilling and ability to reduce flaring projects teams * Unable to progress the preparation of FDP in Kenya * Alignment with Government of Ghana on gas offtake for and therefore any exercise to unlock Kenyan potential 2021 with longer term negotiations under way * Inability to unlock the potential in emerging basins * Active engagement with JV and Government of Kenya to may reduce value creation opportunities progress preparation of FDP in Kenya * High concentration risk in Ghana and Gabon * Exploration plan in place for emerging basins, particularly Argentina, Guyana and Suriname ----------------------------------------------------------- ----------------------------------------------------------------- Risk of failure to deliver commercially attractive projects and operations due to sustained low oil price Risk owner: Les Wood ----------------------------------------------------------- ----------------------------------------------------------------- Risk details Risk mitigations ----------------------------------------------------------- ----------------------------------------------------------------- The nature of the industry within which we operate means the * Cost base reduced substantially to be viable in a volatility of oil price is always lower oil price environment a risk that Tullow remains exposed to. * Prolonged low oil price and increased volatility * 60 per cent of 2021 oil entitlement hedged at an would lead to a decrease in asset values and reduced average floor price of $48/bbl. access to funding * Proven, tested and successful business continuity process and plans in place for managing COVID-19 ----------------------------------------------------------- ----------------------------------------------------------------- Stakeholder risk Link to 2021 scorecard - Leadership -------------------------------------------------------------------------------------------------- Risk of disruption to business due to inability to manage stakeholder relations Risk owner: Rahul Dhir ------------------------------------------ ------------------------------------------------------ Risk details Risk mitigations ------------------------------------------ ------------------------------------------------------ The value of our assets and cash -- Well defined plan to engage proactively flow generation may be eroded with all key stakeholders: all relevant by unreasonable financial/fiscal stakeholders identified, and relationship demands by host governments accountabilities defined or actions that impair contract sanctity. -- Communication plan developed to educate stakeholders on the broader There is a risk of political interference impact of the Business Plan on the in our operations that may impact nation. our ability to award contracts to -- Reliance on robust stabilisation the appropriate service providers. clauses in all our Petroleum Agreements. Inability to manage relations with -- Tax advice obtained key ministries, regulators and the wider community could result in delays in relevant approvals and community ill will. ------------------------------------------ ------------------------------------------------------ Climate change risk Link to 2021 scorecard - Sustainability ---------------------------------------------------------------------------------------------------------------------- Risk of failure to manage impact of climate change Risk owner: Julia Ross -------------------------------------------------------- ------------------------------------------------------------ Risk details Risk mitigations -------------------------------------------------------- ------------------------------------------------------------ The climate agenda is an increasing -- Cross-functional team established area of focus globally, to identify opportunities to reduce particularly for Tullow as we evolve carbon emissions across our operations the business and work towards and/or investment in nature-based improving our approach to environmental carbon removal projects to offset impact. emissions impact -- 2030 Net Zero (Scope 1 & 2) commitment Failure to manage the impact of climate and pathway identified to decarbonise change arising from evolving our Ghana assets policies and increased volatility -- Long term gas offtake options and downside risk in oil prices could support elimination of flaring affect the commerciality of our portfolio, -- Enhanced understanding of climate lead to loss of licence to related financial risks including operate and result in limited access TCFD climate disclosure in our Annual to/increased cost of capital. Report * There may be challenges to delivering a suitable -- Stress test the portfolio to ensure strategy to address climate change due to limited its resilience to IEA's resources available * Sustainable Development scenario -------------------------------------------------------- ------------------------------------------------------------ EHS or security risk Link to scorecard - Safety, Production and Business Plan Implementation
---------------------------------------------------------------------------------------------------------------------- Risk of asset integrity breach or major production failure Risk owner: Wissam Al-Monthiry ----------------------------------------------------------- --------------------------------------------------------- Risk details Risk mitigations ----------------------------------------------------------- --------------------------------------------------------- The nature of our operations will -- Asset and well integrity and maintenance always have an inherent risk of a programmes with regular internal major incident resulting in fatalities, verification and external assurance loss of production, and/or -- Independently Verified Safety extensive damage to facilities, the Case Document establishing quantitative environment or communities. risk estimate assuming effective The nature of our business at the systems and risk tolerance thresholds moment means that we are reliant -- FPSO periodic planned shutdowns on several key operated assets as to carry out required well as our non-operated and * inspection, maintenance, repair and modificat exploration portfolio. ion work * A large gas release/asset integrity breach due to a topside event resulting in a Major Accident Event may occur, which may lead to injury to personnel, a -- Inherently Safer Design principles prolonged production outage and potential significant application in engineering modifications environmental damage -- Assurance and Compliance management including Class -- Increased level of assurance activity on the FPSO with Tullow Offshore field managers undertaking significant assurance activities offshore -- Comprehensive all-risk insurance in place ----------------------------------------------------------- --------------------------------------------------------- Financial risk Link to 2021 scorecard - Financial Performance and Capital Structure -------------------------------------------------------------------------------------------------------------- Risk of insufficient liquidity and funding capacity Risk owner: Les Wood ----------------------------------------------------------- ------------------------------------------------- Risk details Risk mitigations ----------------------------------------------------------- ------------------------------------------------- Tullow remains exposed to erosion -- Range of high-quality assets that of its balance sheet and revenues could be sold as part of portfolio due to oil price volatility, unexpected management to unlock capital and operational incidents, ongoing pay down debt costs associated with the COVID-19 -- Leverage targets and minimum headroom pandemic, failure to complete policy approved by the Board portfolio options and inability to -- 2020 year-end undrawn facility refinance. headroom and free cash of $1.1 billion * Tullow may have difficulty securing a resolution of -- Dynamic working capital and cash debt maturities due to failure to deliver its flow management including ability Business Plan, which may lead to insufficient to flex capital investment liquidity and potential impact on funding capacity -- Solid foundation to address debt maturities ----------------------------------------------------------- ------------------------------------------------- Risk that we fail to deliver a sustainable capital structure Risk owner: Les Wood ----------------------------------------------------------- ------------------------------------------------- Risk details Risk mitigations ----------------------------------------------------------- ------------------------------------------------- -- Plan to prioritise investments * Tullow's ability to deliver the Business Plan is with high returns and short payback dependent on developing a timely and sustainable -- Solid foundation to address debt capital structure. maturities -- RBL redetermination plan in place -- Plan to drive gearing to 1x-2x * Tullow may have challenges in the timely delivery of with appropriate liquidity headroom a sustainable capital structure; this could impact the ability to cover debt servicing costs over an extended period or continued operations as the capital structure is being implemented. Both scenarios could potentially negatively impact the ability to deliver the Business Plan. ----------------------------------------------------------- ------------------------------------------------- Organisation risk Link to 2021 scorecard - Business Plan Implementation and Leadership -------------------------------------------------------------------------------------------------------------------- Risk that the transformation plan fails to support the strategy and deliver cost savings Risk owner: Julia Ross ----------------------------------------------------------------- ------------------------------------------------- Risk details Risk mitigations ----------------------------------------------------------------- ------------------------------------------------- -- Transformation team established * Tullow may be unable to maintain or improve which includes external advisors operational performance and pursue growth if the -- Bottom-up review with external Company is unable to evolve, maintain and sustain its consultant organisational capabilities and deliver identified -- Transformation plan developed cost savings and successfully fully implement its and key milestones identified and planned transformational organisation change. tracked -- Organisation restructured; headcount * The objectives/cost savings of the Transformation reduced by 53 per cent and Project may not be achieved. This may result in a outsourcing negative impact on cash flow and an organisation that of certain routine activities is no longer fit-for-purpose from a cost perspective -- Cost-driven performance management being implemented ----------------------------------------------------------------- ------------------------------------------------- Risk that the people strategy and culture do not support the strategy Risk owner: Julia Ross ----------------------------------------------------------------- ------------------------------------------------- Risk details Risk mitigations ----------------------------------------------------------------- ------------------------------------------------- Tullow's success depends on the quality -- Revised Employee Value Proposition of talent it can attract and (EVP) launched in 2020 aligning retain and a strong ethically minded to restructured organisation and performance-focused -- New approach to performance culture. management * Tullow may be unable to attract and retain suitably being implemented across the
experienced individuals which could lead to a lack of organisation sufficient resource and capability to deliver core -- A renewed focus on Diversity business activities. This may result in an inability and Inclusion to meet strategic objectives and increased -- Review in progress to update constraints on the capacity and moral of remaining succession plans for senior and staff. critical roles -- Focus on health and wellbeing; rolling wellness programme ----------------------------------------------------------------- ------------------------------------------------- Conduct risk Link to scorecard - Business Plan Implementation and Leadership ---------------------------------------------------------------------------------------------------------------------- Risk of major compliance breach Risk owner: Mike Walsh ----------------------------------------------------------------- --------------------------------------------------- Risk details Risk mitigations ----------------------------------------------------------------- --------------------------------------------------- Tullow maintains high ethical standards -- Annual Code of Ethical Conduct across the business without which staff eLearning and code certification the company could be exposed to increased process risk of non-compliance and bribery -- Third-party due diligence procedures and corruption legislation or contractual and assurance processes in place obligations along with other applicable -- Misconduct and loss reporting business conduct requirements. standard and associated procedures * In particular, an unforeseen material compliance in place breach could lead to regulatory action, an unsettled -- Well established Anti-Bribery litigation/dispute or additional failure litigation and Corruption governance that may result in unplanned cash outflow, -- Process in place for GDPR penalty/fines and a loss of stakeholder confidence in investigations management. -- Anti-tax evasion risk assessment undertaken with clear mitigation actions identified -- Recorded and investigated 52 concerns raised, of which 50 cases are closed. Appropriate actions have been taken including employee dismissal (for serious breaches). ----------------------------------------------------------------- --------------------------------------------------- Cyber risk Link to 2021 scoreboard - Business Plan Implementation and Leadership ---------------------------------------------------------------------------------------------------------------------- Risk of major cyber attack Risk owner: Mike Walsh ------------------------------------------------------------------ -------------------------------------------------- Risk details Risk mitigations ------------------------------------------------------------------ -------------------------------------------------- The external cyber threat environment -- Advanced security operations centre is continuously evolving and in place providing 24/7 network and intensifying; therefore, this is device monitoring an ongoing risk that requires constant -- Security incident event management monitoring and management. systems in place. * Tullow may suffer an external cyber-attack which -- Security awareness programme in could have far reaching consequences for the place business. This could result in loss of sensitive -- Joint Tullow/MODEC industrial personal or commercial data or allow external parties control system security programme to limit our ability to operate, seize production or in place potentially trigger a major incident -- Corporate security programme in place -- Annual mandatory security and GDPR awareness training -- Staff susceptibility to phishing regularly tested ------------------------------------------------------------------ --------------------------------------------------
Viability statement
In accordance with the provisions of the UK Corporate Governance Code, the Board has assessed the prospects and the viability of the Group over a longer period than the 12 months required by the 'going concern' provision. The Board assesses the business over a number of time horizons for different reasons, including the following: Annual Corporate Budget (i.e. 2021), Two-year Forecast (i.e. 2021-2022), Five-year Corporate Business Plan (i.e. 2021-2025), and Long-term Plan. The Board conducted the review for the purposes of the Viability Statement over a three-year period. The three-year period was selected for the following reasons:
i. in light of the current highly volatile market environment the Group considers the Group's facility and free cash headroom, debt: equity mix, and other financial ratios, over a three-year period as opposed to the five-year Corporate Business Plan period;
ii. the current contractual maturity of the Group's $300 million Convertible Notes due in July 2021 and $650 million Senior Notes due in April 2022 fall within a three-year period and as such the three-year period is largely aligned with Tullow's funding cycle; and
iii. this also aligns with the current transitional business cycle with the significant projected increase in production and operating cash flow generation in 2023 following a period of significant capital investment in the Group's producing assets.
Notwithstanding this fact the Group will continue to monitor the business over all time horizons noted above. As noted on pages 22 to 23 in the Group's going concern assessment, the Directors have concluded that the uncertainties associated with implementing a Refinancing Proposal and obtaining amendments or waivers in respect of future forecast covenant breaches or, in the event a Refinancing Proposal does complete, the revised covenants are subsequently breached, are material uncertainties that may cast significant doubt that the Group will be able to continue as a going concern.
On a longer-term basis, when considering the Viability Statement under the Base Case assumptions and a combination of reasonably plausible low case scenarios over the three-year period, the same uncertainties exist. However, the Base Case assumes that the Group's Refinancing Proposal is successfully completed, and the Group obtains amendments or waivers in respect of future forecast covenant breaches or, in the event a Refinancing Proposal is implemented, the Group obtains amendments or waivers in respect of any breaches of revised covenants, which results in, the Group forecasting liquidity headroom over the three-year period. The Group has additional mitigating actions available to it should the combination of reasonably plausible low case scenarios arise, including reductions to capital investment, protection of oil price volatility through hedging, further portfolio management and, if required, raising additional capital. The Directors are committed to delivering a refinancing proposal, and further mitigating actions if a combination of reasonably plausible low case scenarios arises, and they therefore believe that the Group continues to be viable over the three-year assessment period.
Tullow has also assessed its viability in line with the IEA's Sustainable Development Scenarios; see page 19 for details.
Principal risks* Base assumption Downside scenario Strategy risks Production is assumed to 8 per cent reduction in production. be in line with the Oil price: 2021: $45/bbl, 2022: Business Plan. $47.5/bbl, 2023+: $50/bbl. Oil price: 2021: $50/bbl, 2022: $55/bbl, 2023+: $55/bbl. -------------------------------- --------------------------------------- Stakeholder Associated with host government Exposure beyond the $87 million risks stakeholders the Group has included in the Base included $87 million outflow Case is either not anticipated associated with tax exposures to occur within the three-year (refer to page 107 to 108 assessment period or is not reasonably for a description plausible to occur at all. of the Group's uncertain tax positions). -------------------------------- --------------------------------------- Climate change The key impact of climate In a downside scenario the Group risk change on the Groups' portfolio has assumed a of assets is reflected in reduction in the Base Case assumption oil prices, which are assumed which is below as: the current IEA SDS scenario of: 2021: $50/bbl, 2022: $55/bbl 2021: $45/bbl, 2022: and 2023+: $55/bbl. $47.5/bbl, 2023+: $50/bbl. -------------------------------- --------------------------------------- EHS or security Production, operating costs 8 per cent reduction in production risks and capital investment are assumed to be in line with the Business Plan. -------------------------------- --------------------------------------- Financial risks Contractual maturities of Contractual maturities of debt debt instruments. However, instruments. However, the the refinancing proposal refinancing proposal is assumed is assumed as a mitigating as a mitigating action. action. -------------------------------- ---------------------------------------
* For detailed information on risk mitigation, assurance and progress in 2020 refer to discussion of the detailed risks above.
For Organisational Risk, Conduct Risk and Cyber Risk the Group has assessed that there is no reasonably plausible scenario that can be modelled in isolation or in combination with other risks from a cash flow perspective.
Liquidity risk management and going concern
Assessment period and assumptions
The Group closely monitors and carefully manages its liquidity risk. Cash flow forecasts are regularly updated, and sensitivities run for different scenarios, including, but not limited to, changes in commodity price and different forecasts for the Group's producing assets. The Directors consider the Going Concern assessment period to be 13 months to April 2022, thereby including the maturity of the $650 million Senior Notes due in April 2022 in the assessment. Management has applied the following oil price assumptions for the Going Concern assessment:
-- Base Case: $50/bbl for 2021 and $55/bbl for 2022, and
-- Low Case: $45/bbl for 2021 and $50/bbl for 2022.
The Low Case includes, amongst other downside assumptions, an 8% production decrease compared to the Base Case as well as deferred receipts from portfolio management and increased outflows associated with ongoing disputes. No mitigating actions have been included in either case.
The Base Case and Low Case scenarios forecast sufficient financial headroom for the 12 months from approval of the 2020 Annual Report and Accounts on 10 March 2021. However, both scenarios forecast a liquidity shortfall in April 2022 following the repayment of the $650 million Senior Notes due in April 2022, which falls within the liquidity forecast test periods in respect of the February 2021, September 2021 and March 2022 RBL redeterminations. Both cases assume amendments or waivers are received for any forecast Liquidity Forecast Test or gearing covenant breach as described below.
Refinancing Proposal
The Base Case and Low Case scenarios forecast a liquidity shortfall in April 2022, which could result in a failure to pass the Liquidity Forecast Test, as described below, in respect of the February 2021, September 2021 and March 2022 RBL redeterminations, and the gearing covenant tests, as described below, in respect of 30 June 2021 and 31 December 2021. The Group's management has therefore commenced discussions with its existing and potential new creditors, the objective of which is to raise new funding and/or agree certain amendments to the terms, including the covenants and/or maturity dates, of some or all of the RBL Facility, the Convertible Bonds, the 2022 Senior Notes and the 2025 Senior Notes with, if necessary, such amendments being approved by shareholders (Refinancing Proposal). Whilst the Directors believe that a Refinancing Proposal would be in the commercial interests of all stakeholders, there can be no certainty that the creditors and, if necessary, shareholders will agree to a Refinancing Proposal, implementation of which is therefore outside the control of the Group.
Liquidity Forecast Test covenant compliance
As part of each RBL redetermination process the Group is required to demonstrate to the reasonable satisfaction of the relevant majority of its lenders under the RBL Facility that it has, or will have, sufficient funds available to meet the Group's financial commitments for a period of 18 months starting from the first month immediately following the relevant RBL redetermination (Liquidity Forecast Test).
On 26 February 2021 the Group submitted a Liquidity Forecast Test to the lenders in respect of the February 2021 RBL redetermination. The Directors concluded that the information submitted to the lenders under the RBL Facility, which is different from the Base Case and the Low Case scenarios described above and includes mitigating actions, fulfilled the requirements of the Liquidity Forecast Test. At the date of approving the 2020 Annual Report and Accounts, an approval in respect of this test is yet to be received, therefore a risk remains that the Group could fail this test.
If the lenders under the RBL Facility were to conclude that the information submitted does not fulfil the requirements of the Liquidity Forecast Test and the Group was unable to cure the resulting default by the end of April 2021, there would be an event of default. Such event of default would allow the lenders under the RBL Facility, at their discretion, to cancel the RBL Facility and demand that all outstanding borrowings under the RBL Facility be repaid and/or enforce their security rights. This would in turn trigger other creditors' rights to call cross-defaults under the other financing arrangements of the Group (namely the Convertible Bonds, the 2022 Senior Notes and the 2025 Senior Notes) which could result in the entirety of the Group's borrowings potentially becoming immediately repayable by the end of April 2021. While discussions in respect of a Refinancing Proposal are continuing the Directors believe that, if required, a waiver of such a potential event of default in respect of the Liquidity Forecast Test could be agreed with the lenders under the RBL Facility.
The Group is also required to submit Liquidity Forecast Tests in respect of the September 2021 and March 2022 RBL redeterminations. The Base Case and Low Case scenarios forecast, before mitigations, a potential liquidity shortfall and therefore a potential failure of these tests. However, the Directors believe that a Refinancing Proposal could be implemented in time for the September 2021 RBL redetermination such that no shortfall will be forecast as part of the Liquidity Forecast Tests in September 2021 and March 2022. If no Refinancing Proposal has been implemented, and refinancing discussions were no longer continuing, by September 2021 there would be a significant risk of the Group entering into, or being in, insolvency proceedings, the implications of which are described in the section Implications and material uncertainties below.
Gearing covenant compliance
The RBL Facility contains a gearing covenant which is tested for each 12-month period ending on 30 June and 31 December each year, and which requires that net debt of the Group as defined in the RBL Facility agreement is lower than 3.5 times consolidated EBITDAX (earnings before interest tax, depreciation and exploration write-offs) for each relevant 12-month period. Under both the Base Case and the Low Case scenarios, the Group's gearing is forecast to be in excess of the RBL gearing covenant when calculated at 30 June 2021 and 31 December 2021, the two testing dates falling within the Going Concern assessment period.
The Group has requested an amendment in respect of these gearing covenant testing dates as part of the Refinancing Proposal described above. In the event that such amendments are not agreed on time for the testing date falling on 30 June 2021, the Directors would expect to request a waiver or amendment for that testing date only in the first instance, and if needed for the testing date falling on 31 December 2021 in the second half of the year. The Directors believe that the Group would be able to secure such amendments or waivers, which would be both consistent with past practice and the Directors' reasonable expectation of the commercial interests of the Group and its lenders.
If the Group is unable to agree an amendment or waiver of the gearing covenant, if required, in respect of the 30 June 2021 testing date, the Directors will deliver to the relevant lenders a notification of non-compliance, which is required to be delivered as soon as the Group's unaudited financial statements for the half year ended 30 June are available, but no later than 28 September 2021. If a subsequent 75-day period expires without the Company having resolved the non-compliance there will be an event of default under the RBL Facility by mid-December 2021.
Implications and material uncertainties
The Directors note that implementing a Refinancing Proposal or obtaining amendments or waivers in respect of covenant breaches is outside the control of the Group. If the Directors are unable to implement a Refinancing Proposal or, if necessary, obtain amendments or waivers in respect of covenant breaches, the ability of the Group to continue trading would depend upon the Group being able to negotiate a financial restructuring proposal with its creditors and, if necessary, that proposal being approved by shareholders. Whilst the Board would seek to negotiate such a financial restructuring proposal with its creditors, there is no certainty that the creditors would engage with the Board in those circumstances. There would therefore be a significant risk of the Group entering into insolvency proceedings, which the Directors consider would likely result in limited or no value being returned to shareholders.
The Directors have concluded that the uncertainties associated with implementing a Refinancing Proposal and obtaining amendments or waivers in respect of covenant breaches or, in the event a Refinancing Proposal is implemented, the revised covenants are subsequently breached, are material uncertainties that may cast significant doubt that the Group will be able to continue as a Going Concern. Notwithstanding these material uncertainties, the Board's confidence in the Group's ability to implement a Refinancing Proposal supports the preparation of the financial statements on a Going Concern basis. The financial statements do not include the adjustments that would result if the Group were unable to continue as a Going Concern.
Appendix C: Related party transactions
The following related party transactions are extracted from the Annual Report and Accounts (page 135).
The Directors of Tullow Oil plc are considered to be the only key management personnel as defined by IAS 24 Related Party Disclosures.
2020 2019 $m $m ------------------------------ ----- ----- Short term employee benefits 2.7 3.1 Post-employment benefits 0.2 0.5 Share-based payments 2.3 3.2 ------------------------------ ----- ----- 5.2 6.8 ------------------------------ ----- -----
Short term employee benefits
These amounts comprise fees paid to the Directors in respect of salary and benefits earned during the relevant financial year, plus bonuses awarded for the year.
Post-employment benefits
These amounts comprise amounts paid into the pension schemes of the Directors.
Share-based payments
This is the cost to the Group of Directors' participation in share-based payment plans, as measured by the fair value of options and shares granted, accounted for in accordance with IFRS 2 Share-based Payment.
There are no other related party transactions. Further details regarding transactions with the Directors of Tullow Oil plc are disclosed in the Remuneration Report on pages 57 to 73.
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