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    Tullow Oil plc 2008 Annual Report and Accounts The next phase of growth

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    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.

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    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

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    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

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    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) £692 million £300 million 300 692 639 263 579 Higher commodity prices during the Operating profit increased 59%, 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) £226 million £519 million 519 226 474 447 A gain on hedging instruments of Tullow generated record cash flows in 157 £43 million compared with a loss of 2008, 9% ahead of 2007. This facilitated £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 pence 6.0 pence 30.9 6.0 6.0 5.5 24.2 Basic earnings per share increased Due to the Group’s requirement for 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

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    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. Operations on Ngassa-1 well, Uganda. 2009 Challenges 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 265 in particular, material stratigraphic traps in the 825 mmboe, up 50% in 2008. Equatorial Atlantic margins of West Africa and Gas South America. 560 Oil 257 303 Key risks Geological chances of success generally range from 294 15% for a wildcat exploration well to 80% for a calibrated 204 appraisal well. Exploration risk is mitigated through the use of appropriate technologies and technical 06 07 08 excellence in exploration methodologies, enabling Tullow to identify the best opportunities for drilling and portfolio high-grading. Total reserves and resources by region (mmboe) Outlook Strong growth during 2008 in African 745 80 There is a very positive outlook for continued organic reserves and resources, up 60%. growth through a strong exploration programme that Rest of the World identifies and offers exposure to material upside. 464 87 Africa 406 101 Tullow’s business model is based on highly integrated decision-making between E&A, P&D, Finance and Legal. Read more about how we run our business on pages 15 to 17. 06 07 08 4 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Production and Development 2008 saw a very strong performance from Tullow’s Production and Development (P&D) assets and team, including the best Environment, Health and Safety (EHS) performance in the Group’s history. Average working interest production was 66,600 boepd, with good output from key producing assets in Africa. Operating capability continued to be enhanced, specifically in Ghana where deepwater operating skills and an in-country organisation were put in place to initiate Phase 1 development of the Jubilee field. 2009 Challenges Okume Complex production platform, offshore Equatorial Guinea. The two main P&D priorities are: • To remain on track for Jubilee first oil in the second half of 2010 and to evaluate further phases of development. Deepwater development drilling is already under way and achieving excellent results; and 66,600 boepd 2008 average working interest production. • To deliver a phased basin development and export plan to fast-track the commercialisation of the significant discovered, and yet to be discovered, resources in the Lake Albert Rift Basin. Beyond these two key developments, P&D will be Working interest production by oil and gas (boepd) ensuring that existing oil and gas production is delivered safely and efficiently with forecast average working Working interest production declined 32,200 interest production of 60,000 boepd for 2009. This is a as anticipated by 9% during 2008. 25,450 31,300 planned reduction from 2008 as a result of the focused allocation of capital and resources to Ghana and Uganda Gas in 2009, leading to the deferral of investment until 2010 Oil 41,150 40,900 in other areas of the Group’s portfolio. 33,420 Key risks The key operational risks Tullow is managing are: execution risk on the Jubilee development; adequate 06 07 08 resourcing for the increased scale of the business; effective management of mature assets; and maintaining EHS performance. Working interest production by region (boepd) Outlook In 2008, oil production is in Africa, 32,800 This is a very exciting time for the P&D team with with gas production in the UK and 25,450 31,300 responsibility for fast-tracking two world-class basins. South Asia. In 2009, P&D will also position the Group to benefit from the easing of supply constraints and costs expected Rest of the World Africa 41,150 during the year. 40,300 33,420 Read more in the operations reviews starting on page 20 Go online at: www.tullowoil.com/our business, live summer 2009 06 07 08 Tullow Oil plc 2008 Annual Report and Accounts 5

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    Group overview Where we operate Global opportunities Tullow has interests in 86 licences across 22 countries which include production from eight countries, world-class development projects in Ghana and Uganda and an extensive portfolio of exploration assets which offer long-term growth opportunities. Africa In 2008, Africa represented 62% of Group working interest production, 90% of reserves and resources and 69% of revenue. Tullow is highly focused on Africa and is a dominant player in the region. 1 Angola E 11 2 Cameroon* E 13 3 Congo (Brazzaville) DP 4 Congo (DRC) E 5 8 5 Côte d’Ivoire EDP 9 2 6 Equatorial Guinea DP 6 15 7 7 Gabon EDP 3 4 8 Ghana ED 14 9 Liberia** E 10 Madagascar E 1 11 Mauritania EDP 10 12 Namibia D 12 13 Senegal E 14 Tanzania E 15 Uganda ED * Tullow sold its interest in Cameroon in mid-2008. ** Tullow acquired interests in Liberia in early 2009. Key: E Exploration D Development P Production Group highlights Group working interest production (boepd) Group reserves and resources (mmboe) 66,600 boepd 825 mmboe Oil 62% Oil 68% Gas 38% Gas 32% Africa 62% Africa 90% Rest of the World 38% Rest of the World 10% 6 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Rest of the World 4 3 2 3 1 3 1 1 2 2 Europe South Asia South America Tullow’s European production The Group has gas production in Tullow is focused on applying its West comes from its gas assets in the Bangladesh together with gas African geological expertise to similar UK Southern North Sea. Exploration production and high-impact plays in South America. The Group’s licences in Portugal and the exploration acreage in Pakistan. portfolio has recently been extended Netherlands provide longer-term to include acreage in Guyana. 1 Bangladesh EDP growth opportunities. 2 India* E 1 French Guiana E 1 Netherlands E 3 Pakistan EDP 2 Guyana E 2 Portugal E * Tullow withdrew from India in early 2009. 3 Suriname E 3 United Kingdom EDP 4 Trinidad and Tobago* E * Tullow withdrew from Trinidad and Tobago in early 2009. To read the operations reviews see pages 20 to 39 Group revenue (£ million) Group acreage and drilling £692 million Acreage overview Region Licences Acreage (sq km) Oil 69% Africa 47 124,790 Gas 30% Rest of the World 39 77,332 Tariff 1% Total 86 202,122 Drilling activities Region E&A wells Discoveries Development wells Africa 69% Africa 18 17 59 Rest of the World 31% Rest of the World 4 0 1 Total 22 17 60 Tullow Oil plc 2008 Annual Report and Accounts 7

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    Group overview Chairman’s statement An outstanding year 2008 was another year of record achievement for Tullow. Exceptional exploration and appraisal results, strong production, profitable portfolio management and the recent successful fund-raising underpin our ability to continue to grow. An outstanding year • Exploration and impairment write-offs of £253 million The scale of Tullow’s business is being transformed again. comprising impairment charges of £26 million, There has been a material increase in the Group’s booked exploration write-off of £63 million and asset write-downs reserves and resources and two major world-class basins of £164 million; are being successfully fast-tracked towards development. • Best ever safety performance and US$1.8 million invested Highlights for 2008 include: in ‘Working with Communities’ initiatives, up 100%; • 100% exploration and appraisal success in Ghana and • 46% increase in employees, as we continued to attract Uganda, which significantly de-risks these projects and key people and skills to build depth and strength supports material follow-on campaigns; in technical, operational and financial capabilities • Strong progress towards being a leading deepwater throughout Tullow; and operator with the preparation of the Jubilee Plan of • Good discipline in capital allocation, supported by a Development and initiation of Phase 1; successful debt financing and equity placing in early 2009. • Major oil discoveries in Uganda, moving past the commercial volume threshold for the Lake Albert Rift Record health and safety performance Basin and into basin-wide phased development; A Lost Time Incident Frequency Rate (LTIFR) of 0.49 per million hours worked was achieved against the current Oil • 66,600 boepd average working interest production, with & Gas Producers (OGP) most recent average of 0.66. This strong results from key producing assets in Africa; is the Group’s best Health and Safety (H&S) performance to • £285 million proceeds realised from asset sales including date and these results reflect Tullow’s unwavering the sale of the Hewett-Bacton fields and terminal; commitment to ensure the safety of our staff, contractors, “We are financially strong, entrepreneurial in spirit and well resourced with excellent technical and operational capability. The future for Tullow is very bright.” Pat Plunkett, Chairman 8 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Total Shareholder Return (TSR) (%) 2% 66 Tullow was the 9th best performer in the FTSE 100, in a difficult year 49 for global stock markets. Read more on page 69 2 06 07 08 Go online at: www.tullowoil.com 08 partners and local communities and our determination to Comprehensive risk management continuously improve our performance in the area. Tullow faces a wide range of risks in its day-to-day operations and, in addition, the Group has identified and is Board and management changes addressing material risks to strategic delivery. Risk is of In March 2008, Matt O’Donoghue retired as General particular importance in today’s environment and detailed Manager Projects and from the Board. Since joining Tullow information on risk and how this is managed by the Group in 1987, Matt had given great service in a 21-year career is outlined in the risk management and risk factors section, spanning Tullow’s first project in Senegal to commencing on pages 44 to 47 of this report. the Jubilee field development in Ghana. His dedication and commitment played a major role in the success of Tullow. Delivering shareholder value In 2008, share prices across all sectors were affected by In April 2008, Tom Hickey announced his resignation, for the unprecedented turmoil in global financial markets personal reasons, from his position as Chief Financial and economies. As a consequence, Tullow delivered Officer and from the Board. Since joining Tullow in 2000, TSR of 2% for 2008. However, the Group significantly Tom has made an outstanding contribution to the Group outperformed the FTSE 100 where TSR was minus 28%. during a unique period in the growth and development of The Group achieved the 9th best share performance in the business. To effect an orderly transition, Tom remained the Index for the year. Over a five-year period since 2004, in his role until the end of September. Tullow has consistently outperformed the market and has delivered TSR of more than 700%. Ian Springett was appointed to the Board as Chief Financial Officer, from 1 September 2008. Ian has a wealth of Dividend international oil and gas experience having worked for In light of the current economic uncertainty and the much of his career with BP and brings excellent financial, requirement for major capital investment in Ghana and commercial and planning skills to the Group. Uganda, the Board feels that it is prudent to maintain the In May 2008, Tullow announced the appointment of 2008 final dividend at the 2007 level. Consequently, the Ann Grant as a non-executive Director. Ann has had an Board has proposed a final dividend of 4.0 pence per share extensive diplomatic career with invaluable experience (2007: 4.0 pence per share). This brings the total payout in in Africa, which is of particular relevance to Tullow as respect of 2008 to 6.0 pence per share (2007: 6.0 pence we seek to expand our business there. per share). The dividend will be paid on 21 May 2009 to shareholders on the register on 17 April 2009. Major investment in people We have continued to invest in the Tullow team and Looking ahead increase the capability of the organisation. As the scale and Given the current economic climate, these will be challenging times for the oil and gas sector but Tullow complexity of our portfolio increases we are ensuring that is well positioned following an outstanding year in 2008. we are fully prepared for the next phase of growth. One of We are clear on our key priorities – Ghana and Uganda – the big issues for most Exploration and Production (E&P) and have focused our resources, both human and capital, companies today is recruitment and retention. However, on these significant challenges. We are financially strong, because of the success we have enjoyed in recent years and entrepreneurial in spirit and well resourced with excellent the career opportunities and rewards this offers, we have technical and operational capability. The future for Tullow been able to build and continue to build a very strong team. is very bright. At the start of 2008, we employed 370 people and now have a team of 540, up 46%. On pages 48 and 49 of this report, we have a new ‘Our people’ section which sets out in more detail our people strategy. Pat Plunkett, Chairman Tullow Oil plc 2008 Annual Report and Accounts 9

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    Directors’ report: Business review Chief Executive’s review The next phase of growth With world-class development assets, an extensive exploration portfolio and a strong balance sheet, the Group is exceptionally well positioned for major production growth from 2010 onwards. “2008 was our best year ever, when unprecedented success with the drill bit matched significant progress towards the development of two major new oil provinces.” Aidan Heavey, Chief Executive Officer Record results and solid production Our reserves replacement ratio was 582%, averaging over Tullow has delivered record results for 2008 driven by a 200% per annum for the last three years. Through our strong operational performance, higher oil and gas pricing, exploration and appraisal strategy we are realising the and profitable portfolio management offset by exploration true potential of our portfolio and as we continue to execute write-offs and impairments. Whilst production decreased successful drilling campaigns, we expect to further enhance as anticipated by 9% to 66,600 boepd, average price and replenish our reserves and resources base. The Jubilee realisations increased by 17% for oil and by 40% for gas. field has resource potential of up to 1.8 billion barrels of oil. Basic earnings increased by 335% to 30.9 pence per share. This, together with the rest of the Group’s Ghanaian acreage offers substantial upside, including the recently announced Our best exploration year ever Tweneboa discovery, which adds further resource potential In Ghana, exceptional drilling results led to a large extension of up to 1.4 billion barrels of oil equivalent. of the Jubilee field and the opening of new deepwater plays. In Uganda, we have exceeded the commercial threshold for On track for Jubilee first oil in 2010 development through a series of world-class discoveries, Phase 1 of the Jubilee field development in Ghana is on with more to come in this region from a strong portfolio of track for first oil in 2010, just three years after the initial high quality drilling prospects. discovery well in 2007. Tullow, as unit operator, has selected all major contractors and development drilling and facilities Major resource potential construction are under way. The Jubilee partners have all Exceptional exploration and appraisal success with 17 sanctioned Phase 1 development and final government discoveries from 22 wells led to a 274 million barrel increase approval is pending resolution of the gas development plan. in our reserves and resources. This resulted in a revised total We have built a strong operating team in-country and will of 825 million barrels of reserves and resources at year end. continue to strengthen this in 2009 to support the 10 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements installation and production phases of the development. Establishing a deepwater operating capability is critical to Tullow’s key success factors the success of this project and is also a key competency We believe we have developed a unique set of required to pursue similar opportunities essential to deliver characteristics and competencies that will help continued long-term growth for Tullow. us deliver the next phase of growth for Tullow. We are very clear about the large responsibility we have to ensure that the new offshore industry in Ghana is managed in a sustainable and safe manner, minimising Entrepreneurial spirit page 12 its environmental impact and ensuring that we are good neighbours to the local community. Excellent execution page 24 Commercial threshold exceeded in Uganda Investment in two substantial drilling campaigns in Uganda has resulted in material discoveries including the Right skills page 28 world-class Buffalo-Giraffe and Kingfisher fields, which have discovered gross resources of approximately 600 million barrels of oil. A dedicated team will now define Proven expertise page 36 the optimal method to commercialise these resources. High-grading our exploration portfolio Elsewhere in Côte d’Ivoire, Mauritania, the Netherlands, Portugal and South America, we continue to high-grade our interest in the mature offshore Hewett fields and related exploration portfolio by pursuing the most prospective plays infrastructure, including the onshore Bacton terminal. as we prepare for high-impact drilling in 2010. Financial strength Difficult economic climate The Tullow Management and Board are fully committed to The current economic climate is presenting many challenges our vision of being the leading independent exploration and across all sectors and within our industry. We are working production company and building our portfolio of assets for in an unprecedented credit environment and with volatile the longer term. Our balance sheet is strong and well funded. and unpredictable commodity prices. Therefore, we have to We secured a US$2 billion (£1.4 billion) bank facility in March maintain a fine balance between our short-term priorities 2009 following a successful share placing in January 2009 and continuing to invest for long-term future growth, whilst which raised gross proceeds of £402 million and increased remaining in a position to take advantage of the inevitable Tullow’s existing share capital by 9.1%. The ability to achieve opportunities the current market will present. our funding requirements reflects strong banking and investor confidence in our business, particularly in the Stringent capital allocation context of the current economic climate. During the year, we undertook a strict capital allocation process and identified activities that we could delay in Key focus for 2009 order to focus resources on our key projects in Ghana and For 2009, the Group is focused on progressing Phase 1 Uganda. Therefore, we have been particularly stringent in of the Jubilee project in Ghana, fast-tracking the the allocation of capital, to ensure that we remain financially commercialisation of Ugandan reserves and executing strong through these turbulent times for the global economy selective high-impact exploration and appraisal campaigns. and financial markets. The Group is in a very strong position, from an operational As a consequence, we made a positive decision to delay and financial perspective, to deliver these exciting and some activities into later years. This means that we will transformational projects as we move into our next phase not fully offset the natural decline in some of our UK and of growth. African fields and the expected production outcome for 2009 is 60,000 boepd. It is however important to recognise that a key criterion in deciding which activities could be deferred is to make sure we do not destroy any asset value by delaying infill or development activities. Aidan Heavey, Chief Executive Officer Planned asset management Planned and opportunistic asset management is a subset of effective capital management and we continue to fundamentally review our assets and actively manage our portfolio. In 2008, we made a profit after tax of £244 million, primarily from the sale of Tullow’s Tullow Oil plc 2008 Annual Report and Accounts 11

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    Driller working on the Kingfisher-3A well, Uganda. Entrepreneurial spirit Unique characteristics that deliver superior performance Tullow has an entrepreneurial leadership team who have An appetite for managed risk, active portfolio management demonstrated a flexible and creative approach to building and a strong balance sheet ensures that the Group can a strong business and portfolio of assets. execute its ambitious growth plans. These plans are built A flat organisation and integrated decision-making allows on solid foundations and strong relationships with partners, the Group to anticipate and respond quickly to business governments, employees, contractors, operators and local issues or opportunities as they arise. communities, developed over many years. A balanced mix of professional management and industry experts, with a diverse blend of skills and disciplines, gives Tullow the depth and strength to deliver an excellent operational performance and strong execution on major projects. 12 Tullow Oil plc 2008 Annual Report and Accounts

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    Record growth Building our team 2010 and beyond It has been a successful five years: We continually invest in our team and While first oil is targeted from Jubilee the Energy Africa acquisition in 2004; increase the capability of the business in 2010 and development plans for followed by the discovery of a major so that we are always prepared to move Uganda are well under way, the Group oil province in Uganda; quickly to the next level. In 2008,170 people is also continuing to high-grade its consolidated through the acquisition joined Tullow in readiness to take on exploration portfolio focusing on of Hardman Resources; world-class further operational challenges that the most prospective plays for discoveries in Ghana; and exceptional will continue to deliver significant high-impact drilling campaigns exploration success in 2008. shareholder value. in 2010 and beyond. Tullow Oil plc 2008 Annual Report and Accounts 13

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    Directors’ report: Business review Vision and strategy Realising our vision Tullow has a clear vision, a consistent strategy and a flexible but highly-integrated business model that continuously adapts to the prevailing external environment. Global markets Industry challenges 2008 was a year of extreme volatility in both the equity 2009 is likely to be a difficult year for the sector: and commodity markets. During the latter half of the year, • The management of oil price volatility will be of particular the problems with the banking sector led to a reduction significance, given its impact on revenues, funding, in available capital which had dramatic knock-on investment levels and supply-side costs; consequences for all major economies. • The impact that short-term views on oil price have on The impact of this deterioration in economic prospects funding places an emphasis on exploration and appraisal was evidenced by the rapid reduction in commodity prices, programmes that target near-term production and including Brent Crude, which fell from a high of over commercial reserves; US$140/bbl in July 2008 to US$36/bbl in December 2008. Furthermore, there have been significant movements in the • A time lag remains between historic supply-side inflation major foreign exchange rates, with the Sterling/US Dollar and lower oil prices; and rate moving from £/US$2.03 in February 2008 to its current • Significant industry consolidation is likely, creating both rate of approximately £/US$1.40. In addition, interest rates acquisition and disposal opportunities. have reduced significantly in an attempt to stimulate demand. In response, Tullow has already undertaken a strict For Tullow, oil and gas revenues are being impacted and capital allocation programme for 2009. Capital expenditure the current downturn in the global economy presents new for the year is currently budgeted at approximately challenges as we manage the business for the longer term. £600 million, split 70% on production and development While in the short term we are carefully managing and the remainder on exploration and appraisal. Africa investment and capital allocation, we recognise that will account for circa 85% of the total. In the current significant value-enhancing opportunities are likely to environment, it makes good business sense for the Group arise as companies struggle in the current environment. to focus its major spend on first production in Ghana in 2010 and to commercialise its investment in Uganda. Looking ahead, Tullow will take a prudent but entrepreneurial approach to its growth strategy. Our portfolio of existing In parallel, Tullow will safeguard mature production assets and new production coming on stream positions the as well as retain key future exploration prospects. Group strongly to benefit from a recovery in oil prices. Early in 2009, Tullow strengthened its balance sheet with a successful equity placing and major debt financing enhancing the Group’s financial capacity and flexibility. Combined, these factors will help ensure Tullow remains flexible during the year, particularly if low oil prices persist. This will allow the Group to take advantage of opportunities that may present themselves. Oil and gas prices Capital expenditure 160 250 £600 million 128 200 This is the budgeted capital 96 150 expenditure for 2009, up 25% on 2008. 64 100 P&D 70% E&A 30% 32 50 0 0 2004 2005 2006 2007 2008 Oil price (US$/bbl) Gas price (p/therm) 14 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Vision and strategy Tullow’s business model Our vision Our vision is to be the leading global independent exploration and production company by: Ex plo Legal r • Building on our excellent track record through being ce at ion the best in all that we do; an Fin and • Continuing to grow value over the long-term as partner, operator and employer of choice; and Appraisal • Conducting our operations with respect for the Integrated people and environments in which we work. decision making Our strategy Tullow pursues a consistent and repeatable strategy Governance which seeks to deliver sustainable long-term growth Pr t odu en with a balance between funding, exploration and ction pm production spend and major activities in core areas. and Develo We will achieve this by: • Delivering major projects, with a significant focus on increasing bankable reserves; E&A has responsibility for identifying core plays, prioritising • Executing selective, high-impact exploration prospective exploration options and executing exploration programmes funded by surplus cash flow or equity; and appraisal programmes within material follow-on • Managing our assets to high-grade the portfolio, campaigns. replenish upside and assist funding needs; P&D has responsibility for field appraisal, development • Ensuring safe people, procedures and operations, of commercial discoveries and the management of the and minimising environmental impacts; Group’s production and reserves, which are fundamental to revenue generation. • Building long-term relationships with local governments, communities and key stakeholders; and Finance has responsibility for the management of equity, debt and cash to maintain a strong balance sheet and • Continuing to develop a strong team with excellent the ability to fund E&A and P&D activities with prudent, commercial, technical and financial skills. focused capital investment. Legal has responsibility for all governance and legal issues including regulatory compliance and delivering commercial Our strategic objective legal solutions for Tullow’s business needs. Collective responsibility is held for portfolio management To deliver top quintile total shareholder returns versus including disposals, investments and mergers and our industry peer group. acquisitions. At the core of Tullow’s business model is the Group’s vision and strategy and strong discipline in planning and execution. Tullow Oil plc 2008 Annual Report and Accounts 15

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    Directors’ report: Business review Organised to deliver Executing our strategy Tullow’s Executive Directors, led by Aidan Heavey, Chief Executive Officer, are tasked with executing the Group’s strategy and have responsibility for delivering shareholder value. Exploration and Appraisal Production and Development Angus McCoss, Exploration Director Paul McDade, Chief Operating Officer Differentiated long-term exploration Consistent delivery of operational strategy secures the future excellence adds value Tullow’s exploration strategy is based on identifying Tullow’s P&D strategy is focused on creating value from transformational, high-value growth opportunities the Group’s portfolio of assets. This is achieved through and appropriately mitigating risks by concentrating new or incremental developments, improving operating exploration in core plays and in areas of focus for the efficiency and strategic divestments or acquisitions. Group. This is delivered by successful execution of Fundamental to this is conducting all business in a material commercial exploration campaigns with manner that enhances the Group’s reputation and high success rates achieved through developing reinforces Tullow’s long-standing commitment to technical excellence. operate in a safe and environmentally sensitive way. The Group’s exploration strategy has been recalibrated to In 2009, the Group has been particularly disciplined in adjust to the global economic downturn so that investment allocating capital and human resources to fast-track is focused on operational and financial delivery in Ghana and monetise the Jubilee field in Ghana and major and Uganda, targeting short-term production and discoveries in Uganda. Tullow continues to invest commercial reserves, whilst nurturing long-term strongly in people including building a world-class growth options and replenishing portfolio upside. deepwater operating capability in Accra, Ghana and enhancing the Kampala organisation in preparation for development activity in Uganda. Read more starting on page 20 Read more starting on page 20 E&A Group strategic responsibility P&D Group strategic responsibility • Executing selective, high-impact • Delivering major projects, with exploration programmes funded a significant focus on increasing E& by surplus cash flow or equity; and bankable reserves; and A Integrated Integrated decision decision making • Managing our assets to high-grade making • Ensuring safe people, procedures the portfolio, replenish upside and and operations, and minimising assist funding needs. P&D environmental impacts. For more information on Tullow’s business model, see page 15 16 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Finance Legal Ian Springett, Chief Financial Officer Graham Martin, General Counsel and Company Secretary Financial strength and flexibility Effective governance and risk in a challenging environment management, within a clear framework Tullow’s financial strategy is centred on ensuring the The Board and senior management are committed Group has a strong and well-funded balance sheet and to all aspects of good corporate and ethical behaviour. is managed in a way that is consistent with the current Corporate responsibility and accountability is reflected external reality and the Group’s longer-term strategic in how the Group is organised and the policies and goals for growth. processes in place to ensure Tullow complies fully with all its legislative and regulatory requirements. For Tullow, this means having the capacity to fund its Where legislation is inadequate or non-existent the activity set, particularly the significant investment in Group applies responsible standards. Ghana and Uganda developments; the ability to manage market volatility and uncertainty; the flexibility to Tullow’s Board operates within a clear governance and selectively acquire or divest; and an overall balance risk framework for the management of the Group, the between focused short-term activity and longer-term safety of its operations and employees and the successful investment required for continued growth. execution of the Group’s strategy. The Group also embraces a wide range of CSR and EHS responsibilities, particularly in the context of the oil and gas industry and the location of some of Tullow’s operations. Read more on page 40 to 43 Read more starting on page 54 Finance Group strategic responsibility Legal Group strategic responsibility • Deliver sustainable long-term • Maintaining a strong global team ce growth with a balance between Legal with excellent legal and commercial an Fin Integrated funding, exploration and production skills; and spend and major activities in core Integrated decision decision making areas of the business. making • Building long-term relationships Gov with governments, partners and key ernance stakeholders focusing on the highest corporate and ethical standards. Tullow Oil plc 2008 Annual Report and Accounts 17

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    Directors’ report: Business review Key Performance Indicators (KPIs) 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) 0.49 LTIFR Aim: Tullow’s top operational priority is to keep people safe – employees, contractors and local communities. The Group’s aim is to deliver a 1.95 performance that is in the top quartile for the industry. Three Lost Time Incidents in 6.15 Measurement: Detailed, disciplined and consistent incident reporting million hours worked across the Group procedures are in place throughout the Group, incorporating follow-up in 2008 resulted in a LTIFR of 0.49 – and remedial measures as appropriate. H&S performance measures are Tullow’s best ever performance. reported to the Board monthly and annually. 0.81 Risk management: H&S management is a complex issue given the 0.49 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 06 07 08 commitment at each level of the organisation. Staff turnover (%) new 2.3% 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 2.5 time to support the continued growth and development of the business. 2.3 Tullow has a strong track record of Measurement: Systems are in place to identify issues early. Detailed retention, with 2.3% staff turnover induction programmes and support are offered. Debrief processes for and a 95% employee satisfaction leavers helps Tullow improve employee policies. Key measures are staff 1.5 rating in 2008. 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. 06 07 08 Working interest production (boepd) 66,600 boepd Aim: Production is key to revenue and cash generation. Operational 73,100 excellence underpins delivery of production in line with the Group’s 66,600 64,720 annual budget and external market guidance. Focused capital investment on major Measurement: Daily and weekly production is monitored from key development projects resulted in a producing assets. Production is reported weekly and monthly to reduction of 9% in production output senior management and forecast updates are prepared regularly in 2008. 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 06 07 08 of mature fields. 18 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Reserves and resources replacement (%) * Aim: Replacement of reserves and resources is focused on continuing 1,232% 1,232 to grow the Group’s production potential. Tullow aims for 100% annual organic reserves and resources replacement. Exceptional exploration and appraisal Measurement: Reserves estimates for each field are reviewed by success achieved record reserves and an independent engineer, based on significant new data or material resources replacement of 1,232%. change, with a review of each field undertaken every two years. Reserves replacement for the year Resources are based on the Group’s reserves report, also produced was 582%. by an independent engineer. 434 Risk management: Maximising reservoir performance in producing fields through operational and technical capability, and continued 173 exploration success based on focused material campaigns, manages * This is annual reserves and resources 06 07 08 replacement risk. revisions divided by annual production. Cash operating costs per boe (£) £5.90 per boe Aim: Cash operating costs per barrel of oil equivalent are a function of industry costs, inflation, the Group’s fixed cost base and production 5.90 output. Tullow’s aim is to maintain these costs within predefined limits 5.05 Lower Group production and cost through strict cost management. 4.74 inflation in the industry led to a 17% Measurement: Cash operating costs are reported monthly on an increase in cash operating costs per asset basis and are monitored closely to ensure that they are within barrel of oil equivalent during the year. 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. 06 07 08 Operating cash flow before working capital (£ million) £519 million 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 519 commitments can be serviced from strong operating cash flow. 474 447 Record operating cash flow facilitated Measurement: Operating cash flow is reported monthly with regular the Group’s 2008 capital investment, forecasting for longer periods to support long-range planning and dividend payments, debt service and investment decisions. Detailed annual and project budgets require a reduction of over £60 million in Board approval. net debt. 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. 06 07 08 Total Shareholder Return (%) Aim: Tullow has a clear vision and a consistent strategy which is set 2% out on page 15 of this report. The Group’s strategic objective is to achieve 66 top quintile TSR growth versus its industry peer group, as set out in the Tullow was the 9th best performer Remuneration report on pages 66 to 75. in the FTSE 100 for 2008 and a clear 49 Measurement: TSR – share price movement and dividend payments – leader in the oil and gas sector. The is reported monthly and on an annual basis at year end to the Board. Group has delivered TSR of over 700% Risk management: Excellent execution of a clear strategy achieved since 2004. through entrepreneurial leadership, combined with open and honest communication with the capital markets help in the delivery of a consistent TSR performance. 2 06 07 08 08 For more information on how we manage risk see pages 44 to 47 Go online at: www.tullowoil.com Tullow Oil plc 2008 Annual Report and Accounts 19

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    Directors’ report: Business review Operations review Powerhouse of growth Tullow is poised to deliver on major projects in Ghana and Uganda. In the longer-term, the Group has a strong exploration portfolio across 11 countries. Expertise in core plays and a focus on execution creates the opportunity for further material exploration upside. Underpinning this growth is a high quality production and development portfolio with 17 producing fields across five countries. Working interest production (boepd) Reserves and resources (mmboe) 2% 61% 41,150 40,300 745 33,420 Increase in working interest production Increase in reserves and resources 464 62% 90% 406 Contribution to Group working Contribution to Group reserves interest production and resources 06 07 08 06 07 08 Key producing assets Country Producing field (Tullow %) 2008 Working interest production (boepd) Congo (Brazzaville) M’Boundi (11%) 4,600 Côte d’Ivoire Espoir (21.33%) 6,100 Equatorial Guinea Ceiba (14.25%) 5,400 Okume Complex (14.25%) 10,000 Gabon Etame/Avouma (7.5%) 1,600 Niungo (40%) 4,000 Tchatamba (25%) 4,400 Others (3.75% – 40%) 2,800 Mauritania Chinguetti (19.01%) 2,200 20 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Mauritania (EDP) Senegal (E) Cameroon* (E) Liberia (E) Ghana (ED) Côte d’Ivoire (EDP) Equatorial Guinea Uganda (ED) (DP) Gabon (EDP) Congo (DRC) (E) Congo (Brazzaville) Tanzania (E) (DP) Angola (E) Namibia (D) Madagascar (E) Key: E Exploration D Development P Production * Tullow sold its interest in Cameroon in mid-2008. Ghana Uganda Outstanding progress Exceptional exploration record Tullow has had outstanding success over the last 12 months Tullow has made remarkable progress in Uganda since in Ghana. A 100% success rate in both exploration and its first discovery in 2006. The Group has now drilled 20 appraisal has added materially to the Group’s resource wells, all of which have encountered hydrocarbons. In 2008, base. This success has been matched by tangible progress a number of sizeable discoveries were made including one on the development of the Jubilee field which remains on of the largest discoveries in Sub-Saharan Africa. In total, track for first oil in 2010. sufficient resources have been discovered to justify full-scale development of the Lake Albert Rift Basin. The expertise and knowledge developed in Ghana can be transferred to neighbouring Côte d’Ivoire and Liberian 2009 will see development options being evaluated in acreage and across the Atlantic to twin basins in South parallel with further high-impact exploration in a major America where significant upside potential exists. new basin with well over one billion barrels of potential. Tullow Oil plc 2008 Annual Report and Accounts 21

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    Directors’ report: Business review Operations review continued Africa In 2008, Tullow had a strong production performance from its African portfolio and outstanding exploration and appraisal results from both Ghana and Uganda. Both regions have contributed to substantial reserves and resources growth and are now being commercialised on a fast-track basis. 2008 Highlights In Africa, Tullow has 47 licences in 14 countries, 17 producing fields, approximately 745 mmboe booked 41,150 boepd reserves and resources and majority interests in two Average working interest production world-class basins in Ghana and Uganda. 100% success Ghana In 2008, the Group focused on the Phase 1 development Achieved from 15 exploration and appraisal wells of the Jubilee field, an appraisal campaign to determine in Ghana and Uganda the ultimate field size and exploration work to establish the upside potential of the remainder of the basin. 296 mmboe Reserves and resources added to the African portfolio Outstanding exploration success In February 2008, the Odum field was discovered in the West 1.8 billion barrels Cape Three Points block, some 13 km east of Jubilee. This Significant upside potential identified through exploratory discovery opened up a new Campanian geological play in appraisal drilling in 2008 a previously unexplored reservoir interval. In November 2008, Tullow drilled the Ebony-1 commitment well in the Shallow Water Tano block which encountered normal pressured Sales revenue (£ million) oil sand and an over-pressured gas-condensate sand up-dip from Tweneboa. Data acquired from the recent £476 million Tweneboa-1 well demonstrated that although charged 476 through Tweneboa, Ebony is not presently in pressure Sales revenue communication and as a result Ebony was determined 372 to have a sub-commercial resource potential. Tullow will therefore relinquish its interest in the Shallow Water 28% 268 Tano licence. Increase on prior year In March 2009, the Tweneboa-1 exploration well, in the Deepwater Tano licence, discovered a highly pressured 06 07 08 light hydrocarbon accumulation of up to 1.4 billion barrels of oil equivalent with a liquid yield currently considered to be in the range of 30 to 40%. The well encountered 21 metres of net pay on the edge of a giant 200 sq km Turonian fan system related to the Jubilee play. Appraisal drilling will now be required to test core areas within this stratigraphic trap where thicker Turonian reservoir sections are mapped. The substantial Teak complex is one of an inventory Glossary of prospects located in the region. Drilling is scheduled API Measure of crude oil quality to commence on Teak in the fourth quarter of 2009. boepd Barrels of oil equivalent per day bopd Barrels of oil per day bwpd Barrels of water per day CNG Compressed Natural Gas FEED Front End Engineering Design FPSO Floating Production Storage and Offtake vessel mmbbl Million barrels mmboe Million barrels of oil equivalent 22 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Highly successful Jubilee appraisal programme Three exploratory appraisal wells, Mahogany-2, Hyedua-2 and Mahogany-3, were drilled on the Jubilee structure during the year. Each of the wells were approximately 5 km away from the original discovery well and each intersected considerable hydrocarbon columns in the Upper and Lower Mahogany sands which are both in lateral pressure communication. The Mahogany-3 well also discovered oil in a third and potentially extensive underlying sand, Mahogany Deep, which is being considered for appraisal drilling in 2009. These results led to a significant upgrade in the gross resource base for the field with the most-likely P50 case being upgraded to 1.2 billion barrels with an upside potential case of 1.8 billion barrels. It is anticipated that the initial development area has gross reserves of 490 million barrels resulting in Tullow booking its net share of 170 million barrels at year-end. Further extension of the eastern part of the Jubilee field may be targeted through an additional Mahogany exploratory appraisal well before the end of 2009. Flow tests performed on both Mahogany-2 and Hyedua-2 confirmed that Jubilee is a highly productive and well connected reservoir and that once the wells have been configured for long-term production, they should be Blackford Dolphin rig drilling Hyedua-2 appraisal well offshore Ghana. capable of producing at rates in excess of 20,000 barrels of 37° API crude oil per day. The Phase 1 development plan involves drilling a total of 17 Jubilee Phase 1 on schedule for first oil wells, for oil production, water injection and gas injection, Significant progress has been made on the Phase 1 which will be tied back to a Floating Production Storage development of the Jubilee field and the project is on and Offtake vessel (FPSO) with a production capacity of schedule to deliver first oil in the second half of 2010. 120,000 bopd. Sufficient rig capacity has been contracted The field has been unitised across the Deepwater Tano for the development and the first dedicated development and West Cape Three Points blocks with Tullow named well is under way. Contractors have been selected for all as Unit Operator. In addition, a joint venture project team major components of the project facilities and construction has been established with Kosmos Energy appointed as work has commenced. To support all offshore activities, an the Technical Operator. The Phase 1 Plan of Development operational organisation and associated infrastructure have has been submitted to the Ghanaian Government along been established in the city of Accra and the port of Takoradi. with the related Unit Agreement and both are expected to be approved in the near future following final resolution of the gas development plan. Tullow Oil plc 2008 Annual Report and Accounts 23

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    Eirik Raude semi-submersible rig, offshore Ghana. Excellent execution Delivering projects of unique scale and reward Tullow has built a strong track record of achieving excellent Working safely and minimising our impact on the environment execution across the business and this positions us very is underpinned by strong EHS systems, a good performance strongly to deliver projects of unique scale and reward. record including an excellent 2008 H&S outcome and a Group-wide commitment to continuous improvement. Tullow’s operating capability and its ability to work with partners in non-operated assets is demonstrated Sophisticated contracts and procurement capability ensures in the development of the Group’s key producing assets Tullow has the ability to secure rigs, key equipment and in Europe, Africa and South Asia. resources on time and to budget. Our aptitude to step up to a challenge, requiring new skills and competencies, is reflected in the accelerated appraisal and development of a major deepwater asset. 24 Tullow Oil plc 2008 Annual Report and Accounts

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    Environment Procurement Safety Tullow Oil Environmental Standards The Jubilee development is a complex Tullow had three Lost Time Incidents defines the Group’s position on key project being executed at a record in 2008, resulting in a Lost Time environmental issues including pace. In the last year, in a tight Incident Frequency Rate of 0.49 per biodiversity, climate change, market, Tullow has successfully million hours worked. This is a record resource management, stakeholder contracted sufficient rig capacity, low for Tullow and places the Group’s engagement, and monitoring and an FPSO, all the required subsea performance in the top quartile for evaluation. Together these form equipment and installation capability the industry. the Group’s environmental footprint. to deliver first oil in 2010. Tullow Oil plc 2008 Annual Report and Accounts 25

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    Directors’ report: Business review Operations review continued The partnership has also agreed, in principle, a gas and offshore, in Lake Albert and Tullow are confident that development plan with the government which will include the basin has potential of well in excess of one billion the capability for gas re-injection and a gas export pipeline barrels. An integrated team has now been set up to plan for to the coast where a gas processing plant will be constructed. the development of the resources discovered to date. The Jubilee will be a foundation supplier to this gas infrastructure potential for early production phases will be considered. and commercial agreements will be negotiated in 2009. Exceptional exploration success In light of continued exploration and appraisal success, the Exploration drilling activities during the year have joint venture will commence work to evaluate the potential predominantly focused on the Butiaba region of Blocks 1 for further phases of development for the Jubilee field and 2 where eight discoveries were made. Approximately during 2009. 400 million barrels have been discovered in this region including the 300 million barrel Buffalo-Giraffe discovery Uganda which lies in the southern part of Block 1. The majority In 2008, Tullow embarked on an aggressive drilling and of the Butiaba discoveries have been in the prolific Victoria seismic campaign in Uganda with the aim of locating Nile Delta play which is characterised by high net to sufficient resources in order to exceed the commercial gross reservoirs that can be clearly identified on seismic. threshold required to develop the Lake Albert Rift Basin for A number of additional high-impact structures have been both the regional market and through an export pipeline to imaged and further drilling activity, with the light OGEC rig, the Indian Ocean. The programme proved to be extremely will continue in the area during 2009 commencing with the successful with all of the 10 wells drilled encountering Vundu and Nsoga prospects. In March 2009, an integrated hydrocarbons and proving up a resources base for the basin testing programme began on the Kasamene and Kigogole of around 600 million barrels, which is significantly greater discoveries to assess reservoir deliverability of the Butiaba than the volume considered necessary for development. wells, the first well-testing in the northern part of Block 2. In addition, considerable upside still exists, both onshore Initial test results from Kasamene-1, where an 18 metre Elly Karuhanga, President and Director of Tullow Uganda and Tim O’Hanlon, Vice President Nabors 221 rig on location at the Kingfisher-3A well in Block 3A, onshore Uganda. African Business at the Tullow Africa strategy day hosted in London in November 2008. 26 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements interval was perforated, have yielded very encouraging Capital investment (£ million) results. A maximum flow rate of 3,500 bopd was achieved on a 48/64 inch choke at very low reservoir drawdown, supportive of world-class reservoir quality and productivity. £386 million 386 Most recently, the OGEC rig drilled the Mputa-5 appraisal Capital investment well in the Kaiso-Tonya region. Drilling operations completed 237 in late February 2009, reaching a total depth of 1,231 metres. Three separate oil-bearing zones were encountered with 63% 143 a total net oil pay of over 12 metres. The well proved the Increase on prior year presence of hydrocarbons in the previously undrilled southwestern flank of the field and provided the deepest oil 06 07 08 penetration in the field to date. The well results indicate that the recently acquired 3D seismic dataset and new modelling techniques can be used to more accurately identify and map the Mputa field reservoirs and other similar reservoirs in the Lake Albert Rift Basin. In early 2008, an exploration campaign commenced on the 600 mmbbl Approximately 600 million barrels of oil have been discovered shores of Lake Albert, using the Nabors 221 rig, to drill the in the Lake Albert Rift Basin to date. deviated high-impact Ngassa-1 well, targeting a prospect located under the lake. The primary objective was not reached due to borehole instability and the well was suspended after discovering gas in the shallower horizons. The rig then moved to the Kingfisher discovery in Block 3A where the Kingfisher-2 and Kingfisher-3 appraisal wells were drilled and Kingfisher-2 was production tested. These wells proved the lateral connectivity and high productivity of the reservoir and demonstrated the structure to be shallower The significant knowledge acquired from the recently and the oil-water contact to be deeper than expected. completed FEED study for the previously planned Early These results have upgraded the gross resources for Production System project, which concentrated only on the Kingfisher to around 200 million barrels. The rig has now development of the Mputa field, is now being incorporated moved back to Block 2 and will commence drilling the into the new plan. Early production from one or more fields Ngassa-2 well from a more optimal location in March. will remain an integral part of the development plan. The initial phase will involve production from a small number Evaluating offshore drilling solution of wells to provide early production data and crude for the To enable drilling of the significant offshore exploration local market. It is anticipated that this early production prospects in Lake Albert, Tullow has initiated a Front End phase would then be expanded to provide more significant Engineering Design (FEED) study for an offshore drilling production volumes for the local and regional fuel oil and oil solution. This study has been executed jointly with Tullow’s products market. The final phase is expected to involve the construction of a 1,300 km pipeline to the Indian Ocean to partner, Heritage Oil, and is scheduled to be completed allow export of the resource base volumes which significantly in the second quarter of 2009 with offshore drilling now exceed local and regional demand. It is planned to present anticipated in 2010. these plans to the Government of Uganda in 2009. Fast-track basin development Congo (DRC) Following the exceptional exploration success, the pace On the Congo (DRC) side of Lake Albert, Tullow has interests at which resources have been discovered has exceeded in a licence containing two blocks. The validity of the award expectations. As a consequence, Tullow and the Government of this licence was disputed during 2008, however Tullow of Uganda are reconsidering the development strategy for continues to be confident in its title to this acreage. the Lake Albert Rift Basin. An integrated team is now in place to define the optimum Equatorial Guinea development scenario for the whole basin and whilst Gross production from the Ceiba field and the Okume this work is still in the early conceptual stages, it is Complex exceeded expectations in 2008, averaging anticipated that it will result in a phased development plan. 38,000 bopd and 70,500 bopd respectively. Tullow Oil plc 2008 Annual Report and Accounts 27

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    Eugenia Fefoame, GNPC Geologist seconded to Tullow Oil, inspecting oil samples offshore Ghana. Right skills Successfully building our team Tullow is serious about growth and continues to put in place Tullow’s world-class discoveries in Ghana have led to the capital and human resources needed to deliver the next the development of a Nationalisation Plan in conjunction phase. We are building the strongest team by developing with the Ghanaian Government and the Ghana National talent from within, complemented with carefully selected Petroleum Company (GNPC). Through recruitment, training new recruits – many of whom are industry champions, to international accredited standards, and by partnering looking for new opportunities to make a difference. with Ghanaian Universities to further develop academic qualifications, we will deliver on our commitment to have In developing people with the right skills and the right 90% local staff by 2018. We are already building in-country attitude, our focus is on developing each employee capability with over 45 Ghanaians working for Tullow in to their full potential, in each area of our business. Accra, the capital of Ghana. 28 Tullow Oil plc 2008 Annual Report and Accounts

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    Deepwater capability Retaining talent Pride in Tullow In the period since the first discovery Tullow’s ability to attract and retain As part of an independent review of in Ghana in 2007, Tullow has talented people is a fundamental internal communications, 95% of staff established a major deepwater strength of the Group. We now employ said they were proud to work for Tullow operating capability, critical to the 540 people worldwide and staff and 93% would recommend the Group development of the Jubilee field turnover in 2008 was just 2.3%. to their friends as a good employer. and to the Group’s longer-term The Group has a consistent record growth ambitions. of high staff retention, despite significant growth in recent years. Tullow Oil plc 2008 Annual Report and Accounts 29

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    Directors’ report: Business review Operations review continued 3D seismic survey offshore Angola. David Roux, Business Unit Manager Central and West Africa. 37,000 boepd Côte d’Ivoire Gross production from the Espoir fields averaged 25,600 bopd in 2008. Development work on the West Espoir field Forecast 2009 average working interest production was completed in January, with eight production and from the Group’s African assets. three injection wells now on line. Production is currently restricted to 22,000 boepd by the liquids and gas handling capacity on the FPSO. However, this figure is expected to be restored to 25,000 boepd in the fourth quarter of 2009 following completion of a facilities upgrade. In blocks CI-103 and CI-105, 3D seismic has delineated several Jubilee-type leads and prospects. The geophysical techniques which proved so successful in Ghana are currently being used to further evaluate the data and An infill drilling campaign on the Ceiba field was completed to select the best prospects for drilling in 2010. in April and flowline gas lift has been installed. On the Okume Blocks CI-107 and CI-108 were relinquished in May 2008 Complex, development drilling on the shallow water Elon field following analysis of 3D data which had been acquired was completed in May while drilling on the deepwater Okume over several leads. Results revealed that there was still and Oveng fields is expected to continue until 2010 in order to considerable risk associated with exploration in this maintain plateau production. Plans for further infill drilling on frontier area in western waters off Côte d’Ivoire. the Ceiba field and accelerated Okume Complex development drilling will be evaluated during the year based on oil prices Congo (Brazzaville) and service costs. During 2008, as part of an active reservoir management programme on the onshore M’Boundi field, 14 production Gabon wells and 13 injection wells were drilled and water injection In 2008, production from Tullow’s Gabon assets averaged capacity was increased to 46,000 bwpd. Gross production 12,760 bopd. Activity during the year focused on the is currently over 42,000 bopd and a field redevelopment optimisation of the current producing asset base and plan is being implemented with the aim of achieving over the development of the Ebouri, Tsiengui and Obangue fields. 50,000 bopd by the end of 2009. This programme includes Net production is expected to average over 12,000 bopd for an upgrade of the water injection capacity to 200,000 bwpd 2009 with first production expected from a number of new and improvements to the gas re-injection, surface fields in 2009, offsetting natural decline. processing and power generation facilities. On the exploration front, existing 3D data from the Mauritania Tullow-operated Azobe licence is currently being At the beginning of 2008, gross production from the reprocessed and an exploration well is planned for 2010. Chinguetti field in Mauritania was under 12,000 bopd. The operated Akoum licence expired in April 2008 and A programme of three well interventions and two new Tullow completed the sale of its 18.75% interest in the infill wells was successfully completed during the year to Gryphon licence to Addax Petroleum in December 2008. increase production rates and access undrained reserves. By year end, the field was producing at rates in excess of 17,000 bopd. During 2009, production performance will be carefully monitored and analysed to evaluate if there is potential for a further drilling campaign in 2010. 30 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Two appraisal wells were drilled on the Banda discovery in Mauritania in 2008. In April the Banda North West well encountered both oil and gas pay and pressure testing and sampling indicated that the well is in communication with the original Banda discovery well 2 km away. The Banda East appraisal well was then drilled 5 km up-dip from Banda North West in October and encountered the same oil and gas contacts seen in the other wells. The seismic and well data are now being incorporated into the geological model to determine the commercial potential of the field. In February 2008, Tullow drilled the Khop-1 exploration well in Block 6 in Mauritania. Only minor oil shows were encountered and the well was abandoned. However, the well did provide important stratigraphic data pertaining to the prospective Cretaceous interval. Namibia During 2008, possible development schemes were reviewed for the Kudu gas resources offshore Namibia. A technical study on emerging offshore Compressed Natural Gas (CNG) technology was also carried out. CNG may offer an alternative development option to the previously preferred pipeline to shore plan and could provide a means of delivering gas to Tullow sponsored local football tournament, Bulissa region, Uganda. more than one regional market. Commercial analysis of the development options is being progressed with the intention of presenting a proposal to the government in 2009 in advance Cameroon of entering into negotiations with potential gas buyers. Tullow completed the sale of its interest in the offshore Ngosso licence to MOL during 2008. Tanzania Processing of the 2D seismic dataset was completed in Outlook 2008 and two prospects have been identified in the Ruvuma Following exceptional exploration and development success Basin, Sudi-1 and Mikindani-1. Tullow plans to drill its first in Ghana and Uganda in 2008, resulting in a year-end well in Tanzania, Mikindani-1, in the second half of 2009. reserves and resources upgrade of 296 million barrels, Tullow’s 2009 capital programme will primarily focus on Liberia fast-track development and high-impact exploration in Tullow continuously reviews acreage in the Equatorial these two countries. In particular, Tullow will be investing in Atlantic margins of West Africa and South America to Phase 1 of the Jubilee field development, to ensure it meets identify possible analogues to the deepwater discoveries the target of first oil in the second half of 2010 and in an in Ghana. During 2008, offshore blocks LB-15, LB-16 and exploration and appraisal programme with a combined LB-17 were targeted as having high potential. A farm-in upside resource potential of over two billion barrels. deal was concluded in January 2009 resulting in Tullow acquiring a 25% interest in all three blocks. A large 3D Given the current financial climate, investment in the survey is currently being acquired to delineate high non-operated areas of our African portfolio is expected potential prospects identified on existing 2D data. to reduce in 2009 resulting in a short-term reduction in production. However, greater investment in these areas Angola during 2010 is expected to reverse any decline in During the year, existing seismic was reprocessed and production levels. a further 600 sq km of 3D data was acquired. Further evaluation in 2009 will define the future drilling programme for offshore Block 1/06, which contains the Pitanguiera and Bananeira discoveries as well as additional prospects. Tullow Oil plc 2008 Annual Report and Accounts 31

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    Directors’ report: Business review Operations review continued Opportunities to balance the portfolio Tullow has a significant asset base in Europe, South Asia and South America. The Group has well established production in the UK and Bangladesh, and exciting high-impact exploration acreage positions in Portugal, Pakistan, French Guiana and Guyana. Tullow is targeting Jubilee-type plays across the Atlantic and has identified opportunities in South America which will form part of future campaigns. Working interest production (boepd) Reserves and resources (mmboe) 101 22% 8% 32,800 31,300 87 25,450 80 Decrease in working interest production Decrease in reserves and resources 38% 10% Contribution to Group working Contribution to Group reserves interest production and resources 06 07 08 06 07 08 Key producing assets Core area / country Producing field (Tullow %) 2008 Working interest production (boepd) Europe UK CMS Area fields (9.5% – 100%) 13,300 Thames-Hewett fields1 (50% – 100%) 6,800 South Asia Bangladesh Bangora-Lalmai (30%) 3,750 Pakistan Chachar2 (75%) 1,450 Sara/Suri (38.18%) 200 1. Tullow sold its interest in the Hewett field to Eni in December 2008. 2. Tullow is awaiting completion of the sale of this interest to Pakistan Petroleum Ltd. 32 Tullow Oil plc 2008 Annual Report and Accounts

  • Page 35

    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements United Kingdom (EDP) Netherlands (E) Europe Strong platform for growth Through its UK experience, the Group has developed significant operating capability and these skills are being deployed across the rest of the Tullow portfolio as well as providing a sound base for potential future expansion in Europe. In 2008, Tullow produced over 20,000 boepd in the UK and sold non-core assets for a total of £245 million. Looking forward, the Group has good organic growth Portugal (E) opportunities in the Netherlands and in Portugal where frontier exploration opportunities are being evaluated. * Tullow withdrew from India in early 2009. South Asia Pakistan More focused portfolio (EDP) India* (E) Bangladesh Tullow has had interests in South Asia since 1990 when (EDP) it signed its first licences in Pakistan. In 2008, the Group produced over 5,000 boepd, following a successful upgrade of its Bangora production facility in Bangladesh. In early 2009, the Group reviewed its portfolio in South Asia and decided to scale back activities. Going forward, the Group is focusing on production operations in Bangladesh, converting Pakistan operations into a non-operated venture retaining high-impact exploration acreage. Trinidad and Tobago* (E) Guyana (E) South America Suriname (E) Targeting new plays French Guiana (E) Following Tullow’s recent success in Ghana, the Group is now targeting similar stratigraphic plays in South America, which correspond to basins in the Equatorial Atlantic region. Tullow is building a strong acreage position in the region and currently has interests in Guyana, Suriname and French Guiana. The Group’s large acreage position in French Guiana has been re-worked in 2008 and several interesting Jubilee-type leads have been identified in the eastern area of the block. * Tullow withdrew from Trinidad and Tobago in early 2009. Key: E Exploration D Development P Production Tullow Oil plc 2008 Annual Report and Accounts 33

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    Directors’ report: Business review Operations review continued Rest of the World In 2008 Tullow made good progress in Europe, South Asia and South America with new fields developed, major asset sales completed and acreage acquired in a new country with high-impact exploration potential. 2008 Highlights Tullow’s Rest of the World assets remain integral to the business and comprise production, development and 25,450 boepd exploration interests in Europe and South Asia and 2008 average working interest production high-impact exploration licences in South America. In the current financial climate, Tullow has undertaken a strict £245 million capital allocation programme which will prioritise key Sale of Hewett-Bacton and CMS assets in the UK African developments in the near term. However, investment in the Rest of the World is expected to 120 mmscfd increase in 2010. Capacity at Bangora expanded in Bangladesh Europe Georgetown Block Tullow’s initial European offshore production interests 30% interest acquired in Jubilee type play offshore Guyana were acquired in 2000 through the acquisition of two gas infrastructure hubs in the UK Southern North Sea. Over the last eight years, while benefiting from strong gas Sales revenue (£ million) pricing, Tullow has grown this asset base through successful cost control, exploration, marginal field £216 million development and further acquisitions. Europe remains 311 an important core area, generating revenues of £205 million in 2008 and a high-quality exploration portfolio in the 267 Sales revenue Netherlands and Portugal. 216 19% UK During 2008, while Tullow benefited from a 40% rise in Decrease on prior year UK gas prices, average net UK production was down to 20,095 boepd, some 29% lower than in 2007. This reduction, 06 07 08 which was in line with expectations, was primarily due to the predicted natural decline in mature fields and deferral of development activities. In the Thames Area, the Wissey field was successfully brought on stream in August 2008 at a rate of 70 mmscfd and is currently producing at a rate of 25 mmscfd. The Bure North subsea development was also sanctioned with first gas targeted towards the end of 2009. Both developments improve the economics of the infrastructure and extend the life of all user fields. Glossary boepd Barrels of oil equivalent per day CMS Caister Murdoch System mmscfd Million standard cubic feet per day PSC Production Sharing Contract tcf Trillion cubic feet 34 Tullow Oil plc 2008 Annual Report and Accounts

  • Page 37

    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements In the Hewett Area, Tullow continued to seek opportunities to extract value from these mature facilities. As part of these initiatives, the Hewett field was fully de-manned in the first half of 2008, yielding significant cost savings and a major technical study to investigate the viability of gas storage was completed. Subsequently, in November 2008, Tullow concluded the sale of its entire interest in the Hewett-Bacton producing assets and terminal to Eni for a headline consideration of £210 million. Tullow has, however, retained an interest in the Carbon Capture and Storage opportunity associated with the main Hewett field and is a member of a consortium which is leading a government- sponsored project. In January 2008, the Doris prospect was drilled but was unsuccessful and was plugged and abandoned. The CMS Area fields continue to produce strongly. Technical work has identified the potential to access undepleted reservoir compartments in the Ketch field by drilling further infill wells. These wells will most likely be drilled in 2010. Two infill wells are currently drilling on the Murdoch and Boulton fields and these are expected to start producing in the second and third quarters of 2009. Detailed design work has also been carried out for the Harrison development. Sanction of the project is expected in the first half of 2009 and tendering for the platform and pipeline materials is CGG Venturer vessel prior to the start of a 2D seismic survey, offshore Portugal. ongoing. In June 2008, Tullow completed the sale of non-core CMS exploration and development assets to Venture Production for a consideration of £35 million. Netherlands Recognising the maturity and future limits in materiality to Tullow of the CMS Area, but leveraging our highly successful exploration campaigns in this region, Tullow has extended its exploration portfolio into the adjacent, relatively unexplored area of the Dutch sector. In 2008, Tullow added five blocks to its portfolio, taking the total to seven. In 2009, Tullow will focus on seismic reprocessing and interpretation to refine the prospect portfolio in preparation for a drilling Lorna Greig, geologist in the Europe asset team on a geological field trip in campaign in 2010. County Clare, Ireland. Tullow Oil plc 2008 Annual Report and Accounts 35

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    Helipad of the Transocean Labrador rig during development drilling on the Wissey field, offshore UK. Proven expertise Across all areas of the Group Tullow is organised for exploration success, which capabilities are constantly growing to meet the challenges is central to the Group’s continued growth. A Global and opportunities the Group’s exceptional exploration Exploration Leadership Team, with over 300 years of success has delivered. exploration experience, works alongside 80 geologists Key priorities are to quickly commercialise Ghana and and geophysicists across the Group. Their experience is Uganda; major projects that require significant financial leveraged through proven expertise in targeted core plays. resources. Tullow has strong commercial expertise and Similarly, management of major developments, key well-developed bank and shareholder relationships, producing assets and drilling activities is the remit of a evidenced by the ability of the Group to raise finance and very strong production and development team, whose place equity, despite the current credit environment. 36 Tullow Oil plc 2008 Annual Report and Accounts

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    Core plays Major projects Financial strength Tullow’s expertise in core plays helps Key priorities in 2009 are fast-tracking In 2009, Tullow successfully us open up new basins before the Ghana and Uganda. Phase 1 of the completed a US$2 billion financing competition. We are at the forefront Jubilee field is well under way, which and a £402 million equity placing. of unlocking value through selectively now allows us to evaluate the timing This is a significant achievement and applied and innovative technologies and plans for the next phase. In a resounding endorsement of not just that allow us to evaluate acreage, Uganda, we have assigned a dedicated the Group’s major projects, but also of build play diversity and deliver first team to deliver a commercial Tullow’s ability to successfully deliver generation discoveries. development plan for the region. the next phase of growth. Tullow Oil plc 2008 Annual Report and Accounts 37

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    Directors’ report: Business review Operations review continued Capital investment (£ million) Elsewhere in Bangladesh, Tullow participated in the 3rd £95 million Licensing Round and successfully bid for offshore Block SS-08-05. The formal award of the block by the Government 190 Capital investment of Bangladesh is expected in the first half of 2009 and, Tullow plans to commence a 2D seismic acquisition programme 131 later in the year. In Blocks 17&18 in the Bay of Bengal, a 27% 250 sq km 3D seismic survey was acquired during the year. 95 Tullow did not identify any material prospectivity on the acreage Decrease on prior year and has decided to relinquish its interest in these blocks. 06 07 08 Pakistan During 2008, Tullow decided to restructure its Pakistan business to address the ongoing security concerns and to enhance the value of the operations to the Group. Following 5,000 boepd this strategic decision, two key changes were made. In November, the operatorship of the Kohat exploration Net production from the Group’s South Asia assets. block was transferred to OGDCL, the Pakistan National Oil Company, with Tullow retaining its 40% interest. An exploration well is planned on this block in the first half of 2009. Secondly, in December, Tullow agreed the sale of its interest in the producing Chachar field to Pakistan Petroleum Ltd for US$7.5 million (£5.2 million). As a result, by year end Tullow had significantly reduced its in-country office overheads whilst retaining a significant exploration interest in Pakistan. Portugal Elsewhere in Pakistan, geological field studies and seismic Tullow has interests in three blocks in the frontier Alentejo operations commenced on the Kalchas block in September, Basin off the southwest coast of Portugal. Regional where multi-tcf surface anticlines could be the target of geological studies and seismic acquisition and interpretation a drilling campaign in 2010. A possible extension of the are nearing completion and will assist in evaluating the Kalchas seismic programme into the neighbouring Kohlu prospectivity of this Atlantic margin basin. If the evaluation and Block 28 licences will be considered during 2009. proves encouraging, the forward work programme could include additional 3D seismic acquisition and an exploration India well by 2011. 2008 was a disappointing year for Tullow in relation to its Indian operations. Three exploration wells were drilled on South Asia Block CB-ON/1 with no hydrocarbons being encountered. Tullow has had interests in South Asia for over 10 years and All three wells were plugged and abandoned. Following a currently has net production in excess of 5,000 boepd. With critical review of the drilling programme and the remaining the fast expansion of the Asian economy over the last few prospectivity in the block, Tullow has decided not to enter years, there remains a strong demand for energy in the the next exploration period and has withdrawn from the region which offers significant future growth potential. licence. During the year, significant efforts were also made Tullow’s operations in the area remain important to the to progress Tullow’s AA-ONJ/2 licence in Assam which had Group and an active review of the portfolio began during originally been applied for in 1996. However, at the end of the year to ensure the range of assets continued to deliver the year, Tullow also took the strategic decision to withdraw the best value now and in the long-term. from this licence and to fully withdraw from India, closing the Group’s Delhi office. Bangladesh In October 2008, Tullow completed Phase 2 of the Bangora South America gas field development increasing processing capacity In South America, Tullow has interests in the prospective to 120 mmscfd and production from 70 to 100 mmscfd. Guyana Basin in three adjacent countries, Guyana, Further increases are possible when the Bangora-3 well Suriname and French Guiana. This basin offers exciting has been worked over and comes on line in the second frontier exploration opportunities including geological quarter of 2009. plays analogous to the Jubilee field across the Atlantic. 38 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Senior management visiting Bangora field in Bangladesh. Chachar field in Pakistan. French Guiana Trinidad and Tobago Tullow’s drilling success in the West African Transform Extensive negotiations were held in 2008 in an attempt Margin region led to a complete re-evaluation of the to conclude the Production Sharing Contract (PSC) deepwater acreage in French Guiana during 2008 where agreements on Block 2ab and the Guayaguayare block Tullow has a 97.5% interest in the extensive (35,200 sq km) in Trinidad and Tobago. Unfortunately, an acceptable Guyane Maritime licence. In addition to the potential billion commercial solution was not reached and a decision was barrel Matamata prospect, mapped in the northwestern taken to withdraw from both licences at the end of the year. part of the block, a number of high-impact, high-risk leads have been identified in the southeast, analogous to Tullow’s Outlook Jubilee field offshore Ghana. Tullow is now planning to In Europe, the focus is on high-grading development acquire an extensive 3D seismic survey in the southeastern opportunities in the UK and completing exploration activity portion of the block in order to advance a number of known in Portugal and the Netherlands for drilling in 2010. leads to drillable prospect stage. A drilling campaign would In South Asia, we have rationalised our Pakistan portfolio then follow in 2010 or 2011. Tullow plans to commence a and continue to develop our existing Bangladesh operation. farmout programme during the first half of 2009 to reduce its capital exposure to this forthcoming programme. The Group’s South American business is looking to expand through new ventures, portfolio management, licence Guyana rounds and exploration. This activity will continue in 2009 In November 2008, Tullow enhanced its South American with key exploration campaigns planned for 2010 and 2011. portfolio through the acquisition of a 30% interest in the Georgetown Block offshore Guyana, from the YPF Group. The block covers 11,100 sq km, in water depths of 50 to 200 metres, with geological characteristics similar to French Guiana and the proven basins on the other side of the Atlantic. A 1,880 sq km 3D seismic survey was acquired during the fourth quarter of 2008 and the focus for 2009 will be the interpretation and integration of this new data with the objective of identifying exploration targets for drilling in 2010. Suriname In Suriname, Tullow has interests in the onshore Uitkijk and Coronie blocks which lie adjacent to the Tambaredjo field, the country’s main producing heavy oil field. The 2008 drilling programme commenced in December with five shallow wells drilled in the Uitkijk licence. The results are currently being reviewed and integrated into the regional database. The Uitkijk drilling programme will be followed by a five-well exploration programme on the Coronie block in early 2009. Tullow Oil plc 2008 Annual Report and Accounts 39

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    Directors’ report: Business review Finance review Further growth and financial flexibility Tullow delivered a record set of results in 2008 and in early 2009 significantly enhanced the Group’s financial flexibility with a successful equity placing and US$2 billion debt financing. Tullow has recorded record results for 2008 driven by after hedging for 2008 was US$73.6/bbl (2007: US$62.7/bbl), a strong operational performance, increased oil and an increase of 17%. Tullow’s oil production sold at an gas pricing compared with 2007 and profitable portfolio average discount of 4% to Brent Crude during 2008 management. Whilst production decreased, by 9% to (2007: 3% discount). 66,600 boepd, average price realisations increased UK gas prices in 2008 were extremely strong, returning to the by over 25%. Basic earnings per share increased to exceptional levels seen in early 2006. Realised UK gas price 30.9 pence per share (2007: 7.1 pence per share). after hedging for 2008 was 52.4p/therm (2007: 37.3p/therm), In 2008, the Group’s cash flow was enhanced by portfolio an increase of 40%. In Europe, the Group also recorded tariff management transactions with proceeds of £285.4 million. income of £10.2 million (2007: £17.5 million) from its UK Financial flexibility was then significantly improved infrastructure interests. by an equity placing in January 2009 which raised Higher commodity prices, partly offset by marginally lower £402 million and a US$2 billion debt financing was sales volumes, meant that revenue increased by 8% to secured in March 2009. £691.7 million (2007: £639.2 million). Steady production and strong commodity prices Working interest production averaged 66,600 boepd, Operating costs, depreciation and impairments 9% below 2007, primarily as a result of natural decline Underlying cash operating costs, which exclude depletion in mature fields and deferred production due to the and amortisation and movements on under/overlift, reallocation of capital to development projects and high- amounted to £143.9 million (£5.90/boe) (2007: £5.05/boe). impact exploration. Sales volumes averaged 55,000 boepd, These costs were 17% above 2007 levels, principally due representing a decrease of 12%, driven by changes in to upward pressure in oil and gas services costs and an the proportion of sales arising from Production Sharing increase in Gabonese royalty payments which are directly Contracts (PSC). linked to oil prices. On average, oil prices in 2008 were significantly above 2007 Depreciation, depletion and amortisation charges levels, although they were impacted by the global economic before impairment charges for the period amounted downturn in the second half of the year. Realised oil price to £198.4 million (£8.14/boe) (2007: £7.61/boe). Key financial metrics 2008 2007 Change Production (boepd, working interest basis) 66,600 73,100 -9% Sales volume (boepd) 55,000 62,600 -12% Realised oil price (US$/bbl) 73.6 62.7 +17% Realised gas price (p/therm) 52.4 37.3 +40% Cash operating costs per boe (£)1 5.90 5.05 +17% Operating cash flow before working capital per boe (£) 21.3 17.8 +20% Net debt (£ million)2 400 480 -16% Interest cover (times)3 17.8 10.4 +7.4 times Gearing (%)4 30 67 -37% 1. Cash operating costs are cost of sales excluding depletion, depreciation and amortisation and under/over lift movements. 2. Net debt is cash and cash equivalents less financial liabilities net of unamortised arrangement fees. 3. Interest cover is earnings before interest, tax, depreciation, amortisation charges and exploration written-off divided by net finance costs. 4. Gearing is net debt divided by net assets. 40 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Operating cash flow and capital investment (£ million) 500 £519 million 400 Tullow generated record cash flows in 2008, 9% ahead of 2007. In 2008, approximately 300 70% of our investment was allocated to exploration assets, with the balance invested 200 in production and development assets. 100 E&A 06 07 08 P&D 0 Operating cash flow The Group has also recognised a further impairment charge At 31 December 2008, the Group’s derivative instruments of £26.3 million (£1.08/boe) (2007: £0.48/boe) in respect of had a net positive mark-to-market value of £49.3 million the Chinguetti field in Mauritania and for the Chachar field (2007: negative £158.0 million). The substantial movement in Pakistan where the asset sales price was below the in the mark-to-market position during the year has mainly carrying value in the balance sheet. been caused by the significant weakening in oil price in the Administrative expenses of £43.1 million (2007: £31.6 million) second half of 2008. include an amount of £7.9 million (2007: £5.4 million) While all of the Group’s commodity derivative instruments associated with IFRS 2 – Share-based payments. The currently qualify for hedge accounting, a credit of £42.9 million increase in total general and administrative costs is also (2007: charge of £29.3 million) has been recognised in the due to the increase in the scale of our operations. In 2008, income statement for 2008. This credit largely reflects the staff numbers increased by 46% to 540 people. change in fair values of the Group’s hedging instruments attributable to time value and implied volatility and value Exploration write-off and asset value reduction being conferred to Tullow by the hedge counterparties. Exploration write-offs associated with unsuccessful 2008 exploration activities in the UK, Bangladesh, India and The Group’s hedge position as at 4 March 2009 is: Mauritania, new ventures activity and licence relinquishments totalled £62.4 million (2007: £51.1 million). Hedge position 2009 2010 2011 The Group has decided to primarily focus on fast-tracking Oil its world-class discoveries in Ghana and Uganda and Volume (bopd) 14,958 7,500 1,500 selective high-impact exploration. Tullow has therefore conducted a fundamental review of the exploration asset Current price hedge (US$/bbl) 59.21 74.69 63.89 values on its balance sheet compared with expected future Gas work programmes and the relative attractiveness of further Volume (mmscfd) 56.7 17.8 3.7 investment in these assets. In accordance with the Group’s Current price hedge (p/therm) 54.32 53.01 58.86 successful efforts accounting policy, assets have been written down to reflect this more focused approach. This review has resulted in an additional write-off of £164.3 million Gearing, financing costs and interest cover (2007: £13.1 million) in respect of interests in Mauritania, The net interest charge for the period was £43.3 million Suriname, Tanzania and Trinidad and Tobago. (2007: £45.6 million) and reflects the reduction in net debt levels during 2008 due to improved operating cash flow Tullow’s total exploration write-off and asset value reduction and the completion of portfolio management transactions, for 2008 is therefore £226.7 million (2007: £64.2 million). partially offset by increased capital expenditure. Operating profit At 31 December 2008, Tullow had net debt of £400.4 million Operating profit amounted to £299.7 million (2007: £479.5 million), while unutilised debt capacity was (2007: £189.0 million), an increase of 59%, principally due in excess of £230 million. The Group’s gearing was 30% to the higher commodity prices realised during the period, (2007: 67%) and EBITDA interest cover increased to 17.8 profits of £243.9 million in relation to portfolio management times (2007: 10.4 times). activities offset by exploration costs written-off of £226.7 million. Portfolio management During 2008, Tullow completed the disposal of a number Derivative instruments of non-core assets for proceeds of £285.4 million, with Tullow continues to undertake hedging activities as part an overall profit on disposal after tax of £243.9 million. of the ongoing management of its business risk and to In Africa, Tullow completed the sale of its 40% interest protect the availability of cash flow for reinvestment in in the Ngosso licence, offshore Cameroon, to MOL in July capital programmes that are driving business growth. 2008. In Europe, the sale of certain CMS assets to Venture Tullow Oil plc 2008 Annual Report and Accounts 41

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    Directors’ report: Business review Finance review continued Summary cash flow Tullow is currently budgeting for a total 2009 2008 £’000 capital expenditure of approximately £600 million (2008: £480 million). Investment in 2009 will be split 70% Revenue 691,673 on production and development and the remainder on Operating costs (137,487) exploration and appraisal. Tullow’s activities in Africa will Corporate expenses (35,392) comprise 85% of the anticipated capital outlay, with the Cash flow from operations 518,794 principal expenditures being in Ghana and Uganda. The Working capital movements and tax (7,997) potential impact on capital expenditure following the recent success at Tweneboa, coupled with ongoing success and Capital expenditure (460,352) further upside in Uganda, is under review. Other investing activities 288,736 Financing activities (151,732) Balance sheet Net increase in cash and cash equivalents 187,449 Total net assets at 31 December 2008 amounted to £1,309.2 million (31 December 2007: £712.7 million), with the increase principally due to the profit for the year, Production completed in June 2008 and the sale of a 51.68% currency translation adjustments and hedge movements. interest in the Hewett-Bacton complex to Eni was completed Net assets increased by £161.0 million in the year due to in November 2008. the movement of the hedge reserve in accordance with In January 2008, Tullow announced the sale of its 11% IAS 39 – Financial Instruments: Recognition and interest in the M’Boundi field to the Korea National Oil Measurement. The significant decrease in the oil price Company. Despite strenuous efforts, government approvals during the second half of the year gave rise to a net positive for the transfer of the asset were not forthcoming within a mark-to-market of £49.3 million at the year end. An reasonable timeframe and therefore it was agreed that the increase in net assets (foreign currency translation reserve) transaction could not be concluded. Tullow has retained of £222.3 million resulted from the weakening of Sterling its 11% interest in the field and will benefit from future against the US Dollar from US$2.00 to US$1.45 in the year. operational cash flows as well as debt capacity as the As a consequence, underlying US Dollar denominated asset will be re-incorporated into the reserves-based assets increased in Sterling value terms at the year end. lending facility. Accounting policies Taxation UK listed companies are required to comply with the The tax charge of £73.1 million (2007: £61.6 million) relates European regulation to report consolidated statements to the Group’s North Sea, Gabon, Equatorial Guinea and that conform to International Financial Reporting Standards Mauritanian activities and represents 24% of the Group’s (IFRS). The Group’s significant accounting policies and profit before tax (2007: 54%). This low effective tax rate details of the significant accounting judgements and critical is principally as a result of asset disposals that were not accounting estimates are disclosed within the notes to the subject to a tax charge and oil revenues under PSCs where financial statements on pages 85 to 89. The Group has not higher prices result in lower entitlement volumes rather made any material changes to its accounting policies in the than higher taxes. year ended 31 December 2008. Dividend Equity placing Due to the requirement for major capital investment during Tullow successfully placed 66,938,141 new ordinary shares 2009, particularly in Ghana and Uganda, and in light of with institutional investors at a price of 600 pence per share the current economic uncertainty the Board feels that it on 21 January 2009. Based on the placing price, the gross is prudent to maintain the final dividend at the 2007 level. proceeds of the placing amounted to £402 million. The Consequently the Board has proposed a final dividend of placing shares represent an increase of approximately 4.0 pence per share (2007: 4.0 pence per share). This brings 9.1% in the Group’s existing share issued share capital. the total payout in respect of 2008 to 6.0 pence per share (2007: 6.0 pence per share). The dividend will be paid on Debt funding 21 May 2009 to shareholders on the register on 17 April 2009. In March 2009 Tullow finalised arrangements for US$2 billion (£1.38 billion) of new debt, structured in the form of secured Record operating cash flow; focused capital investment reserve-based lending facilities with a seven-year term. Increased commodity prices led to record operating cash A total of 13 commercial banks have committed to facilities flow before working capital movements of £518.8 million of US$1.885 billion (£1.3 billion) with the remaining debt of (2007: £473.8 million), 9% ahead of 2007. This cash flow US$115 million (£80 million) being provided by the IFC in a facilitated 2008 capital investment of £460.4 million in separate facility. The facilities have a final repayment date exploration and development activities, payment of dividends, of December 2015 and the margin on the new facilities, servicing of debt facilities and a reduction of over £60 million depending on the amount drawn, is up to 3.75%. Tullow will in net debt. use the proceeds from the facilities to repay existing debt 42 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements 2009 Capital expenditure (£ million) The current budget for 2009 capital expenditure is approximately £600 million. Activity in Africa is expected to account for 85%. Total Other Development, Europe Producing fields, Africa High-impact exploration, Ghana Lake Albert Rift Basin, Uganda Jubilee field, Ghana 0 100 200 300 400 500 600 700 E&A P&D facilities and to finance the future capital expenditure in 18 countries, presented at 17 conferences and hosted requirements of the Group, particularly in Ghana and investors and sell-side analysts events in Uganda and the Uganda. Tullow received strong support from its banking UK. There was significant positive news flow, particularly syndicate and it is a very significant achievement to complete from Ghana and Uganda, and despite volatile equity a US$2 billion (£1.38 billion) financing in the current markets there was positive TSR of 2% in 2008, the 9th best economic climate. performance in the FTSE 100 index and in the top quintile of Tullow’s comparator group. Liquidity risk management and going concern The Group closely monitors and manages its liquidity risk. Financial strategy and outlook Cash forecasts are regularly produced and sensitivities run Whilst the global economic environment is extremely for different scenarios including, but not limited to, changes challenging, the Group’s successful equity placing and in commodity prices and different production rates from the recent debt financing means that Tullow has a strong Group’s portfolio of producing fields. The Group normally balance sheet and significant financial flexibility. seeks to ensure that it has a minimum ongoing capacity of In 2009, the Group will continue to allocate its capital to £200 million for a period of at least 12 months to safeguard projects that provide the opportunity for the highest return the Group’s ability to continue as a going concern. for shareholders and seek to augment underlying cash flow Following the placing announced in January 2009 and through continued cost and capital management and securing the US$2 billion financing in March 2009, the ongoing portfolio activity. The outlook for the Group is very Group’s forecasts and projections show that there is positive, supported by disciplined financial management significant capacity and financial flexibility for the 12 months and significant leverage to higher oil prices. from the date of the 2008 Annual Report and Accounts. Although there is considerable economic uncertainty at the present time, after taking account of the above, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the 2008 Annual Report and Accounts. Capital market relationships Tullow continues to place great emphasis on achieving top quartile and best practice performance in investor relations and capital market communications. During the year, senior management regularly meet with investors, analysts and banks from the Group’s lending syndicate. In 2008, senior management participated in over 200 investor meetings Tullow Oil plc 2008 Annual Report and Accounts 43

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    Directors’ report: Business review Risk management and risk factors 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 Ian Springett, Chief Financial Officer, has responsibility for strategic objectives and protecting its people and reputation. managing liquidity and developing the Group’s longer-term Tullow manages and mitigates risk by maintaining a balanced financing strategy. He is also responsible for external risks portfolio, compliance with the terms of its licences, the such as cost inflation and oil and gas price volatility and application of policies and procedures appropriate for an internally focuses on ensuring the Group’s processes and international oil and gas company of its size and scale, and systems develop in line with the increased scale of Tullow. through the recruitment and retention of skilled personnel Graham Martin, General Counsel and Company Secretary, throughout its business. is responsible for legal and governance issues, and along The Group has a systematic approach to risk identification with Aidan Heavey, he is also tasked with developing and and management combining both a ‘top-down’ (driven by maintaining successful relationships with governments the Board) and a ‘bottom-up’ (originating from the business and developing the Group’s political risk profiling process. units and operations) review and approval process. In each area the Executive Directors are supported by members of the senior management team or managers Detailed assessment in 2008 with key functional responsibilities. The Board completed a detailed update of strategy during 2008 and a key component of this process was an assessment Performance reporting processes of risks critical to strategic delivery. This assessment was Tullow undertakes a detailed annual business planning completed with each Board member and senior managers and budget process. This includes annual objectives and from production, exploration and finance. targets covering production, development, exploration, EHS One of the main outcomes is that responsibility for and financial performance, which are set at a business unit managing and monitoring key risks has been assigned and asset level with key risks to the delivery of these targets to individual Executive Directors and senior managers. identified. Actual performance is reported on a monthly basis with narrative explaining key variances. On a quarterly Other key outcomes are that risk management is now basis senior management assess the Group’s performance integrated with the Group’s performance management through a series of reviews with business units. These tools and will be reported on a quarterly basis to the Board. reviews include an assessment of risks to delivery of targets and performance, and measures being implemented to Assigned responsibility manage these potential risks. While the Tullow Board and Executives have collective responsibility for the management of risk, the Group has Dedicated major project management Board sponsors with responsibility for key risks and these Dedicated teams have been established to manage are outlined here. developments in Ghana and Uganda. Project milestones Aidan Heavey, Chief Executive Officer, has responsibility have been established with progress reported on an along with the executive team for strategic delivery ongoing basis. Risk identification, mitigation and monitoring consistent with shareholders’ expectations. are completed as part of the day-to-day management of the developments. Detailed risk analysis is completed with Cost and capital discipline is the responsibility of Paul input from partners as appropriate to identify key risks to McDade, Chief Operating Officer and Angus McCoss, project costs and timetable delivery. Plans to mitigate these Exploration Director. 70% of 2009 capital expenditure risks are developed, monitored and reported regularly by is allocated to P&D and 30% to E&A activities. Paul, with the project teams to the Executives and the Board. the Head of EHS, Graham Brunton, has responsibility for ensuring the Group achieves its EHS targets and maintains Appropriate policies and procedures the security of its employees, contractors and operations. Detailed procedures support risk management across Tullow In addition, P&D has direct operational responsibility for and the application and consistency of these procedures is the specific targets to achieve the fast-track development regularly reviewed by the Group’s Internal Audit function. of major projects in Ghana and Uganda. These procedures include: 44 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Risk management at Tullow Tullow Oil plc Board Executive Directors Audit Committee Senior Management Team Integrated strategic, business and operational risk management Identification Evaluation Mitigation Reporting KPIs Business Units Project Teams Corporate Functions • Delegation of authority covering commitment and approval • Exploration business procedures integrate technical, limits for work programmes, activities and expenditure; portfolio and financial controls with associated assurance and approval processes. • Integrated Management Systems which set minimum business standards to be used throughout Tullow Further, Tullow has successfully applied for external including risk management guidelines; certification of critical processes such as International Organization for Standardization (ISO) 14001 certification • Business ethics includes a code of business conduct for environmental management in the UK, Dublin, Cape and ethics and integrity and whistleblowing policies; Town, Bangladesh, Pakistan and Mauritania. The review • Human resource policies establish a consistent set of process for this standard involves an assessment of values and standards for managing employees and the management of material risks and business and contractors throughout the Group; operational controls employed to mitigate such risks. • Contract and procurement detail procedures for tendering, Tullow groups risk into strategic, financial, operational evaluation, selection and award of contracts; and and external risks. Risks identified are closely aligned with the Group’s KPIs, as set out on page 18 to 19 of this report. Tullow Oil plc 2008 Annual Report and Accounts 45

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    Directors’ report: Business review Risk management and risk factors continued Risk analysis outlining key risks facing Tullow together with their potential impact and the mitigation strategies developed is contained below. Strategic risk Impact – Ineffective or poorly executed strategy fails to create shareholder value or fails to meet shareholder expectations. Risk Mitigation Strategy fails to meet Strategy focused on delivering Ghana and Uganda developments and selective shareholder expectations high-impact exploration programme. Effective communication with all stakeholders based on uniform, open and transparent dialogue. Ineffective capital allocation Consistent investment appraisal through application of agreed criteria with ranking of opportunities validated by executive management. Material acquisitions and disposals and new country entry require Board approval. Loss of key staff and Remuneration policies to attract and retain staff, staff appraisal, specific development succession planning and training policies implemented. Board succession plan to be reviewed in 2009. Financial risk Impact – Asset performance and excessive leverage results in the Group being unable to meet its financial obligations. Risk Mitigation Insufficient liquidity, Prudent approach to debt and equity balance maintained through refinancing and equity inappropriate placing. Regular Board review and approval for financing options. Short- and long-term financing strategy cash forecasts reported to senior management and Board monthly. Inadequate or Hedging strategy agreed by the Board utilises a mix of physical and derivative products excessive hedging appropriate to Tullow’s size and production base. Hedging activity is reported to the Board monthly and accounting reviewed by external audit. Underperforming assets Monthly asset financial and operational performance reporting and KPI measures established. Detailed senior management review completed quarterly with business unit teams. Active portfolio management and review of carrying values. Cost and capital discipline Comprehensive annual budgeting process covering all expenditure approved by the Board. Executive management approval required for major categories of expenditure effectively managing capital allocation. Monthly reporting vs budget with variance analysis. Uninsured events Comprehensive insurance programme approved annually with business interruption cover for key producing assets. 46 Tullow Oil plc 2008 Annual Report and Accounts

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    Group overview Directors’ report: Business review Directors’ report: Corporate governance Financial statements Operational risk Impact – Operational event impacting staff, contractors, communities or the environment leading to loss of reputation and/or revenue. Risk Mitigation EHS EHS performance standards set and monitored regularly across the Group through KPI reporting. EHS management system implemented. Security incident Integrated Management System covers day-to-day operational risks. Crisis management system implemented. Key development failure Technical, financial and Board approval for all projects, dedicated project teams established. Risk evaluation and progress reporting initiated for all projects. Project milestone KPI’s established for Ghana and Uganda. Ineffective management Policies and procedures developed for all significant business processes appropriate processes / increased scale for Tullow’s size and scale. Application validated through management and internal audit of business review. Failure to secure Rigorous contracting procedures and competitive tendering. Major contracts require equipment, services senior management and partner approval. and resources Corruption or Consistent ethical standards established and applied through code of business conduct reputation risk and contract and procurement procedures. Corporate and Social Social and community programmes overseen by CSR Committee, policies established Responsibility and regular reporting of progress and financial commitment implemented. Sustained exploration Exploration process validates programmes prior to Board approval, KPI measuring failure success of exploration spend reported monthly to Board. External risk Impact – The overall external political, industry or market environment may negatively impact on the Group’s ability to independently manage and grow its business. Risk Mitigation Political risk and Developing and maintaining successful relationships with governments fiscal change and communities. Lack of control Joint venturing with partners and governments. Enforceability of licence and of key assets production agreements. Corporate governance Regular review of compliance requirements with periodic Board reporting. failings Oil and gas price volatility Hedging strategy agreed by Board, monthly reporting of hedging activity. Hostile acquisition Robust defence strategies against hostile acquisitions. Effective investor engagement and ongoing communications programmes. Industry cost inflation Rigorous contracting procedures and competitive tendering required for all significant expenditures. Tullow Oil plc 2008 Annual Report and Accounts 47

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    Directors’ report: Business review Tullow people Our people deliver At Tullow we believe that people should be allowed to play to their strengths. Our culture is based on giving individuals the freedom to operate and the skills to perform in an entrepreneurial environment that balances autonomy and accountability. How we’ve progressed Talent development Our focus in this area is on delivering development and 46% training throughout the Group so that each employee Increase in staff globally in 2008 can reach their full potential. In our fast-growing business we must ensure all our staff – at every level – are fully 45 equipped to do their job. We identify leaders and managers of the future to ensure they have the skills they need to Ghanaians work for Tullow, building in-country capability contribute to our continued success. Every employee, new or experienced, has the opportunity to grow and develop. 93% Of our employees would recommend Tullow as a good Performance management employer to a friend Our performance management process is a key tool in maintaining a high performing team. We have a common Organised for growth process of managing performance and setting challenging New senior management team structure goals for the business with all locations participating. This creates an environment where leaders and staff give open and honest feedback with the aim of achieving continuous improvement in all that we do. To expand our organisational effectiveness we enhanced our HR capability with the appointment of a Chief HR Reward and recognition Officer, Group Talent Manager and Group Reward Manager, We conduct salary benchmarking surveys to ensure that providing essential support to a growing business. We have we know what competitors are doing in terms of salaries also developed and rolled out a Group-wide HR strategy. and benefits. Our reward packages are highly competitive in the external marketplace and relative to our peer group. Culture and engagement Every Tullow employee has a stake in the business and Our culture is entrepreneurial and innovative. We provide its success through share options. Our performance a creative environment which encourages taking on bonus arrangements are designed to reward the best challenges and rewards performance. As we grow it performance, both corporate and individual. These are is important that we maintain and foster the unique open and transparent, making a direct link between good characteristics that have supported our growth and performance and reward. development to date. As a result, we continue to articulate and link the Group’s Organised for growth strategic aims, objectives, ways of working and values A new management structure was formed in 2008. The across Tullow. In 2008, we rolled out Tullow’s strong vision senior management team is responsible for delivering across the Group and enhanced our induction processes. the annual budget and plan and ensuring we are properly Maintaining strong levels of engagement is vital to resourced to do so. This new structure serves as an employee retention and in 2009, we will undertake a global important conduit of information to Executive Directors staff survey to test engagement across Tullow. Highlights and to the functional and operational teams throughout from the 2008 surveys were: 81% of employees felt valued; the business. This in turn helps improve internal 95% said they were proud to work for us; and 93% would communications, integrates decision-making and builds recommend Tullow to their friends as a good employer. organisational effectiveness. Go online to: www.tullowoil.com/our people, going live summer 2009 48 Tullow Oil plc 2008 Annual Report and Accounts

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