Our rapid growth brings many opportunities but also new challenges. Effective risk management is a critical part of our strategy, business objectives and day to day activities.

Clear risk identification

The table below sets out the key risks facing Tullow, their potential impact and mitigation strategies developed. Risks are grouped into four main categories: strategic; financial; operational; and external. Effective risk management is critical to achieving our strategic objectives and protecting our people and reputation. Tullow manages and mitigates its risks by maintaining a balanced portfolio, through compliance with the terms of its licences and application of policies and procedures appropriate for an international oil and gas company of its size and scale and through the recruitment and retention of skilled personnel throughout its business.

Comprehensive risk management systems

Tullow has a systematic approach to risk identification and management and undertakes both ‘top-down’ (driven by the Board) and ‘bottom-up’ (originating from the business units and operations) processes facilitated by the Group’s Internal Audit Function under the ultimate supervision of the Audit Committee. The Board, through the Audit Committee, completed a review of internal controls and risk management. No significant gaps or weaknesses were identified as part of the 2007 review.

Clear targets and responsibility

The Board’s strategic risk identification process feeds into the annual strategy review as part of the overall annual planning cycle. Annual objectives and targets covering production, development and exploration are established for each business unit with the identification, management and reporting of risk as an integral part of the process. Tullow recognises that risk is inherent across its operations, and all activities with a potential corporate or business impact are subject to an appropriate review to ensure that risks can be mitigated and controlled.

Appropriate policies and procedures

Detailed procedures have been developed to support risk management across the activities of the Group and the application and consistency of these procedures is regularly reviewed by the Group’s Internal Audit function. In addition the Group has also successfully applied for external certification of critical processes such as International Standards Organisation (ISO) 14001 certification for environmental management in the UK, Ireland, South Africa and Bangladesh and ISO 9001 quality certification for our UK gas receiving and processing terminal. The review process for each standard involves an assessment of the management of material risks and business and operational controls employed to mitigate such risks.

The Directors have ultimate responsibility for the effectiveness of the Group’s risk management activities and internal control processes. Any system of internal control can provide only reasonable, and not absolute, assurance that material financial irregularities will be detected or that the risk of failure to achieve business objectives is eliminated. The Board’s objective is to ensure Tullow has appropriate systems in place for the identification and management of risks.