Board performance

The growth that Tullow has experienced, in recent years, allied to the extremely dynamic nature of the oil and gas exploration and production business, means that the Group has changed significantly over the period since I became Chairman in 2000. At that time, Tullow was an Irish registered company with 99 employees, producing 2,800 bopd and active in fewer than 10 countries worldwide. We had 5,000 shareholders and the total capital investment for the year was £16 million. The year-end oil price was $22.75.

While the business has been transformed on a number of occasions since, the overall objective of the Board remains unchanged — this is to provide strategic leadership, guidance and perspective to the business on behalf of shareholders. In doing this, the Board must ensure that the risks and rewards of the business are properly managed through different phases of the industry cycle, assess the most appropriate balance between organic and acquisition-led growth and constantly evaluate and challenge strategy to ensure it remains appropriate and relevant to the Group’s business as it becomes progressively larger and more complex.

In practice, this governance and stewardship obligation requires individual Directors and the Board to regularly evaluate our performance and identify areas where improvements can be made or new opportunities exist. It also requires Directors to maintain a high degree of awareness of the wider industry environment and the potential impact on Tullow of the actions of peers and competitors.

The majority of Tullow Board business is conducted through regular meetings (there were ten Board meetings during 2007) with other matters also dealt with by the Audit, Nominations and Remuneration Committees. In addition there is frequent dialogue between the Executive Directors and the non-executive Directors between meetings.The full Corporate Governance Statement presents a review of how the Board and its Committees operate, the nature of the work they undertake and their responsibilities. Ahead of that, however, I would like to provide a more personal overview of activities during 2007.

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Audit Committee

The increasing scale and complexity of Tullow’s business, allied to the continual evolution of Accounting Standards and corporate reporting requirements means that an effective Audit Committee is an essential part of our corporate governance.

The Tullow Audit Committee has a wide-ranging role, and in addition to normal meetings with external auditors also reviews the Group’s internal audit programme, risk management processes, internal control environment and whistle-blowing provisions. During 2008, the Committee will meet the Group’s independent reserve auditors, the Group’s Chief Information Officer, Head of Tax and Well Engineering Manager. The Audit Committee is now chaired by David Williams, who has over 30 years’ financial experience, most recently as Finance Director of Bunzl plc from 1992 to 2006. David is also a member of a number of other audit committees and his skills and experience are already proving invaluable to the Committee and Executive of the business.

Nominations Committee

The role of the Nominations Committee is critical in ensuring that Tullow’s Board composition and balance supports both our business ambitions and best practice in the area of corporate governance. Following the retirement of Rohan Courtney at the end of 2007, the Committee is currently active in seeking an additional non-executive Director. Steven McTiernan was appointed to the role of Senior Independent Director following Rohan’s retirement.

Remuneration Committee

The principal objective of the Remuneration Committee is to develop and maintain a remuneration strategy that ensures Executive Directors and senior management are rewarded in a manner that is aligned with the long-term interests of shareholders. This requires the Committee to set base salaries at a competitive level, agree targets and objectives for annual bonus schemes and establish longer-term equity based incentive plans, which are designed to allow staff to share in the Group’s ongoing growth. Typically, these schemes will have performance criteria based on Tullow’s absolute performance and also relative performance against a group or index of peer companies active in similar regions or of equivalent scale to Tullow.

During 2007, the Committee undertook a review of the components of executive remuneration which is reported more fully in the Directors’ Remuneration Report. Linked to the review, shareholder approval is being sought at the AGM to changes to the Performance Share Plan. I believe the overall changes to Tullow’s executive remuneration arrangements will ensure that we assess our results and performance against the most appropriate comparators, and that the Executive Directors and senior management will continue to be properly motivated and aligned with shareholders’ interests.

The Remuneration Committee is now chaired by Clare Spottiswoode.

Board performance and development

One of the most important roles of any Board is to provide strategic guidance and perspective over and above the day to day operations of the business. As Tullow has grown, the role and composition of our Board has changed significantly with both new Executive and non-executive appointments. During 2007, the annual Board performance review was conducted with the assistance of PricewaterhouseCoopers LLP. The objective of the review, as well as evaluating Board and individual performance, was to help the Board to set its own objectives and strategy for the future. These range from simple procedural and logistical objectives to longer-term themes such as succession planning, ongoing professional development for Directors and key feedback points for individual Directors to enhance the overall function of the Board. Personally, I felt the process was immensely helpful in assisting the Board to reflect on the very positive changes in the Group over recent years and prepare for future opportunities and challenges that our business will face.

Planning for the future

We are committed as a Board to maintaining an open and transparent relationship with shareholders through our Annual Report, website, market announcements, Investor Relations programme and Annual General Meeting. We always welcome shareholder feedback and if you have any comments or observations about this report or our business in general, I would urge you to contact me by email at: chairman@tullowoil.com or in person at our AGM on 14 May 2008.

Pat Plunkett
Chairman

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