140Tullow Oil plc 2011 Annual Report and AccountsNotes to the Group financial statements continued Year ended 31 December 2011 Note 19. Financial liabilities continued The Group monitors capital on the basis of the net debt ratio, that is, the ratio of net debt to net debt plus equity. Net debt is calculated as gross debt, as shown in the balance sheet, less cash and cash equivalents. 2011 $m 2010$m2009$mExternal borrowings 3,161.2 2,281.21,396.1Less cash and cash equivalents (307.1) (338.3)(252.2) Net debt 2,854.1 1,942.91,143.9Equity 4,766.0 3,903.42,448.5 Net debt ratio 60% 50%47%The movement from 2010 is attributable to higher external borrowings during 2011, principally as a result of the Group's $2,057.5 million investment in development, appraisal and exploration activities and acquisitions which is partially offset by operating cash flows. Interest rate risk The interest rate profile of the Group's financial assets and liabilities, excluding trade and other receivables and trade and other payables, at 31 December 2011 was as follows: US$ $mEuro$mStg $m Other $mTotal$mCash at bank at floating interest rate 138.9 5.2 38.5 21.3 203.9 Cash at bank on which no interest is received 99.5 0.6 0.5 2.6 103.2 Fixed rate debt (291.6)-- -(291.6)Floating rate debt (2,624.1) - (160.2) - (2,784.3) (2,677.3) 5.8 (121.2) 23.9 (2,768.8)The profile at 31 December 2010 for comparison purposes was as follows: US$ $mEuro$mStg $m Other $mTotal$mCash at bank at floating interest rate 224.55.718.7 12.0260.9Cash at bank on which no interest is received 74.80.40.3 1.977.4Fixed rate debt (386.4)-(158.4) -(544.8)Floating rate debt (1,655.0)-- -(1,655.0) (1,742.1)6.1(139.4) 13.9(1,861.5)The profile at 31 December 2009 for comparison purposes was as follows: US$ $mEuro$mStg $m Other $mTotal$mCash at bank at floating interest rate 34.41.0194.9 9.7240.0Cash at bank on which no interest is received --11.4 0.812.2Fixed rate debt --(544.8) -(544.8)Floating rate debt (58.9)-(710.9) -(769.8) (24.5)1.0(1,049.4) 10.5(1,062.4)Floating rate debt comprises bank borrowings at interest rates fixed in advance from overnight to three months at rates determined by US dollar LIBOR and sterling LIBOR. Fixed rate debt comprises bank borrowings at interest rates fixed in advance for periods greater than three months or bank borrowings where the interest rate has been fixed through interest rate hedging.

141www.tullowoil.comFINANCIAL STATEMENTS5 The $3.5 billion Reserves Based Lending Facility incurs interest on outstanding debt at sterling or US dollar LIBOR plus an applicable margin. The outstanding debt is repayable in variable amounts (determined semi-annually) over the period to 31 December 2015, or such time as is determined by reference to the remaining reserves of the assets, whichever is earlier. The $650 million Revolving Credit Facility is repayable in full on 31 December 2014. The facility incurs interest on outstanding debt at US dollar LIBOR plus an applicable margin. At the end of December 2011, the headroom under the two facilities amounted to $826 million; $176 million under the $3.5 billion Reserves Based Lending Facility and $650 million under the Revolving Credit Facility. At the end of December 2010, the headroom under the two facilities amounted to $685 million; $175 million under the $2.5 billion Reserves Based Lending Facility and $510 million under the Revolving Credit Facility. At the end of December 2009, the headroom under the two facilities was $620 million; $370 million under the $2 billion Reserves Based Lending Facility and $250 million under the Revolving Corporate Facility. The Group is exposed to floating rate interest rate risk as entities in the Group borrow funds at floating interest rates. The Group hedges its floating rate interest rate exposure on an ongoing basis through the use of interest rate swaps. The mark-to-market position of the Group's interest rate portfolio as at 31 December 2011 is $7.2 million out of the money (2010: $13.6 million and 2009: $8.9 million out of the money). The interest rate hedges are included in the fixed rate debt in the above table. Foreign currency risk Wherever possible, the Group conducts and manages its business in sterling (UK) and US dollars (all other countries), the operating currencies of the industry in the areas in which it operates. The Group's borrowing facilities are also denominated in sterling and US dollars, which further assists in foreign currency risk management. From time to time the Group undertakes certain transactions denominated in foreign currencies. These exposures are managed by executing foreign currency financial derivatives, typically to manage exposures arising on corporate transactions such as acquisitions and disposals. There were no foreign currency financial derivatives in place at the 2011 year end (2010: nil). Cash balances are held in other currencies to meet immediate operating and administrative expenses or to comply with local currency regulations. As at 31 December 2011, the only material monetary assets or liabilities of the Group that were not denominated in the functional currency of the respective subsidiaries involved were £106.0 million ($163.8 million) cash drawings under the Group's borrowing facilities (2010: £106.0 million and 2009: $1,337.0 million). The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are net liabilities of $163.8 million (2010: net liabilities of $164.0 million and 2009: net liabilities of $1,337.0 million). Foreign currency sensitivity analysis The Group is mainly exposed to fluctuations in the US dollar. The Group measures its market risk exposure by running various sensitivity analyses including 20% favourable and adverse changes in the key variables. The sensitivity analyses include only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 20% change in foreign currency rates. As at 31 December 2011, a 20% increase in foreign exchange rates against the functional currencies of entities in the Group would have resulted in a decrease in foreign currency denominated liabilities and equity of $27.3 million (2010: $27.3 million and 2009: $226.7 million) and a 20% decrease in foreign exchange rates against the functional currencies of entities in the Group would have resulted in an increase in foreign currency denominated liabilities and equity of $32.8 million (2010: $32.8 million and 2009 $339.9 million).