Tullow Oil Signs New Agreement with TOTAL for Sale of Ugandan Assets
LSE-listed Tullow Oil Plc announced on Thursday that it is has entered into a new agreement with French oil major TOTAL SA to sell its entire 33.33% stake in the Lake Albert project in Uganda, for a cash consideration of US$575 million plus certain additional contingent payments. TOTAL currently holds a 33.33% interest in the project, with Chinese state-owned oil company CNOOC Ltd. holding the remaining stake.
Previously, in January 2017, Tullow had entered into an agreement to transfer 21.57% of its 33.33% interest in the project to TOTAL, for a total consideration of US$900 million. Project partner CNOOC Ltd. had then exercised its pre-emption rights under the Joint Operating Agreement to acquire 50% of the 21.57% interest (i.e. 10.785%) in the project, on the same terms as had been agreed to between Tullow Oil and TOTAL. However, the project partners and the Government of Uganda were subsequently unable to agree on certain aspects of the tax treatment of the transaction.
Under the terms of the revised deal, TOTAL will acquire Tullow’s entire existing 33.33% interest in each of the Lake Albert project licenses (Blocks 1, 1A, 2 and 3A), as well as the proposed East African Crude Oil Pipeline System. The transaction consideration includes an initial payment of US$500 million at the closing and another tranche of US$75 million to be paid when a final investment decision (FID) is made on the project. In addition, Tullow will also receive certain conditional payments if Brent crude prices rise above US$62 per barrel.
The “transaction marks first step in portfolio management programme to raise over US$1 billion,” Tullow said in a statement while adding the proceeds will be used to reduce debt and strengthening its balance sheet. Expressing his satisfaction over the signing of deal, TOTAL Chairman & CEO Patrick Pouyanne stated that “We are pleased to announce that a new agreement has been reached with Tullow for less than US$2 a barrel in line with our strategy of acquiring long-term resources at low cost, and that we have an agreement with the Uganda government on the fiscal framework.”
The closing of the transaction remains subject to customary regulatory and government approvals, the approval of Tullow’s shareholders, and to CNOOC’s right to exercise pre-emption on half of the stake being sold by Tullow.