Photo by Justin Dralaze Ziras/Reuters TV
British oil firm Tullow Oil plc (Tullow) has Monday announced that it has agreed a substantial farm-down of its assets in Uganda to Total E&P Uganda B.V. (Total).
The news comes hours before Uganda’s Parliament investigates the much anticipated debate on the now controversial bonus payments to selected government officials after recovery of Capital Gains Tax from Tullow.
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In a statement, Tullow said they had sold for a total of USD900 million, but said it has retained exposure to the project by retaining an equity interest.
Tullow Oil will get USD100 million in cash upfront but will have to wait for the Lake Albert development project to progress before receiving any further funds from Total. Tullow Oil will receive USD50 million once a final investment decision has been made and another USD50 million once the project has produced its first oil.
The other USD700 million will be paid as a deferred consideration. Tullow said the agreement, effective from the start of 2017, includes the amount to be reimbursed by Total for the portion of costs incurred by Tullow during past exploration and development work.
Tullow has agreed to sell 21.57% of its 33.33% stake in exploration areas 1, 1A, 2 and 3A to Total. The London-listed firm retains an 11.76% stake in the project and said the deferred consideration will be used to fund the company’s share of the costs of the upstream development project and the associated export pipeline project.
Tullow’s stake will fall to 10% once the government of Uganda formally exercises its right to back-in to the project, Tullow said.
The Lake Albert development project is expected to produce 230,000 barrels of oil per day at its peak.
“Development plans were approved by the government in August 2016, which Tullow expects will require USD5.20 billion gross of upstream capital to develop the first 1.2 billion barrels of oil with USD3.00 billion expected to be required to reach first oil around three years after final investment decision,” said Tullow.
“The government of Uganda has agreed an export route through Tanzania, and the current estimate for the pipeline capital cost is around USD3.50 billion,” Tullow added.
The pipeline is expected to be funded through a combination of debt and equity, the company said. Tullow will be responsible for carrying approximately USD1.70 billion worth of costs for the government of Uganda.
Tullow said it expects to book a pre-tax write-off of USD400 million in 2016 as a result of the deal.
“Completion of this transaction is subject to certain conditions, including the approval of the government of Uganda. Once this transaction has completed, Tullow will cease to be an operator in Uganda but will retain a presence in-country to manage its non-operated position,” the company said.
Tullow Oil Chief Executive Aidan Heavey said the deal will increase the likelihood of a final investment decision being made in 2017 and for first oil to be poured by the end of 2020.
“I am particularly pleased that Tullow’s long-term commitment to and presence in Uganda is guaranteed by this transaction and that we will remain an active investor in Uganda’s oil and gas sector. The deal will secure future cash flow for the group from one of the industry’s few truly low cost development projects without any additional cash requirements expected,” Heavey said.
Tullow shares were trading 4.8% higher on Monday following the announcement, at 340.30 pence per share.
