Tullow Oil plc (Tullow) has announced it will cease to be a key oil operator in Uganda and that it has agreed a substantial farm-down of its assets to Total E&P Uganda B.V. (Total).
In a press statement released Monday, Tullow said that once the $900m deal is approved by government, they will only retain a presence in-country to manage its non-operated position.
“A Sale and Purchase Agreement with an effective date of 1 January 2017 has been signed in which Tullow has agreed to transfer 21.57% of its 33.33% interests in Exploration Areas 1, 1A, 2 and 3A in Uganda to Total for a total consideration of $900 million,” Tullow said in its statement.
The agreement, Tullow said, will allow the company to retain an 11.76% interest in the upstream and pipeline, which would reduce to 10% when the Government of Uganda formally exercises its right to back-in.
“Today’s agreement will allow the Lake Albert Development to move ahead swiftly, increasing the likelihood of FID in 2017 and First Oil by the end of 2020. I am particularly pleased that Tullow’s long-term commitment to and presence in Uganda is guaranteed by this transaction and that we will remain an active investor in Uganda’s oil and gas sector” said Aidan Heavey, Tullow Chief Executive officer.
” The deal will secure future cash flow for the Group from one of the industry’s few truly low cost development projects without any additional cash requirements expected. We will work closely with the Government of Uganda, its associated agencies and with Total and CNOOC to move this transaction forward as smoothly as possible over the coming months.”
Total confirm deal
Total also released a statement confirming the deal
“Following the agreement on the Tanzanian export pipeline route, this transaction gives Total a leadership position to move this project efficiently toward FID in the current attractive cost environment, while providing strong alignment and a pragmatic financing scheme for our partner Tullow,” said Patrick Pouyanné, Total Chairman and CEO.
“Our increased share in the Lake Albert project will bring significant value to Total and fits with our strategy of acquiring resources for less than 3$/b with upside potential.”
Under the terms of the deal, Total will acquire 21.57% out of Tullow’s existing 33.33% stake in all of the Lake Albert project licenses EA1, EA1A, EA2 and EA3A. Total, which is already operator of licenses EA1 and EA1A, will in addition take over operatorship from Tullow of license EA2, enabling significant efficiency gains and synergies.
— Javier Blas (@JavierBlas2) January 9, 2017
According to Tullow, the total consideration for the transaction is structured in two ways.
First, $200 million in cash consisting of $100 million on completion of the transaction and $50 million at both Final Investment Decision and First Oil.
Second , $700 million in deferred consideration which will be used by Tullow to fund the company’s share of the costs of the upstream development project and the associated export pipeline project.
“This agreement is based on the transfer of licence interests from Tullow to Total in exchange for cash and deferred consideration to be paid as and when the Lake Albert Development Project reaches a series of key milestones and represents a reimbursement by Total of a portion of Tullow’s past exploration and development cost,” the statement said.
The statement said that completion of this transaction is subject to certain conditions, including the approval of the Government of Uganda. Once completed, Tullow will cease to be an operator in Uganda but will retain a presence in-country to manage its non-operated position.
The Lake Albert Development Project is a major development “which expects to achieve around 230,000 bopd when it reaches plateau,” according to Tullow.
“Development Plans were approved by the Government in August 2016 which Tullow expects will require $5.2 billion gross of upstream capex to develop the first 1.2 billion barrels of oil with $3 billion expected to be required to reach First Oil around three years after FID.”
Uganda has agreed an export route through Tanzania and the current estimate for the pipeline capital cost is around $3.5 billion. The pipeline is expected to be funded through a combination of debt and equity. Tullow carries approximately $1.7 billion for Uganda which includes fair value allocations and capitalised interest.
The Group expects a pre-tax write-off as a result of this disposal of approximately $0.4 billion to be booked in its 2016 Full Year Results.