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Tullow raises Shs 1.2 trillion for investment

By Independent Team

The money will be used to strengthen its balance sheet and fund investment in its oil discoveries and prospects in Ghana and Uganda.

January is turning out to be Tullow Oil’s best month. In a space of two weeks it has struck the biggest oil well in Sub-Saharan Africa and managed to raise over 402 million British pounds (about Shs 1.2 trillion) on the London and Irish Stock Exchanges.

The money from Placed just over 9 per cent of its shares, will be used to strengthen its balance sheet and fund investment in its oil discoveries and prospects in Ghana and Uganda.

The £402 million was raised from a January 21 Placing of 66.9 million new ordinary shares at a Placing Price of 600 pence per share.

Tullow’s huge oil find is in the northern Uganda district of Amuru, whose residents are among the poorest in the country.

Tullow has interests in three licences in Uganda in the Lake Albert Rift Basin. It has a 50/50 interest with Heritage Oil in the Block 1 license area in which the huge well, Giraffe, is located.

Giraffe well is connected to the Buffalo well five kilometres away, which indicates it as the largest recent onshore oil discoveries in Africa.

Tullow believes they contain at least 300 million barrels of oil, although this could be as high as 600 million barrels.

In a note to investors last week, the company said it believes that the gross oil inventory in the Lake Albert Basin could be as high as 750 million barrels.

Ugandan oil wells need to contain 400 to 500 million barrels of oil to be commercially viable.

‘Combined with our other finds in the region, we have now clearly exceeded the thresholds for basin development,’ Tullow chief executive Aidan Heavey said.

‘Options for commercialisation and first oil production are currently being fast-tracked,’ he added.

Tullow in partnership with the Uganda government will have to build a pipeline if it is to export the oil.

Tullow started major drilling in the area in April last year after the successful drilling in the Kaiso-Tonya area and the Kingfisher field in western Uganda.

Tullow and the government plan to get first production from the region via an EPS in the second half of 2009.

They expect to produce 40,000 barrels of oil per day. Tullow is to put up a mini-refinery, to process crude oil into Heavy Fuel Oils to be used by thermal power plants and modest diesel and kerosene for the market.

Details of how proceeds from the oil ventures will be shared between the oil companies and the government and people are a heavily guarded state secret.

According to a report by the Financial Times of London, Tullow shareholders and bankers have raised concerns about its successful £402m share placing.

They are unhappy that Tullow used an emerging but unpopular capital-raising structures that is said to circumvent the rules protecting shareholding rights.

Tullow raised the money through a structure known as a ‘cash-box issue’ without offering existing shareholders rights of first refusal.

UK rules allow companies to raise up to 5 percent of their share capital in cash without giving all shareholders formal rights to buy new shares, but that limit is raised to 10 per cent if the money is used for an acquisition. A cash-box structure creates a vehicle that allows the company issuing the shares to make an acquisition, although it is not buying another business.

Pre-emption rights have come under attack in the past year, after the failure of several share issues by UK banks prompted the government, shareholders and regulators to find ways of speeding up the process.


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