Tullow Oil announces farm down to Total in Uganda
Tullow Oil has announced plans to farm down its interest in Uganda’s Albertine Oil Project to Total for US$900 million.
Tullow Oil said in a statement issued January 9th, “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 per cent of its 33.33per cent interests in Exploration Areas 1, 1A, 2 and 3A in Uganda to Total for a total consideration of $900 million.”
Tullow, Total and China’s CNOOC have hitherto all had equal stake of 33.3 per cent of the three exploration areas of Uganda’s Albertine Oil Project. It will be remembered that in line with the terms of its exploration MoU with the Government of Uganda, in March 2011, Tullow sold two-thirds of its exploration interest- one third each to Total and CNOOC at a combined value of US$2.9 billion.
The sale of the 21.57 per cent of share means that Tullow still retains an 11.76 per cent interest in the upstream and pipeline, which is expected to reduce to 10 per cent when the Government of Uganda formally exercises its right to back-in. Tullow intends to have a non-operated interest in the venture, that is, it will not have a management role.
Total on the other hand with a new accumulated 54.6 per cent shareholding will take the role of lead investor.
Tullow said, “The 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. “
Under this arrangement, Total will pay Tullow US$100 upon the agreement. A further US$50 million will be paid at final investment decision, and a further US$50 million when the first Oil comes out of the ground.
The remaining US$700 will be a deferred payment that will be translated into Tullow’s interest into the next stages- upstream and pipeline projects of the Ugandan venture.
Even as it heads out, Tullow endorsed the Uganda venture thus, “The Lake Albert Development Project is a major development which expects to achieve around 230,000 barrels per day (bpd) when it reaches plateau. 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. The Government of Uganda has agreed an export route through Tanzania and the current estimate for the pipeline capital cost is around $3.5 billion.”
The farm down is seen by industry observers as Tullow’s strategic repositioning, following a bad year in the industry owing to low oil prices that badly affected Tullow’s bank balance and market value. The announcement of the sale raised Tullow’s London Stock Exchange share price from 2.5 British Pound to 3.3.