Tullow Oil announced on Monday that its selling part of its stake in Uganda’s oil project to Total E&P Uganda B.V. for $900 million.
A statement by Tullow said the London-listed oil exploration company will sell “21.57% of its 33.33% interests in Exploration Areas 1, 1A, 2 and 3A in Uganda to Total,” allowing it 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.”
Tullow, Total, and China National Offshore Oil Corporation have an equal stake (33.3%) in the Lake Albert Exploration Areas 1, 1A-Lyec, 2 and 3-Kingfisher. This follows a 2012 farm-down by Tullow to Total and Cnooc, in which it sold 66.6% of its stake to the two companies.
The statement by Tullow said the sale involves an initial $100 million cash payment and $50 million when Total makes a final investment decision on the fields and another $50 million when the first oil is pumped.
The remaining $700 million is “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.”
The transaction is subject to government approval, among other conditions. Once completed, Tullow “will cease to be an operator in Uganda but will retain a presence in-country to manage its non-operated position,” according to the statement.
Tullow and Total were granted eight production licences by the Uganda government last August, with Tullow getting five for Exploration Area 2. The company’s statement says the fields will require $5.2 billion of upstream capital expenditure to develop the first 1.2 billion barrels of oil, $3 billion of which is necessary to get to the first oil stage – three years after the final investment decision (expected later this year or in early 2019).
“Tullow carries approximately $1.7 billion for Uganda which includes fair value allocations and capitalised interest,” the statement said. “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.”
But, Tullow – a smaller oil firm with an industry reputation for striking fortune in frontier (and riskier) African regions – seems to have been pushed, with Uganda’s decision to build its proposed pipeline through Tanzania instead of Kenya, where it is also developing an oil project.