Total E&P Uganda, a subsidiary of French oil major Total SA, and China National Offshore Oil Corporation have reached a compromise on the operation of the Buliisa fields in Exploration Area 2, the license area previously operated by Tullow Oil PLC, with the former as equity holders.
Details of the deal are yet to be made public, but sources familiar with the matter told this website that Total E&P will operate the Buliisa fields. It will also maintain an equal shareholding with Cnooc, 37.5%, in the fields.
In effect, the two companies will split the exploration area. Total will however operate the northern fields near its area of operation, while Cnooc will operate fields in the south adjacent to its Kingfisher area.
Tullow farmed down 66.66% of its interest in the Buliisa fields to Total E&P and Cnooc in February 2012 under the joint operating agreements. Tullow took over operatorship of EA2, Cnooc EA3A and Total E&P EA1.
In January 2017, Tullow announced a sale and purchase agreement in which the company agreed to transfer 21.57% of its 33.33% interests in all exploration areas for $900m to be paid in instalments. The deal would leave Total E&P with a 54.9% shareholding in all exploration areas.
But Cnooc exercised its pre-emption rights to acquire half of the shares floated to Total E&P that March. Pre-emption rights means that in case any of the joint venture partners decides to sell its assets or interests in Uganda’s petroleum sector, the other partners have the ‘first’ priority to purchase the assets before a third party can be allowed to do so. Cnooc’s move scuttled the arrangement between Tullow and Total E&P and created a stalemate.
The transfer of Tullow’s assets to Total E&P and Cnooc is still subject to government approval. Once this is granted – and it could be soon following the compromise between Total E&P and Cnooc – Tullow will receive a $100m cash payment. It will also be reimbursed $60m it spent on capital expenditures in 2017, and $50m when the joint venture partners reach a final investment decision. The remaining $700m is a deferred consideration that will be paid as the upstream and pipeline projects progress.
“In line with its post-transaction status, Tullow has been reducing its operational footprint in Uganda and is now fully prepared for a non-operated presence only,” the company said in its full year results released in February.
The oil companies are currently conduction engineering feasibility studies that will form basis for a final investment decision. The final investment decision is expected later this year and will propel the oil companies into the development phase.
The latest deal further outlines each company’s area of operation which is important for commercial production activities to start. Government estimates that the first oil will be produced in 2020 but other analysts and stakeholders – including the oil companies themselves – say it is likely to be in 2021.
Earlier projections put capital expenditure leading to production at $8bn.