French oil major Total SA said on Thursday that is acquiring Tullow oil’s assets in Uganda’s Lake Albert oil project for $575m (Shs2.1 trillion), with $500m to be paid once the deal has been approved by the government and $75m paid when a final investment decision has been reached.
Early this month, this website revealed that the Uganda government had reached a deal with Total on the sale of Tullow’s assets, which paves the way to faster negotiations on technical matters pending in both upstream and midstream projects before a final investment decision can be reached.
“Under the terms of the deal, Total will acquire all of Tullow’s existing 33.3% stake in each of the Lake Albert project licenses EA1, EA1A, EA2 and EA3A, and the proposed East African Crude Oil Pipeline system,” a statement issued by Total E&P Uganda this morning said.
It added that the transaction is subject to “CNOOC’s right to exercise pre-emption on 50% of the transaction.” The London-listed Tullow said that the transaction is expected to be completed in the second half of 2020.
The tax bill payable on the transaction is estimated at $14.6m (Shs55.2bn), a statement from Tullow said. “Tullow Uganda and Total Uganda now intend to sign a binding tax agreement with the government of Uganda and the URA that reflects these principles which will enable the transaction to complete,” it added.
Total revealed that “conditional payments will be made to Tullow linked to production and oil price, which will be triggered when Brent prices are above $62/bbl.”
The company also said that the “terms of the transaction have been discussed with the relevant Ugandan government and tax authorities and [an] agreement in principle has been reached on the tax treatment of the transaction.”
The deal is a “significant milestone in Uganda’s oil and gas sector, and is a critical development that takes the sector towards the final investment decision that the country is eagerly waiting for,” the minister of energy and mineral development, Mary Goretti Kitutu, said. She added that the final investment decision will unlock investment of over $20bn.
Patrick Pouyanné, Total’s chairman and chief executive, said the new deal is “in line with our strategy of acquiring long-term resources at low cost” and that the company has reached “an agreement with the Uganda government on the fiscal framework.”
“This acquisition will enable us, together with our partner CNOOC, to now move the project forward toward FID, driving costs down to deliver a robust long-term project,” Mr Pouyanné added.
The sale and purchase agreement between Tullow Oil and Total E&P Uganda has been received by the government and is being reviewed before the necessary approvals are given and the transaction concluded, the energy ministry’s permanent secretary, Robert Kasande, said.
Tullow’s initial attempt to farm down 21.57% of its stake in the Lake Albert project to Total E&P and the China National Offshore Oil Corporation (Cnooc) collapsed last August following disagreements over taxes with the Uganda government.
The initial deal was valued at $900m. Tullow was to be paid $200m in cash consisting of $100m on completion of the transaction, $50m when Total and other partners reached a final investment decision on the fields, and another $50m when the first oil is pumped.
The remaining $700 million was deferred consideration which Tullow said it would use to “fund the company’s share of the costs of the upstream development project and the associated export pipeline project.”
Industry insiders told this website that the purchase price dropped by $325m largely because of Tullow’s precarious financial situation over the past year.