Regional analysts in the oil exploration and production sector have described last week’s sales and purchase agreement between Tullow Oil PLC and Total E&P Uganda as a ‘win-win’ boost for all players, and one that opens a new chapter for East Africa’s energy industry.
The experts said the deal is set to unlock Uganda’s oil and gas industry, creating more tax revenue for the government and providing local jobs.
The analysts convened at a webinar hosted by the African Energy Chamber — under Chatham House rules — and included officials and analysts from Stanbic Bank and its parent group, Standard Bank, Shell, Baker Hughes, and the Kenya National Oil Company.
“After years of deliberations and debate, the closing of the sale allows the country and oil companies to move the conversation towards a final investment decision (FID) and practical project development,” the experts said.
They added: “It also sends strong signals to the rest of the region, Kenya in particular, to do everything possible to unlock their own oil and gas potential.”
According to the panel, the $57m deal means that Total SA is “acquiring Tullow Oil’s entire interests for less than $2 a barrel.” It was also noted that the highly indebted Tullow, which is seeking to raise $1bn by selling some of its key assets, saw its share price on the London Stock Exchange gain some momentum when the deal was announced.
Last Thursday, Total E&P announced the acquisition of Tullow Oil’s interests in Uganda’s Lake Albert project and the planned East African Crude Oil Pipeline system for $575m (Shs2.1 trillion). The China National Offshore Oil Corporation (Cnooc), a joint venture partner in the project, has a right of pre-emption on 50% of the project.
Despite the development, a clear timeframe of the all-important final investment decision for the upstream sector of the project remains unclear. But the experts asserted that Uganda’s oil project remains “very competitive,” the current depressed global oil prices environment notwithstanding.
A leading factor driving this advantage is the low cost of production, said analysts.
“The cost per barrel of the Lake Albert Development Project is estimated somewhere between $20 and $25 per barrel. This is explained in part by the location of the country’s hydrocarbons within shallow deposits that are less drilling intensive and do not need as much casing, tubing, and completion work.
“While Total is following a global trend of drastically cutting expenses in light of the Covid-19 pandemic and the collapse of oil demand and oil prices, the project’s economics make it one of the most likely to get FID in the near future.”
Total and Tullow said the transaction is expected to be completed in the second half of this year after the government approves the deal. This is conditional on several issues being resolved, a key one being the shareholding of the oil export pipeline.
In the initial farm-down agreement, which collapsed last year, Tullow Oil was expected to retain an 11.7% stake in the pipeline project until the government acquired equity and the company recovered the costs it had incurred on the project.
However, Tullow sold all of its 33.3% stake in the pipeline to Total in the deal announced last week. Uganda, through the Uganda National Oil Company, and the government of Tanzania are expected to acquire interests of 15% and 5% respectively in the 1,445km pipeline to the Tanzanian cost.