Tullow Oil PLC has finally concluded the sale of its entire stake in the Lake Albert Development Project in Uganda for US$575 million. Tullow has agreed to transfer its full interests in Blocks 1, 1A, 2, and 3A in Uganda. And the proposed East African Crude Oil Pipeline (EACOP) System (the Uganda Interests) to Total Uganda.
The Cash Consideration consists of US$500 million payable at completion. And US$75 million payable following FID of the Lake Albert Development Project. Tullow may receive additional cash consideration in the form of contingent payments. Which will be payable on upstream revenues from the Lake Albert Development Project, depending on the average annual Brent price once production commences.
Tullow is currently the operator of Block 2. Total Uganda is now the operator of Block 1 and Block 1A, while CNOOC Uganda Limited (CNOOC) is the operator of Block 3A.
“Tullow has been a pioneering explorer in Uganda over many years, and we are very proud of the role we have played in the founding and development of Uganda’s oil industry. We wish all Ugandans and our joint venture partners well as they take this important project forward.”
“This deal is vital for Tullow and forms the first step of our program of portfolio management. It represents an excellent start towards our previously announced target of raising over US$1 billion to strengthen the balance sheet. And secure a more conservative capital structure. Said Dorothy Thompson, Executive Chair.
Tullow and Total have had supportive discussions with the Government of Uganda and the URA. Including to agree on the principles of the tax treatment of the Transaction. And the position on Ugandan tax on capital gains. Tullow 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.
CNOOC has rights of pre-emption to acquire 50% of the Uganda Interests on the same terms and conditions as Total Uganda.
The Transaction will strengthen Tullow’s balance sheet as part of its financial strategy to move to a more conservative capital structure. Tullow’s capital expenditure in respect of the Uganda Interests between the Effective Date and completion of the Transaction.
The Transaction will remove all future capital expenditure associated with the Lake Albert Development Project while retaining exposure via contingent consideration linked to production and the oil price through the conditional cash payments described above.
We have made good progress with the Government of Uganda and the URA in moving this Transaction forward. Including by agreeing on the principles of tax treatment. We will work closely with the Government, Total and CNOOC over the coming months to reach completion. Also, we have received strong support from our leading shareholders. And look forward to receiving formal approval of this deal.” added Thompson.
Completion of the Transaction will enable Tullow to realize value from the Lake Albert Development Project in Uganda. Following the expiry of its previous farm-down agreement with Total and CNOOC in August 2019.