Tullow Oil sells out of Uganda for USD575 million (UGX2.2 trillion) to Total Tullow first sold 66.67 of its stake in Uganda for a humongous USD2.9 billion, in March 2011, remaining with 33.33%. In January 2017, Tullow attempted to sell 21.57% of its remaining 33.33% interest in Exploration Areas 1, 1A, 2 and 3A in Uganda to Total for a total consideration of $900 million, but the deal was dropped after CNOOC Uganda Limited (CNOOC) subsequently exercised its pre-emption rights to the deal and government of Uganda had taxation issues with the deal.

Tullow Oil and French Oil giant Total have today announced, entering into an agreement, through which Total shall acquire Tullow’s entire interests in Blocks 1, 1A, 2 and 3A in Uganda’s Lake Albert development project as well as its interests in the proposed East African Crude Oil Pipeline (EACOP).

The deal is effective 1^st January 2020.

Under the terms of the deal, Total will acquire all of Tullow’s existing 33.3334% stake in each of the Lake Albert project licenses EA1, EA1A, EA2, and EA3A and the proposed East African Crude Oil Pipeline (EACOP) System.

The transaction is subject to the approval of Tullow’s shareholders, to customary regulatory and government approvals and to CNOOC’s right to exercise pre-emption on 50% of the transaction.

Tullow has currently been the operator of Block 2; Total Uganda is currently the operator of Block 1 and Block 1A while CNOOC Uganda Limited (CNOOC) is the operator of Block 3A.

“We are pleased to announce that a new agreement has been reached with Tullow to acquire their entire interests in the Lake Albert development project for less than 2$/bbl in line with our strategy of acquiring long-term resources at low cost and that we have an agreement with the Uganda government on the fiscal framework,” said Patrick Pouyanné, Total Chairman and CEO.

“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,” he added.

Total is to pay Tullow a total of USD$575 million (UGX2.2 trillion), with an initial payment of USD500m at the closing of the deal and USD75M when the partners take the Final Investment Decision to launch the project. In addition, conditional payments will be made to Tullow linked to production and oil price, which will be triggered when Brent prices go above USD62/bbl.

Brent crude oil is currently hovering at USD20.64 after hitting a two-decade low of USD15.98 a barrel on Wednesday, April 22^nd, 2020.

“Tullow and Total have had supportive discussions with the Government of Uganda and the URA in recent weeks, including to agree on the principles of the tax treatment of the Transaction.  This includes the position on Ugandan tax on capital gains, which is to be remitted by Total Uganda on behalf of Tullow Uganda, and which is expected to be US$14.6 million in respect of the Cash Consideration.  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,” reads a Tullow Oil statement released this morning.

“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 will be recovered through the SPA completion adjustments. The Transaction will remove all future capital expenditure associated with the Lake Albert Development Project whilst retaining exposure via contingent consideration linked to production and the oil price through the contingent cash payments described above,” added Tullow in their statement.

Tullow first sold 66.67 of its stake in Uganda for a humongous USD2.9 billion, in March 2011, remaining with 33.33%. In January 2017, Tullow attempted to sell 21.57% of its remaining 33.33% interest in Exploration Areas 1, 1A, 2 and 3A in Uganda to Total for a total consideration of $900 million, but the deal was dropped after CNOOC Uganda Limited (CNOOC) subsequently exercised its pre-emption rights to the deal and government of Uganda had taxation issues with the deal. In August 2019, Tullow announced that this farm-down had been terminated, following the expiry of the Sale and Purchase Agreements (SPAs).

That it has now accepted a much lower price and for the entire 33.3334% percent is an indication of the Tullow’s financial troubles.

Tullow declared a USD1.6 billion loss in 2019.

CEO East Africa also understands that the government of Uganda will now earn just USD14 million in capital gains compared instead of the USD167m it wanted, but Tullow was willing to pay USD85million. It was this disagreement on taxes that caused the abandonment of the January 2017 deal in which Total sought to acquire 21.57% of Tullow’s 33.33% stake in Uganda.