Total and Tullow have entered into an Agreement, through which Total shall acquire Tullow’s entire interests in Uganda Lake Albert development project including the East African Crude Oil Pipeline.
The overall consideration paid by Total to Tullow will be $575M, with an initial payment of $500M at closing and $75M when the partners take the Final Investment Decision to launch the project.
Total Acquires All Tullow Oil Interests in East Africa
In addition, conditional payments will be made to Tullow linked to production and oil price, which will be triggered when Brent prices are above $62/bbl. The terms of the transaction have been discussed with the relevant Ugandan Government and Tax Authorities and agreement in principle has been reached on the tax treatment of the transaction.
Under the terms of the deal, Total will acquire all of Tullow’s existing 33.3334% stake in each of the Lake Albert project licenses EA1, EA1A, EA2 and EA3A and the proposed East African Crude Oil Pipeline (EACOP) System. The transaction is subject to the approval of Tullow’s shareholders, to customary regulatory and government approvals and to CNOOC’s right to exercise pre-emption on 50% of the transaction.
“We are pleased to announce that a new agreement has been reached with Tullow to acquire their entire interests in the Lake Albert development project for less than 2$/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.”
Why did Tullow Oil Sale Their Shares in Uganda to Total?
Recently, Tullow had been reported to be in serious debt and this deal with Total will be a massive one for them to balance their sheets.
“This deal is important for Tullow and forms the first step of our programme of portfolio management. It represents an excellent start towards our previously announced target of raising in excess of Sh107 billion ($1 billion) to strengthen the balance sheet and secure a more conservative capital structure,” said Dorothy Thompson, Tullow executive chairperson.
“An agreement to sell Uganda for cash proceeds is very positive news for Tullow right now,” Mark Wilson, an analyst at Jefferies, said in a note. “As a first step to the target of raising over $1 billion disposal proceeds, this deal is beyond what we believed possible.”
Tullow surged as much as 75% in London on Thursday, the biggest leap since the shares started trading in 1989. The stock was up 29% at 26.1 pence as of 8:52 a.m. local time, paring its loss this year to 59%
Tullow has been working to reduce its pile of net debt, which was $2.8 billion at the end of last year. It recently completed a redetermination of its reserve-based lending facility, leaving it with $700 million of undrawn facilities and free cash, and has cut its capital-spending forecast for 2020 twice.
For the local businesses that are in the Gas and oil industry, this is a major step in the right direction considering the fact that with Total taking over, business will now start to take shape.
What do you make of this deal?
Author: Moses Echodu
Moses is an avid Sports and Tech enthusiast. He loves to keep up to date with all the latest information and research on some of the most compelling stories.