Tullow seek govt approval on $900m farm-down deal with Total

Tullow Oil Plc is seeking for approval from Ugandan government for the planned partial sale of its interests to Total E&P Uganda.

Tullow Oil, in January this year, agreed to transfer 21.57 per cent of its 33.33 per cent interests in Lake Albert Development Project covering exploration areas 1, 1A, 2 and 3A to Total for a total consideration of $900 million (about Shs 3.27 trillion).

In February, another industry player, CNOOC Uganda Limited (CNOOC) notified Tullow that it has exercised its pre-emption rights under the joint operating agreements between Tullow, Total and CNOOC to acquire 50 per cent of the interests being transferred to Total on the same terms and conditions that were agreed between Tullow and Total.

CNOOC, as well agreed to the amount, structure and timing of the consideration payable to Tullow. It is expected that Tullow will get all the payment by end of 2018.

The total consideration for the transaction includes $200 million (about Shs 720 billion) in cash consisting of $100 million (about Shs 360 million) on completion of the transaction and $50 million (Shs 180 billion) at both final investment decision and first oil production.

The second consideration is $700 million (Shs 2.5 trillion) in deferred consideration which will be used by Tullow to fund the company's share of the costs of the upstream development project and the associated export pipeline project.

Once the farm-down is completed, Tullow will cease to be an operator in Uganda but will retain a non-operated presence only in the country.

A statement by Paul Mcdade, the chief executive officer, Tullow Oil Plc, the farm-down in Uganda continues to progress with the signature of the pre-emption documents by the Joint Venture Partners. He said Tullow now anticipates that the farm-down with Total and CNOOC will complete in the first half of next year with cash payment on completion and payment.

The Joint Venture Partners have been working on concluding the definitive sale documentation in relation to the farm-down. The completion of the farm-down has been subject to certain conditions, including the approval of the government of Uganda.

Energy and Mineral Development minister, Irene Muloni in September indicated that her ministry had indeed been notified by Tullow about the planned farm-down. Muloni could not be reached by phone to confirm whether her ministry had received notification from the Joint Venture Partners.

She said then that government was still waiting for the three parties to conclude negotiations. Muloni said the shareholder's agreement stipulates conditions as to how the farm-down takes places.  

The Joint Venture partners are working towards reaching Final Investment Decision (FID) in the first half of 2018; at which point Tullow's second cash installment from the farm down will be received. In line with its post-transaction status, Tullow has been reducing its footprint in Uganda and is preparing for a non-operated presence only.

© 2016 Observer Media Ltd