Tullow Oil has sold a substantial stake of its oil fields in Western Uganda to exploration and production arm of French oil firm, Total, for Sh90 billion.
The move gives Total a controlling stake in Uganda’s upstream industry and a major hand in the region’s fledgling oil industry, considering it also plans to finance the Uganda-Tanzania crude oil pipeline.
With a substantially reduced stake and an exit from an active role in Uganda, Tullow is expected to take a more focused approach in oil exploration and production in Kenya, where it is readying to start production on a pilot basis.
Tullow, which discovered substantial reserves in the Lake Albert region more than a decade ago, said Monday it had sold 21.5 per cent of its 33.33 per cent stake in four exploration areas for Sh90 billion ($900 million).
The company will receive Sh20 billion ($200 million) in cash and a further Sh70 billion ($700 million) in “deferred consideration” that will go into the development of infrastructure including the export pipeline. The deal, which is subject to approvals from the Ugandan Government, will see Total increase its interest to over 54 per cent in the Lake Albert project.
“A sale and purchase agreement with an effective date of January 1, 2017 has been signed, in which Tullow has agreed to transfer 21.57 per cent of its 33.33 per cent interest in exploration areas - 1, 1A, 2 and 3A in Uganda to Total for a total consideration of $900 million,” said Tullow in a statement.
“This agreement will allow Tullow to retain an 11.76 per cent interest in the upstream and pipeline, which would reduce to 10 per cent when the Ugandan Government formally exercises its right to back-in.” Back-in right is an oil and gas term that refers to a reversionary interest in an oil and gas lease. Total is now expected to steer Uganda to being an oil producer.
“Following the agreement on the Tanzanian export pipeline route, this transaction gives Total a leadership position to move this project efficiently toward the final investment decision in the current attractive cost environment, while providing strong alignment and a pragmatic financing scheme for our partner Tullow,” said Total Chairman and Chief Executive Patrick Pouyanné. Tullow is now expected to concentrate more on developing its assets in Kenya.
“We see the farm-down as an important development for Tullow to concentrate its efforts in developing the Kenyan operation,” said Standard Investment Bank in an analysis on the transaction yesterday.