After months of lengthy negotiations and disagreements, Tullow Oil Plc last week said it had signed a deal to sell all its stake in Uganda’s Lake Albert oil project to oil major Total for a reported sum of $575 million.
The deal will see Total acquire Tullow’s entire interests in Blocks 1, 1A, 2 and 3A in western Uganda and the proposed East African Crude Oil Pipeline System for the cash consideration – $500 million payable at completion and $75 million payable after the project’s final investment decision – including potential contingent payments after first oil.
With Tullow’s exit expected to be concluded later this year, the joint venture partners in the oil project now are Total and China National Offshore Oil Corporation (CNOOC), both of which currently hold 33.33 percent in all of Uganda’s discoveries.
The sale is in line with Tullow’s plan to cut on debt, strengthen its balance sheet and secure a more “conservative capital structure,” executive chairperson Dorothy Thompson said. But for Uganda, this represents a huge development in its long road to commercial oil production since hitting oil deposits in 2006 with proven reserves of 6.5 billion barrels, about 2.2 billion of which is recoverable.
Uganda had set a commercial production target of 2022 but progress has been slow. At some point, talks between the oil companies and Uganda Revenue Authority collapsed over the assessment of the capital gains tax that Tullow was expected to pay from the sale of its assets in the Lake Albert project.
Several of such dispute saw all parties in the oil project miss the August 2019 deadline initially set for FID, after which Total, the lead investor in the EACOP, suspended all activities on the $3.5 billion pipeline project.
The breakthrough asset sale deal, still subject to shareholder, regulatory and government approvals, now takes Uganda and its partners in the oil project back on course towards FID and eventual production, Total chief executive Patrick Pouyanne said.
“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… 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 said.
Welcoming the deal, Uganda’s Minister for Energy Mary Goretti Kitutu was quoted as saying the agreement represents a “significant milestone in Uganda’s oil and gas sector and is a critical development that takes the sector towards the Final Investment Decision that the country is eagerly waiting for.”
But experts have warned there may be further delay in the takeoff of Uganda’s projects as the global oil industry currently grapples with the unprecedented collapse of crude oil prices triggered the coronavirus pandemic, forcing oil majors to scale down investment and operations for 2020.