Tullow Oil exiting Uganda’s oil sector?
Oil pundits sees Tullow Oil plc.’s new share sale a strategy to exit the country’s oil sector
London-Based Tullow Oil plc’s announcement that it is once again scaling down its stake in Uganda’s oil development, shedding off nearly two thirds of its shareholdings to the rival firm, Total E&P for $900million is raising fears that the firm could be slowly exiting the country’s oil sector.
Uganda’s oil resource, discovered in 2006 in the Albertan region, is estimated to contain about 6.5billion barrels and projected to produce around 230, 000 barrels per day.
The country has launched the Front End Engineering Design (FEED) study for the Hoima- Tanga crude pipeline a head of the construction currently estimated to cost about $ 3.5million.
“Uganda’s concession for Tullow is the largest in the region…selling a bigger part of it is a sign that it is exiting,” Don Bwesigye Binyina, an oil expert and executive director at the Africa Centre for Energy and Mineral Policy (ACEMP), told The Independent in an interview.
Binyina said that the new sale also confirms the notion that smaller companies in the oil sector are struggling and it is only the big boys that can handle the expensive sector.
This is the second time that Tullow is selling off its stakes in Uganda. In 2012, the company sold 66.6% stake in the country’s oil sector for equal share to the two then new players- Total and CNOOC at a whopping $2.9billion.
But Aidan Heavey, the chief executive officer for Tullow downplayed the claim.
“I am particularly pleased that Tullow’s long-term commitment to and presence in Uganda is guaranteed by this transaction and that we will remain an active investor in Uganda’s oil and gas sector,” Heavey said.
The new sale means that Tullow now retains 11.76% interest in the upstream and pipeline, which would reduce to 10% when the Ugandan government formally exercises its right to back-in.
The sale interests affect exploration Areas 1, 1A, 2 and 3A. However, this is subject to approval from the government.
Total payment is structured as; $200 million in cash consisting of $100 million on completion of the transaction, $50 million at both Final Investment Decision and First Oil, and then $700 million in deferred consideration to be used by Tullow to fund the company’s share of the costs of the upstream development project and the associated export pipeline project.
The Group expects a pre-tax write-off as a result of this disposal of approximately $400million to be booked in its 2016 Full Year Results.
Once this transaction has been completed, Tullow will cease to be an operator in Uganda but will retain a presence in-country to manage its non-operated position.
Heavey hints on future
Heavey said the transaction will allow the Lake Albert Development to move ahead swiftly, increasing the likelihood of FID in 2017 and first oil by the end of 2020.
He added that the deal will secure future cash flow for the Group from one of the industry’s few truly low cost development projects without any additional cash requirements expected.
“We will work closely with the Government of Uganda, its associated agencies and with Total and CNOOC to move this transaction forward as smoothly as possible over the coming months,” he said.
The Uganda Revenue Authority— which was at the centre of a similar transaction between Tullow and Heritage a few years back, however, said the two companies (Tullow and Total) are in preliminary processes of effecting the transaction but will involve at a later stage for the purposes of getting the capital gains tax.
“As URA we will be involved at some point,” URA’s Corporate and Public Affairs Manager Sarah Banage said.
It is until 2015 that that Ugandan government won the $400million capital gains tax in a protracted legal battle against Heritage Oil in Kampala and London. This was after Heritage Oil sold its stake in Uganda’s oil sector to Tullow at $1.45bn.
****
source: independent.co.ug
