Tullow Oil sells Uganda project stake for $900m

Tullow Oil said on Monday it has agreed to sell a stake in a Ugandan oil project to French group Total for a total consideration of $900 million (€851 million).

A subsidiary of Total will acquire a 21.6 per cent stake in the so-called Lake Albert Development Project from Tullow Oil, leaving the Irish company, headed by chief executive Aidan Heavey, with an 11.8 per cent interest.

The holding will be watered down to 10 per cent when the government of Uganda formerly exercises a right to take a stake in the project.

“Today’s agreement will allow the Lake Albert Development to move swiftly ahead, increasing the likelihood of FID (final investment decision) in 2017 and first oil by the end of 2020,” said Mr Heavey.

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The deal involves an initial $100 million cash payment, with a further $50 million due when the final investment decision has been made. Another $50 million will be due when oil starts to be pumped.

Pipeline project

The remaining $700 million is by way of a deferred consideration, which Tullow Oil will use to fund its share of costs of the upstream development project and associated export pipeline project.

While Tullow Oil expects to book a €400 million write-off on the $1.7 billion carrying value of its investment in its full year 2016 results, the group benefits in the near term as the deal allows it to deleverage itself and and as analysts cut back their capital expenditure expectations for the company.

Tullow Oil previously said it expects to end 2016 with about $4.9 billion of net debt, and prepares to refinance more than $3 billion of bank facilities next year.

Tullow Oil shares rose 2.7 per cent in London to £3.336.

The Lake Albert Development is expected to achieve about 230,000 barrels of oil per day when it reaches plateau, according to Tullow.

Commercial oil reserves were discovered in Uganda a decade ago, but production has been repeatedly delayed over taxation and field development strategy.

Uganda has agreed an export route through Tanzania and the current estimate for the pipeline capital cost is around $3.5 billion.