Tullow Oil plc (Tullow) is very pleased to announce that it has agreed a substantial farm-down of its assets in Uganda to Total E&P Uganda B.V. (Total).
A Sale and Purchase Agreement with an effective date of 1 January 2017 has been signed in which Tullow has agreed to transfer 21.57% of its 33.33% interests in Exploration Areas 1, 1A, 2 and 3A in Uganda to Total for a total consideration of $900 million. This agreement will allow Tullow to retain an 11.76% interest in the upstream and pipeline, which would reduce to 10% when the Government of Uganda formally exercises its right to back-in.
This agreement is based on the transfer of licence interests from Tullow to Total in exchange for cash and deferred consideration to be paid as and when the Lake Albert Development Project reaches a series of key milestones and represents a reimbursement by Total of a portion of Tullow's past exploration and development cost. The total consideration for the transaction is structured as follows:
The Lake Albert Development Project is a major development which expects to achieve around 230,000 bopd when it reaches plateau. Development Plans were approved by the Government in August 2016 which Tullow expects will require $5.2 billion gross of upstream capex to develop the first 1.2 billion barrels of oil with $3 billion expected to be required to reach First Oil around three years after FID. The Government of Uganda has agreed an export route through Tanzania and the current estimate for the pipeline capital cost is around $3.5 billion. The pipeline is expected to be funded through a combination of debt and equity. Tullow carries approximately $1.7 billion for Uganda which includes fair value allocations and capitalised interest. The Group expects a pre-tax write-off as a result of this disposal of approximately $0.4 billion to be booked in its 2016 Full Year Results.
Completion of this transaction is subject to certain conditions, including the approval of the Government of Uganda. Once this transaction has completed, Tullow will cease to be an operator in Uganda but will retain a presence in-country to manage its non-operated position.