Tullow Oil has signed a Sale and Purchase Agreement to sell a substantial stake of its assets in the Uganda Lake Albert oil project to Total E&P Uganda (Total).
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Under the agreement, Tullow will sell 21.57% of its 33.33% stake in the Exploration Areas 1, 1A, 2 and 3A in the property to Total for a total consideration of $900m.
After the completion of this deal, Tullow will have 11.76% interest in the upstream and pipeline assets, which will again decrease to 10% after the Government of Uganda will utilise its right to back-in.
Total will pay $200m in cash, $100m of which will be paid at the closing of the transaction and $50m each at the time of final investment decision (FID) and when the first oil is procured from the site.
The remaining $700m will be regarded as deferred consideration.
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By GlobalDataTullow intends to use this deferred consideration as reimbursement to its share of the costs in developing the upstream project and its associated pipeline infrastructure.
Tullow Oil CEO Aidan Heavey said: “Today’s agreement 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.
"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.
“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.”
The Lake Albert Development Project is expected to produce around 230,000bopd at optimum level after development.
The development plan was approved by the government in August last year.
Tullow anticipates that it will require $5.2bn gross of upstream capex to develop the first 1.2 billion barrels of oil. It estimates that the project requires $3bn to reach First Oil around three years after FID.
The Government of Uganda has given its consent to develop an export route through Tanzania, which will require another $3.5bn as pipeline capital cost.
The pipeline is expected to be financed through a combination of debt and equity.
The sale agreement is subject to customary closing conditions, including the approval from the Government of Uganda.
After the transaction is completed, Tullow will lose the operatorship of this property.
Image: Lake Albert Development Project, Uganda. Photo: courtesy of Tullow Oil.
