EXPLORATION GROUP Tullow took another step towards the development of its potentially lucrative Uganda licences with the sale of a 66 per cent share of the licences to two partners for $2.9 billion (€2.05 billion).
Tullow has been the sole owner of three blocks in the country’s Lake Albert Rift Basin with proven resources of one billion barrels of oil and the potential to produce 1.5 billion more, since buying out its original partner, Heritage, in two of the blocks last year.
It subsequently agreed to sell a stake in its Ugandan field to French multinational Total and Chinese giant CNOOC. Yesterday, it completed a sale and purchase agreement with the pair for a total of $2.9 billion.
Under the deal’s terms, the three companies will each have an equal share of the field. Tullow has taken on Total and CNOOC to develop the field and bring it to production.
The project will cost $10 billion and involve the construction of a refinery to serve Uganda’s needs, which run to 20,000 barrels a day, and a 1,200-km (746-mile) pipeline to Mombasa, from where the rest of the oil will be exported.
Production is scheduled to begin in 2015, and the field is expected to produce 300,000 barrels a day when it is running to capacity. Tullow will have a one-third share of this.
Tullow is also going ahead with further drilling to establish the scale of the field’s remaining resources. It is estimated to contain a further 1.5 billion barrels.
Chief executive Aidan Heavey said yesterday the sale of its interest means that Tullow will be a $20 billion company with no debt. It will have cash of around $1 billion.
Tullow will have to pay capital gains tax to the Ugandan government as a result of the deal. The initial assessment stands at $427.7 million, but the company is disputing this, as it should benefit from a number of allowances.
In keeping with local practice, it is paying 30 per cent of the total, $141.8 million, within five days of the deal going through, and will then follow the normal dispute resolution process.
Tullow’s former partner, Heritage, is disputing its tax liability from the sale of its interest last year to the Irish company for $1.35 billion.
Heritage has paid 30 per cent of its assessed liability. As local laws treat Tullow as an agent of its former partner, the company has agreed to pay the balance of $313.4 million, pending the resolution of the dispute. Heritage has provided for the full potential liability by depositing money in an escrow account in London.
Tullow’s total production this year is likely to be 100,000 a day, generating revenues of about $1 billion.
