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    Tullow Exits Uganda in Deal with Total


Tullow has cut the price of its interests and is withdrawing from Uganda completely.

by: Joseph Murphy

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Tullow Exits Uganda in Deal with Total

France's Total has struck a deal to acquire London-based Tullow Oil's entire interests in the Uganda Lake Albert development, including the East African crude oil pipeline (EACOP) for $575mn, the companies announced on April 23.

Lake Albert is targeting 1.2bn barrels of oil, with a planned output of 230,000 b/d. Tullow owns a 33.33% stake in blocks 1, 1A, 2 and 3A and EACOP, due to pump the project's oil from western Uganda to the Tanzanian port of Tanga, while Total and China's Cnooc also each control a third of the project.

Tullow suffered a $1.69bn in losses last year, on exploration write-offs and impairments totalling $2bn. The company has struggled for several years with operational setbacks, and its problems have worsened with the collapse of oil prices this year. It is being restructured and is looking to shed $1bn of assets.

Tullow had been negotiating the sale of a 21.57% stake to Total and Cnooc last year for a higher price of $900mn. That deal collapsed in August, resulting in the partners missing their target of taking a final investment decision (FID) by the end of 2019. With the global oil market now in crisis, Tullow has offered Total a significant discount.

The French major will pay Tullow $500mn when the transaction is closed and $75mn when an FID is taken on development. It may make additional payments depending on production and oil prices, which will be triggered when Brent rises above $62/b. The benchmark at press time the contract was trading at around $22/b for June delivery.

Cnooc has pre-emption rights for half of the stake to be sold to Total. The deal will be backdated to January 1 2020.

"The Lake Albert development project for less than $2$/b in line with our strategy of acquiring long-term resources at low cost, and that we have an agreement with the Uganda government on the fiscal framework," Total CEO Patrick Pouyanne said in a statement. "This acquisition will enable us, together with our partner Cnooc, to now move the project forward toward FID, driving costs down to deliver a robust long-term project."

Tullow said it would use proceeds from the deal, expected to close in the second half of the year, to reduce its debts and strengthen its balance sheet. 

"This deal is important for Tullow and forms the first step of our programme of portfolio management," Tullow's executive chair Dorothy Thompson commented. "It represents an excellent start towards our previously announced target of raising in excess of $1bn to strengthen the balance sheet and secure a more conservative capital structure."