Total now biggest shareholder in Uganda’s oil project

Total, French oil firm, will become the biggest shareholder in Uganda’s oil project following government’s approval of the sale of Tullow’s 33.33% stake of its Ugandan assets at US$ 575 million (approx. Shs2t).

The new development means that the French firm’s interest in the Lake Albert Development Project has increased to 66.66% while the rest is held by the China National Offshore Oil Corporation (CNOOC).

Tullow Oil plc said in a short statement on October 21, this year, that the government together with the Uganda Revenue Authority had finally “executed a binding tax agreement that reflects the pre-agreed principles on the tax treatment of the sale of Tullow’s Ugandan assets to Total.”

Tullow said that with all the government-related conditions to closing the transaction having been satisfied, it expected the deal to be closed “in days” after completing certain customary pre-closing steps with Total.

“With all the Government-related conditions to closing having been satisfied, Tullow expects the transaction to close in the coming days after completing certain customary pre-closing steps with Total,” Tullow said.

Tullow will receive US$500m (approx. Shs1.875t) and a further US$75m (approx. Shs281b) when a Final Investment Decision is taken on the development project.

In addition, Tullow is entitled to receive contingent payments linked to the oil price payable after production commences.

Knotty transaction

Tullow had originally struck a deal with Total for a farm-down of its licences at US$900m in 2017.

However, the transaction later collapsed after the government insisted that Tullow pay US$167m before it could transfer its assets to Total and CNOOC.

Tullow Oil Plc, the parent company of Tullow Oil Uganda at the end of August last year terminated the planned farm-down.

A month later, in September, 2019, Total suspended its technical activities on the East African Crude Oil Pipeline (EACOP) following the collapse of Tullow’s proposed sale of its Ugandan interests.

Mr Pierre Jessua told the pressat the time that Total could not continue with its technical activities “when they don’t see a breakthrough on a shareholding agreement and the legal framework for the pipeline.”

Interestingly, in April this year, as the world was grappling with the COVID-19 pandemic, Tullow announced that it had finally reached an agreement to sell its Ugandan assets to Total.

According to the agreement, Tullow said it would receive up to US $575m from Total with an initial payment of US $500m at closing of the deal while US $75m would be paid when the partners finally take the final investment decision for the Lake Albert Development Project.

Under the terms of the deal, Total would take over Tullow’s entire existing 33.3334% stake in each of the Lake Albert project licenses EA1, EA1A, EA2 and EA3A and the proposed East African Crude Oil Pipeline (EACOP).

However, the transaction was subject to a number of conditions, including approval by Tullow’s shareholders, customary government approval, the execution of a binding tax agreement with the Ugandan government and the Uganda Revenue Authority.

The transaction was also subject to the Chinese oil firm, CNOOC, exercising its pre-emption right to take 50% of the transaction.

However, CNOOC chose not to exercise its right, meaning that the transaction went on as planned.

Following CNOOC’s position, Tullow said there were no changes to the previously announced transaction or timeline and that Tullow expected the transaction to be completed in the second half of 2020.

Tullow’s exit

Tullow Oil plc said in a statement published on its website on July 29 that the company’s shareholders had agreed to the sale of its Ugandan assets.

However, although senior government officials said the Ugandan government “welcomed the agreement” reached between Total and Tullow, the government took months to give Tullow the green light.

Asked why the government was taking its time to approve the Tullow sale to Total, Mr Robert Kasande, the permanent secretary in the Ministry of Energy and Mineral Development told the press in August that several government institutions were reviewing the deal.

“The Ministry of Energy is concluding the terms for the operatorship of the blocks (that Tullow is relinquishing) while the Uganda Revenue Authority is also in the final stages of reviewing the taxes,” Mr Kasande said.

Among the reviews included an assessment of over a dozen sites where Tullow Oil has been operating for the last 10 years.


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