Tullow Ugandan project farm-down agreement to expire
Tullow Oil PLC said its final investment decision for the Lake Albert joint venture development in Uganda will likely be delayed as a farm-down agreement with Total SA and CNOOC will expire Aug. 29 and the agreement terminated. FID was targeted by yearend.
In January 2017, Total and Tullow entered into an agreement whereby Total would acquire 21.57% out of Tullow’s 33.33% interest in the Lake Albert licenses. CNOOC exercised its right to preempt 50% of the transaction (OGJ Online, Jan. 9, 2017). As a result, Total and CNOOC would have each increased their interest to 44.1% while Tullow would have kept 11.8%.
The deadline for closing the transaction had been extended several times, but parties were unable to agree all aspects of the tax treatment of the transaction with Uganda, which was a condition to completing the sale agreements. Tullow’s capital gains tax position had been agreed as per the group’s disclosure in its 2018 full-year results, but the Ugandan Revenue Authority and the joint venture partners could not agree on the availability of tax relief for the consideration to be paid by Total and CNOOC as buyers.
“The project is technically mature, and we are committed to continuing to work with the government of Uganda to address the key outstanding issues required to reach an investment decision. A stable and suitable legal and fiscal framework remains a critical requirement for investors,” said Arnaud Breuillac, Total’s president of exploration and production.
Total’s interest will remain at 33.3% on Blocks EA1, EA2, and EA3 prior to the 15% national company back-in, Total being operator of the Block EA1, which contains the largest part of the reserves. Total keeps the right to preempt any future transactions, in case any party divests part or all of its interest.
Tullow will initiate a new sales process to reduce its 33.33% operated stake in the Lake Albert project which it says has over 1.5 billion bbl of discovered recoverable resources and is expected to produce over 230,000 b/d of oil at peak production.
