Tullow oil agrees to sale of assets to Total Uganda

Multinational company, Tullow Oil plc (Tullow) announced that it agreed to the sale of its assets to Total Uganda for US$575 m with post first oil contingent payments.

A press release published by the company stated that Tullow and Total E&P Uganda B.V. (Total Uganda) have signed a Sale and Purchase Agreement (SPA), with an effective date of 1 January 2020 (the Effective Date), in which Tullow agreed to transfer its entire interests in Blocks 1, 1A, 2 and 3A in Uganda and the proposed East African Crude Oil Pipeline (EACOP) System (the Uganda Interests) to Total Uganda for cash consideration of US$575 million plus potential contingent payments after first oil (the Transaction). Tullow is currently the operator of Block 2, Total Uganda of Block 1 and Block 1A and CNOOC Uganda Limited (CNOOC) is operator of Block 3A.

The two companies have had fruitful discussions with the Government of Uganda and the URA to agree on the principles of the tax treatment of the mega transaction. They discussed the position on Ugandan tax on capital gains, which is to be remitted by Total Uganda on behalf of Tullow Uganda, and which is expected to be US$14.6 m in respect of the Cash Consideration.

The two parties both intend to sign a binding tax agreement with the Government of Uganda and the URA that reflects these principles which will complete the transaction. CNOOC has rights of pre-emption to acquire 50% of the Uganda Interests on the same terms and conditions as Total Uganda.

Tullow’s financial strategy

This move will strengthen Tullow’s financial strategy and aid it in moving to a more conservative capital structure. Tullow’s capital expenditure in respect of the Uganda Interests between the Effective Date and completion of the Transaction will be recovered through the SPA completion adjustments. The Transaction will remove all future capital expenditure associated with the Lake Albert Development Project whilst retaining exposure via contingent consideration linked to production and the oil price through the contingent cash payments.