Tullow announced on 9 January that it agreed a substantial farm down of its assets in Uganda to Total, but this may also have implications to its operations in Kenya
Tullow announced on Monday 9 January 2017 that a sale and purchase agreement was signed with Total with an effective date of 1 January 2017. The agreement agrees a transfer of 21.57 per cent of its 33.33 per cent interest in Exploration Areas 1, 1A, 2 and 3A in Uganda to Total for a consideration of US$900mn. This means that Tullow will retain a 11.76 per cent interest in teh upstream and pipeline, which will reduce back to 10 per cent when the Ugandan Government formally exercises its right to back-in.
The agreement is based on the transfer of licences from Tullow to Total when key milestones have been reached at the Lake Albert Development Project. First, US$200mn in cash consisting of US$100mn on completion of the transaction and US$50mn at both Final Investment Decision and First Oil. The second is US$700mn in deferred consideration which will be used by Tullow to fund the company's share of the costs of the upstream development project and the associated export pipeline.
Aidan Heavey, Chief Executive Officer of Tullow Oil said, "“Today’s agreement will allow the Lake Albert Development to move ahead swiftly, increasing the likelihood of FID in 2017 and First Oil by the end of 2020. I am particularly pleased that Tullow’s long-term commitment to and presence in Uganda is guaranteed by this transaction and that we will remain an active investor in Uganda’s oil and gas sector. The deal will secure future cash flow for the Group from one of the industry’s few truly low cost development projects without any additional cash requirements expected. We will work closely with the Government of Uganda, its associated agencies and with Total and CNOOC to move this transaction forward as smoothly as possible over the coming months.”
However, there has been some speculation regarding what this announcement means for Tullow Oil and its operations in Kenya. The Daily Monitor have reported that Tullow could look to make a similar farm down in Kenya. This time last year, Tullow completed a farm-down of 25 per cent of its 65 per cent interest in Kenya's Block 12A to Delonex Energy.
However, according to Tullow's end of year report, there is scope for four additional wells in Kenya, in addition to water injection trials that were successfully completed in 2016. As it stands, there is no official word on Tullow scaling operations back from Kenya, but new ventures in both South America and Norway may show a slight shift of focus. However, Tullow will remain a major player in the oil sector in Africa for years to come.