Tullow Oil sells its interest in Uganda’s Lake Albert project to Total for a substantial consideration

par Jacques Leroueil

The challenge: for Tullow, to complete a lengthy sale process and for Total, to strengthen its African assets at a reasonable cost.

The British junior company Tullow Oil, which is in a difficult financial situation, was able to finalize the sale of its interest in the Lake Albert oil development project in Uganda and the East African Crude Oil Pipe Line (EACOP) project, which will run through Tanzania, to the French company Total.

Initiated in January 2017, the process of selling the group’s shares has been bogged down for a long time due to the lack of an agreement with the Kampala authorities on the tax treatment of this sale. The timetable then accelerated in March, when the Ugandan Ministry of Energy confirmed that the ongoing talks between the Ugandan government, the oil company Tullow and its partners Total and CNOOC were « close to a conclusion ». Tullow Oil had discovered the Lake Albert field in 2006 and subsequently sold one-third of the capital to each of its two partners, Total and CNOOC in 2012 for a total of $2.9 billion. Contrary to the original plan, which called for an equal transfer of shares between the other two project partners, Total and CNOOC, the European major took over all of Tullow’s assets.

In the press release announcing the agreement with the British junior partner, Total CEO Patrick Pouyanné welcomed the fact that the agreement « […] will enable Total to acquire all of Tullow Oil’s interests in the Lake Albert project for an acquisition cost of less than $2 per barrel, and that Total has reached an agreement with the Ugandan government on the fiscal framework […] ». According to the terms of the agreement, the hexagonal group will pay Tullow $500 million in cash, to which will be added a second payment of $75 million « when the partners make the final investment decision on the project ». For Tullow, which faces $2.8 billion in financial commitments, management said that « the proceeds of the sale will be used to reduce debt, strengthen the balance sheet and move the company towards a more conservative capital structure ».

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