Wednesday February 22 2012

Tullow finally sells 67% oil stake

By Isaac Imaka

British oil firm Tullow Oil yesterday signed a long-awaited multi-billion shilling deal bringing French and Chinese industry players into the Ugandan oil sector.

Tullow Oil’s $2.9b (Shs 6.4 trillion) farm-down which brings French firm Total and Chinese group CNOOC as new partners to develop its fields in the country, paves way for commercial oil production to start with early, small scale production set for next year.

The deal follows the recent signing of new Production Sharing Agreements (PSAs) between government and Tullow Oil, including issuance of the Kingfisher production licence to the British oil firm.
Tullow announced yesterday that it had doled out 66.6 per cent of its total stake in the Ugandan oil sector for equal share by the two new players. The two companies in turn transferred a whopping $2.9b to Tullow Oil.

“I am delighted that we have completed this farm-down with CNOOC Limited and Total, two experienced partners with whom we have already built a strong working relationship,” said Tullow Oil’s Aiden Heavy in a statement.

“The Lake Albert Rift Basin is one of Africa’s most exciting oil discoveries and I look forward to working with our new Partners and the Government of Uganda in driving this project towards major production.”

According to the Sale and Purchase Agreements, the Chinese firm purchased one third interests from Tullow and will operate the new Kanywataba licence and the Kingfisher production licence. CNOOC reportedly paid $1.467b (Shs 3.2tr), an equal payment made out by Total.

According to Tullow Oil’s Corporate Affairs Manager, Mr Jimmy Kiberu, government is to receive Shs1.1tr from the deal.

“We have been assessed for Capital Gains Tax of $472m (1.104tr). 30 per cent of that sum (about $141m) - Shs331b has been wired to the URA account today (yesterday).”

Total has been handed Exploration Areas 1, becoming an equal partner with Tullow and CNOOC in the blocks, each with a one-third stake of interests.

Yves-Louis Darricarrere, Total’s President, said: “We have entered a new oil province, giving us access to substantial proven resources and high-potential acreage. The size of the discoveries indicates that large-scale development may be possible. Plateau production could exceed 300,000 barrels per day.”
CNOOC’s website quotes Mr Li Fanrong, the company’s CEO, saying: “We are delighted to see the completion of this transaction which will not only add value to our shareholders but also bring social welfare to the people of Uganda. CNOOC will work closely with our project partners and the Government of Uganda to expedite the development programme.”

The deal faced repeated delays following the initial announcement in early 2010 and the signing of sale agreements in March 2011. The delays were in large part the result of a tax dispute between the government and Herritage Oil, a former partner of Tullow Oil.

For Uganda’s oil sector, the deal officially confirms the process towards oil production which, according to Tullow Oil, estimates will cost $10b (Shs22tr). The firm says small-scale oil and gas production for the local power market will commence nest year from the Kaiso-Tonya area and major production from the Lake Albert Basin is anticipated to commence 36 months after a basin-wide plan of development is approved by government. If that timetable is followed, major production would start in 2016.

Although MPs have since opposed the signing of any new oil agreements until new laws governing the sector are established, government inked a fresh deal with Tullow in February which paved way for the entry of French and Chinese players.