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Tullow Oil unlocks US$500mln cash in Uganda asset sale to Total

Published: 02:42 23 Apr 2020 EDT

Tullow Oil PLC - Tullow Oil unlocks US$500mln cash in Uganda asset sale to Total

Tullow Oil PLC (LON:TLW) has struck a cash deal to sell its entire Uganda business to Total for US$575mln, which is close to 150% of the London-listed firm’s market value.

It is a significant boon to Tullow’s liquidity with Total set to pay US$500mln of cash on completion, and, remainder coming at Final Investment Decision (FID) for the Lake Albert field development project.

The deal is the first transaction in a portfolio management programme that aims to extract over US$1bn, Tullow said.

READ: Tullow Oil names Rahul Dhir as new chief executive

The oiler told investors it intends to use proceeds to pay down debt and strengthen its balance sheet.

Further contingent payments are also stipulated subject to prevailing oil prices once Lake Albert is in production.

The transaction consolidates Total’s ownership of Lake Albert, where the two firms were partnered alongside state-backed Chinese firm CNOOC which now has pre-emption rights to pick up 50% of the Tullow unit.

“We have already made good progress with the Government of Uganda and the Uganda Revenue Authority in moving this transaction forward, including by agreeing the principles on tax treatment, and we will work closely with the Government, Total and CNOOC over the coming months to reach completion as quickly as possible,” said Dorothy Thompson, Tullow executive chair.

“We have also received strong support from our leading shareholders and look forward to receiving formal approval of this deal."

In a separate statement, ahead of today’s online AGM, Thompson added: “This week, we have announced two significant milestones with the agreement to sell our Uganda interests to Total for $575 million in cash and the appointment of our new CEO, Rahul Dhir.

"Operationally, we are delivering well against our production targets following improvements put in place by our asset team in Ghana and we have made significant changes to the structure and cost base of our organisation.

“Finally, the recent successful redetermination of our Reserves Based Lending facility (RBL) has underpinned Tullow's liquidity and the strength of our assets.”

Tullow confirmed first quarter production averaged 75,800 bopd, which is in line with expectations, and, Q1’s average oil price was marked at US$56 per barrel.

The company also repeated fairly wide production guidance for 2020 at 70,000 to 80,000 bopd.

It noted that it continues to pursue farm-out transactions for exploration assets, in order to reduce exposure to future drilling costs.

Hedging sees around 60% of 2020 oil sales priced at US$57 per barrel while 40% of next year’s expected output is priced at a floor of US$53 per barrel.

Earlier this week, Tullow announced the appointment of Rahul Dhir as its new chief executive effective from July 1, 2020.

Dhir is founder and presently chief executive of Delonex Energy which is partnered with Tullow in Block 12A in Kenya.

Tullow and Total are, meanwhile, partnered in other Kenyan oil assets and earlier this year were reportedly undertaking a joint process to sell those projects.

In a statement on Tuesday, Dhir commented: “I am very excited at the opportunity to lead Tullow and re-establish it as an iconic company in our industry.

“The company has high-quality assets and great people. It also has a unique position in Africa, built on a proven track record of responsible operations, strong relationships and a commitment to sustainability.”

Lake Albert background

Once up and running it is envisaged that Lake Albert could produce some 230,000 barrels of oil per day as rates plateau.

Development of an initial 1.2bn barrel project was greenlighted by the Ugandan authorities in 2016 and the project partners are on the cusp of taking the FID.

Tullow farmed down its original 100% stake in Lake Albert to Total and CNOOC via a 2011 deal worth US$2.9bn including partner spending commitments.

Additionally, back in 2017, Total sold a 21.57% stake in the project to Total in a US$900mln deal before CNOOC took up its pre-emption rights over 50% of that transaction.

It left Tullow with 33% of the project, which it was actively marketing.

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