KAMPALA – Tullow and Total Uganda have signed a Sale and Purchase Agreement (SPA), with an effective date of 1 January 2020, in which Tullow has agreed to transfer its entire interests in Uganda and the proposed East African Crude Oil Pipeline (EACOP) System to Total.
The overall consideration paid by Total to Tullow will be $575M, with an initial payment of $500M at closing and $75M when the partners take the Final Investment Decision to launch the project.
In addition, conditional payments will be made to Tullow linked to production and oil price, which will be triggered when Brent prices are above $62/bbl.
According to a statement by Total in Uganda, the terms of the transaction have been discussed with the relevant Ugandan Government and Tax Authorities and agreement in principle has been reached on the tax treatment of the transaction.
Under the terms of the deal, Total will acquire all of Tullow’s existing 33.3334% stake in each of the Lake Albert project licenses EA1, EA1A, EA2 and EA3A and the proposed East African Crude Oil Pipeline (EACOP) System.
The transaction is subject to the approval of Tullow’s shareholders, to customary regulatory and government approvals and to CNOOC’s right to exercise pre-emption on 50% of the transaction, Total says.
“We are pleased to announce that a new agreement has been reached with Tullow to acquire their entire interests in the Lake Albert development project for less than 2$/bbl in line with our strategy of acquiring long-term resources at low cost, and that we have an agreement with the Uganda government on the fiscal framework,” said Patrick Pouyanné, Total Chairman and CEO.
“This acquisition will enable us, together with our partner CNOOC, to now move the project forward toward FID, driving costs down to deliver a robust long-term project.”
Tullow and Total have had discussions with Uganda Revenue Authority in recent weeks, including to agree the principles of the tax treatment of the Transaction, according to a statement by Tullow.
“This includes 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 million in respect of the Cash Consideration. Tullow Uganda and Total Uganda now intend to sign a binding tax agreement with the Government of Uganda and the URA that reflects these principles which will enable the Transaction to complete,” Tullow’s statement reads.
Completion of the Transaction is expected to enable Tullow to realise value from the Lake Albert Development Project in Uganda, following the expiry of its previous farm-down agreement with Total and CNOOC in August 2019.
“This deal is important for Tullow and forms the first step of our programme of portfolio management. It represents an excellent start towards our previously announced target of raising in excess of US$1 billion to strengthen the balance sheet and secure a more conservative capital structure,” said Dorothy Thompson, Executive Chair of Tullow.