Total and Tullow make a deal over Lake Albert, Uganda

5482182274 75e312445b cTotal will acquire all of Tullow’s interests in the Lake Albert development project, including the East African Crude Oil Pipeline (EACOP)

The overall consideration will cost Total US$575mn, with an initial payment of US$500mn at closing and US$75mn when FID is reached. Additionally, conditional payments will be made to Tullow linked to oil production and price. This will be triggered when Brent prices are above US$62 per barrel.

Under the terms of the deal, Total will acquire Tullow’s existing 33.3334 per cent stake in each of the Lake Albert project licenses EA1, EA1A, EA2 and EA3A and the proposed 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 per cent of the transaction.

“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 US2$ per 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.”

Conor Ward, upstream oil and gas analyst at GlobalData, commented on Uganda's problems to reaching first oil in light of this deal being made: “Tullow and its partners in Uganda have struggled to reach FID in the country due to various disputes with the Ugandan authorities, the most recent being over tax consideration over the farm-down of Tullow Oil’s project equity, which was a prerequisite for them to make FID. Furthermore, there were multiple delays to the associated multi-billion-dollar pipeline project - firstly due to disagreements with the construction route, and recently Total SA decided to suspend all works on the project after termination of the farm-down agreement with Tullow.”

He went on to cite poor infrastructure and the need for the new pipeline as further hurdles to starting production. The pipeline is estimated to add an estimated US$3.5bn to the project. Total SA have said that it will look to drive down costs on the project, which will be of utmost importance in the current economic climate as we estimate the break-even price for the projects to be over US$40 per bbl.

“Today, a major step has been taken toward the settlement of disputes in Uganda, however as this agreement is only ‘in principle’ it could be some time before a full agreement is reached. With the current oil price environment and COVID-19 outbreak, all project participants have reduced capex budgets for the year, so it still remains highly unlikely that we see FID for these Ugandan projects this year,” Mr Ward concluded.

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