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Government Approves UGX 2 Trillion Tullow Farm-Out Deal :: Uganda Radionetwork

Government Approves UGX 2 Trillion Tullow Farm-Out Deal

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In a statement on Wednesday, Tullow announced that the Ministry of Energy and Uganda Revenue Authority approved the deal valued at USD 575 million (2.231 trillion Shillings)
21 Oct 2020 16:48
Long Journey Workers at one of the drilling stages at an oil well drilled by Tullow Uganda. Credit Wambi Michael.
Government has finally allowed Tullow to sell all its stake in Uganda’s oil and gas sector to French Oil Giant Total E&P. In a statement on Wednesday, Tullow announced that the Ministry of Energy  and Uganda Revenue Authority approved the deal valued  at USD 575 million (2.231 trillion Shillings)

The three parties according to Tullow executed a binding Tax Agreement that reflects the pre-agreed principles on the tax treatment of the sale of Tullow’s stake in the Albertine Graben to Total. The Minister of Energy and Mineral Development, Mary Goretti Kitutu also approved the transfer of Tullow’s interests to Total and the transfer of operatorship for Block 2 based in the Lake Albert region.

Tullow says it expects the transaction to close in the coming days after completing certain customary pre-closing steps with Total. Tullow will provide a further update once the transaction has closed and funds have been received. On closing, Tullow will receive USD 500 million consideration and a further USD 75 million when a Final Investment Decision-FID is taken on the development project.

Besides, Tullow is entitled to receive contingent payments linked to the oil price payable after production commences. Energy Ministry Permanent Secretary, Robert Kasande confirmed the approval but was hesitant to disclose how much tax Tullow is supposed to pay before exiting Uganda's oil and gas sector.

The farm-out approval comes after close to a three-year standoff between the Government and the oil companies. Tullow had originally struck a deal with Total for a farm-down to Total at USD 900 million. But the deal collapsed after the government had insisted that Tullow pay $167 million before it could transfer its assets to Total and CNOOC.

CNOOC, one of the operators in the Lake Albert Development project had exercise preemptive rights seeking to acquire part of the shares that were on farm-down. It later withdrew its interest following a long taxation dispute.       

Tullow Oil PLC the Parent Company to Tullow Uganda at the end of August last year terminated the planned farm-down opting to the sale of its stake or farm out. If the deal is completed, Total will have additional 33.33 per cent stake in the Lake Albert project.

The Lake Albert Development Project is a major development which expects to achieve around 230,000 bond when it reaches a plateau. Development Plans were approved by the government in August 2016 to develop the first 1.2 billion barrels of oil.