Tullow's stakes in the Lake Albert development project, including the East African Crude Oil Pipeline, will be acquired by Total (EACOP)
The total consideration will be US$575 million, with an initial payment of US$500 million at closing and a final payment of US$75 million when FID is attained. Tullow will also get conditional payments based on oil production and price. When Brent prices exceed US$62 per barrel, this will be triggered.
Total will buy Tullow's existing 33.3334 percent ownership in each of the Lake Albert project licences EA1, EA1A, EA2, and EA3A, as well as the proposed EACOP System, under the terms of the agreement. Tullow's shareholders must approve the acquisition, as well as usual regulatory and government approvals and CNOOC's right to exercise pre-emption on 50% of the transaction.
“We are pleased to announce that we have signed a new deal with Tullow to acquire their complete interests in the Lake Albert development project for less than US$2 per bbl, in accordance with our policy of purchasing long-term resources at low cost, and that we have established a fiscal framework agreement with the Uganda government,” 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.”
In light of this agreement, Conor Ward, an upstream oil and gas analyst at GlobalData, commented on Uganda's difficulties in attaining first oil: “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 say that weak infrastructure and the need for a new pipeline are two further roadblocks to getting production up and running. The pipeline is expected to add US$3.5 billion to the project's cost. Total SA has stated that it will work to reduce project costs, which is critical given the present economic context, since we estimate the project's break-even price 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.