Sale of Tullow Oil interests to Total, CNOOC stalls

Saturday December 16 2017

Tullow Oil workers at a rig in Buliisa in

Tullow Oil workers at a rig in Buliisa in Uganda. The country has about 1.4-1.7 billion recoverable barrels of oil in the explored areas in the Albertine Graben, which Tullow farmed down. PHOTO FILE | NMG 

HALIMA ABDALLAH
By HALIMA ABDALLAH
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The expected sale of Tullow Oil’s interests to its joint venture partners in Uganda’s oil fields, Total E&P and China National Offshore Oil Company (CNOOC) has been delayed over taxation and the question of who will operate the oil blocks.

The EastAfrican has learnt that while CNOOC wants to operate the entire area, Total wants the area split so that each partner operates areas closer to fields that they currently manage.

This leaves Tullow — which early in the year expressed interest in quitting active operations — with no option but to wait on a decision by the Uganda Revenue Authority about its tax obligations.

On January 1, Tullow announced that it had signed a sale purchase agreement with Total to transfer 21.57 per cent from its 33.33 per cent interest in the joint venture partnership with CNOOC.

Tullow was the official operator of exploration areas one, two and three. Each of the joint partners holds equal shares of 33.33 per cent in Uganda’s oil discoveries. 

Leadership position

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“This transaction gives Total a leadership position to move this project efficiently toward a financial investment decision. Total, which is already operating licences for EA1 and EA1A, will take over operatorship of licence EA2 from Tullow, enabling significant efficiency gains and synergies,” Total’s public affairs manager, Ahlem Friga-Noy, said after signing the deal.

This position was supposed to change two months later after CNOOC exercised its pre-emption rights — as it is a joint venture partner and a signatory to the production sharing agreements.

CNOOC demanded the shares that Tullow was disposing of to be on the same terms and conditions that were agreed on between Tullow and Total — 50 per cent of the 21.57 per cent. Tullow remains with 10 per cent of the shares.

Disagreement

While sharing Tullow’s offer is not in dispute, the disagreement arose when Total and CNOOC could not agree over who would run operations at EA2.

Incidentally, the disputed area is well separated and each partner would be able to operate the area that falls within its vicinity.

Part of Tullow’s oil block borders Total’s oil blocks in the extreme north of Lake Albert while another of Tullow’s blocks lies on the extreme south of Lake Albert and borders CNOOC’s King Fisher field.

The EastAfrican has been informed that there is no extra economic benefit for the firm that operates the blocks, but Total is concerned that if CNOOC operates Tullow’s block closer to its fields, its planned activities will be disrupted.

“Total and Tullow did a joint front-end engineering and design (FEED) on the entire north oil blocks and so if CNOOC takes over operatorship, it means that Total has to redo the FEED, which means additional costs for the study and overall delay of the project,” said a source familiar with the discussions.

The government has now been dragged into the discussions with a view to help the parties reach a mutual conclusion of Tullow’s partial exit.

The companies have already submitted in writing the farm-down decisions to the energy minister. The minister was expected to assess the transactions and respond as the law requires. However, the government now has to deal with the question of operatorship.

Nod to the deal

President Yoweri Museveni has given a nod to the deal.

“We already signed the share purchase agreement but the question of who takes over operatorship is still under debate between the companies and government. We also made an application for a private tax ruling to URA, but the tax body is yet to respond. We think URA may be waiting for the conclusion of the dialogue before responding,” said Tullow spokesman Abdul Kibuuka.

“We are waiting for the government to make a decision on operatorship and we shall comply accordingly,” said Aminah Bukenya, CNOOC’s spokesperson.

Tullow’s plan to sell its stake in Uganda was a bid to free financial resources to enable it to continue operations in Kenya.

Uganda has 6.5 billion barrels of oil, with 1.4 -1.7 billion recoverable in the 40 per cent explored areas in the Albertine Graben. Estimates show that up $15 billion will be required to commercialise the resources.

Last week, Energy Minister Irene Muloni said all activities in the sector will move concurrently. The projects include a refinery, a crude oil pipeline, a product pipeline and two central processing facilities.

Tullow’s current equity position in Kenya stands at 50 per cent, but that is likely to be sold in future.

“We have long said that we may sell part of our stake in Kenya, but this has to be at an appropriate time and to the right partner. Tullow is committed to remaining the operator in Kenya, in fact the Uganda transaction further cements Tullow’s commitment to East Africa,” said Mr Kibuuka.

In 2012, Tullow sold its interests equally to Total and CNOOC, but the transaction was easier to settle then because the sector had not reached production stage.

Uganda has set timelines to produce first oil in 2020, and companies have secured production licences and are progressing with development phase activities where each company wants to be in charge of oil field operations.

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