A fortnight after closing a deal where it offloaded its stake in the Albertine Grabben projects to French oil major Total, Tullow Oil has written to the Ugandan government to expedite transaction approvals that will see the company receive $500 million in the second half of this year. The company will use the proceeds to repay its debt.
The Anglo-Irish firm sent its request for approval to the Ministry of Energy and Mineral Development on June 4.
However, officials said that the government is keen to expedite the approval following the decision by China National Offshore Oil Corporation not to exercise its pre-emptive rights under the joint operating agreements.
“The request will be processed expeditiously since there is already mutual understanding on the treatment of the transaction between the government and the oil companies,” officials said.
“We hope they will approve the deal so that it can close in the second half of 2020,” said George Cazenove, head of corporate affairs and communications at Tullow Oil Plc.
Tullow is keen to conclude the deal as it represents the first significant step in the management of its debt portfolio, aiming to raise in excess of $1 billion from this and other transactions before end of this year.
On April 23, Tullow and Total signed a sale and purchase agreement, in which Tullow agreed to transfer its entire interests in Blocks 1, 1A, 2 and 3A in Uganda and the proposed East African Crude Oil Pipeline to Total Uganda for cash consideration of $575 million.
According to the agreement, Tullow was to receive $500 million upon completion of the transaction and $75 million when Uganda oil projects reach the Final Investment Decision of the upstream and midstream segments.
GLOBAL OIL PRICE COLLAPSE
Uganda government’s approval is the final cog in the wheel that will allow the two oil firms to proceed towards conclusion and relieve the troubled Anglo Irish firm of its debt and operation challenges both in the region and elsewhere.
Besides the Ministry of Energy granting, Uganda Revenue Authority is also poised to okay the deal after agreeing with the parties on $14.6 million capital gains tax from this transaction, URA spokesperson Vincent Seruma said.
This is unlike Tullow’s previous deal entered in 2017 in which the company sought to sell 21.57 per cent of its interests to Total and CNOOC for $900 million, which collapsed in August last year after a dispute with the government over a $167 million CGT valuation that URA demanded from this sale.
In April, Tullow agreed a lower value for its entire stake, but Mr Cazenove says the deal is fair given the collapse of oil prices yet the company will receive a big chuck of the purchase fee when the transaction is concluded.
Under the previous arrangement, Tullow would have received $100 million in cash with the remaining $800 million being paid later either at project milestones ($100 million) or through deferred consideration ($700 million) as the project got underway.
URA TAX RESOLVED
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 to enable the Transaction to complete.
Total Uganda and Tullow Uganda have certain SPA termination rights in the event that the tax agreement, once entered into, is challenged or revoked or there is a threat to do so, a Tullow statement said in April.
