An agreement between Tullow Oil and two international oil companies to share the costs of developing a Ugandan oil field has been terminated, leaving Tullow to find new partners, Business Focus understands.
It should be noted that on January 9, 2017, Total and Tullow entered into a Sale and Purchase Agreement (SPA) whereby Total would acquire 21.57% out of Tullow’s 33.33% interest in the Lake Albert licenses.
CNOOC exercised its right to pre-empt 50% of the transaction. As a result, Total and CNOOC would have each increased their interest to 44.1% while Tullow would have kept 11.8%.
Since 2017, all parties have been actively progressing the SPA, a statement issued by Total today August 29, 2019 reads.
However, despite diligent discussions with the authorities, no agreement on the fiscal treatment of the transaction has been reached, it adds.
The statement adds that the deadline for closing the transaction has been extended several times, clearly demonstrating the endeavors of the parties to find an agreement.
“The final deadline will be reached at the end of today, August 29, 2019, and as such, the Acquisition Agreement will be automatically terminated,” the statement reads.
“Despite the termination of this agreement, Total together with its partners CNOOC and Tullow will continue to focus all its efforts on progressing the development of the Lake Albert oil resources. The project is technically mature and we are committed to continuing to work with the Government of Uganda to address the key outstanding issues required to reach an investment decision. A stable and suitable legal and fiscal framework remains a critical requirement for investors,” declared Arnaud Breuillac, President Exploration & Production of Total.
Total’s interest will therefore remain at 33.3% on blocks EA1, EA2 and EA3 prior to the 15% national company back-in, Total being operator of the block EA1 which contains the largest part of the reserves. Total keeps the right to pre-empt any future transactions, in case any party divests part or all of its interest.
Irish based Irish Times where Tullow Oil PLc is listed further reports that Tullow said on Thursday that its agreement with French oil giant Total and Chinese company CNOOC was to terminate at the end of the day, following a lack of agreement with the Ugandan government over the tax terms of the transaction.
Despite previous extensions to the sale and purchase agreements having been agreed by all parties, Tullow said it has been unable to secure a further extension with its joint venture partners.
This is due to being unable to agree all aspects of the tax treatment of the transaction with the Government of Uganda, which was a condition to completing the deals.
Paul McDade, chief executive, said it was “disappointing” to report this news, when it was making “so much progress” elsewhere towards the growth of the group.
While Tullow’s capital gains tax position had been agreed as per the group’s disclosure in its 2018 accounts, the Ugandan Revenue Authority could not agree on the availability of tax relief for the consideration to be paid by Total and CNOOC as buyers of a share of the project.
As a result, Tullow said it will now initiate a new sales process to reduce its 33.33 per cent operated stake in the Lake Albert project, which has over 1.5 billion barrels of discovered recoverable resources and is expected to produce over 230,000 barrels of oil per day at peak production.
The announcement comes on the back of a strong month for the exploration group. Earlier in August, it said it had made a “substantial and high value oil discovery” off the coast of Guyana.
