Wednesday 22 November 2017

Boost for Tullow as Ugandan report opposes rival takeover

Pat Boyle

A report from the Ugandan Security Ministry has warned the government there that a proposed takeover of Heritage Oil by the Italian firm Eni would damage the country's oil industry and has warned against approving the deal.

The report will be welcome news for Tullow Oil, which itself has until January 17 to exercise a pre-emption right to match the Eni offer and buy the Heritage interest for itself.

By securing the interests of Heritage, its partner in two key blocks on Lake Albert, Tullow would gain 100pc control of the huge oil finds, putting itself in a better position to entice in a new partner to help fund the development of the fields.

The Ugandan oil ministry says the fields have the potential to produce 100,000 barrels per day for the next 25 years. It estimates the finds at about two billion barrels so far, with further prospects still to be drilled.

The Lake Albert discoveries are spread over three blocks, two of which are jointly held by Tullow and Heritage, with the third controlled by Tullow.

At least 32 of the 34 wells drilled so far have located commercially viable oil deposits. This is a huge success rate and indicates that there is potential for much more oil.

Given the size and potential of the oil finds, the government has taken a keen interest in their development, insisting from an early date that a new refinery should be built to process the oil and ensure the economy would secure as much benefit as possible from the discoveries.

Tullow plans to start production next year with a targeted Ugandan output of between 5,000 and 10,000 barrels a day by 2012, rising to 150,000 barrels a day within five years.

However, development plans, including the construction of a 1,300km pipeline to the coast and the refinery, require cash and expertise that Tullow itself does not have.

Instead it is looking to bring in one of the oil majors to help, and before the Heritage-Eni deal it had launched its own auction to divest part of its holdings.

Total of France, US giant Exxon-Mobil, Norway's Statoil, China's Sinopec and the Korea National Oil Corporation are all understood to have expressed an interest in taking up a stake in the acreage. Tullow is understood to prefer bringing in Total, which has extensive experience of operating in Africa, particularly in west Africa, where it has been a dominant force in the offshore oil industry.

Among the other firms it is thought to prefer is the company with the deepest pockets, the US giant Exxon-Mobil.

The Security Ministry report states that "Eni have placed a deal on the table for a refinery and even produced a memorandum of understanding to be signed at the highest level in the country without any studies and due diligence".

Irish Independent

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