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Tullow shares surge on $575m Uganda asset sale

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New start: Tullow appointed Rahul Dhir CEO earlier this week

New start: Tullow appointed Rahul Dhir CEO earlier this week

Bloomberg

New start: Tullow appointed Rahul Dhir CEO earlier this week

Tullow Oil yesterday concluded a years-long process to sell its Uganda assets to French group Total, in a step towards reducing its debt.

Shares in Tullow jumped the most on record.

The Irish explorer agreed to sell its entire interest in the Lake Albert development project for $575m (€532m).

That is a steep discount on its original 2017 deal - which was stymied by tax disagreements - but includes more cash upfront and will offer relief to Tullow after a calamitous year, which saw it part company with its CEO Paul McDade in December.

"An agreement to sell Uganda for cash proceeds is very positive news for Tullow right now," Mark Wilson, an analyst at Jefferies, said in a note.

"As a first step to the target of raising over $1bn disposal proceeds, this deal is beyond what we believed possible."

Tullow surged as much as 75pc in London yesterday, the biggest leap since the shares started trading in 1989.

The cash consideration for the assets consists of $500m to be paid on completion of the deal and $75m payable following a final investment decision over the Lake Albert development project.

Additional cash may be received by Tullow in the form of contingent payments, which will be payable on upstream revenues from the Lake Albert project, depending on the average annual Brent price once production starts.

The transaction is subject to approval by Tullow Oil's shareholders. The company has already consulted with shareholders holding approximately 27.5pc of Tullow's issued share capital, and they have indicated their support.

Tax issues have been ironed out with the Ugandan authorities, and both parties are now hoping to wrap up the transaction in the second half of the year.

Tullow, which earlier this week appointed Rahul Dhir as its new CEO, has been working to reduce its pile of net debt, which was $2.8bn at the end of 2019.

The company said it has identified a further $85m in savings to reduce its capital expenditure to $300m this year.

In the first three months of 2020, Tullow's average oil price was around $56 a barrel, according to a trading update.

Job Langbroek, an analyst at Davy Stockbrokers, said: "Coming on the heels of a successful debt re-determination and confirmation of new CEO leadership, the Uganda deal is a major step in the right direction."

Additional reporting Bloomberg

Irish Independent