Thursday 14 November 2019

Tullow strikes landmark €2bn deal with French and Chinese oil giants

Thomas Molloy

TULLOW Oil has agreed to sell stakes in its Ugandan operations to France's Total and China's CNOOC for $2.9bn (€2bn), in one of the biggest deals ever agreed by a company listed on the Dublin stock exchange.

Tullow, named after the Carlow town and set up by former Aer Lingus accountant Aidan Heavey, said yesterday that it agreed to sell each company a one-third interest in fields around Lake Albert, which it estimates to contain one billion barrels of oil and potentially 3.5 billion barrels. Tullow will retain a one-third share.

At $2.9bn, the deal is not far off the $3.7bn paid by Spain's Banco Santander to Allied Irish Banks last September for a majority stake in Poland's Bank Zachodni WBK.

Mr Heavey said yesterday that Tullow's Dublin operation, which looks after the company's South American operations and all geology issues, had recently moved to a larger office in Sandyford in Dublin and is preparing to take on new staff. The operation here currently employs around 100 people.

Yesterday's agreement leaves unresolved a massive tax dispute with Uganda's government. Energy minster Hilary Onek said the country would receive a total of $472m in taxes from the farm-down deal.

Tullow, however, said this figure was calculated incorrectly and that it believes the total liability to be "significantly less" than the $141m it has agreed to deposit with the government pending discussions on the matter.


Additionally, Tullow, Total and CNOOC have agreed to deposit $313m with the government while Uganda pursues Heritage Oil, Tullow's former partner in the fields, for $404m in taxes the government says is due on the sale of its interests to Tullow.

Tullow said it expected this money would be repaid but it was unclear if the companies will receive any interest on the deposit while the Heritage dispute rumbles on. The matter is expected to take a year to settle.

"While the tax situation is still uncertain, this closes the chapter on a saga that has been running for over a year," said Phil Corbett, an analyst at Royal Bank of Scotland.

Tullow said up to $10bn will be spent developing the field, partly on the construction of a small refinery and a pipeline to the East African coast -- activities in which the explorer has little experience.

Tullow said it expected production of around 20,000 barrels per day for the local market by 2015. Total said full-scale production could exceed 300,000 barrels per day.

Tullow also has plans to drill for oil in Kenya as an increasing number of oil companies move into east Africa, which is rapidly becoming an "important new province in oil and gas," analysts at Bernstein said. (Additional reporting: Bloomberg, Reuters)

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