It’s going to be difficult for Tullow Oil to attract a new investor to buy into its Uganda oil fields after negotiations to sell 21.5 per cent of its stake for $900 million to its partners – France’s Total E&P and China’s Cnooc – collapsed late last week.
The failure to complete the deal after more than two and half years of negotiations further delays the oil companies’ plans to sign the much-awaited Final Investment Decision (FID), which is needed to unlock nearly $10 billion for the development of the Tilenga and Kingfisher oil projects, and the East African Crude Oil Pipeline.
Tullow Oil does not have that much money to play a significant role in the development and production stages of Uganda’s oil industry and, therefore, needs to further reduce its current stake.
Tullow Oil, in a statement, says it “will now initiate a new sales process to reduce its 33.33 per cent operated stake in the Lake Albert project,” after the deadline to do a deal with Total and Cnooc expired at the stroke of midnight on August 29. Tullow did not clarify exactly when it will embark on the new sales process, and how it will do it.
Jimmy Mugerwa, the country manager of Tullow Oil Uganda, insists the Lake Albert oil basin remains a “low-cost project” which should bring any investor a good return on investment. Getting in a new investor will be a tricky. For starters, few investors, if any, are willing to strike a deal of this size if oil majors such as Total E&P and Cnooc are against.
Also, Total E&P and Cnooc could exercise their pre-emptive rights of having the first option to buy Tullow Oil’s stake, further delaying the process. Some industry players say the only option is for Tullow Oil to reintroduce the same deal to its partners, Total and Cnooc, with government relaxing its position.
While a number of disagreements have arisen ever since Tullow Oil announced its plan to sell a sizeable stake of its interests in the Albertine graben, nothing has led to a breakdown of relations than the tax element on its farmdown deal.
At the heart of the dispute was the definition of the amount of money that Tullow Oil was to get from the transaction. Tullow Oil announced that out of the $900 million it would get from the sale of 21.5 per cent of its stake, $700 […]