Tullow entered into three Ugandan exploration licences in 2004 following the acquisition of Energy Africa. The Group added further equity and operatorship to the licences in the Lake Albert Rift Basin when it acquired Hardman Resources in 2007.
The acreage presented Tullow with a great opportunity to explore across this vast, and relatively undrilled, onshore basin. In 2006, Tullow began to get encouraging exploration results and flow tests from some initial wells. Further significant discoveries and appraisal success led in 2009 to the basin development commercial volume threshold being exceeded. Following further success, contingent resources are now estimated to be around 1.7 billion barrels of oil.
The Lake Albert Development Project is a major development which expects to achieve around 230,000 bopd when it reaches plateau. Development Plans were approved by the Government in August 2016 to develop the first 1.2 billion barrels of oil. The Government of Uganda has agreed an export route through Tanzania to the Port of Tanga.
Key work programme activities, such as the FEED and ESIAs are under way for both the upstream and pipeline. The Joint Venture Partners are working towards reaching FID around mid-year 2018.
FARM DOWN OF EQUITY IN UGANDA
A series of transactions took place in 2010-2012 whereby Tullow acquired 100% of the three licences before farming down a third of the equity to both CNOOC and Total. The transaction was for a total consideration of $2.9bn and effectively unitised the basin equally between all three parties ahead the basin development.
On 9 January 2017, Tullow announced that it has agreed a substantial farm-down of its assets in Uganda to Total. Under the Sale and Purchase Agreement, Tullow has agreed to transfer 21.57% of its 33.33% interest in Exploration Areas 1, 1A, 2 and 3A in Uganda to Total for a total consideration of $900 million. CNOOC Uganda Limited (CNOOC) subsequently exercised its pre-emption rights under the joint operating agreements to acquire 50% of the interests being transferred to Total on the same terms and conditions. The farm-down leaves Tullow with an 11.76% interest in the upstream and pipeline, which will reduce to 10% when the Government of Uganda formally exercises its right to back-in.
The consideration is split into $200 million in cash, consisting of $100 million payable on completion of the transaction, $50 million payable at FID and $50 million payable at first oil. The remaining $700 million is in deferred consideration and represents reimbursement in cash of a proportion of Tullow’s past exploration and development costs. The deferred consideration will fund Tullow’s share of the development and pipeline costs as the Lake Albert Development reaches a series of key milestones.
The Joint Venture Partners have officially notified the Government of Uganda of the farm-down, seeking its approval of the transaction. Tullow now anticipates that the farm-down will complete in the first half of 2018 with cash payment on completion and payment of deferred consideration for the pre-completion period (including the whole of 2017) being received in 2018.