This represents approximately 9.99 per cent. of Tullow Oil's existing issued ordinary share capital ("the Placing"), with both new and existing institutional investors.
The Placing is being conducted, subject to the satisfaction of certain conditions, through an accelerated book-building process to be carried out by Merrill Lynch International ("BofA Merrill Lynch") and RBS Hoare Govett Limited ("RBS Hoare Govett"), who are acting as joint global co-ordinators and joint bookrunners (the "Joint Global Co-ordinators"). BNP Paribas and Calyon are acting as joint bookrunners (together with the Joint Global Co-ordinators the "Joint Bookrunners"). Natixis is acting as co-lead manager (together with the Joint Bookrunners, the "Banks").
The timing of the closing of the book, pricing and allocations are at the discretion of Tullow Oil and the Joint Global Co-ordinators. The single price payable to the Joint Bookrunners by all placees whose bids are successful the ("Placing Price") and the number of Placing Shares are each subject to agreement between Tullow Oil and the Joint Global Co-ordinators at the close of the book-building process. Details of the number of Placing Shares and the Placing Price will be announced as soon as practicable after the close of the book-building process.
The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing ordinary shares of 10 pence each in the capital of the Company, including the right to receive all dividends and other distributions declared, made or paid on or in respect of such shares after the date of issue of the Placing Shares. The Placing will be made on a non-pre-emptive basis. If all the Placing Shares are placed, it would represent an increase of approximately 9.99 per cent. of the current issued ordinary share capital of the Company, and the Placing Shares would represent approximately 9.1 per cent. of the enlarged issued ordinary share capital of the Company.
The Company will apply for admission of the Placing Shares to listing on the Official List and to trading on the main market of the London Stock Exchange and trading on the Irish Stock Exchange ("Admission"). It is expected that Admission will take place and that trading will commence on 1 February 2010 (the "Closing Date").
The Placing is conditional upon, inter alia, Admission becoming effective. The Placing is also conditional on the placing agreement not being terminated by either the Company or the Joint Global Co-ordinators. The Placing is not conditional upon completion of the acquisition of Heritage Oil & Gas Limited's Ugandan interests. The Appendix to this announcement (which forms part of this announcement) sets out the terms and conditions of the Placing.
Background to the placing
In January 2009, Tullow put in place a reserve based lending facility of US$2 billion and a new US$250 million revolving credit facility to fund the Jubilee Phase 1 development in Ghana and other existing mature production activities. In addition, Tullow raised £402 million in a placing of ordinary shares to fund its significant 2009 drilling campaign. Since that date, Tullow's business has continued to perform very strongly through 2009 and into 2010 as the exploration programme delivered further material successes in Uganda, Ghana and the Equatorial Atlantic region of West Africa; with an exploration success rate of 93 per cent. in Ghana and Uganda, and an overall result of 15 discoveries from 17 wells. Booked Commercial Reserves and Contingent Resources were significantly upgraded from 551 to 825 mmboe at the end of 2008 and are expected to be further upgraded for the year ended 2009.
The Group's producing and development assets are performing well with 2009 working interest production averaging 58,300 boepd. Jubilee development drilling and facilities fabrication remains on track to deliver first oil in the fourth quarter of 2010 which will be the first step in significantly upgrading the Company's production base.
Tullow has undertaken a multi-well exploration and appraisal programme leading to the development of two world-class hydrocarbon basins in Ghana and Uganda. In addition, Tullow's significant acreage position in the Equatorial Atlantic region of West Africa now incorporates nine deepwater blocks in Sierra Leone, Liberia, Côte d'Ivoire and Ghana. Exploration drilling activity has further enhanced the prospectivity of this acreage. The Venus B-1 exploration well offshore Sierra Leone was drilled in September and discovered hydrocarbons, proving the existence of an active petroleum system some 700 miles west of the Jubilee field. This result has de-risked the Group's numerous Jubilee-type prospects in West Africa. Tullow also has analogous leads and prospects being matured offshore South America. More recently, the Tweneboa appraisal result has confirmed a major oil and gas condensate field. It ensures that Tullow's recent appraisal success continues and further demonstrates the world-class potential offshore Ghana.
Significant commercial and operational progress has also been made in Uganda during the period. On 17 January 2010, Tullow's subsidiary, Tullow Uganda Limited ("Tullow Uganda"), exercised its right of pre-emption in respect of the proposed sale by Heritage Oil & Gas Limited ("HOGL"), a subsidiary of Heritage Oil plc ("Heritage"), of its 50 per cent. interest in Blocks 1 and 3A in Uganda. Pursuant to its right of pre-emption, Tullow Uganda has entered into a Sale and Purchase Agreement ("SPA") with HOGL following the transaction having been approved by Heritage's shareholders. The SPA contains various conditions, including the approval of Tullow Uganda as the purchaser by the Government of Uganda. The consideration for the transaction comprises US$1.35 billion cash and a further contingent, deferred consideration of up to US$150 million cash or an interest in a mutually agreed producing oil field independently valued at a similar amount. Tullow will now work closely with Heritage, HOGL and the Government of Uganda to expedite the approval process to allow the acquisition to proceed.
In parallel with exercising its right of pre-emption, Tullow has been running a transparent farmdown process which has attracted a significant amount of interest from major international and national oil companies with comprehensive downstream expertise. Farmdown partners have been short-listed and pre-agreed with the Ugandan authorities. The farmdown process is now well advanced, bids have been received and potential partners are supportive of the Group's decision to pre-empt.
Use of proceeds
Tullow's objective is to achieve an appropriate balance between a significant exploration and appraisal programme and the necessary level of production and development activity to fund the majority of the Company's operations. Until now the business has primarily been funded by a combination of operational cash flow, portfolio management and a reserve-based debt facility.
As indicated in its announcement on 18 January 2010, the Board of Tullow has concluded that it is in the interests of shareholders for Tullow to pre-empt the sale of HOGL's Ugandan assets and bring in a partner to deliver a unified basin-wide development plan which will be significantly value accretive to all stakeholders as a result of accelerated and materially higher production.
In order to optimise the balance of its business, the Board has further concluded that it is in shareholders' interests for Tullow to retain a stake of up to 50 per cent. of its enlarged acreage position in Uganda. Tullow's retained interest in the basin would therefore be higher than previously anticipated post farmdown. As outlined above, the purchase of the additional interests in Uganda pursuant to the exercise of the pre-emption requires the payment of consideration of US$1.35 billion on completion and a further contingent, deferred consideration of either US$150 million cash or an interest in a mutually agreed producing oil field independently valued at a similar amount.
The success of the pre-emption and subsequent farmdown process will increase the level of activity and rate of spend as Tullow moves into a phase of accelerated exploration drilling and more significant development expenditure as the Company works towards Uganda becoming a material oil-producing country. Additional capital spend of up to US$600 million is anticipated over the next 3 years.
Over the course of 2009 the Company has expanded its exploration portfolio in the Equatorial Atlantic region of West Africa, in collaboration with Anadarko, and continues to mature similar prospects in South America and elsewhere in Africa. The current exploration and appraisal budget is c.US$500 million per annum and high-grading of exploration drilling is necessary given the number of options in the portfolio and the appraisal work required from ongoing exploration success. The recent discovery at Tweneboa will trigger some US$100 million, net to Tullow, of additional spend to further appraise the field over the next 12 months. Significant exploration potential has also recently been identified east of the Jubilee field. In addition, the New Ventures team is constantly reviewing attractive potential acreage with a view to replenishing the exploration portfolio for the longer-term and has identified high-value opportunities in core plays which require investment of up to US$200 million per annum.
In light of Tullow's success with its ongoing drilling campaign, the scale of the additional potential in Ghana, the planned acceleration of development in the Lake Albert Rift Basin, and the further transformational exploration opportunities within the portfolio, the Board believes Tullow requires additional investment and funding capability. The Board has therefore concluded that raising equity capital is required both to facilitate the Ugandan acquisition and, together with the proceeds from the anticipated farmdown process, to provide the Company with a more appropriate capital structure for the medium term.
In particular, this will ensure that the Company has sufficient capital to:
- maintain a US$500 million per annum exploration programme;
- develop longer-term exploration options;
- accelerate development in Uganda across a unified basin with a new partner; and
- progress Ghana with additional appraisal and development of Tweneboa and subsequent phases of Jubilee.
Commenting on the proposed Placing, Aidan Heavey, Chief Executive Officer said:
“Tullow is well positioned with two major world-class development assets in Ghana and Uganda which provide a strong platform for its long-term production growth. Importantly, we also have a significant and growing transformational exploration portfolio in West Africa and South America. Today's equity placing and planned Ugandan farmdown will ensure that we have the right capital structure to deliver further material value for all stakeholders across our entire portfolio."