French oil major Total stands to dominate Uganda's oil sector through its ownership of 66.66 per cent of Lake Albert oil projects. They are expected to go into production in 2022/2023, with China National Offshore Oil Company (CNOOC) retaining one-third of the once three-way joint venture with Tullow.
Total's fortunes were shored up by CNOOC's announcement last week that it will not exercise its pre-emption rights in a deal where Tullow will sell its assets to Total. The deal is expected to conclude later this year.
"CNOOC Uganda Ltd has informed both Tullow and Total that it will not pre-empt the sale of Tullow's assets in Uganda to Total," said Tullow in a May 28 statement.
This news follows the April 23 announcement that Tullow had agreed to the sale of its entire assets in Uganda to Total for $575 million, subject to consent from CNOOC.
As per joint partner agreement between the three players in Uganda's Lake Albert oil projects, CNOOC "had rights of pre-emption to acquire 50 per cent of these assets on the same terms and conditions as Total."
It is not clear why CNOOC opted out of pre-emption, with sources at the company's Kampala office saying the "decision was made at the headquarters level."
"We are also waiting for headquarters to update us on this decision," they added.
The remaining phase of the transaction awaits approval first from the company's shareholders and then from the relevant Uganda governments agencies -- which has previously proved a tougher hurdle.
Shareholder approval is certain considering that during the company's annual general meeting held last month on the same day that Tullow announced its deal with Total, Tullow executive chair Dorothy Thompson said that industry challenges and the firm's debt situation dictated the sale of its Uganda assets.
"I am very pleased with the material progress Tullow has made in the first quarter of this year given the challenges facing the group after our performance in 2019, the Covid-19 pandemic and very low oil prices recently.
"Last week, we announced two significant milestones with the agreement to sell our Uganda interests to Total for $575 million in cash and the appointment of our new CEO, Rahul Dhir. The sale of our Uganda assets is an excellent first step towards our target of raising over $1 billion of proceeds to reduce net debt, strengthen the balance sheet and secure a more conservative capital structure," said Ms Thompson.
Yet this sale value represents a downgrade on a deal Tullow had reached with Total and CNOOC in 2017 to sell only a chunk of its assets for $900 million, and which would have seen the company remain with a 11.76 per cent stake.
The deal fell through after talks between the oil companies and Uganda government's tax body collapsed over the assessment of the capital gains tax that Tullow was expected to pay from the sale of 21.57 per cent of its assets in the Lake Albert project.
With shareholder approval assured, Tullow's bigger hurdle is to get other approvals from Uganda's tax body, an agency that the oil firm has had court battles with over capital gains tax for the farm down of its assets to Total and CNOOC.