Tullow jumps after Uganda approves $575 million stake sale

Workers walk past storage tanks at Tullow Oil's Ngamia 8 drilling site in Lokichar, Turkana County, Kenya, February 8, 2018. Picture taken February 8, 2018. REUTERS/Baz Ratner

Tullow Oil received approval from the Ugandan government for the sale of a $575 million (Sh62.1 billion) stake in an oil project to Total, sending the shares as much as 40 per cent higher.

The beleaguered explorer has been waiting since 2017 to close its divestment in the Lake Albert Development Project, an effort repeatedly stymied by tax disagreements.

As it sought relief from lenders this year to avoid blowing through debt covenants, securing proceeds from the sale became key to restoring stability.

“The government of Uganda and the Ugandan Revenue Authority have executed a binding tax agreement,” Tullow said yesterday in a statement.

The sale to Total has also been approved by the Ugandan Minister of Energy and Mineral Development. 

Tullow shares were 39 per cent higher at 23 pence as of 11.19 am in London. The stock is still 64 per cent lower this year.

Total will pay $500 million (Sh54 billion) in cash on completion of the deal and $75 million (Sh8.1 billion) when a final investment decision on the project is taken, the companies said in April.

Tullow is also entitled to contingent payments linked to the oil price after production commences.

The government’s approval will be “a major relief for the company and is a clear positive,” said Will Hares, global energy analyst for Bloomberg Intelligence.

“Proceeds will ease concerns over liquidity, which was only $500 million (Sh54 billion) at mid-year, and reduce net debt and leverage, though it still remains too high.”

An earlier plan to sell a stake in the oil project to Total and Cnooc Ltd collapsed last year due to a holdup around tax negotiations.

Shelved plans

Tullow expects the transaction to close in the coming days. The company recently said it had shelved plans to sell its stake in Kenya.

In a shareholder update in September, the firm said it had suspended the plans to sell at least half of the stake it has in the blocks 10BA, 10BB and 13T, adding that it was considering alternatives for the blocks as opposed to disposing of its stake.

Tullow, together with its partner in the Project Oil Kenya, Total, earlier this year contracted French bank Natixis to run the joint sale process for the blocks in the South Lokichar Basin.

The two firms had expected to sell half of their stakes. Tullow has 50 per cent shareholding in the three blocks, while Total has 25 per cent.

[Additional reporting by Macharia Kamau]