Tullow Oil Withdraws $900m Ugandan Stake Sale to Total and Cnooc

Tullow Oil has been forced to cancel a $900m deal to sell a significant stake in an oil project in East Africa to Total of France and China’s Cnooc after the parties failed to resolve a tax dispute with the Ugandan government.

 Shares in the London-listed oil explorer were recently down 3.5 per cent after it said it had been unable to agree a further extension to the deal, originally struck in January 2017, that would have allowed it to reduce its holding in the undeveloped Lake Albert project from 33 per cent to 11 per cent.

The project is expected to produce 230,000 barrels of oil per day at its peak, once developed. Total and Cnooc are already partners in the project — each owning a third — but had both sought to raise their respective holdings by about 11 per cent to more than 44 per cent via the complex agreement, to which Tullow had been seeking an extension in order to settle the tax dispute.

In a statement issued mid-morning in London, Tullow said it would now have to start a new sales process to reduce its holding in Lake Albert, after it had been unable to secure an extension from its joint venture partners despite previous delays having been approved.

Tullow is operator of the project, meaning it has overall responsibility. While Tullow had come to an agreement with Ugandan tax authorities about its own capital gains tax liabilities, it said there were still unresolved issues around “the availability of tax relief for the consideration to be paid by Total and Cnooc as buyers”. Paul McDade, chief executive of Tullow Oil, said the lapse of the deal was “disappointing”.

“Tullow has worked tirelessly over the last two and a half years to complete this farm down which was structured to reinvest the proceeds in Uganda. Whilst this is a very attractive low-cost development project, we remain committed to reducing our operated equity stake,” Mr McDade added.

The partners had been hoping to make a final investment decision on the project in the second half of this year but Tullow warned in its statement that the lapse of the deal would likely lead to further delays in developing it. Under the terms of the 2017 agreement, Tullow would have received $100m upon completion, $50m when the final investment decision was made and $50m when the first oil was produced. The remainder would have funded its own costs towards developing the project.