Tullow Oil said that Total has agreed to buy its entire stake in their joint onshore oil fields in Uganda for $575 million (€531.6 million) as part of its target to raise $1 billion this year to tackle its $2.8 billion debt pile.
The company made the announcement on Thursday morning ahead of its annual general meeting.
Tullow, whose shares have shed around 90 per cent since last April, will receive $500 million in cash and $75 million once a final investment decision is reached on the project, it said.
"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," Dorothy Thompson, executive chair of the company, said.
An agreement on a tax issue with the Ugandan authorities, which had delayed the sale of a smaller stake in the project to Total for months, has been reached in principle, Tullow said. The deal depends on the two companies signing a final tax agreement with the Ugandan authorities and a green light from Tullow’s shareholders. It expects the deal to close in the second half of the year.
"We are pleased to announce that a new agreement has been reached with Tullow ... for less than $2 a barrel in line with our strategy of acquiring long-term resources at low cost, and that we have an agreement with the Uganda government on the fiscal framework," Total chief Patrick Pouyanne said in a statement.
The third partner in the 230,000 barrel per day project, China’s CNOOC, has pre-emption rights for half of the stake to be sold to Total. Money from the sale will be used “to reduce Tullow’s net debt, strengthening the balance sheet and moving Tullow towards a more conservative capital structure,” the company said. “Tullow has consulted with shareholders holding approximately 27.5 per cent in aggregate of Tullow’s issued share capital and is pleased to report that they have indicated their support for the transaction.”
The company is due to hold its annual general meeting via audiocast on Thursday afternoon.
Ms Thompson said she was pleased with the progress Tullow had made in the first quarter of the year despite the challenges facing the group.
"Operationally, we are delivering well against our production targets following improvements put in place by our asset team in Ghana and we have made significant changes to the structure and cost base of our organisation," she said.
Group production delivering in line with expectations in the first quarter of 2020, averaging 75,800 barrels of oil per day. Gross production from the Jubilee field averaged 79,200 bopd during the period, with production from the TEN fields averaging 51,700 bopd.
Tullow said it had identified $85 million of cash savings, cutting its capital expenditure to $300 million and its decommissioning spend to $65 million.
In the first quarter, its realised oil price was around $56 a barrel, including the benefit of $27 million of net hedge receipts during the period.
The company said it was managing its operations "carefully" in light of the current pandemic, which has hit some of its operations in Kenya and Côte d'Ivoire. Production operations in West Africa have so far not been affected, Tullow said. – Additional reporting: Reuters
