Tullow Oil, battered by a series of production and drilling disappointments last year and slumping oil prices in more recent times, is taking victories where it can get them these days.
News on Thursday that French oil major Total has agreed to buy its entire stake in their joint onshore oil fields in Uganda for $575 million (€531.6 million) is certainly welcome, even if the terms of the deal are nowhere near as favourable as in another deal involving Total that was aborted last year.
The earlier deal, struck in early 2017, was to see Tullow sell two thirds of its 33.3 per cent stake in the Ugandan assets for a total of $900 million (€834 million), including an initial $100 million (€93 million) cash payment, $50 million (€46 million) due when the final investment decision was made, and another $50 million when oil started to be pumped.
The remaining $700 million (€649 million) was by way of a deferred consideration, which Tullow was to use to fund its share of project development costs. Even at the time, the deal was to involve a $400 million (€371 million) write-off of the carrying costs of its own investment in the assets.
Tax purposes
The new deal has been struck following indications from Ugandan authorities about how it will be treated for tax purposes – a type of clarity that had not been forthcoming when the original accord collapsed in 2019.
While the transaction will mark an exit from a once-promising project, it will go a large way towards Tullow’s plan to raise $1 billion (€930 million) this year to tackle its $2.8 billion (€2.5 billion) debt pile. Meeting this objective is key to the future of a company that has disappointed too often in recent times.
The news comes hot on the heels of Tullow having found a new chief executive in oil industry veteran, Rahul Dhir, and redetermined a reserve-based lending facility with its banks at a time of flux for the business and the industry.
And in a week when we’ve read headlines of sub-zero oil prices on the back of slump in demand due to Covid-19, Tullow reminded investors that 60 per cent of 2020 sales revenue is hedged with a floor of $57 per barrel and 40 per cent of 2021 sales revenue is hedged with a floor of $53.
