Tullow Oil Uganda Operations

Tullow Oil has said it is still too early to give a new timeline on a final green light for investment in Uganda’s first oilfields, Tullow Oil Chief Executive Paul McDade said on Wednesday, reiterating the company’s plan to sell down its stake to TOTAL and CNOOC in US$900 million transaction that still hangs in balance over tax issues.

“We will not make an FID (final investment decision) on the project at the current equity,” McDade told news agencies. “To get the right conditions to sell down more of the project, we need more certainty over the progress towards FID.”

Tullow’s plan to sell another stake in its 230,000 barrel per day project in Uganda to France’s Total and China’s CNOOC, already partners in the fields, was called off in August due to a tax dispute with the Government of Uganda which wants to earn more tax revenue than what companies are willing to give.

Energy Minister Eng. Irene Muloni said on Wednesday she was optimistic the government can resolve a tax dispute with oil companies in time to get first oil flowing by 2023.

Muloni said yesterday in South Africa that she expected a final investment decision (FID) from oil companies Tullow, France’s Total and China’s CNOOC by the end of the first quarter next year on an oil export pipeline through neighbouring Tanzania.

Muloni said the government had offered a solution. “We have engaged with the companies. We have offered to them a solution,” Muloni said at the Africa Oil Week conference in Cape Town.

“We are hopeful that between now and the end of the year they will re-engage to try to find a solution,” she said, adding that it would enable first oil through the pipeline by 2023.

Tullow’s plan to sell a stake in the project to partners Total and CNOOC was called off in August after the firms failed to reach agreement with Ugandan tax authorities on the tax relief on money Total and CNOOC would have paid to Tullow.

Once pipeline construction begins, Muloni said it would take about three years to complete.

Meanwhile Muloni has invited bidding on five blocks, speaking at an African oil conference in Cape Town.

Muloni added that she was keenly awaiting companies to take a final investment decision regarding the construction of an oil export pipeline through neighbouring Tanzania.

In January 2017, Tullow announced that it had agreed a substantial farm-down of its assets in Uganda to Total. Under the Sale and Purchase Agreement, Tullow agreed to transfer 21.57 percent of its 33.33 percent interest in Exploration Areas 1, 1A, 2 and 3A in Uganda to Total for a total consideration of US$900 million.

CNOOC Uganda Limited (CNOOC) subsequently exercised its pre-emption rights under the joint operating agreements to acquire 50 percent of the interests being transferred to Total on the same terms and conditions.

In August 2019, Tullow announced that this farm-down was terminated, following the expiry of the Sale and Purchase Agreements (SPAs). The termination of the transaction was a result of being unable to agree all aspects of the tax treatment of the transaction with the Government of Uganda.

Technical work on the development and the upstream pipeline is well advanced and the Joint Venture Partners had been targeting reaching FID by the end of 2019, but the termination of the farm-down agreement with Total and CNOOC, has created uncertainty to the extent that some suppliers who had invested expecting to get contracts are now worried.