Tullow Oil sold two-thirds of its stake in Uganda’s first ever oil development to its partner, French major Total, for $900m.
The giant project on the shores of Lake Albert, where Tullow first discovered oil in 2006, is estimated to contain 1.7bn barrels of oil and forecast to eventually produce 230,000 barrels per day (bpd).
Its development is expected to cost $3bn to get to first oil production, and require a further $3.5bn to be spent on a new pipeline to export the oil through Tanzania.
Ownership of the licence areas had been evenly split between Tullow, Total and China’s CNOOC but under Monday’s deal Tullow will sell Total a near-22pc stake, leaving it with just under 12pc.
Total is to pay $100m cash on completion, further installments of $50m at the final investment decision and again at first oil, and then a $700m deferred payment to fund Tullow’s share of the development.
Aidan Heavey, chief executive, said the agreement would “allow the Lake Albert development to move ahead swiftly, increasing the likelihood of final investment decision in 2017 and first oil by the end of 2020”.
He said the deal would “secure future cash flow for the group from one of the industry’s few truly low cost development projects without any additional cash requirements expected”.
Tullow’s shares spiked 2.5pc on the news to close at 332.98p.
Tullow’s stake will eventually fall to to 10pc when the Ugandan Government exercises its right to a share in the project, leaving it with a share of 23,000 bpd. That compares with group production currently thought to be close to 90,000 bpd.
Tullow said it expected to write off $400m pre-tax in its full-year results, reflecting the fact it had been carrying a higher value for the assets. However, analysts at RBC Capital Markets said the charge “should largely be considered as noise”
The tax announcement comes at a time tax authorities are grappling with a tainted image after Ugandan President authorized Hefty reward of officials who oversaw tax dispute settlements with international oil firm heritage.
Local media reported some 40 senior officials in the impoverished country’s tax agency, energy, finance and justice ministries received bonuses, some exceeding $100,000.
“This is nothing but the beginning of the resource curse,” said Dickens Kamugisha, chief executive officer at African Institute for Energy Governance (AFIEGO).
The Uganda Revenue Authority (URA), which paid the officials, said the bonuses were legal.
A first tax row erupted in 2010 between President Yoweri Museveni’s government and Heritage Oil after the firm sold its stake in two oil blocks to its then partner, Tullow Oil.
The government netted $434 million after arbitration.
In a second case, Tullow disputed a Uganda tax assessment of $473 million against its asset sale to China’s CNOOC and France’s Total in 2012. Tullow paid $250 million in an out-of-court settlement in 2015, nearly half of what was originally claimed.
The URA said in a statement that the payouts were to “appreciate the professionalism and … ability to resist all pressure and compromise given the magnitude of the figures involved.”
About 6 billion shillings ($1.66 million) were paid out in total to officials who included the head of the URA, the Treasury’s top technocrat and a former attorney general.