Total to buy Tullow out of Uganda for $575mn

Total has agreed to acquire London-listed Tullow Oil's entire Uganda operations for $575mn, much less than it was previously prepared to pay to buy part of the business.

Tullow said the deal, for its 33.3pc stake in the planned 230,000 b/d Lake Albert development project, including the proposed East African crude oil pipeline, is the first step toward its target of raising more than $1bn to help it through what is has called "material uncertainty" caused by the oil price crash.

Total chief executive Patrick Pouyanne said today that the deal is "for less than $2/bl in line with our strategy of acquiring long-term resources at low cost." Significantly, Total said it has reached agreement in principle with the Uganda government on the project's fiscal framework. Tullow's attempt to sell part of its stake to its partners, Total and China's state-controlled CNOOC, for $900mn failed last year following a prolonged tax dispute with the Ugandan government, which delayed a final investment decision (FID).

"This acquisition will enable us, together with our partner CNOOC, to now move the project forward toward FID, driving costs down to deliver a robust long-term project," Pouyanne said.

Total has recently, like many other firms, taken steps to boost liquidity through cost and capital expenditure (capex) cuts and by selling debt, to cope with the oil price downturn. But it has a relatively low level of net debt gearing for a company of its size, at 21pc at the end of 2019, which gives it room for manoeuvre. The firm's top executives have in the past said that they wished Total's gearing had been lower than the 30pc at which it entered the 2014-16 oil price downturn, because it would have allowed the firm to be more active in buying attractive assets at discounted prices.

Total will pay $500mn to Tullow when the deal closes in the second half of the year and a further $75mn when a FID is made on the long-delayed project. Tullow will also get payments if or when benchmark Brent prices exceed $62/bl after production commences.

The deal is subject to approval by Tullow shareholders, regulators and governments, and is subject to CNOOC's right to exercise pre-emption on 50pc of the transaction, as it did in the deal that failed last year. Total and CNOOC currently each hold 33.3pc stakes.

Tullow appointed a new chief executive this week following a turbulent few months.

By Konstantin Rozhnov