CNOOC Uganda Limited has given a green light to Total E&P Uganda BV to acquire Tullow Uganda Operations Pty Ltd assets in Uganda.
In statement issued on Thursday, May 28, 2020, Tullow said CNOOC Uganda Limited will not exercise its pre-emption rights.
“CNOOC Uganda Limited has informed both Tullow and Total that it will not pre-empt the sale of Tullow’s assets in Uganda to Total,” the statement by Tullow Oil plc reads in part.
Tullow Uganda Operations Pty Ltd is a subsidiary of British oil firm – Tullow Oil plc. On April 23, 2020, Tullow Oil plc announced that it had agreed the sale of its assets in Uganda to Total at a consideration of $ 575 million (approximately Uganda Shs2.1 trillion).
However, the transaction was subject to among others, CNOOC Uganda Limited exercising its rights of pre-emption to acquire 50 percent of these assets on the same terms and conditions as Total.
“CNOOC Uganda Limited has now informed Tullow and Total that it has elected to not exercise its pre-emption rights. Accordingly, there are no changes to the previously announced transaction or timeline and Tullow continues to expect the transaction to be complete in the second half of 2020,” the statement adds.
The transaction remains subject to a number of conditions, including approval by the Tullow Oil plc shareholders, Government of Uganda and execution of a binding tax agreement with Government of Uganda and the Uganda Revenue Authority (URA) that reflects the agreed principles previously announced.
“Tullow will now look to progress the tax agreement following CNOOC ‘s decision not to pre-empt,” the statement reads in part.
Tullow is currently the operator of Block 2, Total Uganda is currently operator of Blocks 1 and 1A, and CNOOC Uganda Limited (CNOOC) is operator of Block 3A. The three Joint Venture Partners own 33.3 percent in each of Uganda’s oil fields (located in the blocks shared above).
The transaction
Tullow signed with Total E&P Uganda B.V a Sale and Purchase Agreement, with an effective date of 1 January 2020, in which Tullow has agreed to transfer its entire interests in Blocks 1, 1A, 2 and 3A in Uganda and the proposed East African Crude Oil Export Pipeline (EACOP), Total Uganda for cash consideration of $575 million.
According to the transaction, Tullow is expected to receive a cash payment of $500 million (approximately Shs 1.9 trillion) on deal completion and $ 75 million (approximately Shs285 million) at Final Investment Decision (FID).
The transaction attracts a Capital Gains Tax (CGT) assessed by Uganda Revenue Authority (URA). According to the transaction, it will attract a Capital Gains Tax worth US$14.6 million (approximately Shs55.4 billion).
Soon after Tullow’s announcement, Government through the Permanent Secretary Ministry of Energy and Mineral Development (MEMD), Robert Kasande said that Government has in principle agreed on the tax treatment of the transaction.
CNOOC’s election not to exercise its re-emption rights, leaves Tullow with a few hurdles to overcome – approval by the company’s shareholders and enter into a tax agreement with Uganda Revenue Authority and approval by the Government of Uganda. Government approval of the transaction is expected to be conditioned to Tullow’s willingness to pay the assessed taxes.
All said and done, the near conclusion of the deal is good news for Uganda’s oil and gas sub-sector for there is some visible movement towards FID for Uganda’s up-stream petroleum developments.
The current timing is quite delicate with very low oil price levels and very limited activities in the up-stream projects. This has caused conclusion of important oil deals with the sector stakes being in dire straits hence limited short to medium term benefits (like taxes), save for longer term benefits.
But this comes with huge lessons for Uganda on the need for swiftness and real time decision making so as to be in good position of nipping good deals at the right time with more benefits.
By Edward Ssekika
Edited by Muhumuza Didas