Total Uganda has bought out the financial struggling Tullow Oil for a whopping USD575 million as the latter gears up to leave the East African market.
The buyout will be paid in part by a USD 500 million initial payment payable upon completion and another USD75 million payable when the project pact is finalized.
With completion of the sell, Total Uganda will now own Tullow’s assets on the humongous Lake Albert Development project and the even larger East African Crude Oil Pipeline project. Tullow, a British owned conglomerate has been struggling and the just inked Uganda buy out will help improve its liquidity.
The move is not due to the ongoing global coronivrus pandemic, it is rather a strategic plan that was on the table long before the pandemic begun. At the start of the year, the sale and purchase agreement had already been signed, well before the Covi-19 virus had spread into Africa.
In the deal, Tullow Uganda Ltd and Tullow Uganda Operations Pty Ltd committed to transfer to their interests in blocks 1, 1A, 2 and for block 3A in the Lake Albert project as well as the much anticipate East Africa oil pipeline network.
Tullow owns 33 per cent interest in each of the companies while the rest of the shares are owned by the Ugandan government and the Uganda Revenue Authority.
In the released press report, the company said it had evaluated the alternatives for the project and discussed its future with its joint venture partners and “…Tullow’s board and senior management believe the transaction represents an attractive outcome.”
Tullow executive chairperson Dorothy Thompson said the deal would form a basis for the firm to improve its finances.
“This is important for Tullow and forms the first step for our programme of portfolio management. It represents an excellent start towards our previously announced target of raising $1 billion,” she said.
Why is a company that claims to African focused, leaving the African market, well Tullow says it is looking to rise more than USD 1 billion to help cover its debts and maybe end up with a clean balance sheet. In a media brief released at the turn of the week, the company admitted that the sell and exit from Uganda is in fact one of “… Tullow’s strategy to move to a more conservative capital structure.”
As Tullow sales its assets in Uganda, the oil giant is doing the same across the border in Kenya.Its already put an entire 20 per cent of its shares in Kenya’s South Lokichar oil project. This is an immense project that is expected to attract buyers fast easing Tullows exit from Kenya.
Tullow’s exit from the East African market was made public late last year when it announced that it would be selling off its assets. With Kenya sell expected to go down without any glitches, despite the ongoing pandemic, Tullow’s exit from the East African market will be completed by the third quarter of the year.
Last year, the oil company attempted not to sell but to only to reduce its shares for the Lake Albert project down to 11 per cent from 33 per cent. However, at that point Total Uganda turned the offer and so did the China National Offshore Oil Corporation.
Other than an attempt rise its capital base, Tullow has not provided any other reason for the move. The exit from the East African market, especially at a time when the region has hit oil across most of its member states remains baffling.
Prior to the agreed exit, Tullow was at loggerheads with the government of Uganda over tax payments. After two long years of push and pull, the British company finally settled to pay up.
“The company agreed to pay USD 167 million in capital gains tax to the Uganda Revenue Authority, clearing a hurdle that government had erected as a condition for consent to its exit plans,” local media reported.
Over the course of those two years, the government of Uganda through its tax watchdog was relentless. It made, initially, the Uganda Revenue Authority (URA) calculated the due tax to be paid by Tullow before any attempts to exit the country was a whopping USD300 million.
The sum amount took account that, Tullow’s assets were valued at USD 900 million a fact that the British company disputed. The oil giant maintained that it did not have to pay the said taxes arguing that the transaction was not taxable.
The ensuing discussions and negotiations last an entire 24 months but finally Tullow got what it wanted, permission to leave and Uganda also got what it wanted, payment for alleged back taxes owed to it.
The government would not hear that and maintained its stance pushing to be paid the full amount. The negotiations went back and forth for the next 24 months and finally when the talks were completed, the final amount agreed upon finally came down to USD167 million, that is almost half what the government was asking for initially.