Tullow Oil: joining forces with CNOOC and TOTAL to monetize Uganda's oil riches

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6 April 2011, Oil, Gas

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The deal, worth $2.9bn, covers exploration areas 1, 2, and 3A, situated in the Lake Albert Rift basin in Uganda. Once it is concluded, the three companies plan to proceed with a $10bn development program for the license areas. The plans include ramping up oil production to 200,000 barrels per day (bpd) by 2015, the construction of a brand new refinery, and a 1,200km long pipeline to Kenya's Mombasa port, for exports via the Indian Ocean.

Tullow was able to agree terms with the China National Offshore Oil Corporation (CNOOC) and TOTAL after it signed a memorandum of understanding with the Ugandan government, delinking the tax dispute that arose as a result of Tullow's purchase of Heritage Oil's stake in two of the license areas last year. However, the current deal has raised a fresh capital gains tax liability of $473m. Tullow has agreed to pay 30%, or $142m, of the total tax liability within five business days, following which, the normal tax dispute resolution process can be taken up, which is expected to be resolved within the next 12 months.

Datamonitor's Global Oil and Gas Analyzer forecasts that the Lake Albert Rift basin's cumulative production will exceed 1 billion barrels of oil by 2020, which confirms the current estimates of the in-place volume of reserves. Furthermore, according to Tullow, there is a possibility of an additional upside of 1.5 billion barrels. The enormous size of the prospect means that it has the capability to create abundant employment opportunities in the local area, and to transform Uganda's economy.

The move is ideal for Tullow, as it will gain the much-needed funds required to embark upon a significant exploration and appraisal drilling and development plan in the basin. As per Datamonitor's '2011: Oil and Gas Trends to Watch' report (February 2011, EN00030-001), CNOOC continues to pursue its strategy of acquiring high-class reserves abroad, which are needed to fuel China's burgeoning energy needs. On the other hand, the French giant TOTAL will be able to expand on its considerable presence in Africa, and at the same time make large additions to its existing resource base.

Source: Datamonitor

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