The East African Crude Oil Pipeline (EACOP) project is set to receive a new owner after Tullow oil plc. agreed to sell its assets in this project as well as its stake (Block 2) at the Lake Albert Oil Project to Total E&P Uganda B.V. (Total Uganda) under a Sale and Purchase Agreement (SPA) signed between the two bodies.
The East African Crude Oil Pipeline project is a planned 1,443 km pipeline that will be constructed with the aim of transporting about 10.9 million tons of crude oil per year from Lake Albert oil reserves in Uganda to the port of Tanga in Tanzania for export to international markets.
Terms of the SPA
The agreement supports the transfer of ownership of Tullow’s Oil and pipeline assets in Uganda to Total Uganda for a cash consideration of US$575M plus potential contingent payments after first oil.
The Cash Consideration consists of US$500M payable at the completion of the deal in the 2nd half of this year and US$75M payable after the Final Investment Decision (FID) of the Lake Albert Development Project. The additional payments will be received by Tullow in the form of contingent payments which will be payable on upstream revenues from the Lake Albert Development Project, depending on the average annual Brent price once production commences.
The two multinational oil and gas industry players have had supportive discussions with the Government of Uganda and the Uganda Revenue Authority (URA), including the principles of the tax treatment of the Transaction. The principles includes the position on Ugandan tax on capital gains, which is to be remitted by Total Uganda on behalf of Tullow Uganda, and which is expected to be US$14.6M in respect of the Cash Consideration. All parties involved now intend to sign a binding tax agreement that reflects these principles which will enable the Transaction to complete.
Tullow’s financial strategy to move to a more conservative capital structure
The Transaction, according to Dorothy Thompson, Executive Chair for Tullow oil plc., will strengthen the company’s balance sheet as part of its financial strategy to move to a more conservative capital structure. The Transaction will help in the recovery of the initial capital and the removal of all future capital expenditure associated with the Lake Albert Development Project whilst retaining exposure via contingent consideration linked to production and the oil price through the contingent cash payments described above.