CNOOC Seeks 50 Percent Stake in Tullow-Total Deal

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In short
A statement from Tullow headquarters confirmed that CNOOC has notified Tullow that it has exercised its pre-emption rights under the joint operating agreements between Tullow, Total and Cnooc to acquire half of the interests being transferred to Total in Uganda.

China National Offshore Oil Corporation (Cnooc) plans to acquire 50 percent of assets that Tullow oil is selling to Total in the USD 900 million (3.1 trillion Shillings) farm-down in Uganda.

Tullow is selling 21.57 percent of its 33.33 percent stake in four exploration areas in the Albertine Graben as it shifts its interests to neighboring Kenya.

A statement from Tullow headquarters confirmed that CNOOC has notified Tullow that it has exercised its pre-emption rights under the joint operating agreements between Tullow, Total and Cnooc to acquire half of the interests being transferred to Total in Uganda.

The acquisition according to the statement will be on the same terms and conditions that were agreed between Tullow and Total two months ago. The terms relate to the amount of money in the planned sell, structure and timing of the consideration payable to Tullow.

In January, Tullow announced that it had agreed to farm-down two-thirds of its interest in an exploration block in Uganda for USD 900 million (3.1 trillion). This implies that Tullow will no longer be an operator in Uganda once the deal is concluded. It however will retain in-country presence.

This is the second time an Oil company operating in Uganda is exercising pre-emptive rights in respect to planned farm down in the oil field. The first was when Heritage oil was farming down giving Tullow rights to acquire the assets.

The decision by CNOOC to claim its preemptive rights in the planned Tullow-Total deal moves the negotiations to another level. Tullow and CNOOC have to conclude definitive sale documentation in relation to the farm-down.

Completion of the farm-down is subject to certain conditions, including the approval of the Government of Uganda.  Though the three joint venture partners have been in negotiations since January, the government has been silent about the planned sale.

An official at Ministry of Energy in Kampala who asked for anonymity told Uganda Radio Network that the government will only swing into action once the three companies notify it about the planned farm down.

There have been reports that government is skeptical about Total acquiring majority shares in the Albertine region.  The government policy has been against creation of a monopoly in the Oil fields.

The Ministry of Energy source told URN that some sources in the Ministry and the National Oil Company are in favor of the planned farm-down saying it will be another step towards the government target of achieving first oil by 2020.

Other sources indicate that Total is likely to receive less resistance since it had been pushing alongside government to have Uganda's crude oil transported by a pipeline through the Tanzanian route. Total is expected to be one of the fundraisers to the pipeline construction.

Government last year agreed to have an oil export pipeline route through Tanzania. The pipeline constructed is estimated to cost over USD 3.5 billion