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RNS Number : 5703K
Tullow Oil PLC
23 April 2020
News Release
Tullow agrees sale of its entire stake in the Lake Albert
Development Project in Uganda to Total for US$575 million in
cash
plus post first oil contingent payments
23 April 2020 - Tullow Oil plc (Tullow) is pleased to announce
that it has agreed the sale of its assets in Uganda to Total with
an effective date of 1 January 2020.
-- Cash payments of US$500 million on deal completion and US$75
million at Final Investment Decision (FID)
-- Contingent payments linked to oil price to be paid after production commences
-- Principles on tax treatment of the Transaction agreed with Uganda Revenue Authority (URA)
-- Transaction marks first step in portfolio management
programme to raise in excess of US$1 billion
-- Proceeds to be used to reduce Tullow's net debt,
strengthening the balance sheet and moving Tullow towards a more
conservative capital structure
-- Completion subject to a number of conditions, including
approval by Tullow's shareholders, en tering into a binding tax
agreement with the Government of Uganda and the URA that reflects
the agreed tax principles and customary government and other
approvals; completion of the Transaction is expected in the second
half of 2020
Tullow and Total E&P Uganda B.V. (Total Uganda) have signed
a Sale and Purchase Agreement (SPA), with an effective date of 1
January 2020 (the Effective Date), 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 Pipeline (EACOP) System
(the Uganda Interests) to Total Uganda for cash consideration of
US$575 million (the Cash Consideration) plus potential contingent
payments after first oil (the Transaction). Tullow is currently the
operator of Block 2. Total Uganda is currently operator of Block 1
and Block 1A and CNOOC Uganda Limited (CNOOC) is operator of Block
3A.
The Cash Consideration consists of US$500 million payable at
completion and US$75 million payable following FID of the Lake
Albert Development Project. Additional cash consideration may 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.
Tullow and Total have had supportive discussions with the
Government of Uganda and the URA in recent weeks, including to
agree the principles of the tax treatment of the Transaction. This
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$14.6 million in respect of the Cash
Consideration. Tullow Uganda and Total Uganda now intend to sign a
binding tax agreement with the Government of Uganda and the URA
that reflects these principles which will enable the Transaction to
complete.
CNOOC has rights of pre-emption to acquire 50% of the Uganda
Interests on the same terms and conditions as Total Uganda.
The Transaction will strengthen Tullow's balance sheet as part
of its financial strategy to move to a more conservative capital
structure. Tullow's capital expenditure in respect of the Uganda
Interests between the Effective Date and completion of the
Transaction will be recovered through the SPA completion
adjustments. The Transaction will remove 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.
Under the UK Listing Rules, this is a Class 1 transaction and is
therefore conditional on approval by Tullow's shareholders, by a
simple majority of voting rights in favour. Tullow has consulted
with shareholders holding approximately 27.5 % in aggregate of
Tullow's issued share capital and is pleased to report that they
have indicated their support for the Transaction.
Tullow will host a conference call at 9am UK time on 23 April
2020. The dial-in details can be found at the end of this
release.
Dorothy Thompson, Executive Chair, commented today:
" Tullow has been a pioneering explorer in Uganda over many
years and we are very proud of the role we have played in the
founding and development of Uganda's oil industry. We wish all
Ugandans and our joint venture partners well as they take this
important project forward.
"This deal is important for Tullow and forms the first step of
our programme of portfolio management. It represents an excellent
start towards our previously announced target of raising in excess
of US$1 billion to strengthen the balance sheet and secure a more
conservative capital structure.
We have already made good progress with the Government of Uganda
and the Uganda Revenue Authority in moving this Transaction
forward, including by agreeing the principles on tax treatment, and
we will work closely with the Government, Total and CNOOC over the
coming months to reach completion as quickly as possible. We have
also received strong support from our leading shareholders and look
forward to receiving formal approval of this deal."
Background to and reasons for the Transaction
Since Tullow's 9 December 2019 announcement, Tullow has been
focused on delivering reliable production, lowering its cost base
and managing its portfolio to reduce net debt and strengthen its
balance sheet. The Transaction represents the first significant
step in portfolio management towards raising in excess of US$1
billion of proceeds.
Completion of the Transaction will enable Tullow to realise
value from the Lake Albert Development Project in Uganda, following
the expiry of its previous farm-down agreement with Total and CNOOC
in August 2019. Having evaluated alternatives for the project and
discussed the future of the project with both of Tullow's Joint
Venture Partners and the Government of Uganda, Tullow's Board and
senior management believe the Transaction represents an attractive
outcome for the Tullow group (the Group).
Summary of the terms of the Transaction
A Sale and Purchase Agreement (the SPA) with an Effective Date
of 1 January 2020 has been signed in which Tullow Uganda Limited
and Tullow Uganda Operations Pty Ltd. (together, Tullow Uganda)
have agreed to transfer to Total Uganda for cash consideration the
entirety of Tullow's 33.3334% interests in each of the assets
comprising the Lake Albert Development Project, being (i) the
production sharing agreements for each of Blocks 1, 1A, 2 and 3A
and the licences in Uganda and certain other contracts related
thereto (the Upstream Segment) and (ii) the proposed East African
Crude Oil Pipeline System (the Midstream Segment).
The SPA is based on the transfer of interests from Tullow Uganda
to Total Uganda in exchange for cash at completion, deferred
consideration to be paid as and when the Upstream Segment and
Midstream Segment of the Lake Albert Development Project reach FID
and contingent payments determined on the basis of future oil
prices. The total consideration for the Transaction is structured
as follows:
-- US$575 million in cash, consisting of US$500 million on
completion of the Transaction and US$75 million at FID of the
Upstream and Midstream Segments.
-- Contingent annual payments to be paid on upstream revenues
from the Uganda Interests (reduced to 28.3334% following exercise
by Uganda National Oil Company (UNOC) of its back-in rights - see
below) calculated as follows: (i) no payment if the average annual
Brent price is less than or equal to US$62 per barrel, (ii) 1.25%
(net of tax) if the average annual Brent price is greater than
US$62 per barrel or (iii) 2.5% (net of tax) if the average annual
Brent price is greater than US$70 per barrel.
-- The reimbursement of joint venture costs incurred and paid by
Tullow Uganda from the Effective Date to completion of the
Transaction in respect of the Uganda Interests.
Use of proceeds and financial effects of the Transaction; gross
assets and profits attributable to Uganda Interests
Net proceeds from the Transaction will be used to reduce net
debt, strengthening Tullow's balance sheet, reducing ongoing
financing costs and moving Tullow towards a more conservative
capital structure.
As previously announced, the business is now targeting capital
expenditure of approximately US$300 million in 2020 (down from
approximately US$350 million) and decommissioning expenditure of
approximately US$65 million (down from approximately US$100
million). Once the Transaction completes, capital expenditure will
reduce by a further c.US$15 million for 2020 and the exit from the
Lake Albert Development Project will remove all future capital
expenditure associated with the Uganda Interests.
There will be no impact on the Group's gross profit as a result
of the Transaction, with there being no gross profits attributable
to the Uganda Interests for the year ended 31 December 2019.
Following completion of the Transaction, the Group's gross assets
will, before receipt of cash proceeds, reduce by US$992.2 million ,
being the gross asset amount of the Uganda Interests as at 31
December 2019 . The financial information set out in this paragraph
has been extracted without material adjustment from the
consolidated schedules that underlie Tullow's audited consolidated
financial statements as at and for the year ended 31 December
2019.
Going concern
Tullow announced its full year results for the year ended 31
December 2019 on 12 March 2020. In these results the Directors
assessed that the Group was a going concern for twelve months from
approval of the Annual Report and Accounts. However, at the time of
issuing the Annual Report and Accounts there were unprecedented
market conditions relating to COVID-19 and the oil price.
Therefore, this increased the risk that the Group may not be able
to sufficiently progress any planned portfolio management
activities, as a result of which its lenders may not approve the
bi-annual RBL redetermination liquidity assessments or covenant
amendment if subsequently required. Therefore, the Directors
concluded that there is a material uncertainty, that may cast
significant doubt, that the Group will be able to operate as a
going concern. Although this material uncertainty remains in place,
this Transaction represents part of the mitigating actions
available to the Group and the Directors recognise that further
portfolio management beyond this Transaction will be required to
remove this material uncertainty.
Current trading and prospects
As announced on 3 April 2020, Tullow completed the bi-annual
redetermination of its RBL credit facility with
US$1.9 billion of debt capacity approved by the lending
syndicate. As a result, Tullow had c.US$700 million liquidity
headroom of undrawn facilities and free cash at the start of the
second quarter of the year.
Tullow's business remains solid, supported by material
underlying reserves and resources and a strong production base in
West Africa generating strong cash flow; an onshore development
project in Kenya where Tullow is working with partners to progress
field development, though a number of key workstreams have been
suspended due to COVID-19 and Tullow continues to monitor the
impact these restrictions may have on the FID target; and a
high-quality exploration portfolio with important near-term
catalysts.
With Group production in the first quarter of 2020 averaging
75,800 bopd, Tullow continues to produce from its West African
operations in line with its full year production forecasts which
have not been affected by the COVID-19 pandemic so far. Tullow has
a Business Continuity team in place with mitigation plans to deal
with the consequences of the pandemic. In Ghana, Government
exemptions have been made to allow charter flights for oil and gas
workers into the country, enabling crew changes to occur. Tullow is
then requiring all personnel to self-isolate in Ghana for two weeks
before transferring to its FPSOs, to minimise the risk of a
COVID-19 outbreak offshore.
Tullow is also benefitting from its hedging programme which has
60% of its 2020 sales revenue hedged with a floor of c.US$57/barrel
and 40% of 2021 sales revenue hedged with a floor of c.US$53/bbl.
Tullow's realised oil price in the first quarter 2020 was
c.US$56/bbl including the benefit of c.US$27 million of net hedge
receipts during the period.
As announced on 21 April 2020, Rahul Dhir has been appointed as
Chief Executive Officer and an Executive Director of the Group from
1 July 2020. Rahul joins Tullow from Delonex Energy, where he was
CEO of the Africa-focused oil and gas company. Prior to Delonex,
Rahul served as Managing Director and CEO of Cairn India.
Approvals, consents and termination rights
The Transaction is classified as a Class 1 transaction as
defined by Chapter 10 of the UK Listing Rules. As such, it is
conditional upon approval by Tullow's shareholders, by a simple
majority of voting rights in favour.
Completion of the Transaction is also subject to a number of
other conditions, including:
-- the Government of Uganda and the URA entering into a binding
tax agreement with Total Uganda and Tullow Uganda that reflects the
agreed principles on the tax treatment of the Transaction;
-- the approval of the Minister of Energy and Mineral
Development of the Republic of Uganda in respect of the Transaction
and the transfer of operatorship in Block 2 to Total Uganda;
and
-- CNOOC having declined to exercise its pre-emption rights
under the relevant joint operating agreements applicable to the
Uganda Interests or, where CNOOC has exercised any pre-emption
rights, the parties (each acting reasonably) having agreed
amendments to the SPA and other arrangements to reflect such
exercise, including, if relevant, in relation to the transfer of
operatorship arrangements for Block 2.
Total will be entitled to terminate the SPA in certain
circumstances, including if there is (a) a material adverse event
(excluding certain macro-events, such as changes in hydrocarbon
prices, market conditions and COVID-19) or breach of a fundamental
warranty, in each case resulting in a reduction of value of the
Uganda Interests in excess of US$86.25 million or (b) an insolvency
event.
Total and Tullow have had supportive discussions with the
Government of Uganda and the URA in recent weeks, including to
agree the principles of the tax treatment of the Transaction. This
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$14.6 million in respect of the Cash
Consideration. Tullow Uganda and Total Uganda now intend to sign a
binding tax agreement with the Government of Uganda and the URA
that reflects these principles to enable the Transaction to
complete. Total Uganda and Tullow Uganda have certain SPA
termination rights in the event that the tax agreement, once
entered into, is challenged or revoked or there is a threat to do
so.
A circular setting out further details of the Transaction will
be issued in due course. Shareholder approval for the Transaction
is intended to be sought either via a General Meeting, to be
convened via notice in the circular with proxy voting available or,
in consultation with the Financial Conduct Authority (the FCA), via
any alternative procedure that may be available in respect of the
Transaction. On 8 April 2020, the FCA announced certain temporary
modifications to the UK Listing Rules during the COVID-19 crisis
that the FCA will apply on a case by case basis. These
modifications permit companies requiring shareholder approval for a
Class 1 transaction to apply for a conditional dispensation from
the requirement to hold a general meeting. The dispensation may be
granted by the FCA in circumstances where a company has or will
obtain a sufficient number of written undertakings from
shareholders that they approve a proposed transaction and would
vote in favour of any resolution to that effect at a general
meeting were it to be held, to meet the relevant threshold for
obtaining shareholder approval.
Subject to the satisfaction of the conditions to the
Transaction, the Transaction is expected to complete in the second
half of 2020.
Information on the Uganda Interests
The Uganda Interests that Tullow Uganda has agreed to transfer
to Total Uganda comprise Tullow Uganda's entire interests in Blocks
1, 1A, 2 and 3A in Uganda and the proposed East African Crude Oil
Pipeline System - the Upstream and Midstream Segments of the Lake
Albert Development Project.
The Upstream Segment includes nine production and two
exploration licences in Uganda: (i) three production licences
covering the former Block 1 area (covering the Ngiri, Jobi Rii and
Gunya Fields), one exploration licence covering the Jobi East and
Mpyo discoveries in the former Block 1 area which are subject to
production licence applications submitted to the Government of
Uganda and one exploration licence covering the Lyec field in Block
1A which is also subject to a production licence application
submitted to the Government of Uganda ; (ii) five production
licences in the former Block 2 area (covering the
Mputa--Nzizi--Waraga, Kigogole--Ngara, Nsoga, Ngege and
Kasamene--Wahrindi Fields); and (iii) one production licence
covering the Kingfisher Discovery Area (which formed part of the
former Block 3A). The oil fields are located along the Lake Albert
Rift Basin in Uganda.
On 26 May 2017, the Governments of Uganda and Tanzania signed an
inter-governmental agreement to route an oil export pipeline,
called the EACOP System, through Tanzania to the port of Tanga.
This has secured a harmonised framework for the EACOP System
routing and allowed discussions to commence with the Governments of
Uganda and Tanzania on the host government agreements and other key
commercial agreements. Financing for the Midstream Segment is also
under discussion.
Tullow's rights as described above are before any back-in by
UNOC in the Upstream Segment. UNOC holds a back-in right of 15% in
the production sharing agreements for Blocks 1, 1A, 2 and 3A.
Following the exercise by UNOC of its back-in rights, the Uganda
Interests reduce to 28.3334% of the Upstream Segment. UNOC and the
Tanzania Petroleum Development Corporation are expected to
participate for up to 15% and 5% respectively in the proposed EACOP
System. This would result in the Uganda Interests being 26.6667% of
the Midstream Segment.
Tullow Uganda is currently the operator of Block 2. Total Uganda
is currently operator of Block 1 and Block 1A and CNOOC is operator
of Block 3A.
CNOOC has rights of pre-emption to acquire 50% of the Uganda
Interests on the same terms and conditions as Total Uganda.
The planned development of Uganda's material oil resources
remains at an advanced stage, with the project's major technical
aspects completed. All major pre-development technical work for the
Upstream Segment and Midstream Segment has been completed. There is
no further exploration and appraisal activity planned. The key
legal and commercial prerequisites for a final investment decision
for the Upstream Segment and the Midstream Segment have been
outlined to the Government of Uganda by Tullow and its Joint
Venture Partners.
Barclays, J.P. Morgan Cazenove and Robey Warshaw (together, the
Financial Advisers) are each acting as joint financial adviser and
Barclays and J.P. Morgan Cazenove are each acting as joint sponsor
to Tullow on the Transaction.
Conference call - 9am (London time), 23 April 2020
To access the call please dial the appropriate number below shortly
before the call and ask for the Tullow Oil
conference call.
=========================================================================
Participants +44 (0) 203 0095710
============================= ========================================
UK free phone 08003767425
============================= ========================================
Access Code 3643957
============================= ==========================================
Conference call replay from 2pm, 23 April 2020
Participants +44 (0) 3333009785
============== ==================
UK free phone 08082380667
============== ==================
Access Code 3643957
============== ====================
FOR FURTHER INFORMATION CONTACT:
Tullow Oil plc Murray Consultants
(London) (Dublin)
(+44 20 3249 9000) (+353 1 498
IR: Chris Perry, Nicola 0300)
Rogers, Matt Evans Pat Walsh
Media: George Cazenove Joe Heron
Notes to Editors
Tullow Oil plc
Tullow is a leading independent oil & gas, exploration and
production group, quoted on the London, Irish and Ghanaian stock
exchanges (symbol: TLW). The Group has interests in over 70
exploration and production licences across 15 countries in Africa
and South America.
Follow Tullow on:
Twitter: www.twitter.com/TullowOilplc YouTube: www.youtube.com/TullowOilplc
Facebook: www.facebook.com/TullowOilplc LinkedIn: www.linkedin.com/company/Tullow-Oil
Website: www.Tullowoil.com
This announcement includes inside information as defined in
Article 7 of the Market Abuse Regulation No. 596/2014 and is being
released on behalf of Tullow by Adam Holland, Company
Secretary.
Barclays Bank PLC, acting through its investment bank
(Barclays), which is authorised in the UK by the Prudential
Regulation Authority (the PRA) and regulated in the UK by the FCA
and the PRA, is acting as joint financial adviser and joint sponsor
exclusively for Tullow and no one else in connection with the
Transaction and will not be responsible to anyone other than Tullow
for providing the protections afforded to clients of Barclays, nor
for providing advice in relation to the Transaction or any other
matters or arrangements referred to in this announcement.
J.P. Morgan Securities plc, which conducts its UK investment
banking business as J.P. Morgan Cazenove (J.P. Morgan Cazenove),
and which is authorised in the UK by the PRA and regulated in the
UK by the FCA and the PRA, is acting as joint financial adviser and
joint sponsor exclusively for Tullow and no one else in connection
with the Transaction and will not regard any other person as its
client in relation to the Transaction and will not be responsible
to anyone other than Tullow for providing the protections afforded
to clients of J.P. Morgan Cazenove or its affiliates, nor for
providing advice in relation to the Transaction or any other
matters or arrangements referred to in this announcement.
Robey Warshaw LLP (Robey Warshaw), which is authorised and
regulated in the UK by the FCA, is acting as joint financial
adviser exclusively for Tullow and no one else in connection with
the Transaction and will not be responsible to anyone other than
Tullow for providing the protections afforded to clients of Robey
Warshaw, nor for providing advice in relation to the Transaction or
any other matters or arrangements referred to in this
announcement.
Apart from the responsibilities and liabilities, if any, which
may be imposed on each of the Financial Advisers by the Financial
Services and Markets Act 2000 (FSMA) or the regulatory regime
established thereunder, or under the regulatory regime of any
jurisdiction where the exclusion of liability under the relevant
regulatory regime would be illegal, void or unenforceable, neither
the Financial Advisers, nor any of their respective subsidiaries,
branches or affiliates, owes or accepts any duty, liability or
responsibility whatsoever (whether direct or indirect, whether in
contract, in tort, under statute or otherwise) for, and makes no
representation or warranty, express or implied, as to the contents
of this announcement, including its accuracy, completeness or
verification or for any other statement made or purported to be
made by them, or on their behalf, and nothing contained in this
announcement is, or shall be, relied on as a promise or
representation in this respect, whether as to the past or the
future, in connection with Tullow or the Transaction. Save for the
aforementioned responsibilities and liabilities, if any, which may
be imposed, each of the Financial Advisers and their respective
subsidiaries, branches and affiliates accordingly disclaims, to the
fullest extent permitted by law, all and any duty, liability and
responsibility whether arising in contract, in tort, under statute
or otherwise (save as referred to above) in respect of this
announcement or any such statement or otherwise.
THIS ANNOUNCEMENT IS AN ANNOUNCEMENT AND NOT A CIRCULAR OR
PROSPECTUS OR EQUIVALENT DOCUMENT AND PROSPECTIVE INVESTORS SHOULD
NOT MAKE ANY INVESTMENT DECISION ON THE BASIS OF ITS CONTENTS. A
CIRCULAR IN RELATION TO THE TRANSACTION WILL BE PUBLISHED IN DUE
COURSE. NOTHING IN THIS ANNOUNCEMENT CONSTITUTES AN OFFER OF
SECURITIES FOR SALE IN ANY JURISDICTION.
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR
DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY
JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE
RELEVANT LAWS OF THAT JURISDICTION. THE DISTRIBUTION OF THIS
ANNOUNCEMENT IN JURISDICTIONS OTHER THAN THE UNITED KINGDOM,
IRELAND AND GHANA MAY BE RESTRICTED BY LAW AND THEREFORE PERSONS
INTO WHOSE POSSESSION THIS ANNOUNCEMENT COMES SHOULD INFORM
THEMSELVES ABOUT, AND OBSERVE, SUCH RESTRICTIONS. ANY FAILURE TO
COMPLY WITH THE RESTRICTIONS MAY CONSTITUTE A VIOLATION OF THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
No statement in this announcement is intended as a profit
forecast or profit estimate.
This announcement includes statements that are, or may deemed to
be, "forward-looking statements" within the meaning of the
securities laws of certain jurisdictions. These forward-looking
statements can be identified by the use of forward-looking
terminology, such as "anticipate", "expect", "suggests", "plan",
"believe", "intend", "estimates", "targets", "projects", "should",
"could", "would", "may", "will", "forecast" and other similar
expressions or, in each case, their negative or other variations or
comparable terminology. These forward-looking statements include
all matters that are not historical facts. They appear in a number
of places throughout this announcement and include statements
regarding Tullow's or Tullow's directors' plans, estimates,
intentions, beliefs or current expectations concerning, among other
things, Tullow's exploration and development plans and the timing
and cost thereof, future production levels and volumes, future
operating cost levels, the grant and timing of future governmental
or commercial or joint venture partner approvals or consents, the
timing, outcome and potential scope of liability in any litigation,
proceedings or other disputes and Tullow's results of operations,
financial condition, prospects, growth, strategies and the industry
in which the Group operates more generally.
Forward-looking statements are not guarantees of future
performance and the Group's actual results of operations, financial
condition and the development of the industry in which it operates,
may differ materially from those made in or suggested by the
forward-looking statements contained in this announcement. In
addition, even if the Group's results of operations, financial
condition and the development of the industry in which it operates,
are consistent with the forward-looking statements contained in
this announcement, those results or developments may not be
indicative of results or developments in subsequent periods.
Any forward-looking statements that are made in this
announcement speak only as at the date of such statement and, other
than as may be required by the Financial Conduct Authority, the
London Stock Exchange, the Irish Stock Exchange, the Ghana Stock
Exchange or applicable law (including as may be required by the UK
Listing Rules, the Irish Listing Rules, the Disclosure Guidance and
Transparency Rules and the Prospectus Rules), Tullow expressly
disclaims any obligation to release publicly any updates or
revisions to any forward-looking statements contained in this
announcement. Comparisons of results for current and any prior
periods are not intended to express any future trends or
indications of future performance, unless expressed as such, and
should only be viewed as historical data.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
DISSEEESEESSEEL
(END) Dow Jones Newswires
April 23, 2020 02:00 ET (06:00 GMT)
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