Tullow Oil & Uganda (old thread)

As advised by the Head of the Ugandan Tax body it seems.

http://online.wsj.com/article/BT-CO-20100722-710537.html

The head of Uganda's tax body has advised the country's president against arbitration in a tax dispute with Heritage Oil PLC (HOIL.LN), according to a person familiar with the matter, though it isn't clear how the recommendation will affect Heritage's plan to sell assets in the country.

An official close to the presidency said that Allen Kagina, Uganda Revenue Authority's commissioner general, advised the president during a meeting this week that Uganda risks not collecting any taxes on the transaction, which may be worth up to $1.5 billion, should the matter be referred for arbitration.

"She advised the president that government should consider other means to ensure that Heritage pays that tax without referring the dispute for arbitration," the official said.

Link to thread over on TMF. http://tiny.cc/Uganda-Deal-Off

http://www.monitor.co.ug/News/National/-/688334/963922/-/x2md1a/-/

Uganda will seek the full amount in taxes from the transfer of assets from Heritage oil after all, according to reliable sources who talked to Sunday Monitor.This comes after reports that President Yoweri Museveni personally insisted that the taxes due to the government from the deal- the largest in Uganda’s history- be paid in full. This means now that Heritage Oil which opposes the tax and is seeking arbitration over the matter will not be able to transfer its assets to Tullow Oil - a dramatic reversal of the well received conditional approval that allowed the deal to move forward just weeks ago.....

 
Not sure what to make of this. Heritage Oil are not opposed to paying their correct taxes to Ugandan authorities, it's just that there is no tax due and that's why they are seeking international arbitration. The article is also a Sunday newspaper article which by nature tend to verge on the more sensationalist side of things, and again Hilary Onek is at the centre of all the oratory made in public. Lets wait and see what Tullow day in response.

However if this article turns out to be true then I am not sure what Heritage will do as they don't have the financial resources to develop the basin at the expected pace, nor is Uganda at the centre of their oil & gas plans. Maybe a deal with Tullow whereby the share the CGT between them and then Tullow can farm down to CNOOC/Total? Or maybe CNOOC/Total will come to rescue and pay CGT between them but this sets a very bad precedent. Or Tullow/HOIL could scale back their Ugandan plans considerably and leave much of the oil in the ground for now until Uganda decides whether it wants to be an international oil player or not.

JPGH

From Alphaville - compromise on CGT rate????

The Ugandan government and HOIL are close to
reaching a compromise on the capital gains tax to be levied on HOIL's
sale of its stakes in two oil blocks in the country, reports DJN.
According to officials, the government's proposal to levy a 30% capital
gains tax on the $1.5bn sale to Tullow Oil has been a major hindrance to
the completion of the deal. "Both sides have realized that it's in
their best interests to conclude this transaction and an understanding
on the capital gains tax is very close," said a government official. The
official added that the government has indicated a willingness to reduce
the earlier proposal of a 30% levy. Government and company sources say
that the sale is likely to get the government's go-ahead before the end
of May.

It seems that negotiations on the % of CGT to be levied on Heritage has been a reason for delay in approving the Total / CNOC deal .....
Oh, the suspense!

http://online.wsj.com/article/BT-CO-20100513-703931.html?mod=WSJ_World_MIDDLEHeadlinesEurope

Thanks db...in special recognition of some excellent reporting, I've made a mental note not to open the door for you or walk on the roadside to protect you from carriages splashing through puddles as is my old fashioned wont. In the event, I regret I'll do the opposite...it's called respect, not patronisation ;-)

The scenario you report obviously adds up. Interesting to see that TLW will not make a profit from selling on HOIL's interests, which clearly demonstrates that HOIL got the very best price available and should tone down expectations as to valuation of TLW's holdings. As to any potential CGT liability arising for HOIL ,this won't be collectable unless the original contract terms of the licence expressly states that any buyer is liable to collect same on behalf of the government. That seems unlikely to me and since HOIL are pretty adament on the issue, I think CGT will amount to nothing.

Mind the door :-)

JPGH,
You mention welcoming the farmdown being completed.
Could delay (which I have heard there is) here be responsible for TLW's recent tumble?

I can find nothing else to explain the full magnitude of the fall.

FH

did anyone see Joanna Lumleys documentary on ITV on Monday evening on the River Nile. She is tracing the route of the Nile from Alexandria backwards to its new source somewhere in hills of Rwanda. Anyway she passes through northern Lake Albert region and its environs. I hadn't realised how environmentally sensitive this area is/will be. Its teeming with wildlife. Well worth a watch.

Now that I am more aware of how pristine an area Tullow will be operating in, my conclusion was that if Tullow screw up (leak oil) here the TV images will be longer lasting and reputational damage much worse than what happened with Horizon rig in GOM.
I will be happy when the farm-down is completed and Total/CNOOC are on baord. I will keep a close eye on TLW environmental impact assessment documentation once it is posted for public consumotion.

JPGH

Just a brief note on what is going on recruitment wise for Tullow Ops in Uganda from rumours and other "sources".

Some of the guys in the office (and elsewhere outside office) have been contacted recently (in last 2 weeks) by Recruitment Agencies who are hiring on behalf on an Operator in Uganda (i.e. Tullow) to submit CV’s ijn advance of a screening process for interviews for positions for all the engineering disciplines. The Tullow operation in Kampala boasts approx 120 personnel and the FEED for an early production facility and all associated in-field facilities.

For those who are curious, a FEED is a "front end" study whose main purpose is to flesh out in much greater/significant detail the agreed concept for the facilities engineering content of the overall field development plan, and supposedly get the cost estimate to within a +/- 15% accuracy) for subsequent debate and ultimate sanctioning. All major tech issues (particularly with regard to transport of crude) would/should be addressed and resolved during this phase as well leaving no surprises for the next engineering phase (detailed engineering design, procurement, installation/construction, commissionig).

So, its full steam ahead for Tullow for Uganda.

JPGH

So the CGT emphasis switches to HOIL?

APRIL 27, 2010
Uganda, Heritage Oil Tax Talks Delay Asset Sale -Source
http://online.wsj.com/article/BT-CO-20100427-707554.html?mod=WSJ_World_MIDDLEHeadlinesEurope
Protracted talks between the Ugandan government and U.K.-based Heritage Oil PLC (HOIL.LN) over the capital gains tax to be levied on the sale of Heritage's half stakes in two exploration blocks in Uganda are delaying the final approval of the deal, a government official said Tuesday.........

"Heritage has been reluctant to pay the [30%] capital gains tax and government is standing its ground," the official said........

A spokesman for Heritage said the company wasn't the source of any hold-up. "The delay...is regarding to whom and how Tullow sells on the assets afterwards," the spokesman said......

Goodness knows where the truth lies but I imagine TLW are equally reluctant to deduct any CGT (on behalf of the government) from their payment to HOIL. I guess the contract terms do oblige TLW to do so for an asset sale but not for a corporate sale, which is what this is.

Surely as Goodbody comments this morning, this is where TLW's prospective CGT liability will lie:-

The stated intention in the farm-down process is to allocate an equal share of each Block to the eventual three parties involved in developing the resource around Lake Albert. That said, Tullow may be subject to some tax liability in that it will sell on two-thirds of its 100% share of Block 2 to its eventual partners. In the other two Blocks the intention is to pass on the Heritage interests to CNOOC and Total in full with a smaller percentage of Tullow's 50% interest making up the balance.

This headline presumably relates to the government's back-in rights. The article implies the capital gains tax hasn't gone away.

April 26, 2010
Uganda to Take 15% of Oil When Production Starts, Minister Says
http://www.businessweek.com/news/2010-04-26/uganda-to-take-15-of-oil-when-production-starts-minister-says.html

.......Talks between the government and oil companies about the development of Uganda’s other oil resources will be concluded by about mid-June, Lokeris said. Talks have dragged on since February because Tullow was initially opposed to paying a gains tax on the fields it plans to buy from Heritage Oil Plc.

“There was some contention when Tullow said they wouldn’t pay when they hadn’t started producing the oil,” said the minister. “We are asking for 30 percent of the gains tax.”

In February the government approved Tullow’s purchase of Heritage’s share of blocks 1 and 3A of Uganda’s Lake Albert Rift Basin for $1.5 billion. Uganda will base its tax demand on $1.35 billion because Heritage invested $150 million in the blocks, said Lokeris.

Is this the reason for delay in signing the deal off I wonder? I note from a couple of weeks back that :-

Mon Apr 5, 2010
Heritage says concerned at Uganda asset sale delay
http://af.reuters.com/article/topNews/idAFJOE63409I20100405

However :-

Thu Apr 22, 2010
Tullow Oil sees Ugandan project okay within weeks
http://uk.reuters.com/article/idUKLDE63L2BB20100422
"We expect an approval within weeks, not months," Tullow Vice President Tim O'Hanlon told reporters on the sidelines of an oil conference, denying that disagreements between Tullow and Ugandan authorities were behind delays in Kampala's decision.........

But two letters seen by Reuters in recent weeks showed that some issues may be behind an approval that Tullow and Heritage have been expecting "within weeks" since February.

i.e. HOIL's enquiry and environmental concerns. No mention of CGT.

Interesting comment:-

http://uk.reuters.com/article/idUKLDE61I15120100219

"Chief Executive Aidan Heavey said output from the Ugandan side of the Albertine basin could ultimately be well ahead of the current target of 150,000 barrels per day (bpd) in three years."

"When the basin is on full production we feel at this stage we're probably talking about 350,000 bpd," he told Reuters in an interview."

If this becomes an acknowledged outcome of the new partnership with CNOOC and Total we could see a bit of a rerating.

fuiseog

http://news.xinhuanet.com/english2010/china/2010-02/17/c_13178219.htm

KAMPALA, Feb. 17 (Xinhua) -- Tullow Oil has decided to partner with China National Offshore Oil Corporation (CNOOC) and France's Total to develop oil sector in western Uganda, a Ugandan official said here on Wednesday.

Fred Kabagambe Kalisa, the permanent secretary of ministry of energy and mineral development said out of 11 companies who expressed interest in Tullow's assets in Uganda, the London-based oil company selected CNOOC and Total as its joint partners.

Affirming what are known rumours...... so expect TLW to make an announcement tomorrow perhaps?

JPGH

FWIW

CNOOC to sign $2.5bn Tullow deal, say "sources with direct knowledge of the deal" - Tullow says nothing signed

http://blog.watchinternational.org/?p=409

Agree - whilst ia simple sale of assets by one co to another would fall into the CGT net, it is a trivial exercise to structure a deal so that the issue of CGT is avoided altogether. All that is required is for HOIL to sell its local operating co - Heritage (Uganda) or whatever it is called to Tullow. That way legal ownership of the assets does not change. They remain the property of H(U). Ergo no CGT on asset sale. Of course H then has to navigate the tax rules of whatever jurisdiction applies to the sale of H(U) but that is unlikely a) to be difficult to deal with and b) will be entirely outside U.

This is precisely why every E&P has dozens/hundreds of subsidiary companies whose sole job is to act as legal owners of assets, but which never trade in a normal sense.

http://online.wsj.com/article/BT-CO-20100212-706195.html?mod=WSJ_World_MIDDLEHeadlinesEurope

FEBRUARY 12, 2010

..Uganda Revenue Authority, will levy a 30% capital gains tax on the sale of Heritage Oil PLC's (HOIL.LN) stake in two Lake Albert oil blocks to UK-based Tullow Oil PLC (TLW.LN), the URA said Friday. Peter Kaujju, Public and Corporate Affairs Officer in the URA commissioner General's Office told Dow Jones Newswires that the tax body had been passed the sale agreement between Tullow and Heritage for review, and will levy the 30% capital gains tax once a deal between the two companies is finalized..

Everyone and his dog knows, there is no capital gain falling within the jurisdiction of Uganda. Perpetuating unfounded CGT threats puts off the very major investors Uganda is looking to attract, so that really ain't going to happen. What we have here I think is all the local players jockeying for positions in slicing up a large bung conveniently labelled CGT (to satisfy the local populace) which they anticipate the incoming major(s) will be willing to pay. Whatever, I don't see TLW or HOIL paying CGT in these transactions! However, such payments, if they occur, will of course have a bearing on the price paid to TLW in farming out their interests.

Interesting and quite lengthy article here from earlier this week - interesting not just for Tullow holders either! However, I've put the link here as perhaps the best place. 

The wrangle over who will win the right to develop Uganda’s oil has turned from a tussle into an all-out brawl in recent weeks, with the Ugandan government at the centre.....

ee

Goodbody prattle on:-

Headline commentary yesterday attributed to the Tullow country manager in Uganda, Brian Glover, and the head of exploration and production at Total would hold out the possibility that Total may yet enter the frame in Uganda presumably in partnership with CNOOC. It would also appear that Tullow is under a degree of pressure to announce its farm-out partners soon, as the Ugandan government is clearly keen to press on with the field development and in particular the early production system. As such, an announcement on the likely farm-in partners and the structure of the deal may well emerge early next week.

Total more or less a definite partner it seems .

http://www.bloomberg.com/apps/news?pid=20601102&sid=acXqaEClT1NY

Total is in “advanced talks” with Tullow, Chief Executive Officer Christophe de Margerie told a press conference in Paris today. “It’s an opportunity for Total to develop in a new part of Africa.”

It will be up to Tullow to gain approval from the Ugandan government, said Yves-Louis Darricarrere, Total’s head of exploration and production. “We are clearly interested in Uganda.”

Asked whether Total is in competition with other companies for the project, Darricarrere didn’t rule out working with the Chinese producer.

“One of our strategies is to develop partnerships with national oil companies, in particular with CNOOC,” he said, Total already works with the Chinese company on the Akpo field off Nigeria.

In reply to davjo (post #24)

Re Ugandan PSAs, there was an article out in the local press over the weekend on this topic (albeit one based on a somewhat biased source):

As for royalty fees, which is a set amount of money that the oil firm must pay to government annually as a percentage of its gross sales, where the production does not exceed 2,500 barrels of oil per day, the oil firm will pay a royalty of 5% and where production exceeds 2,500 barrels but does not reach 5,000 barrels, government will be paid a royalty of 7%.

Interestingly, the agreements make no mention of what the Bunyoro Kitara Kingdom, where the oil wells are located, will get. This matter has long been contentious. According to the contract, the Ugandan government could choose to participate in the oil developments with a 15% stake, without providing upfront investment.

The benefits of this option are that Uganda receives a greater proportion of revenues, shares in the private company’s profitability while ensuring a more even sharing of the potential ‘upsides’ - the chance that the project succeeds. However, the report notes that it appears government will not exercise this right.

“By refusing this possibility, the government is effectively handing over a significant portion of revenues to the private companies,” the report notes.

One of the problems with articles such as this is that they are looking at the situation AFTER an oil find......and utterly fail to address the fact that without an appropriate profit motive the oil companies wouldn't have bothered to explore for oil in the first place!  In short, the time to complain about the terms of a deal is BEFORE any oil is found, rather than after! If the wells had turned up dry there would have been no ex-post whingeing by the oil companies, I suspect....

Dunno if there is anything of special interest in the article - I'll leave it to those with some involvement to figure out.

ee

In reply to emptyend (post #23

it will be interesting to see what the relative stakes are and who gets the operator role (which will presumably involve organising the pipeline etc?).

The point here though is that HOIL was operator of Blocks 3A and 1 and it's these holdings which Tullow won't be able to transfer for 2 years. Whether that makes any meaningful difference to actual operatorship and all that entails, near term, I wouldn't know but you can bet the SPA terms won't be helpful to Tullow in that respect.

In reply to ohisay (post #22)

....mmmm....looks a pretty likely outcome, though it will be interesting to see what the relative stakes are and who gets the operator role (which will presumably involve organising the pipeline etc?).

I guess all parties will be happy to be moving forward....apart from ENI, of course, who will presumably be having a rethink on strategy. I'd imagine this may lead them in a different direction.....

Sunday Times reporting a done deal.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article7017852.ece


TULLOW OIL will this week sell half its $5 billion (£3.2 billion) stake in one of the biggest oil finds in Africa to a Chinese state company.

Final details were being worked out this weekend with Total, the French oil group, which could become an equal partner in the fields with the Chinese and participate in their development. Tullow is expected to announce the deal after Yoweri Museveni, the president of Uganda, gives it his blessing, which is expected this week. The sale of the three blocks — worth between $4.5 billion and $5 billion — in the Lake Albert basin will be part of a larger development plan.

Arrivederci ENI apparently .

http://uk.reuters.com/article/idUKLDE61425O20100205

"Eni today revoked the sale and purchase agreement signed on December 18 for the acquisition of Heritage's 50 percent share in Ugandan Blocks 1 and 3A, on which Tullow Oil has exercised its preemption right," an Eni spokesman said on Friday.

Wonder if they might be tempted to take an interest in DPL - I recall there is an ex ENI non exec on the DPL board.?

Almost done and dusted ?
http://www.bloomberg.com/apps/news?pid=20601072&sid=a5f0IdLhYfpA

Feb. 4 (Bloomberg) -- Uganda’s government is “tending” toward approval of Tullow Oil Plc’s offer to purchase Heritage Oil Plc’s assets in the East African country, said Peter Lokeris, minister of state for mineral development.

“A few conditions are remaining, otherwise we are tending toward approval,” Lokeris said in a phone interview today from the capital, Kampala. Discussions are still being held on “taxation and how we are to handle monopoly.”

Lokeris didn’t give details of when the discussions will be completed.


Separately news of refinery contract .

http://www.yourprojectnews.com/foster+wheeler+wins+oil+refinery+feasibility+study+in+uganda_45140.html

Hi JPGH :-),

It is a fascinating situation. I wouldn't mind betting that there a few options you haven't listed, though b) does seem to me to be reasonably likely. As you say - it should be an interesting week!!

ee

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article6999856.ece

"It is understood that Eni was this weekend considering putting additional cash of between $200m and $300m towards the deal. Some of this could go to Heritage investors, but most — or all — could go to the Ugandan government."

So ENI are rumoured to up the bid by 20% to $1800 million, and in the process route more cash into Ugandan Government coffers. Assuming they do then value of TLW's Ugandan assets should also be marked up (and by virtue of its contribution to TLW's NAV then share price should also see a rise).

Ideally TLW's farmin-ees obviously want operatorship of Block 2 (Tullow Operator) and would also like operatorship of Block 1 & 3a (HOIL operator) to gain effective control the whole Lake Albert operation, with TLW remaining as a minority non-operating partner in the oil developments. 

If ENI get HOIL assets then that plan is scuppered and this could affect the whole development, with TLW and their farmin-ee having to negotiate with ENI on all sorts e.g. awarding of sub-contratcts in a transparent manner, even trying to just get a decision out of them...etc which will not suit certain Majors with "previous" ENI experiences.

So what can happen here 

(a) Tullow ups the pre-emption amount to match ENI, its accepted and project future is secured using TLW's farm-in partner(s). Ugandans are happy with CNOOC and/or Exxon/Total. Everyone is happy, including HOIL who can take their money, after tax, and put in to good use in Kurdistan.

(b) Ugandans, sensing (a) wont happen and it's "cocks on the block time" now, take fright and veto this ENI deal and instruct HOIL to dispose assets to TLW at $1500m. Weeks later TLW bring in CNOOC or EXXON/Total or a "proper" oil company into Uganda (for > $2500 million) who will assume Operatorship and ownership of 50% of all blocks. TLW retain their 50% share, and will sell of further chunks over time to fund Ghana/WATM successes. 

(c) Tullow does nothing, Ugandan government also does nothing, allows ENI "in" and project descends into chaos, delays, cost overruns, brown enveloping ...etc with ENI eventually having to be moved aside to let in someone who knows what they are doing to finish off the job.

(d) Tullow does nothing, ENI buys HOIL assets for $1800 million. TLW takes fright , knowing what is in store (see (c) above) for them,.and progressively "stops" all work, selling up ASAP (at a similar price to HOIL) to some mug out there or to a large Oilie who has ENI "by the shorts" (from their previous experiences together) and effetively can "assume" opertorship. 

I am hoping for (b) as the Ugandan NPV/bbl is nowhere near as bad as the $3/bbl that some analysts have been using in their TLW valuations.

Should be interesting week ahead.

JPGH

PS- Take much of my ENI comments as partial tongue in cheek. They just have a bad reputation in the Industry, thats all. As long as TLW get fair price for their hard work in exploring Lake Albert to date, and for proving up many millions of barrels in resources, I couldn't give a monkeys about who wins/operates in Uganda.

President to meet CNOOC on Monday ..

http://online.wsj.com/article/BT-CO-20100123-700267.html?mod=WSJ_latestheadlines

KAMPALA, Uganda (Dow Jones)--The Ugandan president is expected to meet executives of China National Offshore Oil Corp., which is on the shortlist of U.K.'s Tullow Oil PLC (TLW.LN) to invest in the country's downstream oil industry, government officials said Saturday.

Aston Kajara, Uganda's minister in charge of investments, told Dow Jones Newswires that a delegation of CNOOC executives is expected in the country this weekend and will hold talks with the Ugandan president Monday.

President Yoweri Museveni held talks with Tullow executives Friday and discussed issues related to the company's decision to pre-empt the $1.5 billion takeover deal of Heritage Oil PLC (HOIL.LN) interests in the country as well as Tullow's investment plans.

"Tullow presented a list of their potential partners and one of the companies is China National Offshore Oil Corp.; the president offered to listen to them," he said. CNOOC couldn't comment immediately.

According to Kajara, the government is committed to create a favorable investment climate to attract more players to develop the downstream industry as Uganda prepares to start oil production.

Tullow said that its investment plans in the oil sector include a refinery and a pipeline to the coast of Mombasa for an export-oriented oil project, Kajara added.

Kajara said that the decision of Tullow to bring in other partners is aimed mainly at ensuring that it doesn't monopolize the country's oil fields. Tullow owns a 50% stake in Block 1 and 3A and is the majority owner of Block 2, where Uganda's commercial oil reserves have so far been confirmed. By buying the half stake of Heritage in the tow blocks, Tullow would own 100% of all the blocks.

Hilary Onek, Uganda's energy and minerals minister, said Thursday that the government was against the decision of Tullow to pre-empt the deal with Italy's Eni SpA.(E, ENI.MI) and buy Heritage interests itself, citing fears of creating a monopoly in the sector.


-By Nicholas Bariyo, contributing to Dow Jones Newswires; 256-75-2624615 bariyonic@yahoo.co.uk

Museveni supports Tullow preemption
Thanks to Superhard on Fool for this http://boards.fool.co.uk/Message.asp?mid=11814670

http://www.easybourse.com/bourse/actualite/uganda-president-to-respect-tullow-s-preemptive-788149

and also http://money.cnn.com/news/newsfeeds/articles/djf500/201001230624DOWJONESDJONLINE000006_FORTUNE5.htm

Brian Glover, country manager of Tullow Oil Uganda, said separately that the meeting was positive and that the president was supportive of the sanctity Tullow's contract.

"The process of partnering shall proceed as we have previously outlined, and we continue to view and support Uganda as one the best investment areas in Africa," he said.

The president assured Tullow Oil that there is no way the government can deny the preemption agreement or withhold consent," the source said.

Aston Kajara, Uganda's state minister in charge of investments, confirmed the meeting but declined to reveal details.

"I can confirm that the issue of Tullow Oil contract and preemption was discussed during the meeting," he said. Kajara, who was also in the meeting, could neither deny nor confirm claims of company officials.

Linda Nabusayi, state house spokeswoman, confirmed the meeting and added that the president also assured Tullow Oil that, while he respects their contract, all the issues raised by the company would be discussed further by cabinet.

"It was a closed door meeting but the president assured Tullow Oil that issues raised would be discussed further by government officials and cabinet," she said.

So Museveni was convinced by Heavey!!! Great news for Tullow if this is true. TLW probably got a slap on wrist though for slow pace of development but Heavey must have come up with a better, faster linked up development plan. ENI make governments nervous as they have such a poor/bad reputation. Maybe Buckinham and HOIL should have DDed ENI a bit more before trying to shaft TLW's plans and announcing this sale.

JPGH

It looks like the Ugandan pre-emption situation may have swung back in Tullow's favour ...

"... DOW JONES NEWSWIRES KAMPALA, Uganda -(Dow Jones)- The president of Uganda will respect the preemption agreement between UK-based Tullow Oil PLC (TUWOY, TLW.LN) and Heritage Oil PLC (HOIL.LN) as Tullow seeks to take over Heritage's interests in two oil blocks in the country, a company source told Dow Jones Newswires Saturday.
According to the official, the president gave his assurance to the company during a meeting late Friday which was attended by the Tullow delegation, led by Chief Executive Aidan Heavey. The president also assured Tullow Oil that Uganda respects the rule of law and would respect the sanctity of the agreement. "


Original article here:

http://www.easybourse.com/bourse/actualite/uganda-president-to-respect-tullow-s-preemptive-788149

Regards
G

In Africa its all about respect.....Kosmos have landed themselves in a bit of bother when their "lack of respect" in dealing with the important people in Ghana (there was a newpasper link on this a while ago) hasn't helped their case in the sale of their Jubille stake to Exxon.

Tullow, with their years of experience in Africa, know better. Hence Adrian Heavy is going in person to see President Museveni and I can see an amicable solution that suits all parties here, with Uganda getting a faster track development and HOIL getting their $1500 million and ENi getting frozen out.
If Ugandan officials think having ENi on board will speed things up towards first revenue then they have been seriously duped.

JPGH

Whilst the politics goes on, so does the drilling. Excellent result today from next Block 2 (Tullow 100%) well - Kasamene-2 http://www.investegate.co.uk/Article.aspx?id=201001220700129546F

encountered 39 metres of net oil pay and 8 metres of net gas pay within a 132 metre gross interval.

The well is located near the crest of the field 1 km north-east of the Kasamene-1 discovery well and was drilled to a total depth of 866 metres. Results of wireline logging, pressure surveys and fluid sampling have confirmed the presence of oil and gas. Reservoir quality is excellent and the net pay thickness is the largest encountered in the Butiaba area to date.

Well and seismic data indicates the reservoir sands intersected in the Kasamene-2 well are in pressure communication with those at Kasamene-1, which flowed at over 3,500 bopd in March 2009. Pressure data has confirmed a single continuous oil column in excess of 70 metres and a gas column of over 20 metres. The well will now be suspended as a future producer and this will form Phase 1 of the Albertine Rift Development.

db

Some Goodbody comment:-

….with the stated intention to subsequently farm down a significant portion (up to 50%) of the enlarged holding (100% of Blocks 1, 2 & 3A, assuming a successful pre-emption) to one of the companies that has previously reviewed the Tullow data in Uganda. Speculation on the likely bidders continues to gravitate towards Exxon and Total as the leading candidates. Those candidates would appear to be fully informed, based on the statement that they approve of the pre-emption bid.

And the financial position:-

Interest will also centre on the size of holding that Tullow intends to retain post a successful farm-down, given the capital commitments required to bring commercial quantities of oil to market via a 1,300 km pipeline to the coast. We estimate Tullow net debt at the end of December of £773m ($1.25 bn) with funding facilities in place (ex. temporary funding) of $2.25bn, implying required additional near term funding of at least $500m. On a risked basis, we value Tullow's interests in Uganda (50% of Blocks 1 & 3A, 100% of Block 2) at $4.0bn, 29% of our Total NAV estimate (994.4p), with the Eni valuation placed on Heritage's interests in the region suggesting 12% upside to our Tullow valuation for Uganda.

fuiseog

We can look forward to some interesting SP volatility in the coming weeks.

fuiseog

http://af.reuters.com/article/investingNews/idAFJOE60G04Z20100117

LONDON (Reuters) - London-based oil explorer Tullow Oil has exercised a right to buy Ugandan oil fields which its partner in the fields, Heritage Oil, previously agreed to sell to Italy's Eni for $1.5 billion.

A spokesman for Tullow said the company had served notice on Heritage on Sunday, potentially wrecking Eni's plan to build a new presence in Uganda.

Will be interesting to see the RNSs tomorrow...

I have posted the same on the Heritage forum here: http://www.stockopedia.com/forum/view/34200/shareholder-circular-uganda-asset-disposal.  If people could split their comments according to which company is most affected...

db

In reply to oilretire (post #8)

Legal proceedings reported on upstream:

Tullow has initiated legal proceedings to push the deadline beyond 17 January, the sources said.

"The idea was to get a short delay, but they are still very, very seriously considering pre-empting," one source told Reuters, adding Tullow faced no difficulty securing finance.

Banking sources said Tullow would have little difficulty raising the $1.5 billion needed, given the extent of proven oil reserves at the fields around Lake Albert.

Tullow and Heritage declined to comment.

Another source said Tullow had sought to amend the pre-emption rights so it could buy Heritage's interest in just one of the blocks.

http://www.upstreamonline.com/live/article203801.ece?WT.mc_id=rechargenews_rss

Thanks to subsurface on the Fool.

Looks like TLW are in Uganda for the long haul.

http://www.monitor.co.ug/News/National/-/688334/839460/-/wgt2ot/-/

Tullow Oil, which is listed on both the London and Irish Stock Exchanges in the UK and Ireland respectively, plans to sell its shares locally through the Uganda Securities Exchange (USE) in Kampala, starting this April..........

Elly Karuhanga, the president Tullow Uganda Operations, told Daily Monitor on phone that Tullow management is considering the cross-listing “seriously” because it wants Ugandans to have “easy” access to the shares. “We want Ugandans to participate in the success story of Tullow,” he said, adding that similar plans are underway in Ghana where Tullow has a presence......

Sounds like a master stroke for long term relations in Uganda - and for the short term when you you want your 'preempt/flip' plan to go smoothly with the powers that be in Uganda ;-)

I really like Tullow's PR and their efforts to embrace the local population.

Edit in bold, didn't notice the Ghana plan - long haul there too then :-)

More quotes on pre-emption rights and by the looks of things HOIL have yet to give TLW them formal notification.

Strongest indication yet (if the quotes are reported correctly) that TLW are keen to pre-empt.

http://af.reuters.com/article/ugandaNews/idAFLDE5BE26J20091215?rpc=401&feedType=RSS&feedName=ugandaNews&rpc=401&pageNumber=1&virtualBrandChannel=0

Tullow Oil Vice President Tim O'Hanlon called Eni's entry in Uganda's burgeoning petroleum industry unfortunate and told the paper on Tuesday that his company has the first right of refusal over any deal.

A spokesman for Tullow in London confirmed the comments, but noted that Tullow needs to see the terms and conditions of the deal before it decides whether to take any action.

"They have, under our agreement, to give us details of any deal they have entered. They have not,".........

"If they do and we can match the price (being offered for their Ugandan assets). We have a right of pre-emption. This means Tullow will acquire those assets... at the right price."

O'Hanlon also accused Heritage of short-circuiting a process that Tullow had begun of finding a suitable development partner..........


The government's Commissioner for the Petroleum Exploration and Production Department, Ernest Rubondo, told Reuters the government was aware of Tullow's intention to assert its right of refusal.

"Yes, Tullow has previously signalled to us of their intent to retain their partner's stake and we're watching. We'll discuss details when they come to us for approval of whichever firm is to take over their stake,"

Story that Uganda will tax the ENI/HOIL deal between 25 & 45%........

http://www.gfmag.com/latestnews/latest-news.html?newsid=3616866.0

But for TLW, it says they await formal notification of the deal before playing their hand - which could be this month.

Heritage is expected to officially inform Tullow Oil PLC (TLW.LN), its co-owner in the two Ugandan blocks, before the end of December. The deal will need the approval of both Uganda and Tullow Oil.

However, Brian Glover, Tullow Oil Ugandan country manager says that the company has already informed the government that it will "seriously" consider taking over Heritage's interest once it receives formal communication. That would scupper the anticipated deal with Eni.

Sabre (assagai) rattling between the two again

KAMPALA, Uganda (Dow Jones)--The Ugandan government is planning to move border markings at Mpondwe, on its western border with Congo in the oil-rich Lake Albert Valley, a senior Ugandan minister said Wednesday in the latest twist in the land dispute between the two countries.

https://trade.cityindexweb.com/flashASP/host/progs/news/DJNewsStory.asp?newsID=20091014T3277&

Ugandan PSC terms

The raw figures I have are from Hardman's sale details from the RISC Report on Waraga/Mputa :-

The main fiscal terms of the PSA are summarised as follows:
• Royalties: Royalties of between 5%-12.5% of gross revenue apply on a sliding
scale related to production
• Cost recovery: Exploration, development and production costs are recoverable from
60% of gross oil revenues.
• Profit Oil: Contractor’s share of Profit Oil ranges between 35% and 60% on a
sliding scale related to actual production
• Tax rate: Between 25% and 45% of net profits

Dunno whether any export pipeline would benefit from the 60% Cost Oilelement.

some good analysis by xxnjr over on TMF http://boards.fool.co.uk/Message.asp?mid=11705444&sort=whole#11705456 on possible valuation for Tullows Ugandan stake.

According to my estimates/running tally TLW have discovered a net 463mmbo on a working interest basis [after allowing for 15% govt back in], which results in the following:-

NPV/bbl            Value($m)          50% Sale($m)     

$3.00                  1390                  695             
$3.50                  1621                  811
$4.00                  1853                  927
$4.50                  2085                 1042
$5.00                  2316                 1158

With regard to the in the ground valuation number that can be used, the Ugandan PSC terms are considered, by some, to be quite harsh given the initial entry position Tullow were at several years ago in a un(der)explored province. Not sure if the T&C's are in the public domain either so cant accuratly comment. I recall Tom Hickey, at an Oilbarrel presentation in 2007, saying that teh Ugandan gov. net take was/is approx. 70%, which seems reasonable enough when compared to T&C's elsewhere e.g. hate to harp on about Kurdistan but the gov. take there is in the region of >85%. 

Developemnt costs fro thisonshore developement should also be reasonable enough as wells appear to be very productive. In field OPEX will be high though as wax prevention facilities will be needed. The main technical and political obstacle to large scale developement is the export pipeline needed to flow waxy crude, in meaningful quantities (>400 kbopd or 14 MMbo/yr), through Uganda/Kenya to a coastal export terminal. In addition there are rumblings to build what seems to be a much too big a local refinery. This potential white elephant would scare me a lot were Tullow to get involved in that type of project.

I am using NPV / bbl of $5 for Ugandan in the ground P50 contingent resource numbers and concur that $1.5 billion for a 50% sale seems plausible. As data rooms and bid have several months to do this should hopefully allow enough time to appraise the Butiaba (Block 1) in the next drilling campaign to add more resources and/or move some P10 material into the P50 categories and up the bid price further. As the "rules" for succesfull farm down/M&A are such that you need to consider leaving soemthing on the "table" for the next man, as a long term Tullow holder, I dont want to see them sell too cheaply either.

So maybe TLW can boost their net P50 share to approx 6 to 700 MMbo before agreeing the sale price. Also gives time for further POO forecasting / rises.

50% for $2billion....anyone?.....  

JPGH

Thanks for this, db.

Scope for quite a lot of activity here, I think.

I was interested to see Statoil in the list - not one of the usual NOC candidates for overseas acquisitions, though they have recently been beefing up their presence in the UAE, which presumably is the regional head office.

Now, I wonder what the Norwegian Government might have been doing recently to strengthen its relations with Uganda in terms of development aid....

Ah!

http://www.financialtaskforce.org/2009/07/20/norway-grants-shs8-trillion-in-development-aid-to-uganda/

Norway grants Shs8 trillion in development aid to Uganda

July 20, 2009

Man Siarad

Tullow has opened a data room for farm out of Uganda assets.  From Sunday Times today

Tullow Oil, another FTSE 100 oil explorer, has appointed Standard Chartered to sell half its stake in two oilfields in Uganda. Aidan Heavey, chief executive, said the company has already put together a list of about 10 companies that have prequalified for bidding. These are thought to include China National Petroleum Corporation, Sinopec, Total of France, Italy’s Eni, Korea National Oil Corporation, and Norway’s Statoil. The data room opens this week and Tullow is hoping to choose a buyer by the end of the year.

Analysts estimate that the company could pocket $1.5 billion (£938m) from the sale. More importantly, the deal will allow it to share the immense costs of developing the two oil fields in the remote region around Lake Albert in northwest Uganda.

...

Heavey said: “We and the Ugandans will be talking with the companies to see what they can bring to the table. It’s like the beginning of a long relationship, and this is like a prenuptial agreement.”

db