Tullow Oil, the FTSE 100-listed oil exploration and production group, has takes its first steps in a plan that will see it hold on to a bigger share of its assets in Uganda, by pre-empting a $1.5bn (£918m) bid by Italy's ENI to acquire its partner's stake in the oil concession.
Tullow, in partnership with Heritage Oil, has found proven reserves of more than 700 million barrels of oil in three drilling blocks at Uganda's Lake Albert Rift basin, as well as identifying more than 1.5 billion barrels of potential yet to be explored. Last year, Heritage said it planned to sell its share – comprising of 50 per cent of Block 1 and 50 per cent of Block 3A – to ENI, which offered up to $1.5bn for the assets.
The deal allowed Heritage to back out of a merger with Turkey's Genel Energy while allowing ENI to enter Uganda, which according more optimistic industry estimates may have up to eight million barrels in possible reserves.
In an attempt to attract partners with experience of building the sort of infrastructure needed to exploit the resources, Tullow had begun selling up to half of its share – 50 per cent each of Block 1 and Block 3A, and 100 per cent of Block 2 – in the blocks. However, it now wants to keep a bigger chunk of the assets.
It has pre-emption rights as Heritage's partner, allowing it to match ENI's bid, though the Ugandan government still has the final say on any deal. Heritage may also accept a higher offer from ENI or another company, but only if such as proposal arrives before Heritage investors meet on 25 January. ENI has not yet terminated its agreement with Heritage, and is awaiting clarity on the government's views.
If successful, Tullow will assume Heritage's share and own all three blocks. It still plans to sell on up to 50 per cent of its blocks, but following the pre-emption, that will equate to a bigger piece of the pie for Tullow, which will submit names of potential partners next month.
For Heritage, the sale will mark an exit from Uganda, though it retains interests on the Congolese side of Lake Albert. "This news shouldn't come as a huge surprise to the market," said Phil Corbett, an analyst at RBS. "Senior Tullow officials in Uganda had indicated that a pre emption was more likely than not and in our view there is clear industrial logic in the decision,"
He added that, while there was likely to be speculation about the Ugandan government's stance, "Tullow would have sounded out its intentions".