Uganda seals PSA deal with Tullow Oil

UK independent Tullow Oil has signed new production sharing agreements with the Uganda government, clearing the way for a stalled farm-down deal in the East African country.

The deal was sealed in Kampala on Friday. Energy and mineral development minister Irene Muloni represented Uganda government.

Tullow’s proposed $2.9 billion sale of stakes in three blocks to China National Offshore Oil Corporation (CNOOC) and France’s Total was reported recently to have snared on disagreements over contract clauses.

However, Tullow said in a statement issued on Friday that it has signed PSAs with the Kampala government for the EA-1 and Kanywataba licences in the Lake Albert Rift basin, and has also been awarded the Kingfisher production licence.

And it added: “As a result of this signing, Tullow will now finalise arrangements with CNOOC and Total for completion of the farm-down and the related transfer of monies as soon as possible."

According to upstreamonline.com, a Tullow spokesman confirmed that the signing of the two PSAs for EA-1 and Kanywataba had “resolved all outstanding issues related to the farm-downs in the three blocks and all parties were now happy for the process to go through”.

Chief executive Aidan Heavey said: "Today's signing is a vital step towards the development of the Lake Albert Rift basin and the oil and gas industry in Uganda and East Africa.”

The London-listed company’s share price rose on the news by about 55pence, or 3.7%, and was trading at £14.95 ($23.70) at 09:46 GMT.

Tullow was hoping to complete the delayed sale of one-third stakes in each of the three blocks to each of the companies by the end of last month, a deal which would unlock a $10 billion investment by the partnership to bring Uganda’s oil sector into the production phase.

However, Uganda’s President Yoweri Museveni was reported as saying last week that Tullow and the other oil companies had objected to the removal of stabilisation clauses in revised production sharing agreements being proposed as part of the asset sale plan.

The companies had also objected to Uganda building a refinery as part of the deal.

The transaction had earlier been held up by a separate tax dispute between the Ugandan authorities and Heritage Oil over the latter’s $1.45 billion sale of assets to Tullow in 2010.

About 1.1 billion barrels of proven and probable (P50) resources have been discovered in the Lake Albert Rift basin, with an additional 1.4 billion of P50 volumes identified, according to Tullow’s website.