Tullow Oil is likely to scupper Heritage Oil’s proposed $1.5bn (£930m) sale of its Ugandan assets to Eni, the Italian energy group, by exercising a right to pre-empt the deal, a senior Tullow executive has said.
Tullow has until January 17 to decide how to respond, but Brian Glover, head of its Uganda operations, said: “All things being equal, it’s highly likely we would pre-empt.”
Uganda is preparing to become Africa’s newest oil producer in the next two to three years. Tullow estimates the land-locked country has 2bn barrels of recoverable crude, which would put it in the same league as Equatorial Guinea and Chad.
Eni’s proposed entry into Uganda, announced at the end of November, signalled the country’s impending transformation from a playground for intrepid oil explorers to a destination for big oil companies and their billion dollar rivalries.
The Ugandan government would have to approve any deal but a minister said it did not have a preference for Tullow or Eni and was only interested in securing the best outcome for the country.
Heritage has agreed to sell out of the country entirely by giving its 50 per cent stakes in oil blocks 1 and 3a to Eni for $1.35bn in cash plus a deferred payment of $150m either in cash or as a stake in another producing field.
Tullow owns the other 50 per cent of both blocks and a partnership agreement between the two wildcat explorers gives it the right to pre-empt the deal within 30 days of seeing the sale agreement, which it received last Friday.
Mr Glover stressed that Tullow had not made a firm decision and that its response would depend on the details of the agreement. “What we want to ensure is that due process is followed,” he said.
Peter Lokeris, Uganda’s minister of state for mineral development, said the government had told the companies to resolve the issue between themselves and then present a final proposal.
“All these things, we don’t have a preference,” he said. “We want just to find good deals. You don’t say you prefer one. What you prefer are good negotiations and what is good for the country.”
In order to commercialise production, Uganda needs one or more large oil companies to help build a refinery, pipeline and new transport links that could cost over $10bn. Neither Tullow nor Heritage have the money or expertise to do so.
Both Eni and Heritage declined to comment.
Heritage’s surprise move has soured its relations with Tullow.
When it was announced, Tullow was already looking for a larger partner to buy half of its own stakes in blocks 1 and 3a and half of its 100 per cent stake in block 2.
Tullow’s data room for potential buyers closed in London on Friday and bids are expected in January, Mr Glover said.
But the Heritage move has injected uncertainty into the process.