Tullow Oil will begin a $10bn development of Uganda’s oil reserves after completing the $1.45bn cash acquisition of Heritage Oil’s 50 per cent stake in the country’s Lake Albert oil blocks.
The sale means Tullow is the owner of all but one of the landlocked east African nation’s oil blocks with proved reserves, located deep in equatorial Lake Albert on the Congo border, that are estimated to hold up to 2.3bn barrels of crude.
Tullow will now finalise a sale of two-thirds of the project to be split equally between Total of France and the Chinese state oil company CNOOC.
“Total bring their experience in Africa, CNOOC their political relations [in Africa] and access to China’s oil supply chain – so there’s a very good marriage between us three,” said Ian Springett, Tullow’s chief financial officer.
Analysts put the value of the deal at $3bn. The completion should allow commercial production to begin by the end of 2011.
The consortium plans to build a pipeline through Kenya or Tanzania to transport the crude to the coast.
Tullow predicts that oil production will eventually reach more than 200,000 barrels a day, in the process transforming Uganda, one of the poorest countries in the world, into a top-50 oil producer.
Heritage’s sale has been dogged by controversy over tax. The Ugandan government claims Heritage owes $405m in capital gains taxes – a stumbling block that contributed to Italian major Eni’s decision to pull out of buying Heritage’s share earlier this year.
Heritage has paid $121.4m to the government and placed another $283.4m in an escrow account pending the outcome of arbitration proceedings in London.
The sale represents a considerable return for Tony Buckingham, the Heritage chief executive, a former North Sea oil diver who has invested $150m in exploration in Uganda since 1997. Heritage announced it will pay a special dividend of up to 100p per share in August.
For Tullow, the acquisition is one in a series of recent African deals that have helped increase the company’s share price by 140 per cent over two years.
On Monday it announced an oil discovery in Ghana potentially as valuable as the estimated 1.2bn barrel Jubilee field that helped catapult the explorer into the FTSE 100 index.
In mid-afternoon trading Heritage’s shares were up 0.9 per cent to 414.2p. Tullow shares had risen 2.3 per cent to £12.68.
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