Uganda Approves Tullow's $1.5B Takeover of 2 Oil Blocks

Lake Albert, Uganda, Republic of Congo
(Click to Enlarge)

KAMPALA, Uganda (Dow Jones), Feb. 4, 2010

The Ugandan government has approved U.K.-based Tullow Oil PLC's (TLW.LN) preemptive rights to stakes in two oil blocks owned by Heritage Oil PLC (HOIL.LN), Uganda's junior energy and minerals development minister told Dow Jones Newswires Thursday.

The decision to approve the sale was communicated to cabinet late Wednesday, Peter Lokeris said. Tullow and Heritage are now required to meet government conditions on the sale, including payment of capital gains taxes, cross-listing on the local stock market and early commercialization of Uganda's oil reserves, he added.

Approval of Tullow's pre-emption ends Italian energy firm Eni SpA's [E] attempt at obtaining the assets, which would have marked its entry into Uganda's promising oil sector. Heritage had agreed in December to sell its assets to Eni for up to $1.5 billion, but Tullow subsequently exercised its contractual right to pre-empt that deal and buy the assets itself.

Tullow is now expected to draft in a major oil firm as a partner to develop the Lake Albert region, a major new oil province where around a billion barrels have already been discovered. Eni declined to comment on the latest developments Thursday.

"The government approved the deal because there was an existing agreement between Tullow and Heritage that if one wanted to dispose of its stake, the other partner had the first option to buy," Lokeris said.

Uganda's president Yoweri Museveni has invited executives of Tullow to a meeting next week to finalize details of the deal, an official in the president's office said Thursday.

Despite the existence of the pre-emption agreement between Heritage and Tullow, Uganda's government had shown signs of splits over whether to let Tullow or Eni take over the Heritage assets.

Uganda's energy minister said on Jan 20 that the government had resolved to support Eni's proposed take over of Heritage's interests and threatened to veto Tullow's preemption citing fears of a monopoly and accusing Tullow of contractual breaches.

However following a meeting between Tullow's Chief Executive Aidan Heavey and the Ugandan president on Jan. 23, the tide shifted in Tullow's favor. At that meeting the company pledged to bring in partners to develop the country's downstream oil industry and avoid a monopoly. The company also plans to cross list its shares on the Ugandan stock market, winning the support of the Ugandan president.

A Tullow Uganda executive told Dow Jones Newswires separately the Ugandan president had pledged to respect the sanctity of Tullow's contract and its preemption agreement with Heritage following the meeting.

A spokesman for Tullow in London Thursday said that the company had not received official confirmation of the government's decision.

Tullow will add Heritage's half share in oil license blocks 1 and 3A in Lake Albert, to the half share in the blocks that it owns. Tullow already has full ownership of the neighboring block 2-- where the largest single oil field has been found--which means that it will own all the Lake Albert oil licenses when the Heritage deal is complete. However, the company is expected to bring in a partner immediately.

The Tullow Uganda executive said that the company is set to announce China National Offshore Oil Corp. (CEO) as its partner soon. Cnooc company executives met the Ugandan president last month and presented an "impressive" development proposal, according to a Ugandan official who attended the meeting. The proposal includes building a refinery and an export pipeline to the East African coast.

Copyright (c) 2010 Dow Jones & Company, Inc.

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