CNOOC, Total to Divvy Up Ugandan Oil Assets

LONDON (Dow Jones), Mar. 10, 2010

China's Cnooc Ltd. and French oil major Total SA are each expected to acquire a third of Tullow Oil PLC's oil assets in Uganda, Tullow said in a statement Wednesday.

Both companies have recently made presentations to the Ugandan authorities and Tullow said it expects these transactions and Tullow's purchase of Heritage Oil PLC's Uganda assets to be signed in the coming weeks. "This will result in a unified partnership with considerable experience and financial capability to enable Uganda to become a significant oil producing nation," it said.

Tullow will begin the first phase of development of hydrocarbons discovered in Uganda's Lake Albert basin this year, with oil and gas production for the local market due to begin in 2011, the statement said. Natural gas from the Nzizi field will be piped to a power plant to be constructed in Uganda's Hoima district and around 10,000 barrels a day of oil from the Kasamene field will be trucked to local markets.

Output from the whole basin could eventually exceed 200,000 barrels of oil a day, supplying a local refinery and exporting surplus crude to regional and international markets, said Tullow.

A farm-down deal with Cnooc and Total will help speed development of the whole basin, said Royal Bank of Scotland analyst Phil Corbett. "A strong partnership on equal footing in Uganda should accelerate the development of a major resource base and, following the net proceeds of the farm-down and the placing inflow, the company should be well funded to pursue the considerable upside potential in its portfolio," he said.

Following recent appraisal drilling, Tullow upgraded the mid-range reserves estimate at its Tweneboa discovery offshore Ghana to 400 million barrels of oil equivalent, from 250 million boe previously.

The Jubilee field offshore Ghana remains on track to produce its first oil by the end of this year, Tullow said. The first phase of Jubilee will produce around 120,000 barrels of oil a day.

Tullow Wednesday reported a full-year 2009 operating profit of GBP95 million, down 68% on the year due to lower oil and gas prices and lower output.

Oil and gas production for the year was down 12% to 58,300 barrels of oil equivalent a day.

Tullow's gearing -- the ratio of net debt to net assets -- rose 17 percentage points to 47% as the company invested heavily in Ghana and Uganda. Tullow will spend up to $1.5 billion buying the Heritage Oil assets, although a large part of this cost will be offset by the proceeds of the subsequent partnership deal with Total and Cnooc.

"Our 2009 reported results still reflect a period of financial transition," said Tullow's Chief Executive Aidan Heavey. "First oil in Ghana from the Jubilee field later this year will result in considerable production growth and increased cash flow."

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