London - Total agreed to buy a stake in a project in Uganda from
Tullow Oil for $900 million as a recovery in crude prices accelerates the pace
of deals in the energy industry.
French oil
major Total will acquire a controlling stake in the Lake
Albert development, the companies said Monday in separate
statements. Total will pay an initial $100 million in cash, with another $100
million split equally when the project gets sanctioned and when it first starts
pumping oil. The remaining $700 million is a “deferred consideration,”
used by Tullow to fund its share of the costs.
“Our
increased share in the Lake Albert project
will bring significant value to Total and fits with our strategy of acquiring
resources for less than $3 a barrel with upside potential,” CEO Patrick
Pouyanne said in a statement.
The
acquisition is part of Total’s push to develop reserves and grow production by
5 percent per year in the 2014 to 2020 period as the French oil major expects
the recent dearth in projects to create a shortage by the end of the decade.
Last month, Total agreed to buy stakes in Brazilian oil fields and energy
infrastructure from Petroleo Brasileiro in a $2.2 billion deal.
The
valuation of the deal looks reasonable “at first glance,” said Stephane
Foucaud, a London-based managing director at GMP FirstEnergy. “There is a sense
of urgency among buyers to make deals as valuations are generally becoming very
demanding.”
Uganda
potential
Brent, the
global crude benchmark, has gained almost 20 percent since OPEC struck an
accord at the end of November to curb production.
Total will
increase its stake in the Ugandan project by 21.57 percent to 54.9 percent,
leaving Tullow with 11.76 percent, the companies said.
Landlocked Uganda has an estimated 1.7 billion barrels of
recoverable oil at fields in the Lake Albert basin that the government expects
Tullow, Total and China’s
Cnooc to start pumping by 2021. The government has estimated it will receive
$43 billion of revenue from the resource over 25 years. The Lake
Albert development will pump about 230 000 barrels a day when it
reaches full production, according to the statement.
Tullow -
the best performer on the Stoxx Europe 600 oil and gas index last year - rose
2.7 percent to 333.60 pence, after earlier gaining as much as 8.4 percent in London trading. Total
fell 1.4 percent to 48.09 euros.
Read also: Total to resume SA offshore drilling
Tullow Oil
CEO Aidan Heavey said he hopes the deal will increase the likelihood that the
project will be sanctioned this year so that first oil can happen by the end of
2020. Tullow will no longer be the principal operator of the development in Uganda once the
deal closes.
UK-listed
Tullow will write down about $400 million following the asset sale, an amount
to be included in its full-year results. That amount “should largely be
considered as noise” as the deal confirms RBC Capital Markets’ asset valuation,
according to Al Stanton, an analyst at the bank.
The
agreement is backdated to January 1.
BLOOMBERG