Total will be dominating Uganda’s oil sector through its major ownership of 66.66% of Lake Albert oil projects. In 2022/2023, Total is expected to begin production with China National Offshore Oil Company (CNOOC) who is retaining one-third of the once three-way joint venture with Tullow.

The CNOOC announced last week that it would not be exercising its pre-emption rights in the agreement between Tullow and Total to sell all its assets to Total. The deal is said to be pending approvals and will be concluded later this year.

In a statement on May 28th, Tullow announced, “CNOOC Uganda Ltd has informed both Tullow and Total that it will not pre-empt the sale of Tullow’s assets in Uganda to Total.” This follows an April 23rd announcement that Tullow had agreed to sell off its entire assets in Uganda to Total for an amount estimated to be $575 million, subject to consent from CNOOC.

According to reports, the CNOOC’s decision was made at the headquarters and not at their office in Kampala, so it is not sure as to why the Chinese company objected to using the pre-emption option. As per the joint partnership agreement among the three companies controlling the Uganda Lake Albert oil projects, CNOOC “had rights of pre-emption to acquire 50 per cent of these assets on the same terms and conditions as Total.”

The remaining phase of the transaction is only being delayed because it is awaiting approval from the company’s shareholders and from the relevant Ugandan government agencies. The shareholder approval is certain because it was reported that during Tullow’s annual general meeting held in May, which was the same day Tullow announced its deal with the French giant, the company’s executive chair, Dorothy Thompson, noted that industry challenges and the firm’s debt situation were key reasons for the sale of its assets in Uganda.

According to Ms Thompson, “I am very pleased with the material progress Tullow has made in the first quarter of this year given the challenges facing the group after our performance in 2019, the Covid-19 pandemic and very low oil prices recently. Last week, we announced two significant milestones with the agreement to sell our Uganda interests to Total for $575 million in cash and the appointment of our new CEO, Rahul Dhir. The sale of our Uganda assets is an excellent first step towards our target of raising over $1 billion of proceeds to reduce net debt, strengthen the balance sheet and secure a more conservative capital structure.”

The sale value of the deal with Total is a downgrade on a deal Tullow had reached with Total and CNOOC in 2017 to sell 21.57 per cent of its assets for $900 million. A deal which would have still kept Tullow with a stake of 11.76 per cent in the Lake’s oil projects. The deal didn’t go through because of a fall-out in talks between the oil companies and the Ugandan government’s tax body. There was a disagreement over the capital gains tax that Tullow was expected to pay from the sale of its assets.

The shareholders’ approval looks to be certain, but the bigger challenge for Tullow is to get approvals from Uganda’s tax body, an agency that has been involved in several legal battles over capital gains with Total and CNOOC in recent years.