Tullow has weeks to decide on purchase of Ugandan oil assets

TULLOW OIL will have to decide in the coming weeks whether to pre-empt the sale of Heritage Oil’s Ugandan assets to Eni, the Italian energy group.

Tullow, which is Heritage’s partner in Uganda, will consider buying the $1.3 billion (€861 million) assets, but has not yet studied the details of the deal it would be pre-empting, people close to Tullow said.

According to the contract of the pending deal between Heritage and Eni, Tullow has 30 days from the date it was informed about the pending deal between Heritage and Eni to decide whether to pre-empt the sale.

Heritage agreed last month to sell out of Uganda, with Eni taking the 50 per cent stakes it holds in oil blocks 1 and 3a along Lake Albert.

Tullow owns the other 50 per cent of both these blocks, giving it the right to pre-empt the deal. Any pre-emption would have to be approved by the Ugandan government. Tullow also owns all of block 2, although it is selling part of that.

“If Tullow were to pre-empt, this would give the company 100 per cent . . . of blocks 1, 2 and 3a which presumably it would then sell on to a partner with the balance sheet and expertise to expedite the development,” Royal Bank of Scotland said in a note.

The bank added that Tullow would likely need to finance the transaction with a loan from a bigger oil company on to which it would then sell the assets.

However, it is unclear whether Uganda would allow Tullow to pre-empt. Eni has been courting Ugandan officials for months, presenting them with a development plan for the Lake Albert region.

Paolo Scaroni, Eni chief executive, visited Uganda in August. He said yesterday: “Heritage should see if there are offers that are better than ours.”

But he added: “The government of the country where the assets are must agree on the sale.”

An official within the Ugandan president’s office told Dow Jones yesterday that Uganda did not want Tullow to scupper Heritage’s deal with Eni. “Eni is a big and respectable company, [The] government will not allow Tullow Oil to block the deal,” he said.

Tullow and Heritage are the two biggest oil companies in Uganda, which is thought to hold as many as 2.4 billion barrels of oil. – (Copyright The Financial Times Limited 2009)