Page 13 - AfrOil Week 22a 2020

AfrOil INVESTMENT AfrOil
CNOOC’s move should allow Tullow to com- plete the sale to Total as planned in the second half of the year, the statement said. It noted, though, that the finalisation of the deal still hinged on securing the necessary approvals from shareholders and various government agencies, as well as on the signing of a binding tax agreement with the Uganda Revenue Authority (URA) and the government of Uganda.
Now that CNOOC has opted against exer- cising its right to pre-empt part of the deal with Total, it added, Tullow is in a position to move forward with respect to the signing of a tax accord. The final form of the agreement reflects the terms that the parties agreed on in late April, it said.
Tullow had said in late April that the URA had agreed in principle to the terms of its sales and purchase agreement (SPA) with Total. This agreement extends to the tax treatment of the deal, “[including] the position on Ugandan tax on capital gains, which is to be remitted by Total Uganda on behalf of Tullow Uganda, and which is expected to be $14.6mn in respect of the cash consideration,” it said.
According to previous reports, Tullow has agreed to sell its 33.3334% stakes in three oil-bearing blocks near Lake Albert and its 33.3334% stake in the proposed East African Crude Oil Pipeline (EACOP). The company has been serving as operator of Block 2, while Total is operating Blocks 1 and 1A and CNOOC is operating Block 3A.
Total has agreed to pay $575mn in cash for these assets and will also make oil-indexed contingent payments once production begins. “The cash consideration consists of $500mn payable at completion and $75mn payable fol- lowing FID [final investment decision] of the Lake Albert Development Project,” Tullow said in April.
Tullow is taking this step within the frame- work of a wider effort to reduce costs and streamline its portfolio. The company hopes to
raise at last $1bn via sell-offs and will use the proceeds to improve its finances and reduce its debt burden.
The signing of the SPA should also serve to tie up the loose ends left by the expiration of Tullow’s previous farm-out deal with Total and CNOOC in August of last year. The par- ties had negotiated a $900mn deal that would have allowed Tullow to reduce its holdings in the Ugandan assets to about 11%, but they were unable to reach agreement with URA on the tax treatment of the transaction. ™
Total hopes to develop the Kingfisher and Tilenga oilfields (Image: Tullow)
PERFORMANCE
NNPC seeks to reduce production costs
NIGERIA
MELE Kyari, the group managing director of Nigerian National Petroleum Corp. (NNPC), has identified reduced production costs as one of his company’s priorities.
Kyari told journalists during an online con- ference last week that high production costs were a handicap for state-owned NNPC. They have become an even bigger source of concern now that the coronavirus (COVID-19) pan- demic has caused world oil prices to fall sharply, he said.
The company cannot sustain a situation in which the cost of production can go as high as
$35.97 per barrel while crude commands a price of $13 per barrel, as it did recently, he added. As such, it hopes to bring the figure down to $10 per barrel on average by 2021, he said.
“Oil prices have gone down to [less than] $10 per barrel, due to the economic impacts of COVID-19, resulting in crude oil supply and demand imbalances,” he commented. “[The] cost of production has always been a major issue for NNPC. Without cost reduction, there will be no tax revenues, and therefore the investments would not be worth the while, with unmet expectations.”
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