Tullow Oil announced on Thursday that Total has agreed to buy its entire stake in their joint onshore oil fields in Uganda for $575 million as part of its target to raise $1 billion this year to tackle its $2.8 billion debt pile.
“An agreement to sell Uganda for cash proceeds is very positive news for Tullow right now,” Mark Wilson, an analyst at Jefferies, said in a note. “As a first step to the target of raising over $1 billion disposal proceeds, this deal is beyond what we believed possible.”
Tullow surged as much as 75% in London on Thursday, the biggest leap since the shares started trading in 1989. The stock was up 29% at 26.1 pence as of 8:52 a.m. local time, paring its loss this year to 59%, Bloomberg reported.
The company, which will sell its 33.3% stake and operatorship of the project, signed the agreement with Total late on Wednesday, Chairwoman Dorothy Thompson said in an interview.
Total will pay $500 million in cash on deal completion and $75 million when a final investment decision on the project is taken, the companies said in separate statements. Tax issues have been ironed out with the Ugandan authorities, and both parties are hoping to wrap up the transaction in the second half of 2020.
Thompson said the Lake Albert Project deal is important for Tullow and forms the first step of its programme of portfolio management.
“It represents an excellent start towards our previously announced target of raising in excess of $1 billion to strengthen the balance sheet and secure a more conservative capital structure,” Thompson added.
“We are pleased to announce that a new agreement has been reached with Tullow for less than $2 a barrel in line with our strategy of acquiring long-term resources at low cost, and that we have an agreement with the Uganda government on the fiscal framework,” Total’s Chief Executive, Patrick Pouyanne said in a statement.
The third partner in the 230,000 barrel per day project, China’s CNOOC, has pre-emption rights for half of the stake to be sold to Total.
Money from the sale will be used “to reduce Tullow’s net debt, strengthening the balance sheet and moving Tullow towards a more conservative capital structure,” the company said.
“Tullow has consulted with shareholders holding approximately 27.5% in aggregate of Tullow’s issued share capital and is pleased to report that they have indicated their support for the Transaction,” it added.
Earlier this week Tullow appointed Rahul Dhir, who currently leads smaller Africa-focused oil and gas producer Delonex, as its chief executive.
Rahul Dhir is taking the helm at Tullow at a time when it is slashing its headcount by a third and trying to raise $1 billion from selling at least part of its East African assets amid a pandemic that has slashed oil demand and prices.