Agreements Over Land Title & Water Supply Key to Reaching Lokichar FID By End of 2019 – Tullow Oil

KENYA

Block 10BB and 13T operator Tullow Oil has listed concluding agreements over land title and water supply with the Government of Kenya as among the key tasks that the company is focused on in order to reach a Final Investment Decision by year end.

According to the company in its full year results released today critical to reaching a Final Investment Decision by end of Q4 also includes completing commercial framework agreements with the Government of Kenya and finalizing FEED studies in the first quarter of 2019 as well as submitting both the upstream and the mid-stream ESIAs in the second quarter are among the other top requirements.

These targets even as various aspects of the pre-development stage increasing in momentum including to Front-end Engineering and Design (FEED) and the Environmental Social Impact Assessments (ESIAs) of the upstream and pipeline which commenced in mid-2018. On the Extended injection and production testing which took place in 2018 the company says the results in line with expectations with dynamic data from these tests having materially assisted with the development plan for the Foundation Stage.  Resulting from these tests key upstream components such as well count, well spacing and CPF design are now well defined according to the operator.

UGANDA

In Uganda Tullow Oil says the JV Partners are working towards reaching FID for the development project around mid-2019 with the upstream and pipeline FEED already completed in 2018 in preparation for the award of Engineering, Procurement and Construction (EPC) contracts in 2019. Further Tullow reveals that drilling and well construction designs and contracting activities are complete and contracts are ready to be awarded. ESIAs for both Tilenga and Kingfisher were submitted to the National Environmental Management Authority for review with approval expected in the first half of 2019.

On land access activities the JV reports they have progressed with the active support of the Government in line with project requirements. In addition, critical transport infrastructure, including roads and an airport within the development area is being improved by the Government in support of the development.

On pipeline financing the JV reports good progress with the development of the financial model ongoing with the anticipation that key commercial, technical and land agreements with the Governments of Uganda and Tanzania as well as the submission of an ESIA for the pipeline to both Governments will be completed in the first half of 2019.

On the farm-down to total and CNOOC Tullow reports that an agreement has been reached between the company and the Government of Uganda following meetings in January 2019 between the CEOs of both Tullow and Total and H.E. President Museveni of Uganda. To this end both parties have agreed the principles for Capital Gains Tax on its $900 million Uganda farm-down to CNOOC and Total with the JV now engaged in discussions to finalise an agreement reflecting this tax treatment that will enable completion of the farm-down to take place. Any Capital Gains Tax is expected to be phased and partly linked to project progress. At completion of the farm-down, Tullow anticipates receiving a cash payment of $100 million and a payment of the working capital completion adjustment and deferred consideration for the pre-completion period of $108 million. A further $50 million of cash consideration is due to be received when FID is taken on the development project. Upon completion of the farm-down this will leave Tullow with an 11.76% interest in the upstream and pipeline projects. This is expected to reduce to a 10% interest in the upstream project when the Government of Uganda formally exercises its back-in right.

“This year the East Africa team will be driving hard towards two Final Investment Decisions on our East African projects which have the potential to deliver over 50,000 bopd of net production to Tullow by the early 2020s. We are making good progress in both Uganda and Kenya and are focused on delivering on the growth potential that these projects offer,” Executive Vice President for East Africa Mark MacFarlane commented.