Tullow Oil, the FTSE 100 oil exploration and production group headquartered in London, is seeking to take full control of two oil fields it discovered in Uganda with partner Heritage Oil.
Heritage had agreed to sell its half stake in the two fields in the Lake Albert Rift Basin to ItalyÔÇÖs Eni; however, Tullow has now exercised its pre-emption rights, allowing it to match EniÔÇÖs bid.
Tullow and Heritage found proven reserves of more than 700 million barrels of oil in three drilling blocks at the Lake Albert Rift Basin. The two companies also identified over 1.5 billion barrels of potential yet to be explored.
The companies have invested more than $700 million between them in the area over the past six years.
Last year, Heritage said it would sell its shareÔÇö50 per cent of Block 1 and 50 per cent of Block 3AÔÇöto Eni, which offered up to $1.5 billion for the assets.
The deal allowed Heritage to back out of a merger with Turkey's Genel Energy, while enabling Eni to enter Uganda.
However, Tullow has now said it has been able to raise the cash needed to buy out Heritage.
If successful, Tullow will assume Heritage's share and own all three blocks. However, since its expertise lies in oil exploration rather than production, it will need to find international partners to help develop the fields.
This will include construction of a major pipeline that will need to be built through Kenya in order to export the oil via the Indian Ocean, as Uganda is landlocked. Tullow is expected to choose the companies with which it wants to work next month.
Total infrastructure costs to develop the fields could reach $5 billion.
Commenting on the move, TullowÔÇÖs CEO Aidan Heavey said: ÔÇ£Tullow is committed to retaining a material stake in Uganda and to continue to invest for the long term. As we enter the development phase we are working closely with the Ugandan government to introduce a mutually beneficial partner with downstream expertise who is aligned with this long term approach.
ÔÇ£The pre-emption of the Heritage transaction, and completion of Tullow's farmdown process, is an excellent opportunity to deliver an accelerated basin-wide development plan best suited to government needs and to optimise value for all stakeholders.ÔÇØ
For Heritage, the sale will mark an exit from Uganda, though it does retain interests on the Congolese side of Lake Albert.
Heritage shareholders are due to vote on the sale to Tullow on 25 January, before UgandaÔÇÖs government makes the final decision.
