Tullow looks to China and Total after Heritage Ugandan deal

02/08/2010 (3 h 41 m ago)

The long running saga of the Ugandan oil assets jointly owned by Tullow Oil and Heritage Oil seems to be heading towards a resolution. Heritage had put its half share of the fields up for sale and accepted a $1.5bn bid from Italy's Eni, before Tullow stepped in to exercise its pre-emption rights. Much depended on the decision of the Ugandan government - thought at first to favour Eni although now seemingly happy with Tullow. Today Heritage confirmed Eni had withdrawn its offer, clearing the way for the Tullow deal, which is now expected to be completed in the first quarter of 2010. Now this has been sorted out, Tullow will reportedly pass on a stake in the field to either China National Offshore Oil Corporation (CNOOC) or Total for up to $2.5bn. In a buy note, Phil Corbett at Tullow's broker RBS Hoare Govett said: Heritage has disclosed this morning that Eni has formally revoked the Sale and Purchase Agreement it had signed with Heritage (shouldn't come as much of a surprise to the market given last week's news flow was leaning heavily in Tullow's favour, although should expedite the completion of the sales process). Separately in the Sunday Times, it was reported that Tullow will sell 50% of its enlarged holdings across Blocks 1, 2 and 3A to CNOOC for a $2.5bn consideration (first trailed on Friday) although the story is slightly contradictory in that it goes onto say that talks are also ongoing with Total to become an equal partners with the Chinese (presumably on a 25% basis each with Tullow retaining a 50% share). We think the market would treat any involvement of Total positively. Meanwhile Richard Griffith at Evolution Securities commented: [Eni's withdrawal] clears the path for Tullow to complete its pre-emption of Heritage's licence interests before farming out stakes in all three Ugandan licences to CNOOC and Total. This is very good news for Tullow and if the subsequent CNOOC farm in to all three Ugandan licences for US$2.5bn is correct then Tullow has already recovered the cost of its pre-emption purchase price (US$1.5bn). Upon completion of the pre-emption and any subsequent farm out deals we will review our recommendation and target price but for now they remain unchanged [buy with a £14.50 target]. Tullow has slipped 23p to £11.34 on the news, while Heritage is 2.2p higher at 482.2p. Tullow Oil Nick Fletcher guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

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