Total SA has suspended plans to build the 1445 kilometer East Africa Crude Oil pipeline from Hoima (Uganda) to Tanga in Tanzania citing frustrations by the Uganda government in completion of the Tullow Oil deal sources say.
The shelving of the $3.5 billion crude export project by the French Giant is further expected to delay Uganda’s first oil date expected in 2022 with 1.5 billion barrels awaiting export since the first discovery in 2016.
Besides the 216000 bpd pipeline Uganda had an ambitious plan to develop critical infrastructure including a petrochemical industrial park in Hoima to host a refinery, a crude oil export hub, an international Airport, logistics systems, utilities, and other petrochemical industries. The park would also have an integrated infrastructure corridor which will accommodate a pipeline, a highway, Power Transmission and ICT infrastructure cable systems.
Tullow on its part is planning to abandon the sale of the stake that would make Total SA the operator in the blocks and initiate a new sale to reduce its 33.33% in the Lake Albert project. CNOOC has already cut its workforce in the country citing delays in the project.
In its last announcement Tullow Oil said its planned farm-down to Total after it was unable to get an extension to the Sale and Purchase Agreement (SPAs) which expired on 29th August 2019.
According to the initial agreement Tullow was to transfer 21.57% of its 33.33% interests in Exploration Areas 1, 1A, 2 (operated by Tullow Oil) and 3A in Uganda to Total for a total consideration of $900 million. This would allow Tullow to retain an 11.76% interest in the upstream and pipeline, which would reduce to 10% when the Government of Uganda formally exercised its right to back-in.
“The termination of this transaction is a result of being unable to agree all aspects of the tax treatment of the transaction with the Government of Uganda which was a condition to completing the SPAs,” the company said in a statement
Tullow added that among the prime reasons for the fallout was that the joint venture partners were unable to agree with the Ugandan Revenue Authority on the availability of tax relief for the consideration to be paid by Total and CNOOC as buyers.
“Tullow has worked tirelessly over the last two and a half years to complete this farm down which was structured to re-invest the proceeds in Uganda. Whilst this is a very attractive low-cost development project, we remain committed to reducing our operated equity stake. It is disappointing to report this news at a time when we are making so much progress elsewhere towards the growth of the Group with our recent oil discovery in Guyana and the first export of oil from Kenya,” said Tullow Oil CEO Paul Dade.