Uganda's authorities have executed a tax deal that underpins the $575 million sale of Tullow Oil's assets in the East African nation to French supermajor Total.
Tullow's share price on the London Stock Exchange responded positively to these approvals, rising 36% from 16.61 pence (21.84 cents) to 22.59 pence in mid-morning trading before settling at around 20.5 pence in the late afternoon.
The Anglo-Irish independent said the Kampala government and the Ugandan Revenue Authority have executed a binding tax agreement "that reflects the pre-agreed principles on the tax treatment of the sale of Tullow’s Ugandan assets to Total".
Uganda's Minister of Energy & Mineral Development has also approved the transfer of Tullow’s interests to Total and the transfer of operatorship to Total for Block 2.
Deal nears close
With all the government-related conditions to closing having been satisfied, Tullow said it expects the transaction to close "in the coming days" after completing certain customary pre-closing steps with Total.
Once the deal has closed, Tullow will receive $500 million and a further $75 million when a final investment decision is taken on the Lake Albert development project.
In addition, Tullow is entitled to receive contingent payments linked to the oil price payable after production starts.
Time to assess options
Commenting on this news, BMO Capital Markets analyst David Round said the deal will boost liquidity at Tullow to more than $1 billion, helping its balance sheet, adding that while the company "still has work to do to address its medium-term financing".
"We don't see a pinch point until mid-2022, meaning it has time and - in our view - options (disposals, tenders, refinancing, asset outperformance, oil price) to address any shortfall."
The deal, stated Round, will see no tax incurred by Tullow, with Ugandan tax on capital gains to be remitted by Total on behalf of Tullow.
He said Tullow's recently announced $500 million of liquidity combined with the Uganda sales proceeds "should provide confidence" around the next reserve based lending redetermination in January 2021, as well as the repayment of $300 million of convertible bonds in July 2021.
Round's view is that "balance sheet concerns, which are hopefully now much reduced, are overshadowing the potential in the portfolio."