Tullow hopeful on Ugandan oil talks

A POSITIVE resolution from Tullow Oil’s ongoing negotiations with the Ugandan government is expected to follow the country’s general election later this week.

The dispute is about the final approval for the Irish-founded exploration company’s formal takeover of the former local assets of Heritage Oil and its planned farmdown of them to China’s CNOOC and French company Total.

In its recent full-year trading update — ahead of the publication of its 2010 results in March — in which the company said that its total revenue for last year should amount to around $1.1 billion (€800 million), Tullow said that while the Ugandan/Lake Albert issue has taken longer than expected, negotiations with Government are “progressing well”.

While no more concrete an update has been forthcoming from Tullow, analysts still anticipate a positive outcome for the London-headquartered firm. Goodbody Stockbrokers said yesterday, via a research note on the company, that it expects Tullow to receive around $2.9bn in gross proceeds from the eventual farm-down operation (after which the three companies will own an equal share in the two relevant Blocks in the Kasamene oil and gas field) and to incur no tax liabilities.

Goodbody also expects CNOOC and Total to cover all relevant capital expenditure for the planned pipeline and refinery. Goodbody went on to say that it expected an end to negotiations — which have been going on in different guises for a year — sometime after Uganda’s upcoming general election. Polling for the election takes place later this week.

“Our investment case on Tullow continues to seek a balance between the potential for further material exploration catalysts, valuation and the ongoing uncertainty over Uganda,” it said.