Heritage deal key to Tullow

TULLOW Oil’s decision to pre-empt the sale of Heritage Oil’s Ugandan oil deposit assets to Italian oil group Eni is a brave one, and one that will secure the firm’s position among the giants of the oil world, having grown up from its humble beginnings a quarter of a century ago.

Under the terms of the deal, Tullow will pay $1.35bn (£830m) for 50 per cent of Block 1 and Block 3A on the Ugandan side of Lake Albert, on the border of Uganda and the Democratic Republic of Congo. Tullow already owns half-interests in Block 1 and 3A, and owns 100 per cent of Block 2.

But the agreement will allow the firm to retain control of Uganda’s precious oil assets and put itself into a position to strike up a lucrative partnership with an international oil major, very probably Exxon-Mobil.

The sale dwarfs the other landmark deals in the company’s history – namely buying Hardman Resources for £581m in 2007; acquiring Africa Energy for $570m in 2004; and taking over a package of BP’s North Sea gas fields for £200m in 2000. All these deals and an aggressive programme of exploration have contributed to the firm reporting record profits in the past few years.

Since Tullow was founded in 1985 by chief executive Aiden Heavey, now aged 56, it has grown exponentially; the company now employs over 540 people in 23 countries, is in the FTSE 100 and has a market cap of £10.8bn.

Andrew Foster, RBS Hoare govett, and Andrew Osborne, BoA Merrill Lynch
ADVISING Tullow Oil on its landmark decision to pre-empt the $1.35bn (£830m) sale of Heritage Oil’s Ugandan assets are the group’s two house brokers, RBS Hoare Govett and Bank of America Merrill Lynch.

Andrew Foster, RBS Hoare Govett’s managing director of corporate broking, is leading the team on the one side. Foster counts on his roster of past and current clients many of the world’s largest energy groups, including Centrica and Cairn Energy.

Before joining Hoare Govett, he was a senior manager at the UK Listing Authority.

Meanwhile, corporate broker Andrew Osborne is in the chair over at BoA Merrill Lynch.

Osborne made his name at Hoare Govett, where he built its oil exploration and production team before being lured to Merrill Lynch in 2004 by then chairman Bob Wigley.

Client names on his CV include the likes of BT, Scottish & Southern and Logica.

Tullow plays a clever game
Tullow plays a clever game
“THERE’S a whole ocean of oil under our feet! No one can get at it except for me!” So screams Daniel Day Lewis as Plainview in Hollywood blockbuster There Will be Blood. After exercising its pre-emption rights yesterday, Tullow very nearly has a whole lake of oil under its feet.

The fields are a good buy. Although there are just 800m barrels in the easy-to-extract “discoverable cash” category, the true potential of the Ugandan side of Lake Albert is nearer 2bn barrels, making it one of the top 50 oil producers in the world.

When running at full capacity, the site could add as much as $2bn a year to Tullow’s top line for as long as three decades, although it will have to share this with a partner, probably ExxonMobil.

Tullow is likely to get approval from the Ugandan government. It has played a clever political game, outsmarting Italian rival Eni by offering to list shares in the oil field in Uganda; such a move would transform the Ugandan stock exchange, which is currently near-illiquid, trading just $100,000 a day.

Its founder and chief executive Aiden Heavey should be congratulated for engineering one of Africa’s less bloody coups d'état.