Tullow Oil - Farms down equity in Uganda

Davy Research
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Tullow Oil and Total have announced that Tullow is farming down 21.57% of three Exploration Areas in Uganda to Total for a total consideration of $900m. We like the deal. It ensures that Tullow is less likely to get back on the capex treadmill before it has time to repair its balance sheet. Since Uganda is pre-development asset and not in production, the transaction will not lower forecast EBITDAX in the near-term which is important when running financial covenant tests. Uganda has also at times been a difficult asset to progress, and the deal should give a Final Investment Decision (FID) fresh impetus. Furthermore, management has delivered on its target to reduce its exposure (again) to Uganda. Finally, the transaction confirms our opinion that Tullow’s pre-development assets are attractive to industry.