Monday, April 27, 2009

UGANDA: Tullow snubs offer from Chinese giant

By Nick Webb / Sunday March 15 2009

AIDAN Heavey's €10bn oil firm Tullow Oil is understood to have snubbed an offer from the Chinese State Oil behemoth in recent weeks.

Tullow, which has seen its share price double since October last year, is thought to have dismissed an informal approach from the vast government-owned oil major, according to sources. Tullow said that it does not comment on "market speculation".

China's oil exploration and production empire is split into three entities: China National Petroleum Corporation, Sinopec and CNOOC. The state-owned oil firms are thought to be desperate to expand their presence in oil rich sub-Saharan Africa. Traditionally, China's state-backed oil firms link up in the search for acquisitions and buyout targets with the Chinese government ultimately deciding which company will be the preferred bidder.

After years of reverses in Asia, Tullow has had spectacular success in finding oil in Africa. Tullow has discovered a series of world-class oilfields in Africa in the past three years.

The Jubilee and Tweneboa oilfields in Ghana and the Kingfisher and Buffalo-Giraffe oilfields in Uganda are hugely valuable, with combined potential reserves of about 3.8 billion barrels. Even with lowish oil prices of $40 per barrel, Tullow's African assets make it hugely attractive to larger companies as the era of peak oil approaches. Royal Dutch Shell and other majors are thought to be keen on expanding in the region.

Despite completing a €1.6bn refinancing and a surprise €430m rights issue recently, Tullow faces major funding hurdles over its oilfields in landlocked Uganda. It may seek to sell part of the oilfield to a partner. Uganda is far away from traditional oil infrastructure and a vast pipeline would need to be constructed to bring the oil across Uganda and Kenya to the sea where it could be exported. The cost of building such an enormous pipeline would be prohibitive for Tullow to attempt on its own. Chinese and Gulf state sovereign wealth funds are thought to be in the running to finance construction costs.

Tullow has a frantic drilling slate scheduled for the next year. The success of this drilling and exploration campaign will have a major bearing on the company's valuation.

Apart from its Ugandan and Ghanaian oilfields, Tullow has interests across the African subcontinent, with oilfields and acreage in countries from Cote d'Ivoire, Congo, Senegal, Namibia, Equatorial Guinea and Tanzania. It also produces oil in Gabon in west Africa. Tullow is the largest owner of oil acreage in the country.

Samuel Dossou, formerly the chief oil adviser to Gabon's leader Omar Bongo, has emerged as one of the largest single shareholders in Tullow. Mr Dossou's Monaco-based Petrolin firm owns over one per cent of Tullow -- almost double Mr Heavey's stake.

Mr Dossou may even own a larger share. Tullow has estimated that African investors own close to 8 per cent of the company. This is largely due to shareholders in Africa Energy taking shares instead of cash when Tullow bought the firm for €390m in 2004.

Last October, Tullow issued 6.3 million shares to the African Petroleum Investment Company as a final part of the buyout of the Energy Africa deal. The African Petroleum Investment Company owned a stake in a joint venture with Energy Africa in Gabon.