By Watchdog reporter

Tullow Oil plc (Tullow) has announced a substantial farm-down of its assets in Uganda to Total E&P Uganda B.V. (Total).

In a statement issues Monday, Tullow said the agreement will allow Tullow to retain an 11.76 percent interest in the upstream and pipeline, which would reduce to 10 percent when the Government of Uganda formally exercises its right to back-in.

“This agreement is based on the transfer of licence interests from Tullow to Total in exchange for cash and deferred consideration to be paid as and when the Lake Albert Development Project reaches a series of key milestones and represents a reimbursement by Total of a portion of Tullow’s past exploration and development cost,” the statement reads.

According to the statement, Tullow said they had sold for a total of USD900 million, but said it has retained exposure to the project by retaining an equity interest.

Tullow Oil will get USD100 million in cash upfront but will have to wait for the Lake Albert development project to progress before receiving any further funds from Total. Tullow Oil will receive USD50 million once a final investment decision has been made and another USD50 million once the project has produced its first oil.

The other USD700 million will be paid as a deferred consideration. Tullow said the agreement, effective from the start of 2017, includes the amount to be reimbursed by Total for the portion of costs incurred by Tullow during past exploration and development work.

Tullow has agreed to sell 21.57% of its 33.33% stake in exploration areas 1, 1A, 2 and 3A to Total. The London-listed firm retains an 11.76% stake in the project and said the deferred consideration will be used to fund the company’s share of the costs of the upstream development project and the associated export pipeline project.

Tullow’s stake will fall to 10% once the government of Uganda formally exercises its right to back-in to the project, Tullow said.

The Lake Albert development project is expected to produce 230,000 barrels of oil per day at its peak.

“Development plans were approved by the government in August 2016, which Tullow expects will require USD5.20 billion gross of upstream capital to develop the first 1.2 billion barrels of oil with USD3.00 billion expected to be required to reach first oil around three years after final investment decision,” said Tullow.

Aidan Heavey, Chief Executive Officer, said the agreement will allow the Lake Albert Development to move ahead swiftly, increasing the likelihood of FID in 2017 and First Oil by the end of 2020.

“I am particularly pleased that Tullow’s long-term commitment to and presence in Uganda is guaranteed by this transaction and that we will remain an active investor in Uganda’s oil and gas sector,” said Heavey.