French oil major Total has expanded its stake in Uganda's Lake Albert oil project by snapping up most of Tullow Oil's stake for $900 million, the companies said on Jan. 9.
The deal, which includes $200 million in cash and $700 million to be used for future development costs of the Ugandan fields and pipelines, means Tullow will cease being an operator in Uganda and will give Total access to valuable fresh oil reserves.
The Lake Albert development project will produce about 230,000 barrels per day (Mbbl/d) and start producing oil by the end of 2020, Tullow said.
"Our increased share in the Lake Albert project will bring significant value to Total and fits with our strategy of acquiring resources for less than $3/barrel with upside potential," Total CEO Patrick Pouyanne said.
Tullow estimated the development phase of the project would cost $5.2 billion, of which $3 billion will be required to reach first oil production.
With net debt expected at $4.9 billion by the end of 2016, Tullow has been looking to cash in some of its assets. The African-focused oil company expects a write-off of about $400 million in its 2016 results due to the deal.
"This deal ... strengthens Tullow's finances and provides an endorsement for the Uganda project; some of this goodwill may even rub off on Tullow's analogous Kenyan project," said Al Stanton, analyst at RBC Capital Markets.
The news lifted Tullow's shares to the highest in 18 months at 352.1 pence per share.
Last August, Uganda granted Total and Tullow production licenses that paved the way for the project.