Africa-focused independent oil company Tullow Oil will sell a 21.75% interest in the Lake Albert oil project, in Uganda, to Total for $900-million.

Tullow will, however, retain an 11.76% interest in the upstream and pipeline operations, which will reduce to 10% when the Uganda government formally exercises its right to back-in.

Tullow will cease to be an operator in Uganda, but will retain a presence in the country to manage its nonoperated position.

Total chairperson and CEO Patrick Pouyanné commented in a statement that the company’s increased share in the Lake Albert project will provide significant value to the company.

The $900-million purchase price includes a cash and a deferred consideration to be paid as and when the Lake Albert development project, located on the border between Uganda and the Democratic Republic of the Congo, reaches key milestones and represents a reimbursement by Total of a portion of Tullow’s past exploration and development cost.

Tullow will receive $200-million in cash in three tranches, with $100-million due on completion of the transaction and $50-million each payable at the final investment decision (FID) and first oil production stages.

The remaining $700-million will be paid through a deferred consideration, which will be used by Tullow to fund the company’s share of the costs of the upstream development project and the associated export pipeline project.

The Lake Albert project is a major development which is expected to achieve around 230 000 bbl/d of oil when it reaches plateau.

Development plans for the Lake Albert project were approved by the government in August 2016, which Tullow expects will see it require $5.2-billion gross of upstream capital expenditure to develop the first 1.2-billion barrels of oil capacity, with $3-billion expected to be required to reach first oil around three years after the FID.

The government of Uganda has agreed an export route through Tanzania and the current estimate for the pipeline capital cost is around $3.5-billion. The pipeline is expected to be funded through a combination of debt and equity.

Tullow carries about $1.7-billion for Uganda, which includes fair value allocations and capitalised interest. The group expects a pre-tax write-off as a result of this disposal of about $400-million to be booked in its 2016 full year results.

Completion of this transaction is subject to certain conditions, including the approval of the government of Uganda.

“Today’s 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.

“The deal will secure future cash flow for the group from one of the industry’s few truly low-cost development projects without any additional cash requirements expected. We will work closely with the government of Uganda, its associated agencies and with Total and China National Offshore Oil Corporation to move this transaction forward as smoothly as possible over the coming months,” Tullow CEO Aidan Heavey commented.