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Tullow May Buy Heritage Assets, Thwarting Eni

Source: Bloomberg 12/1/2009, Location: Africa

Tullow Oil Plc, the U.K. explorer with the most licenses in Africa, is “seriously considering” buying the Ugandan assets of Heritage Oil Plc, potentially scuttling a $1.5 billion deal with Eni SpA.

Tullow and Heritage are equal partners in Blocks 1 and 3A in Uganda’s Lake Albert. Eni, Italy’s biggest energy company, said Nov. 23 it had signed a letter of intent with Heritage to buy its share. Tullow is interested in acquiring Heritage’s interests and bringing in partners to help develop the fields.

“We would consider exercising pre-emption rights and, in the event that was successful, we would then go through a farm- out for all the assets,” Brian Glover, Tullow’s manager for Uganda, said in a phone interview today. “We see Uganda as one of our key countries for future investment.”

Oil companies are competing for new reserves in Africa to make up for dwindling resources and restricted access in other parts of the world. In Ghana, the state-owned oil explorer is threatening to block the sale of Kosmos Energy LLC’s assets to Exxon Mobil Corp. amid interest by BP Plc and Chinese rivals.

Eni’s Chief Executive Officer Paolo Scaroni acknowledged that there are “some obstacles” standing in the way of the deal with Heritage Oil, a U.K. producer operating in the Middle East as well as Africa.

Government Approval
“Heritage should see if there are offers that are better than ours,” Scaroni told reporters today in Rome. “The government of the country where the assets are must agree on the sale,” he said, predicting that this would happen by January.

Heritage Oil’s Chief Financial Officer Paul Atherton couldn’t be reached for comment.

Tullow’s intervention may thwart Eni’s efforts to build up its reserves and make up for output cuts from disruptions in Nigeria. Around 1.5 billion barrels are still to be discovered in the Lake Albert Rift Basin, according to Tullow estimates. Uganda’s government would have to approve any deal, Glover said.

Heritage Oil surged as much as 4.6 percent in London trading today, on speculation its Ugandan assets may fetch a higher price than Eni had offered, before erasing gains to close 0.4 percent lower at 431.6 pence.

The shares fell 4.7 percent on the day Eni announced the deal, as analysts including Marc Kofler at Citigroup Inc. said the sale price undervalued the potential of the Lake Albert assets.

Build Pipeline
Heritage has been seeking investors to help build a pipeline from Uganda to the coast of Kenya to export crude from projects with Tullow. The latter is also marketing its assets in Uganda’s Lake Albert and said in October that Uganda had approved an initial list of companies interested in bidding for stakes. It expects to announce a partner early next year.

“We are not in talks with Eni about our farm-out, not at all,” Glover said. Scaroni said last week that Eni was “not interested” in Tullow’s Ugandan assets.

Tullow has been working with the Ugandan government on a development program for the country’s oil industry, Glover said. The authorities have extended the British explorer’s licenses, prompting Tullow to approve funding of the first development phase.

“Uganda will see crude production and new power generation become a reality in the next two years,” Glover said. The company plans to supply fuel to a thermal power plant in Hoima and produce the first oil from the Kasamene field in the Buliisa district.

Tullow will produce between 5,000 and 10,000 barrels a day in Uganda by 2012, according to Glover. The company expects to achieve production of 150,000 barrels a day from the African nation within five years.

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