Tullow signs asset swap agreement with Perenco to optimise Gabon portfolio

Tullow Oil plc (Tullow) has announced that, via its subsidiary, Tullow Oil Gabon S.A. (Tullow Gabon), it has signed an asset swap agreement with Perenco Oil and Gas Gabon S.A. (Perenco).

This is intended to optimise Tullow’s equity ownership across key fields in Gabon and will be achieved through a cashless asset swap involving the proposed exchange of participating interests held by both parties in certain licences in Gabon.

Transaction Highlights:

Simplifies and equalises Tullow’s equity ownership across key fields in Gabon, creating better alignment between the participating interest partners and streamlining processes.

Enables Tullow to leverage its technical skills and focus on more material positions in key fields and places the Tchatamba facilities as a core hub for Tullow.

Achieves an improved portfolio balance between discovered resources and appraisal and exploration assets, with clear opportunities to maximise the value of the assets, in line with the Group’s infrastructure-led exploration (ILX) growth strategy.

Provides access to future growth through Tullow’s interest in the DE8 licence where several ILX opportunities have been identified that could be tied into existing Tchatamba facilities.

Assignment and transfer by Tullow Gabon of its existing percentage participating interests in the Limande, Turnix, Moba and Oba assets and part of its existing percentage of the Simba assets to Perenco.

Assignment and transfer by Perenco of part of its existing percentage participating interests in each of the Kowe (Tchatamba) and DE8 assets to Tullow Gabon, resulting in post-completion holdings of 40%*for Tullow Gabon (see table below).

Tullow’s 2023 Group production guidance of 58,000 to 64,000 bopd and cash flow guidance of c.$200 million at $100/bbl remains unchanged.

Nil consideration transaction with no impact on Tullow’s liquidity headroom.

The Transaction is subject to certain marketstandard conditions precedent, including customary government and regulatory approvals.

Completion of the Transaction is expected by the end of 2023 with an economic date of 1 February 2023.

Rahul Dhir, Chief Executive Officer, Tullow Oil plc, commented: “This deal is an example of Tullow’s strategy in action as we continue to take proactive steps to optimise our portfolio to focus on high-return producing assets and growth opportunities around existing infrastructure. Our Gabon assets are a valuable and important part of our asset base, and this transaction enhances our exposure to preferred fields. We look forward to working closely with our Partner to maximise their full potential.” Transaction Structure and Rationale Tullow’s wholly-owned subsidiary, Tullow Oil Gabon S.A., has signed an asset swap agreement with Perenco Oil and Gas Gabon S.A. (the Asset Swap Agreement), pursuant to which each of the parties thereto has agreed to assign and transfer certain existing participating interests held by it in specified Gabonese assets to the other in exchange for the assignment and transfer of certain participating interests to it in return, with an economic date of 1 February 2023.

Under the Asset Swap Agreement, Tullow Gabon has agreed to assign and transfer certain of its existing participating interests, at the date of the Asset Swap Agreement, in respect of the Limande, Turnix, Moba, Oba and Simba assets (the Tullow Transferred Interests) to Perenco in exchange for the assignment and transfer by Perenco of certain of its existing participating interests, at the date of the Asset Swap Agreement, in respect of the Kowe and DE8 assets (the Perenco Transferred Interests) to Tullow (the Tullow Transferred Interests and the Perenco Transferred Interests together, the Transferred Interests).

The Transaction is aligned with Tullow’s strategy of maximising the value of our key producing assets and our Infrastructure-led exploration (ILX) growth strategy of low-risk exploration and appraisal around existing infrastructure.

The rationale for the Transaction is the simplification of Tullow’s equity ownership across key fields in Gabon, creating better alignment between the participating interest partners and streamlining processes such as budgeting, cost management and capital allocation. The revised portfolio of assets will enable Tullow to leverage its technical skills and focus on more material positions in key fields.

The Transaction will also achieve an improved balance between discovered resources, appraisal and exploration through the following:

Providing Tullow with a stronger position in the Kowe licence that contains the Tchatamba infrastructure which will support potential future developments including the recent Tchatamba TCTS-B14 ILX (Wamba) discovery, as well as the DE8 and Simba fields.

Maintaining a strong position in the Simba licence where several low-risk and compelling ILX investment options adjacent to infrastructure have been high-graded for near-term drilling programmes.

Provides Tullow with greater access to future growth prospects through an increased stake in the DE8 licence where appraisal drilling on the Akoum B discovery is currently under way, with potential to deliver oil production through Tchatamba infrastructure before the end of 2023. In addition, several ILX opportunities, have been identified for future drilling programmes.

An associated outcome of the Transaction is that production from Tullow’s retained assets will be entirely Rabi light blend crude following the disposal of Limande and Turnix fields (both of which are Mandji blend).

The exchange of the Transferred Interests as between the parties will be deemed for all purposes to be made with effect from the economic date. Due to the neutrality of the Transaction, no additional consideration is payable by either party in respect thereof. The Asset Swap Agreement includes provisions to ensure the neutrality of the Transaction via cash adjustments for the period between signing and completion.

Subject to the satisfaction of certain market standard conditions precedent, including customary governmental and regulatory approvals, the Transaction is expected to complete by the end of 2023.

Under the UK Listing Rules, the Transaction is classified as a Class 2 transaction and is therefore not conditional on the approval of Tullow's shareholders.

Although this is a cashless asset swap and therefore represents a neutral transaction for both parties, the Class 2 classification of the Transaction requires Tullow to state the value of the gross assets and profits attributable to the assets, which are the subject of the Transaction.

On 31 December 2022, the aggregated gross asset value attributable to the equity interest of the assets subject to the Transaction amounted to $120 million, as per Tullow’s 2022 Annual Report and Accounts.

The aggregated value of net pre-tax profit attributable to the equity interest of the assets subject to the Transaction amounted to $115 million for the year ended 31 December 2022, as per Tullow’s 2022 Annual Report and Accounts. As DE8 is not a producing licence, Tullow has assumed no net pre-tax profits for the purpose of this disclosure.