# Tullow Oil Signs Asset Swap Agreement with Perenco Oil and Gas Gabon

- Link: https://www.directorstalkinterviews.com/tullow-oil-signs-asset-swap-agreement-with-perenco-oil-and-gas-gabon/4121117313
- Published: 2023-04-28T08:00:16+01:00
- Author: Madison Wilson

**Tullow Oil plc** (LON:TLW) has announced that its subsidiary, Tullow Oil Gabon
S.A., has signed an asset swap agreement with Perenco Oil and Gas Gabon S.A. The
deal is designed to optimize Tullow’s equity ownership across key fields in Gabon
and will involve a cashless asset swap by exchanging participating interests held
by both parties in certain licenses in Gabon.

According to the transaction highlights, this agreement will simplify and equalize
Tullow’s equity ownership across key fields in Gabon, streamline processes, and 
create better alignment between participating interest partners. The move will also
allow Tullow to leverage its technical skills and focus on more material positions
in key fields, placing the Tchatamba facilities at the core hub for Tullow.

Furthermore, this deal achieves an improved portfolio balance between discovered
resources and appraisal and exploration assets, with clear opportunities to maximize
asset value in line with the group’s infrastructure-led exploration growth strategy.
The agreement also provides access to future growth through Tullow’s interest in
the DE8 license, where several infrastructure-led exploration opportunities have
been identified that could be tied into existing Tchatamba facilities.

The transaction involves the 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. Meanwhile, Perenco
will assign and transfer 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.

Tullow’s 2023 Group production guidance of 58,000 to 64,000 bopd and cash flow guidance
of c.$200 million at $100/bbl remain unchanged. Moreover, this is a nil-consideration
transaction with no impact on Tullow’s liquidity headroom.

The completion of the transaction is expected by the end of 2023 with an economic
date of 1 February 2023, subject to certain market-standard conditions precedent,
including customary government and regulatory approvals.

> **Commenting on the agreement, Rahul Dhir, Chief Executive Officer of Tullow Oil
> plc, said,** “This deal is an example of Tullow’s strategy in action as we continue
> to take proactive steps to optimize 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 maximize their full potential.”

The asset swap agreement between Tullow Oil Gabon S.A. and Perenco Oil and Gas Gabon
S.A. is a strategic move that simplifies and equalizes Tullow’s equity ownership
across key fields in Gabon, allowing it to focus on more material positions in key
fields and leverage its technical skills. With this agreement, Tullow can maximize
asset value and have access to future growth opportunities.

**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.

### Information on the Transferred Interests

·      Proposed changes to Tullow’s equity ownership by field:

| **Field** | **Current** | **Post-Transaction** | 
| **Kowe (Tchatamba)** | 25.0% | 40.0% | 
| **DE8** | 20.0%* | 40.0%* | 
| **Simba** | 57.5% | 40.0% | 
| **Limande** | 40.0% | 0 | 
| **Turnix** | 27.5% | 0 | 
| **Moba** | 24.3% | 0 | 
| **Oba** | 10.0% | 0 |

### *Tullow Gabon signed a SPA with Perenco Gabon for a 20% equity interest in the DE8 licence in the first quarter of 2023.The increase to 40% equity interest is subject to the closing the initial DE8 SPA.

 
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.  

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