Tullow Oil stock jumps 40% on Uganda sale approval

(Bloomberg) - Tullow Oil received approval from the Ugandan government for the sale of a $575 million stake in an oil project to Total SE, sending the shares as much as 40% higher.

The explorer has been waiting since 2017 to close its divestment in the Lake Albert Development Project, an effort repeatedly stymied by tax disagreements. As it sought relief from lenders this year to avoid blowing through debt covenants, securing proceeds from the sale became key to restoring stability.

“The government of Uganda and the Ugandan Revenue Authority have executed a binding tax agreement,” Tullow said Wednesday in a statement. The sale to Total has also been approved by the Ugandan minister of energy and mineral development.

Tullow shares were 39% higher at 23 pence as of 11.19 a.m. in London. The stock is still 64% lower this year.

Total will pay $500 million in cash on completion of the deal and $75 million when a final investment decision on the project is taken, the companies said in April. Tullow is also entitled to receive contingent payments linked to the oil price after production commences.

The government’s approval will be “a major relief for the company and is a clear positive,” said Will Hares, global energy analyst for Bloomberg Intelligence. “Proceeds will ease concerns over liquidity, which was only $500 million at mid-year, and reduce net debt and leverage, though it still remains too high.”

An earlier plan to sell a stake in the oil project to Total and Cnooc Ltd. collapsed last year due to a holdup around tax negotiations.

Tullow expects the transaction to close in the coming days.