Eni SpA has pulled out of its planned $1.5 billion purchase of Heritage Oil Plc’s Ugandan assets in what is a setback for the Italian oil group’s ambitions to grow in Africa to boost flagging output.

“Eni today revoked the sale and purchase agreement signed on December
18 for the acquisition of Heritage’s 50 percent share in Ugandan Blocks
1 and 3A, on which Tullow Oil has exercised its preemption right,” an
Eni spokesman said on Friday.

Earlier four sources familiar with the situation told Reuters that Eni
had withdrawn from the planned deal. They said Eni can withdraw without
paying any break-up fees.

Eni’s decision reflects a surrender in the hotly contested battle for
the fields, which executives say contain around 2 billion barrels of
oil, and victory for explorer Tullow Oil Plc, which plans to sell the
assets on to China’s CNOOC Ltd.

The resources originally earmarked for the initiative will be
rechanneled to other development projects, “including the two new
projects of Zubair in Iraq and Junin 5 in Venezuela on which the
company has high expectations,” the Eni spokesman said.

Eni — which is already an operator in Angola, Ghana, Nigeria, Congo,
Gabon and Mozambique — is targeting Africa to help it lift output.

In October, Eni cut its oil and natural gas output target for the full
year to fall in line with 2008’s 1.797 million barrels of oil
equivalent per day (boepd).

It had hoped that Uganda would become an important new beachhead in
Africa and enlisted the support of Italy’s Foreign Minister Franco
Frattini, who traveled to Kampala to press Eni’s case.

TULLOW AMBITIONS

Tullow and Heritage control three oil blocks that cover the Ugandan
side of Lake Albert, but the explorers lack the technical skill and
resources to develop the complex project alone.

Eni agreed in December to buy the interests from Heritage, for $1.35
billion in cash immediately and a further deferred payment of either
$150 million or an interest in another oil-producing field
independently valued at a similar amount.

Tullow wants Heritage’s half-share of Blocks 1 and 3A so it can attract
a partner of its own choosing without reducing its own interests too
much. It has selected China’s CNOOC as its preferred partner to buy
Heritage’s assets and half of Block 2.

The planned acquisition, in which Tullow would match Eni’s bid, also
gives the London-based company operatorship of the two blocks. It
already has operatorship of Block 2, which it owns solely.

Uganda’s State Minister for Minerals Peter Lokeris said on Thursday that Kampala had approved Tullow’s preemption of the sale.

Jersey-based Heritage plans to use the proceeds of the sale to develop
its new discoveries in Iraq’s semiautonomous Kurdish region, and Eni’s
withdrawal reduces the risk that the sale will be further delayed.

Uganda’s parliament will begin inquiries next week into production
sharing agreements after activists complained that the deals reached by
the government give a disproportionate chunk of the proceeds to foreign
firms.

Source: Reuters

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