Tullow Oil Plc agreed to sell its entire stake in an onshore Uganda oil project in what the company calls its “first significant step” to raise $1 billion this year in order to tackle mounting debt woes.

French oil major Total SA agreed to buy Tullow’s roughly 33.3% stake in the Uganda Lake Albert development project including the East African Crude Oil Pipeline for $575 million in cash. Tullow plans to use proceeds to pay down its debt, which currently stands at $2.8 billion.

An African-focused oil and gas explorer, Tullow suffered setbacks in 2019 after persistent problems and missed production targets that eventually led to its CEO, Paul McDade, to resign late last year. The company recently appointed Rahul Dhir, who currently leads smaller Africa-focused oil and gas producer Delonex, as CEO.

“This deal is important for Tullow and forms the first step of our program of portfolio management,” Dorothy Thompson, executive chair, said in a statement. “It represents an excellent start towards our previously announced target of raising in excess of US$1 billion to strengthen the balance sheet and secure a more conservative capital structure.”

As part of the agreement, Tullow will receive $500 million at closing and the remaining $75 million once a final investment decision (FID) is reached on the project. Additionally, China’s CNOOC Ltd., a third partner on the project, has pre-emption rights for half of the stake to be sold to Total.

According to Total CEO Patrick Pouyanné, Total is paying less than $2/bbl for the assets, which is he said is in line with the company’s strategy of acquiring long-term resources at low cost.

“This acquisition will enable us, together with our partner CNOOC, to now move the project forward toward FID, driving costs down to deliver a robust long-term project,” Pouyanné added in a statement.

The purchase and sale agreement between Tullow and Total has an effective date of Jan. 1. The transaction is expected to close second-half 2020, subject to a number of conditions.

Onshore