UPDATE 2-Eni pulls out of Uganda oil deal

* Eni revokes Ugandan sale and purchase deal-spokesman

* Withdrawal setback for Africa growth strategy

* Tullow now free to bring China’s CNOOC in as partner
(Releads, adds Eni spokesman, background; adds MILAN to
dateline and expands byline)

By Tom Bergin, David Lewis and Stephen Jewkes

LONDON/DAKAR/MILAN, Feb 5 (BestGrowthStock) – Eni SpA (ENI.MI: ) has
pulled out of its planned $1.5 billion purchase of Heritage Oil
Plc’s (HOIL.L: ) 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Reuters that Eni had withdrawn from the planned deal.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
(TLW.L: ), which plans to sell the assets on to China’s CNOOC Ltd
(0883.HK: ).

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.

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(Editing by Erica Billingham, Sharon Lindores and Gerald E.
McCormick)

UPDATE 2-Eni pulls out of Uganda oil deal