UPDATE 1-Eni cedes to Tullow in Uganda oil battle - sources

By Tom Bergin and David Lewis

LONDON/DAKAR, Feb 5 (Reuters) - ENI has pulled out of its planned $1.5 billion purchase of Heritage Oil's Ugandan assets, four sources familiar with the situation said, after Tullow Oil exercised a pre-emption right to buy the fields.

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

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.

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

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 pre-emption of the sale, although after earlier conflicting comments from the government, the parties involved were reluctant to consider the situation finalised.

Eni CEO Paolo Scaroni said Thursday if the comments were confirmed, Eni could seek projects elsewhere such as Venezuela, and Iraq.

Eni can withdraw without paying any break fees, the sources said.

Eni, Heritage and Tullow declined comment.

Jersey-based Heritage plans to use the proceeds of the sale the develop its new discoveries in Iraq's semi-autonomous Kurdish region and Eni's withdrawal reduces the risk the sale will be any more delayed.

Uganda's parliament will begin inquiries next week into production sharing agreements (PSAs) after activists complained the deals agreed by the government give a disproportionate chunk of the proceeds to foreign firms.

(Editing by Erica Billingham and Sharon Lindores) Keywords: ENI/TULLOW (Writing by Tom Bergin, [phone], [e-mail], Reuters Messaging [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.