Uganda president okays Tullow's deals with Total, CNOOC

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Oct. 22 -- Uganda’s President Yoweri Museveni has given preliminary approval to delink his country’s ongoing tax problems with Heritage Oil PLC from efforts by Tullow Oil PLC to sell stakes in the disputed oil blocks to Total SA and CNOOC Ltd.

“It was agreed that the tax dispute with Heritage be delinked from Tullow’s plans to form a joint venture with CNOOC and Total,” said a Uganda government official, adding that the president had accepted a compromise offered by Tullow.

The proposed agreements between Tullow and its potential partners had been delayed due to a tax dispute between government and Heritage over a 30% capital gains tax on the sale of its stakes in two exploration blocks that was completed in July (OGJ Online, July 27, 2010).

At the time, Heritage sold its half of stakes in Blocks 1 and 3A in the Lake Albert basin to Tullow for up to $1.45 billion, but Heritage declined to pay a 30% capital gains tax on the transaction. That prompted the government to withhold its endorsement of the deal, preventing Tullow from bringing in the new partners.

Since then, Tullow has been working with Uganda officials to allow the Total and CNOOC deals to close and to delink the issue from an ongoing dispute between Uganda and Heritage.

Tullow Chief Financial Officer Ian Springett earlier this month said his firm was close to resolving the dispute. “We have a team in Uganda we believe are very close to finalizing the basis with the government to move forward with the farm down with CNOOC and Total,” Springett said.

According to Springett, Tullow was working with the government on the final drafts of a memorandum of understanding that would “decouple” the firm’s partnership plans with Total and CNOOC from the dispute between the government and Heritage Oil.

Days later, Uganda’s Finance Minister Syda Bbumba acknowledged that her country was inexperienced in the type of negotiations being undertaken by the oil companies, and said she expected resolution of the dispute with Tullow Oil within “a couple of weeks.”

Bbumba said, “Of course, this being our first transaction on farming out and farming in, there were a few teething problems,” adding that “in the next couple of weeks things will be resolved.”

Although Museveni’s decision will allow Tullow to proceed in its agreements with CNOOC and Total, the underlying tax dispute with Heritage still remains to be resolved.

In July, when announcing the sale of its assets to Tullow, Heritage said that, “The balance of $283,447,500 remains in an escrow account and will be released following resolution between government and Heritage of a mechanism to resolve the tax dispute.”
But the two sides have yet to find that mechanism, reaching agreements over how to resolve the dispute, only to find those agreements coming undone almost as quickly as they are made.

Contact Eric Watkins at hippalus@yahoo.com.



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