Tullow inks tax understanding wth Government of Uganda

By Phaedra Friend Troy

After many months of discussions, London-based Tullow Oil (LSX:TUL) has signed a Memorandum of Understanding (MOU) with the Government of Uganda concerning the development of the Lake Albert Rift Basin.

The agreement with the Ugandan government resolves taxation disputes and enables Tullow, China's CNOOC (NYSE:CEO) and France's Total (NYSE:TOT) to move forward with a Lake Albert Rift Basin-wide development with the support of the government.

The MOU provides a resolution to the Heritage and Tullow tax dispute, as well as approves the commencement of the development of the oil-rich Kingfisher field. Recognizing that time has been lost during this process, Tullow has also been granted an extension for the Exploration Area 1 and parts of 3A.

Furthermore, the agreement includes the consent for Tullow's purchase of Heritage's interest in the Lake Albert Rift Basin and subsequent divestments to CNOOC and Total. This is conditional that the sale and purchase agreements are signed within 10 working days from the signature of the MOU, which Tullow expects to achieve. 

New Oil Province in Uganda

With interest in three licensing in Uganda, Tullow used its right of pre-emption to sign a sale and purchase agreement with Heritage for its 50 percent interests in Blocks 1 and 3A. CNOOC and Total were then brought into the project, with each company sharing a one-third interest across all three licenses.

Part of the Albertine Rift in the northwest part of Uganda, the Lake Albert Rift Basin represents a new oil province, with Tullow proving a working hydrocarbon system through exploratory drilling starting in 2006. 

Multiple oil and gas discoveries at Mputa-1, Waraga-1 and Nzizi flowed strong rates of production. In fact, more than 35 wells have been drilled in the Basin from Kingfisher-1 in the south to Buffalo-1 in the north, and all but one of the wells transected oil or gas, proving up to 1 billion barrels of oil for the area.

Nonetheless, Tullow has been forced to delay the start of production from Uganda. Because oil production has been limited in the country, the lack of infrastructure in Uganda poses a unique challenge to bring the hydrocarbons to market. The project must build a pipeline, as well as a refinery in addition to developing the fields. 

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