Albertine Graben
China National Offshore Oil Company
CNOOC
E&P
Kenya
Tullow
Uganda
Uganda Revenue Authority
URA

Tullow free to exit Uganda after tax talks conclude

Uganda has 6.5 billion barrels of oil, with between 1.4 billion and 1.7 billion recoverable in the 40 per cent explored areas in the Albertine Graben.

The development follows close to two years of haggling over the tax.

The company agreed to pay $167 million in capital gains tax to the Uganda Revenue Authority, clearing a hurdle that government had erected as a condition for consent to its exit plans.

Initially, URA assessed the tax at $300 million over all of Tullow’s assets valued at $900 million, but the oil firm disagreed that the transaction was taxable. Since then, there have been negotiations over the amount, which finally came down to $167 million.

“Tullow has agreed on the principles of the capital gains tax on its $900 million Uganda farm-down to CNOOC [China National Offshore Oil Company] and Total. The government and partners are now engaged in discussions to finalise an agreement reflecting this tax treatment that will enable the completion of the farm-down,” reads Tullow’s 2018 full-year results released on February 13.

Tullow announced that it had signed a sale purchase agreement on January 1, 2017 with Total E&P to transfer 21.57 per cent of its 33.33 per cent stake in the joint venture partnership, which includes CNOOC. Tullow will now own an 11.7 per cent stake.

In March 2017, Tullow experienced the first hurdle in the bid to sell its shares to Total when CNOOC exercised its pre-emption rights and demanded half of the shares that were traded to Total after the parties had concluded agreements. The process was restarted to accommodate CNOOC’s demands.

That was the easy part. The difficult part was how CNOOC and Total would operate blocks formerly under Tullow. That discussion was lengthy and was only resolved after government mediated between the two.

URA responded in the affirmative and went ahead to assess the taxes, which resulted in the dispute that has now been resolved.

Uganda has 6.5 billion barrels of oil, with between 1.4 billion and 1.7 billion recoverable in the 40 per cent explored areas in the Albertine Graben.

Another $108 million has been deferred for the pre-completion period. A further $50 million of cash consideration will be received upon the final investment decision.

Tullow planned to sell a greater stake in Uganda so as to free financial resources to enable it to continue with its operations in Kenya.

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