Uganda oil wells sold for $3 billion

TULLOW Oil has sold part of its oil and gas wells in Uganda to French and Chinese companies at a cost of $2.93b (about sh7 trillion). The firm is to pay $472.7m in taxes before the Government endorses the deal.

Brian Glover, the Tullow Oil Uganda general manager, said yesterday his firm agreed to sell one-third each to China’s National Offshore Oil Corporation (CNOOC) and Total, the French company. Tullow will retain a third interest. “The parties have agreed that on condition of the farmdown (sell) to CNOOC and Total, operatorship shall be determined by the Government of Uganda,” he said.

“Initially, Tullow will act as the interim operator in all the three exploration areas to ensure efficient reactivation of the exploration and appraisal drilling programmes and to allow both CNOOC and Total to establish their presence in Uganda.”

Elly Karuhanga, the Tullow Uganda president, said the deal would help Uganda realise the value of its mineral wealth in terms of employment and investment opportunities.

“We are going to see increased national content as we bring in giants of the oil industry who have the financial and technical muscles to transform the resource for the benefit of Ugandans,” he said.

However, according to Glover, the completion of the transaction is expected within the next four to six weeks subject to the satisfaction of certain conditions. He said the Government has assessed that a capital gains tax of $472.7m is due from the deal, but “this amount is disputed by Tullow.”
“Tullow will pay 30% of this amount ($141.8m) within five business days of the sales of CNOOC and Total completing payment,” Glover said.

“Tullow will then follow the normal tax dispute resolution process in Uganda. The material part of the dispute focuses on the validity of the capital gains tax exemption in block-2.” Glover said Tullow has already filed objection to the Tax Arbitration Court in Uganda and expects the issue to be resolved in 12 months.
“We need to have a transparent process and arbitration is a legal process. If we lose the case, we then pay the remainder of $330.9m,” he said. The other condition is that Tullow pays $313.4m to Uganda Revenue Authority (URA) as taxes that accrued from a $1.35b Heritage transaction.

This figure also includes a potential tax associated with an additional contractual settlement amount of $100m.

This money is part of the disputed tax left that arose from the earlier $1.35b transaction between Tullow and Heritage Oil. Heritage had deposited only $121m out of $404.5m tax assessed.

It preferred to deposit the balance of $283m in an escrow account awaiting arbitration hearing.

URA issued agency notices to Tullow under the Income Tax Act.

URA has demanded that pending the resolution of the capital gains tax dispute, Tullow pays the money.
“The tax amount is relatively very small compared to the investments that we are bringing in the country,” Glover said.
“We do not want to delay such investments and we are making security payment upfront so that the deal moves forward,” he said. Tullow expects the energy minister to grant a production licence.

UGANDA Government altough clears not to give any welcome of exile if necesaty arrives which is very sarrow arrow to Ghadafi if he wants to leave the country.

JAR