KAMPALA (Dow Jones Newswires), March 7, 2011
Tullow Oil and the Ugandan government have reached an understanding to resolve a tax dispute that should finally allow the company to proceed with long-delayed plans to bring Total and China National Offshore Oil Company (CEO) into the East African country's oil sector, Uganda's junior energy and minerals minister told Dow Jones Newswires Monday.
"We have reached an understanding on the taxes and we don't expect more interruptions now that the election period is over," junior energy and minerals minister Peter Lokeris said Monday in a telephone interview.
The Ugandan government has also restored two licenses in its oil-rich Lake Albertine Rift basin to U.K.-based Tullow, which were withdrawn at the height of the dispute, Lokeris said.
Lokeris' comments suggest a significant breakthrough in a longstanding impasse between Uganda and the international oil companies as the oil industry seeks to establish Uganda as the latest beachhead in the global petroleum game. Tullow's efforts to bring in Cnooc and Total had been held up by a tax dispute between Uganda and Heritage Oil, over the capital gains from Tullow's purchase of Uganda assets from Heritage.
Some analysts have predicted a speedy resolution of the Tullow dispute following the February reelection of Uganda President Museveni.
Tullow declined requests for comment. Tullow is scheduled to release its 2010 earnings Wednesday morning.
Since July last year, Tullow has been pushing the government to endorse its $1.45 billion purchase of interests of former partner, Heritage Oil in blocks 1 and 3A, as well as the planned sale of a third of Tullow's licenses.
The government had declined to endorse the Cnooc and Total deals due to a tax dispute over Tullow's purchase from Heritage. Tullow halted oil exploration activities in the disputed licenses last year following the repossessions. Tullow has said it won't pay Heritage's tax bill.
The Ugandan government repossessed the Kingfisher oil field in August last year from Tullow, accusing the U.K. company of not applying for a production license in time. A month later, the Uganda government repossessed the entire block 3A located at the southern tip of Lake Albert from Tullow following the expiry of its exploration license. The seizures were seen as a pressure tactic in light of the tax dispute.
Lokeris decline to discuss the details of the agreement between Uganda and Tullow. But he said the conflict had been resolved.
"We have given them our final proposals and we shall endorse the deals as soon as they get back to us," he said.
According to people familiar with the situation, Tullow has agreed to guarantee payment of the disputed $283 million in taxes from its purchase of Heritage to secure government's approval. Tullow expects that Uganda will continue to push Heritage for the tax payment and that Tullow won't end up covering the cost of the payment, these people said.
Uganda's management of its oil industry became a flashpoint in the recent presidential election, with President Museveni repeatedly declaring that Uganda wouldn't allow the wishes of foreign oil producers to have greater priority than the wellbeing of the Ugandan public. Museveni won the Feb. 18 election with 68% of the vote.
Copyright (c) 2011 Dow Jones & Company, Inc.
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