Signing Of Uganda-Tullow Venture Delayed On Latest Disagreement

KAMPALA Uganda (Dow Jones Newswires), Sep. 26, 2011

Uganda is contesting a key provision of its current oil agreement with U.K.-based Tullow Oil in the latest dispute to delay the long-discussed $2.93 billion sale of its stake in three oil blocks to French oil major Total and China's CNOOC (CEO).

President Yoweri Museveni sent a directive blocking the signing of the agreement, which was originally scheduled for Sept. 15, according to two people familiar with the matter. Museveni opposes a "stabilization" clause in the agreement that the country fears could
limit its share of additional cash if oil prices rise significantly from today's level.

The dispute is the latest to accompany Uganda's very recent emergence as a major oil and gas player.

Museveni's written directive blocking the deal was also seen by Angelo Izama, the director of Ugandan nonprofit research group known as Fanaka Kwawote. "At the moment, the Ugandan president has put a freeze on the stabilization clause debate" Iszama said.

A Museveni spokeswoman declined to comment directly on the directive, but said Uganda's energy minister is prohibited from approving energy deals without a presidential directive.

Uganda's energy ministry is still negotiating the final details of the deal, said Irene Muloni, Uganda's Energy and minerals minister. A
final deal could still be signed in the next "few days," Muloni added.

A person familiar with the talks between Tullow, its partners and Uganda said the parties were already in correspondence about the
issue. In addition, "a counter-proposal will be sent to the Ugandan government, most likely later today," the person said.

A Cnooc spokesman declined comment. A Total spokesperson had no immediate comment.

Uganda is also currently locked in a long-running dispute with U.K.-based, Heritage Oil over a $405 tax bill emanating from its $1.45 billion sale of its assets in Uganda to Tullow last year.

The Ugandan government gave a conditional approval of the Tullow, CNOOC and Total joint venture in April. Upon the conclusion of the transaction Tullow will operate block 2, and transfer the operation of blocks 1 and 3A to Total and CNOOC respectively.

The three companies are expected to invest at least $10 billion to develop the oil assets, which will include the building of a
1,300-kilometer pipeline to the Kenyan port of Mombasa.

Copyright (c) 2011 Dow Jones & Company, Inc.

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