Uganda Eyes Oil Money from Eni-Heritage Deal

Uganda Onshore Blocks
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KAMPALA, Uganda (Dow Jones), Dec. 2, 2009

The Ugandan government is expected to get its first tax revenues from the anticipated takeover of Heritage Oil interests by Italy-based Eni SpA, the spokesman for Uganda's state revenue body told Dow Jones Newswires Wednesday.

Paul Kyeyune said the government will impose the tax on the $1.3 billion deal once all the parties involved come to an agreement. It will be the first revenues from oil for government coffers since the resource was discovered in 2006.

"The capital gains tax will be applicable if the deal goes through between Heritage and Eni," he said, adding that the government would go back to the drawing board if Tullow Oil was to exercise its preemptive rights and stop the deal.

"We shall be able to know how much will accrue from the deal once we receive formal communication from Heritage," he added.

Tullow Oil Uganda Ltd, which holds a 50% stake in the two blocks with Heritage Oil, has indicted that it will seriously consider taking over the interests of Heritage oil once it receives formal communication about the deal.

However, people familiar with the situation say the government could use its taxation regime selectively to favor the Eni-Heritage deal and push out Tullow Oil.

Peter Hitchens, an oil analyst at London-based Panmure Gordon, said Tuesday that Tullow is unlikely to succeed in blocking the deal between Heritage and Eni, because the Ugandan government seems more determined to see that Eni enters the country's oil sector as it prepares to start oil production.

"Eni is a proven operator and will provide the capabilities to build its much wanted refinery and a pipeline through to the coast and market," he said, adding that Uganda's oil development projects are capital-intensive, meaning up to $5 billion could be required.

"We believe that neither HeritageOil nor Tullow Oil has the desire, the expertise, or the capital to invest in these projects" he added. Heritage and Tullow didn't comment immediately.

According to Hitchens, asset transactions have to be approved by the sovereign government. Tullow Oil has in the past failed to sell its 11% stake in the M'Bundi field in Congo Brazzaville to Korean National Oil Corp. because it failed to get government approval, he noted.

Government officials say Uganda is desperate to attract new players in the oil sector as it seeks to develop its downstream oil industry.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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