Uganda Says Tullow License Can't Be Renewed

KAMPALA (Dow Jones Newswires), Nov. 11, 2010

The oil exploration license for Uganda's block 3A, which was formerly licensed to London-listed Tullow Oil and Heritage Oil, isn't renewable under Ugandan laws, the head of Uganda's oil production and exploration department said Thursday.

The latest statement from Uganda ratchets up the pressure on Tullow, which earlier this year paid Heritage $1.45 billion for a half-share of the oil licenses 1 and 3A. Tullow said earlier this week that it halted all exploration and drilling on the two blocks in Uganda in the wake of a longstanding tax dispute related to capital gains from the Heritage-Tullow transaction.

The government will only issue a new license on the block and cannot renew the one that just expired, said Ernest Rubondo, the head of the Uganda's petroleum exploration department.

"Under the existing law, an exploration license is only renewed once," Rubondo said. "The issue of renewing the old license is out of question," he said, adding that government already renewed the license one time in 2007.

People familiar with the situation say that government is considering sub-dividing the block into three licenses for possible re-licensing when the country resumes licensing new players in the sector early next year.

In March, the government repossessed the Kingfisher oil field in the block saying that Tullow had failed to apply for a production license for the field in time. A month later, government reposed the rest of the block following the expiry of the exploration license.

Tullow has been pushing to regain control of both the block and the Kingfisher field. Jimmy Kiberu, Tullow Oil Uganda spokesman told Dow Jones Newswires Thursday that talks over the license were continuing.

"Tullow and Government of Uganda are engaged in constructive discussions and I believe a mutual solution will be found," he said in an emailed statement to questions seeking comment on the government's view that the license can't be renewed.

In July, Tullow announced that it had completed the purchase of Heritage's 50% stakes in blocks 1 and 3A for up to $1.45 billion. However, the Ugandan government hasn't endorsed the deal because of the tax dispute.

Subject to final government approval, Tullow plans to enter deals with China National Offshore Oil Company (CEO) and France's Total to farm out two-thirds of its interests, as previously agreed.

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