Friday 20 January 2017

Tax dispute forces Tullow to abandon oil drilling at Uganda sites

Published 11/11/2010 | 05:00

TULLOW Oil, the most valuable company listed on the Irish stock exchange, said a dispute in Uganda had forced it to abandon drilling at two oil-rich blocks near Lake Albert and that it was unsure when this would resume.

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The company added that the Uganda government was wary of agreeing to a plan to decouple Tullow's dispute from another, potentially lengthier, dispute between the government and Tullow's former partner, Heritage Oil, which could delay a return to drilling.

"The main stumbling block is the tax dispute," Tullow chief operating officer Paul McDade said yesterday. "We are just searching with the government for a way in which we can effectively decouple the Heritage tax dispute and move on."

Heritage had to deposit about $121.5m with Ugandan authorities and $283.4m in an escrow account to complete the deal with Tullow. It proposed that the row be settled through arbitration in London.

Oil blocks

Tullow bought half-shares of two oil blocks from Heritage earlier this year, giving it 100pc ownership of three blocks which cover the Ugandan side of Lake Albert and which Tullow believes could contain billions of barrels of oil.

Heritage refused to pay capital gains tax on the sale and subsequently the government refused to renew the licences for Tullow which had planned to sell stakes to France's Total and China's CNOOC. The licence dispute has forced Tullow to halt operations at the blocks.

"Operationally and in block 1 and 3A, we're not able to go up there and operate at the moment, so those licences are on hold," McDade said.

Tullow hopes to decouple the two disputes, allowing it to reach an agreement in the near term, but it said yesterday that the government wanted to achieve some resolution of the tax dispute first.

McDade said it feared that if it renewed Tullow's licence and approved the sale to CNOOC and Total, without a deal on the tax issue, then this could prejudice its position in arbitration with Heritage over the tax bill, which runs to hundreds of millions of dollars.

The London-based company said its Jubilee field in Ghana was on track to begin production in December and that full-year oil and gas production would average 58,000 barrels of oil equivalent per day.

Tullow and Anadarko Petroleum plan to expand crude and natural gas production off Ghana in 2012 following the start of oil production at Jubilee next month.

"We are looking at different development concepts at the moment at Tweneboa,'' said Mr McDade. "Further appraisal is critical.'' (Addtional reporting Bloomberg and Reuters)

Irish Independent

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