7 July 2010

Uganda: Oil Firm Allowed to Sell Stake in Lake Albert

Kampala — The Ugandan Government on Tuesday gave conditional approval for the sale of Heritage Oil's assets in the Lake Albert rift.

Heritage, the firm exploring for oil and gas, is selling its two oil fields of Block 1 & 3A.

Tullow and Heritage have been waiting since January for Uganda's approval, which will see Tullow acquire Heritage's stakes in the two exploration blocks on the shores of Lake Albert.

The deal entails that a prospective buyer (Tullow) immediately pays $1.35b and a further $150m or surrender a stake in a producing oil field of a similar value within two years.

The transaction is, however, subject to a resolution of a dispute between Heritage and the Government on the amount of tax to be paid arising from the sale of the assets. Heritage believes that the deal is not subject to taxes in Uganda.

Fred Kabagambe-Kaliisa, the permanent secretary of the energy and mineral ministry, however, noted that the approval was on condition that Heritage pays taxes arising from the transaction "as assessed by the Commissioner, Uganda Revenue Authority."

The Ugandan Government wants $404.9m in taxes.

"Heritage invested about $150m in the fields and they are going to earn a huge profit on Ugandan oil.

We are saying they have to pay a 30% tax on this profit. We've communicated this position," Reuters news agency quoted the energy minister, Hillary Onek, as saying yesterday.

Heritage confirmed the demands yesterday. "This consent is conditional on Heritage demonstrating to the Government that it will pay any taxes which may arise from the disposal of the assets," the firm said in a press statement.

"Heritage's position, based on comprensive advice from leading tax experts in Uganda, the United Kingdom and North America, is that the disposal of the assets (oil fields) is not taxable in Uganda," the statement added.

Last month, Heritage proposed to the Government the option of arbitration in London in the UK over the tax dispute.

However, in his letter, Kabagambe-Kaliisa advised Heritage to deposit about $121.5m with Uganda Revenue Authority if it wants the tax dispute resolved in London. This is 30% of the disputed tax of $404.9m.

The firm, according to Kabagambe-Kaliisa, should also provide a bank guarantee for the balance.

The transaction is expected to be completed within five working days, following finalisation with the Government on the mechanism for dealing with any taxes lawfully payable from the disposal of the assets.

Once Tullow has acquired Heritage's stakes, it plans to bring in CNOOC of China and France's Total to develop the oil fields.

Tullow said it would examine Uganda's terms. "We have received a letter from the Ugandan Government and we will study it carefully and then see what we can do from there," Hans Meijers, the technical manager of Tullow Uganda, told reporters in Kampala.

However, Onek said partnerships would only be considered after the arbitration process is complete and the Tullow-Heritage deal fully endorsed.

Tullow had expected expected Kampala to also approve the CNOOC and Total partners.

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