The Observer (Kampala)

Uganda: Oil - Money Is At the Production Stage

We were one of the first exploration companies to risk our capital and invest in finding oil in the Lake Albert Rift Basin. As a result of this investment and our exploration expertise we have had exceptional success. We have drilled 79 exploration and appraisal wells and found an estimated 1.7 billion barrels of oil.

This has established Uganda as an important oil nation and also helped to inform our further investment in the region. The recent oil finds we have made in East Africa have created a new and potentially very strong emerging oil-producing region, in which Uganda will play an important role.

The impact of discovering oil in Uganda has yet to be fully realized. The revenue generated from oil production is where the majority of socio-economic benefits for the citizens of Uganda will come from. A current estimate of the government's share is $50 billion or 80% of net revenue over the course of production.

The government, therefore, has a key strategic role in the creation and management of resource wealth and planning the capital investment required in long-term national development projects.

We believe that transparency in relation to oil revenue is the cornerstone of accountable management by government of resource wealth. This year we published detailed information in our Corporate Responsibility Report about the social and economic contribution that Tullow makes where we operate, including all payments to government.

Payments to the Uganda government amounted to $142 million out of a total economic contribution of $271 million to Uganda in 2012. The $142 million paid is 30% of a capital gains tax assessment, which is currently being disputed before the Tax Appeals Tribunal in Kampala.

We understand that the government is currently developing its regulatory and fiscal framework and that this is a challenging process, requiring a delicate balance between the country's natural desire to optimise state involvement in the industry, and achieving early revenue generation.

Over the course of our involvement in Uganda we have worked collaboratively and openly with the government and regulatory bodies to build a better understanding of our industry, and we continue to support the development of capacity in the country.

Our long-term objective is to create an environment and an oil production development plan that is balanced and appropriately beneficial to all parties involved. As a foreign direct investor in Uganda, or any new or potential oil nation for that matter, our requirement is for clarity and an acceptable level of regulatory and fiscal stability to enable us to securely invest in the continued development of the industry there.

In the case of Uganda that is potentially up to $12 billion of further capital expenditure by Tullow and its partners. In 2011 and 2013, false allegations of bribery and corruption were made against Tullow in relation to our Ugandan activities. The 2011 allegations were based on forged documents.

We worked with the Ugandan Police, UK Serious Fraud Office, UK Police and other authorities to establish the fact that the allegations were entirely false. In 2013, during Tullow's High court case against Heritage, Heritage's lawyer made entirely false insinuations of bribery relating to internal Tullow documents and emails.

Heritage's lawyer subsequently disavowed any allegations of corruption against Tullow and during the trial, the judge berated a UK newspaper for printing these allegations stating that they were untrue and that the newspaper should be "...ashamed of themselves" for publishing them.

Since the day I founded Tullow, there has always been a zero tolerance approach to corruption and we have never been accused of such behaviour before in 30 years of working in Africa.

Our zero tolerance approach is made crystal clear to anyone who works for us or with us and is reinforced by our Code of Business Conduct, related policies and ongoing programme of training. Our good name is one of our most valuable assets and we will always vigorously defend it.

This report is about the role we have played to date in establishing Uganda as an oil nation. It demonstrates that we are committed to ensuring we fulfill not just our contractual obligations, but also to creating shared prosperity.

We do this every day in our operations in Uganda, supported by very robust foundations at a Group level in our strategy, business model, values, standards and processes. This ensures we have a joined-up approach to building capacity, developing local suppliers, engaging with stakeholders, creating local employment, managing operations in sensitive environments and investing in social projects that benefit local communities.

We are investing in the long-term development of the oil industry in Uganda. In doing so, we create benefits for our business, but as importantly, we are creating benefits for Uganda by contributing to its development into a middle-income country.

Aidan Heavey is the Chief Executive Officer of Tullow Oil Plc.

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