Uganda: Govt Okays Shs2 Trillion Tullow Oil Sale Deal

22 October 2020

Anglo — Irish company Tullow Oil announced yesterday the approval of their sale transaction (farm down) to French Total E&P by government, paving way for the company winding up its operations in Uganda after almost 16 years.

The company, in a statement issued yesterday from their London office, said this is after "executing a binding tax agreement that reflects the pre-agreed principles on the tax treatment of the sale of Tullow's Ugandan assets to Total" with the Uganda Revenue Authority (URA).

Following the collapse of the first farm down last year in August and the ensuing tight rope pulling between government and Tullow/Total E&P, especially over tax issues, the two sides later in October reached a compromise on the treatment tax, which would be maintained later (early this year) when Tullow announced that it was selling its entire stake in Uganda.

Also, government will be raking in only Shs54.6b ($14.6m) on the transaction down from Shs317b ($85m) which Tullow offered initially on premise that part of the money ($700m) was going to be reinvested in the development phase, while government, which did not buy the argument, insisted on a sum of $167m (Shs624.5b) assessed by URA.

In the same vein, the company indicated that the Energy minister, Ms Goretti Kituttu, had approved the transfer of operatorship for Block 2 in Buliisa, east of Lake Albert.

"With all the government-related conditions to closing having been satisfied, Tullow expects the transaction to close in the coming days after completing certain customary pre-closing steps with Total," the statement indicated.

Upon final completion of the transaction, Total E&P will pay Tullow Shs1.8 trillion ($500m), and another Shs280b ($75m) paid whenever government and the oil companies (Total E&P and Cnooc) reach a Final Investment Decision (FID).

In addition, Tullow is entitled to receive contingent payments linked to the oil price payable after production commences.

The government will earn Shs54.6b ($14.6m) in Capital Gains Taxes off the transaction.

Total E&P will now retain majority shareholding with 66.7 per cent and Cnooc, which declined to exercise its pre-emptive rights--to acquire half of the shares floated by Tullow--will remain with 33 per cent in the upstream (oil fields).

The defined shareholding in the upstream paves way for commencement of negotiations on the shareholders agreement that details the sharing holding structure for the proposed East African Crude Oil Pipeline (EACOP) that will transport Uganda's crude oil from Hoima to Tanga port in Tanzania en route to the market.

Currently, the working structure is that both Total E&P and Cnooc each take 37.5 per cent stake, Uganda through the National Pipeline Company take 15 per cent, and Tanzania through its national oil company-- Tanzania Petroleum Development Corporation (TPDC), takes a five per cent stake.

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