Uganda gives nod to sale of Tullow stake

A Tullow drilling rig in Bunyora region, Uganda. (File)

Uganda’s energy minister has given Tullow Oil conditional approval to sell part of its stake in Ugandan oilfields to France’s Total and China’s CNOOC but only after $167 million (Sh16.7 billion) of tax on the deal is paid.

London-listed Tullow agreed early last year to sell Total most of its stake in Ugandan fields for $900 million (Sh90 billion) but CNOOC later exercised its pre-emption rights to buy half of the Tullow assets on sale.

“I gave conditional consent for this transaction, subject to payment of tax obligations, as assessed by the Uganda Revenue Authority of about $167 million,” Energy Minister Irene Muloni told a news conference Thursday.

Assessed tax

The three firms currently each hold a 33.3 per cent stake in the fields and Tullow is now selling 21.5 per cent of its stake, which will be split equally between Total and CNOOC.

Tullow spokesman George Cazenove said in an emailed statement Tullow believed it should not have to pay the assessed Ugandan tax.

“As Tullow has stated on a number of occasions, we believe this deal should not attract substantial tax liabilities and that this position is supported by Uganda’s tax laws,” he said.

“Tullow and its partners remain in discussions with the Government of Uganda on this matter and the deal will only complete when those negotiations are brought to a satisfactory conclusion.”

Muloni said after the deal is finalised, Tullow would be a non-operator and Total would be the operator in the northern part of Licence Area 2, while CNOOC Uganda would be the operator of the southern part of the area.

“Given the above progress, we now expect the licensed companies to undertake the final investment decision for the upstream projects before June 2019,” she said.

Uganda discovered commercial crude oil deposits in the west of the country near the border with the Democratic Republic of Congo more than 10 years ago.

The start of commercial production has been repeatedly delayed due to a lack of required infrastructure such as a refinery and an export pipeline. The government said last month that it now expects oil production to start in 2021, a year later than previously expected.

Muloni said the government also planned to do another licensing round for vacant blocks in 2020, but the number of blocks that would be auctioned has yet to be determined.

She said Uganda’s gross crude reserves had also been revised downwards after new reservoir analyses, to six billion barrels from 6.5 billion previously. Recoverable reserves remained at 1.4 billion barrels.