GOVT: Tullow Oil must pay all taxes due

Government, Total respond as Tullow’s $900M deal flops

Kampala, Uganda | THE INDEPENDENT | Uganda’s Energy Ministry has stressed that Tullow must pay Capital Gains tax before it can be allowed to sell part of its stake to Total and CNOOC Uganda.  Tullow confirmed earlier Thursday that their Sale and Purchase Agreements (SPAs) deadline had passed.

The Ministry’s Permanent Secretary, Robert Kasande in a statement on Thursday said the government’s position is that the assessed tax should be paid in line with the laws of Uganda and tax reliefs be treated in in accordance with laws of Uganda.

“Government’s position is that the assessed tax should be paid in line with the laws of Uganda and tax reliefs are treated in accordance with the laws of Uganda,” he said.

The issue of contention according to Kasande was that Tullow sought to transfer its interest without payment of Capital Gains Tax arising from the sale to CNOOC and Total.

Tullow was required to pay $167m(  (Shs600b) capital gains tax. While the buying Total and CNOOC were also supposed to meet certain taxes for the deal to conclude.

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Tullow setback

Tullow Chief Executive Officer, Paul McDade earlier on Thursday said they had been informed that its farm-down to Total and CNOOC will terminate at the end of the day (29 August 2019) following the expiry of the Sales Purchase Agreements.

He said Tullow has been unable to secure a further extension of the Sales Purchase Agreements with its Joint Venture Partners, despite previous extensions to the Sales Purchase Agreements having been agreed by all parties.

McDade explained that the termination of this transaction was  a result of being unable to agree all aspects of the tax treatment of the transaction with the Government of Uganda which was a condition to completing the sales purchase agreements(SPAs)

He noted that while Tullow’s capital gains tax position had been agreed as per the Group’s disclosure in its 2018 Full Year Results, the Ugandan Revenue Authority and the Joint Venture Partners could not agree on the availability of tax relief for the consideration to be paid by Total and CNOOC as buyers.

He revealed that Tullow will initiate a new sales process to reduce its 33.33% Operated stake in the Lake Albert project which has over 1.5 billion barrels of discovered recoverable resources and is expected to produce over 230,000 barrels of oil per day at peak production.

McDade said the Joint Venture Partners had been targeting a Final Investment Decision for the Uganda development by the end of 2019, but the termination of this transaction is likely to lead to further delay.

Government responds

Kasande in response said the several engagements between the government and three oil companies about the aborted $900 million farm-down deal had not yielded the desired outcome.

The other issue of standoff was that the government has insisted that the farm-down would only proceed only after certain tax deductions not ordinarily transferable to buyers be transferable to the buyers.

Uganda Revenue Authority according to Kasande communicated the said tax to the Joint Venture Partners on 10th August 29, 2019 to the Joint Venture partners leading to the current standoff.

The Joint Venture Partners have during the negotiations disagreed on of tax relief for to be paid by Total and CNOOC as buyers. CNOOC Uganda had not issued a statement about the latest developments by the time of filing this report.

Total’s exploration & production President, Arnaud Breuillac in a statement said despite the termination of this agreement, Total together with its partners CNOOC and Tullow will continue to focus all its efforts on progressing the development of the Lake Albert oil resources.

“The project is technically mature, and we are committed to continuing to work with the government of Uganda to address the key outstanding issues required to reach an investment decision. A stable and suitable legal and fiscal framework remains a critical requirement for investors.” Said Breuillac in a statement.

Meanwhile, Tullow says it initiate a new sales process to reduce its 33.33% Operated stake in the Lake Albert project. Paul McDade’s statement said the Joint Venture Partners had been targeting a Final Investment Decision for the Uganda development by the end of 2019, but the termination of this transaction is likely to lead to further delay.

The Energy Ministry’s Robert Kasande said the government since the issuance licenses in 2012 and 2016, remained committed to enabling the licensees take the final Investment Decision (FID).

He noted that the Final Investment Decision included the upgrade of critical roads and other infrastructure, securing permits related to environment protection, excess gas utilization and land acquisition.

“We are therefore confident that as Tullow moves to re-initiate a new sales process, the JVPs will remain committed to fulfilling tax obligations” said Kasande in a statement

Kasande said the government will continue to work with the threes oil companies (Joint Venture to ensure that a Final Investment Decision (FID) is achieved at “earliest and in a manner that safeguards the country’s interests and sovereignty, while delivering a healthy return on investment for licensees” said Kasande.

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