Tullow misses deadline to sell in Uganda after spar with tax authorities

The Uganda unit of global oil producer, Tullow Oil plc, has missed a deadline to sell part of its more than 30 per cent stake in an oil field in the country, after a disagreement with revenue authorities on capital gains tax dragged.

The inability to either seal a deal within the timeframe or extend the farm-down dateline means that Tullow and its partners will have to restart the process towards reducing its stake in the Lake Albert project.

In a notice to investors Thursday announcing the termination of the farm-down to Total and CNOOC, Tullow Uganda said it had been informed that “its farm-down will terminate at the end of today, August 2019, 29.”

Tullow Oil plc’s CEO said the development was “disappointing.”

“It is disappointing to report this news at a time when we are making so much progress elsewhere towards the growth of the Group with our recent oil discovery in Guyana and the first export of oil from Kenya,” it said.

About two and a half years ago, the oil exploration and production firm set out to farm-down its 33.33 per cent operated stake in the Lake Albert project to TOTAL and CNOOC, both of Uganda.

It, however, said in the notice that “Tullow has been unable to secure a further extension of the SPAs with its Joint Venture Partners, despite previous extensions to the SPAs having been agreed by all parties.

“The termination of this transaction is 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 SPAs,” it said

It added 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.

“Tullow will now 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.

The field is expected to produce over 230,000 barrels of oil per day (bopd) at peak production, according to the release.

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, it said.

Mr McDade said Tullow had worked tirelessly over the last two and a half years to complete this farm-down, which was structured to re-invest the proceeds in Uganda.

“Whilst this is a very attractive low-cost development project, we remain committed to reducing our operated equity stake,” he said.