3rd UPDATE:Heritage Up 6% As Tullow Expects OK For Uganda Deal

6th Jul 2010 11:26

(Adds analyst comment.) By James Herron Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Shares in Heritage Oil Ltd. (HOIL.LN) rose 6% after Tullow Oil PLC (TLW.LN) said it believes it will receive approval from the Ugandan government Tuesday to purchase Heritage's Lake Albert oil licenses for up to $1.5 billion. Tullow representatives will meet with the Ugandan government later Tuesday and the precise details of the government's position can't be known until then, Tullow's Chief Financial Officer Ian Springett told Dow Jones Newswires. The deal will be finalized after the Ugandan President Yoweri Museveni returns from a trip in Ethiopia Tuesday, said an official close to the president. All the paperwork is done, and only the endorsement of the president is now needed, the person said. Heritage was not immediately able to comment on whether approval for the sale was imminent. At 1017 GMT Heritage shares were up 6.0%, or 23 pence, at 401 pence. Tullow shares were up 3.5%, or 36 pence, at 1,077 pence. Tullow agreed in January to purchase Heritage's half-share in two oil licenses for up to $1.35 billion in cash plus up to $150 million extra dependent on certain conditions being met within two years. Tullow pre-empted a previous sale agreement with Italy's Eni SpA (E). The Heritage deal will briefly give Tullow 100% of the three Lake Albert licenses, but it has agreed to quickly sell on a third of these licenses to both Total SA (TOT) and China National Offshore Oil Company (CEO). The much-delayed transaction has been awaiting approval for months due to a disagreement between Heritage and the Ugandan government over how much capital gains tax the company should pay on the proceeds of the sale. Its completion is crucial to the development of more than a billion barrels of oil discovered in Uganda's Lake Albert region. "Heritage has already offered a $108 million up front payment with the residual $252 million claim to be settled by the International Court of Arbitration while the Ugandan Government is holding out for the full $360 million payment," said Evolution Securities in a research note. "It is our view that the two will resolve the issue somewhere between the two amounts." Heritage plans to use the proceeds of the sale to issue a special dividend of between 75 pence and 100 pence a share. The company also has significant oil discoveries in the Kurdish region of Iraq requiring further investment. Despite the delay, Tullow still expects to produce first oil from the Lake Albert region, for consumption on the local market, by the end of 2011. By 2014 or 2015, Tullow expects to be producing more than 200,000 barrels a day of oil from the region, a portion of which will be exported to international markets. "Behind the scenes we have been working closely with Cnooc and Total to move things forward," Springett said. Tullow will disclose how the development of the project, which will require a 1,200 kilometer export pipeline and refinery, will be divided up between the partners. Tullow will focus on upstream operations around Lake Albert, he said. -By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; [email protected] (Nicholas Bariyo in Kampala and Sarah Kent in London contributed to this story.) (END) Dow Jones Newswires July 06, 2010 06:26 ET (10:26 GMT)