Heritage and Tullow in Ugandan tax bust-up

18th Apr 2011 08:03

Upstream exploration and production company Heritage Oil has been slapped with a $313.45m lawsuit by Tullow Oil related to the sale of Heritage's 50% interest in Blocks 1 and 3A in Uganda.The bone of contention is Heritage's refusal to reimburse Tullow in relation to a recent payment made by Tullow of $313,447,500 to the Uganda Revenue Agency (URA). Heritage believes that the claim has no basis and will vigorously and robustly defend it. It is also considering taking the Ugandan government to court in London to recover $121m held on deposit by the government."The URA purported to issue agency notices under the Ugandan Income Tax Act designating Tullow, as agent for Heritage Oil & Gas Limited (HOGL), for payment of an alleged tax liability resulting from HOGL's sale of its interests in Blocks 1 and 3A to Tullow," Heritage's statement explains. The sale completed on 26 July 2010 for a cash consideration of $1.45bn, including $100 million for a contractual settlement, of which HOGL received $1.045bn in cash. "The URA made a purported demand that Tullow pay the amount of $313,447,500 under the agency notices and Tullow has informed HOGL that it paid the entire amount to the URA on 7 April 2011," the statement continues. Tullow reckons Heritage should foot the tax bill, citing the tax indemnity provisions in the sale agreement. Heritage believes it is off the hook because the decision to pay the URA was made without its knowledge or consent, "contrary to the very clear provisions under the Sale and Purchase Agreement."The agreement is explicitly clear that it is for HOGL alone to manage the tax dispute with government yet Heritage and HOGL consider that Tullow's agreement to pay the URA was made contrary to the terms of this agreement, for Tullow's own commercial reasons.HOGL is disputing that any tax arises in Uganda from the sale. Based on comprehensive advice from leading tax experts in Uganda, the United Kingdom and North America, Heritage maintains that the sale is not taxable under Ugandan law.HOGL is now pursuing the release of $283.45m, plus interest, held in escrow with Standard Chartered Bank in London, following Tullow's admission that its payment of $313,447,500 to the URA has discharged HOGL's alleged tax liability. The funds no longer need to be held in escrow, Heritage argues, since monies were placed in escrow on completion of the sale to provide for a potential payment to the Ugandan government or the URA in discharge of the alleged tax liability relating to the sale.Meanwhile, Heritage has provided an operational update on its activities in Kurdistan. Heritage has signed a rig contract with DaQing International to supply the DQ037 2000HP rig to commence a multi-well exploration and appraisal drilling campaign on the Miran Block.The first well in this continuous drilling campaign will be the Miran West-3 well, with work scheduled to start in July. Heritage is currently acquiring 730 square kilometres of 3D seismic across the Miran Block to help define further appraisal drilling locations and fully exploit fracture networks.Discussions with the Kurdistan Regional Government (KRG) over the fast-tracked phased development of the Miran Field have continued and are said to have been "very constructive". ---jh