Tullow comes to agreement with Ugandan government

15th Mar 2011 18:30

Tullow Oil has signed a Memorandum of Understanding (MoU) with the Government of Uganda that brings to an end the conflict over taxation. A new government was elected in Uganda around one month ago.The agreement will enable Tullow, CNOOC and Total to proceed with the development of their Ugandan oil and gas assets. Tullow had been blocked from selling stakes in the assets to the other two oil companies. The MoU starts a process which is expected to end up resolving the tax issues relating to Heritage Oil and Tullow. The Irish oil company paid almost $1.5bn for the 50% stake in the blocks in the Lake Albert rift basin, previously owned by Heritage Oil. The Ugandan government thought that this sale should be subject to capital gains tax. The government is expected to consent to the purchase by Tullow and the farm downs to CNOOC and Total. The deal will also enable the development of the Kingfisher field, where a cancellation of the licence was threatened, and Tullow is expected to be granted an extension of the rights to Exploration Area 1 and parts of 3A, in recognition of the fact that time has been lost in the wrangling over tax. The MoU is conditional upon the signing of Sale and Purchase Agreements (SPAs) between Tullow, CNOOC and Total within 10 working days. Further details will be made available when this happens. Political risk has been a cause of worry for some analysts who cover Tullow. This agreement should reduce that risk.