UPDATE: Tullow Oil Faces Tax On Lake Albert Deal -Uganda Govt

8th Jul 2010 13:27

(Adds share price.) By Nicholas Bariyo Special to DOW JONES NEWSWIRES KAMPALA, Uganda (Dow Jones)--The Ugandan government plans to levy a capital gains tax on Tullow Oil PLC (TLW.LN) when the U.K.-listed company sells part of three oil blocks to its project partners, the head of Uganda's Petroleum Exploration and Production Department, Ernest Rubondo, told Dow Jones Newswires Thursday. Tullow agreed in January to purchase Heritage Oil PLC's (HOIL.LN) half stakes in two exploration blocks in Uganda's Lake Albert basin for $1.5 billion. The Ugandan government endorsed the deal this week, giving Tullow full ownership of three blocks in the area, where at least 1 billion barrels of oil have been discovered. Tullow plans to quickly sell on two-thirds of the project to France-based Total SA (TOT) and China's Cnooc Ltd. (CEO) for the development of the oil assets. Analysts estimate the transaction at around $3 billion. Rubondo said the sale of the assets is taxable under the Ugandan tax laws. "Tullow's farm down will attract a capital gains tax from government," he said without specifying a figure. According to the state tax body Uganda Revenue Authority, capital gains tax in Uganda range between 25% and 45%. Jimmy Kiberu, the spokesman for Tullow Oil Uganda Ltd., told Dow Jones Newswires the specifics of the capital gains tax are part of the company's ongoing discussions with government. "Tullow believes that its capital gains tax liability is minimal given that the value of Heritage's blocks won't change between purchase and farm-down and that Tullow will be working and investing in Uganda for many years to come," Kiberu said. A dispute between government and Heritage Oil over the capital gains tax delayed completion of the $1.5 billion deal by several months. Heritage recently agreed to pay 30% of the assessed tax on the transaction and then refer the dispute for arbitration in London in a bid to get government approval. Hilary Onek, Uganda's Minister of Energy Minerals Development, said the government's position is meant to ensure that transactions in the up-and-coming oil sector are taxed to benefit the Ugandan people. "Oil is a national asset which Ugandans should benefit from, we cannot allow companies to walk away without paying taxes," he said. At 1219 GMT, Tullow's shares were up 22 pence, or 2%, at 1130 pence, slightly ahead of London's FTSE 100 index. -By Nicholas Bariyo, contributing to Dow Jones Newswires; 256-75-2624615 [email protected] (END) Dow Jones Newswires July 08, 2010 08:27 ET (12:27 GMT)