The Ugandan government has asked U.K.-based Tullow Oil PLC (TLW.LN) to reduce the size of its proposed share in three of the country's oil blocks in order to diversify ownership of Uganda's oil resources, the ministry of energy and minerals development said Wednesday.
The Ugandan government has asked U.K.-based Tullow Oil PLC (TLW.LN) to
reduce the size of its proposed share in three of the country's oil blocks in
order to diversify ownership of Uganda's oil resources, the ministry of energy
and minerals development said Wednesday.
Tullow is awaiting final Ugandan government approval for its $1.5 billion
purchase of a 50% stake in blocks 1 and 3A in
Lake
Albert
, currently owned by Heritage Oil PLC (HOIL.LN). Tullow has previously
said that if successful in the acquisition--which would grant it full ownership
of the three blocks--it would sell on, or "farm out," half of the
total assets to a third party.
However, the government's latest request would see Tullow's total share reduced
to around 33% from the 50% currently proposed. Tullow owns the remaining shares
in the two blocks, and 100% of the third block.
In a ministerial presentation to parliament's natural resources committee
Wednesday, Kalisa Kabagambe, the permanent secretary of the ministry, said that
government had asked Tullow Oil to let China National Offshore Oil Company
(CEO), or Cnooc, and France-based Total SA (TOT) operate a block each in the
Lake
Albert
basin.
Tullow has selected Cnooc and Total as its preferred partners in developing the
three blocks, where around 1 billion barrels of oil have been discovered.
"In recognizing the need to avoid a monopoly, Tullow has presented their
plan to partner with both Total and Cnooc. However, government has asked Tullow
to reconsider its proposal of operating two out of three exploration areas and
instead let each partner operate an exploration area," he said.
The two areas earmarked by Tullow equate to 50% of the three blocks' total
assets, according to a person familiar with the process.
In a statement, Tullow said that detailed discussions with government were
progressing well and no final decision had been reached.
A Total spokesman confirmed that the French company is in talks with Tullow but
declined to comment on the latest developments. Cnooc declined to comment.
The Ugandan government is still vetting the development plans presented by
Total and Cnooc, after which a final decision will be made on Tullow's
acquisition of the Heritage stake. According to people familiar with the
situation, the whole process is likely to completed by the end of March.
Kabagambe further said that the Ugandan government would levy a capital gains
tax of around $300 million to $400 million on the sale of Heritage's stakes in
blocks 1 and 3A.
Last week, the Uganda Revenue Authority said that a 30% capital gains tax would
be levied on the sale of Heritage's assets. Heritage declined to comment.
The government expects to earn a higher capital gains tax from the Tullow
farm-out, Kabagambe said without providing the details of the tax applications.
However, a person familiar with the discussions told Dow Jones Newswires that
the capital gains tax position is currently unclear because no price for the
farm-out has been set. It is possible that Tullow could offset some of these
tax liabilities against its expenditures in the country, the person added.
According to Kabagambe, the farm in and farm down transactions are extremely
beneficial to the country since they raise the country's profile and provide
the required large capital investments for the oil and sector.
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