Frustrated, Tullow Oil now plans new strategy to conclude farm down

Frustrated Tullow Oil plans to put in place a new strategy where new members will be included on the first team that failed to deliver a farm down in its 33.33 per cent stake in the Lake Albert Project, a source who spoke on condition of anonymity told this website.

The official said that one of the reasons why former Tullow Oil Uganda Managing Director Jimmy Mugerwa was recalled to London, was because he failed to ensure that the farm down that the company so much needed happened. Mugerwa was early last month replaced by lawyer Mariam Nampeera Mbowa.

The official added that the first team that the company entrusted the job of negotiating failed to convince the government of Uganda on the taxes to be paid once Tullow Oil sold part of its stake to CNOOC and Total E& P, which have now pulled out of the deal.

“Tullow has been unable to secure a further extension of the sales purchase agreements “SPAs” with its Joint Venture Partners, despite previous extensions to the SPAs having been agreed by all parties. The termination of this transaction is a result of being unable to agree all aspects of the tax treatment of the transaction with the Government of Uganda which was a condition to completing the SPAs,” the company said days ago.

It said that while Tullow’s capital gains tax position had been agreed as per the Group’s disclosure in its 2018 Full Year Results, the Ugandan Revenue Authority and the Joint Venture Partners could not agree on the availability of tax relief for the consideration to be paid by Total and CNOOC as buyers.

Tullow Oil said it would now initiate a new sales process to reduce its 33.33 per cent operated stake in the Lake Albert project which has over 1.5 billion barrels of discovered recoverable resources and is expected to produce over 230,000 bopd at peak production.

The Joint Venture Partners had been targeting a Final Investment Decision for the Uganda development by the end of 2019, but the termination of this transaction is likely to lead to further delay.

Paul McDade, chief executive officer, said then that: “Tullow has worked tirelessly over the last two and a half years to complete this farm down which was structured to re-invest the proceeds in Uganda. Whilst this is a very attractive low-cost development project, we remain committed to reducing our operated equity stake. It is disappointing to report this news at a time when we are making so much progress elsewhere towards the growth of the Group with our recent oil discovery in Guyana and the first export of oil from Kenya.”

The Ministry days ago said that Tullow must pay Capital Gains tax before it can be allowed to sell part of its stake to Total and CNOOC Uganda.

The Ministry’s Permanent Secretary, Robert Kasande in a statement last  Thursday said the government’s position is that the assessed tax should be paid in line with the laws of Uganda and tax reliefs be treated in in accordance with laws of Uganda.

“Government’s position is that the assessed tax should be paid in line with the laws of Uganda and tax reliefs are treated in accordance with the laws of Uganda,” he said.

The issue of contention according to Kasande was that Tullow wanted to transfer its interest without payment of Capital Gains Tax arising from the sale to CNOOC and Total. Total and CNOOC were also supposed to meet certain taxes for the deal to conclude.