Tax Issues Scuttle Tullow’s Uganda Farm-down Agreement
Tullow Oil has been informed that its farm-down to Total and CNOOC will terminate at the end of August 29th, 2019, following the expiry of the Sale and Purchase Agreements (SPAs).
Tullow has been unable to secure a further extension of the 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. 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.
Paul McDade, Tullow Oil CEO, said “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.”
Tullow will now initiate a new sales process to reduce its 33.33% operated stake in the Lake Albert project, which has over 1.5 Bbbl 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.
Arnaud Breuillac, president exploration & production at Total, said “Despite the termination of this agreement, Total together with its partners CNOOC and Tullow will continue to focus all its efforts on progressing the development of the Lake Albert oil resources. The project is technically mature, and we are committed to continuing to work with the government of Uganda to address the key outstanding issues required to reach an investment decision. A stable and suitable legal and fiscal framework remains a critical requirement for investors.”