Tullow is set to sell a substantial part of its assets in Uganda to Total E&P Uganda and CNOOC Uganda – a farm-down that attracts capital gains tax.
President Yoweri Museveni and the Chief Executive Officer (CEO) of Tullow Oil plc have agreed a deal that will enable oil company enjoy a phased payment of capital gains tax accruing from the sale of part of its assets in the Albertine graben. Tullow Uganda Ltd –a subsidiary of Tullow Oil plc in January 2017 announced the sale of a substantial part of its assets in Uganda to Total E&P Uganda and CNOOC Uganda Ltd in a farm-down that attracts capital gains tax.
According to Tullow Oil plc’s full year statement, the Chief Executive Officer of Tullow Oil plc, Mr Paul McDade and President Yoweri Museveni met on January 19th, 2019 in which the issue of capital gains tax from the sale of part of the company’s assets in Uganda was discussed. The 30-page company full year results report was released on February 13th, 2019. The meeting was also attended by the CEO of Total S.A.
In the meeting, Tullow Oil agreed the principles for Capital Gains Tax on its $900 million (approximately Shs 3.3 trillion) farm-down to CNOOC Uganda and Total E&P Uganda. Cabinet gave Tullow Oil’s farm-down to Total E&P Uganda and CNOOC Uganda a green light.
“Following meetings in January 2019 between the CEOs of both Tullow Plc and Total S.A, and President Museveni of Uganda, the government and the Joint Venture Partners are now engaged in discussions to finalise an agreement reflecting this tax treatment that will enable completion of the farm-down to take place,” the financial statement reads in part.
The report adds, “Any Capital Gains Tax is expected to be phased and partly linked to project progress. At completion of the farm-down, Tullow anticipates receiving a cash payment of $100 million and a payment of the working capital completion adjustment and deferred consideration for the pre-completion period of $108 million.”
A further $50 million of cash consideration will be made and is anticipated to be received when the Final Investment Decision is taken on the development project, possibly mid this year or thereabout. The deal is meant to avoid a possible dispute between government and Tullow Oil over the payment of the capital gains tax. In 2012, Tullow Oil was embroiled in a dispute with the tax body – Uganda Revenue Authority over payment of capital gains tax following the farm-out by former Heritage Oil Uganda in favour of Tullow Oil Uganda, which led to protracted litigation. Uganda came out as the victor and the payment was effected accordingly.
Final Investment Decision (FID)
The report also notes a delay by Joint Venture Partners to reach a Final Investment Decision (FID). “The joint venture partners – Tullow Oil Uganda, Total E&P Uganda and CNOOC Uganda continue to work towards reaching FID for the development project around mid-2019,” the report reads in part.
Mark MacFarlane, the Executive Vice President of Tullow Oil for East Africa noted in the report, “This year the East Africa team will be driving hard towards two Final Investment Decisions on our East African projects which have the potential to deliver over 50,000 barrels of oil per day of net production to Tullow by the early 2020s,” he said. Mark MacFarlane emphasised that Tullow’s East Africa team is making good progress on delivering the potential the projects offer.