Tullow completes acquisition of Heritage assets in Uganda

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, July 27 -- Tullow Oil PLC, following approval by the Uganda government, completed its planned acquisition of 50% interest in Blocks 1 and 3A from Heritage Oil & Gas Ltd. for $1.35 billion, with a further contractual settlement amount of $100 million.

Tullow now plans to enter into transactions with China National Offshore Oil Corp. and Total SA to farmout two thirds of its interests in Blocks 1, 2, and 3A in the Lake Albert Rift basin in an accelerated basin-wide development plan that is expected to deliver production well in excess of 200,000 b/d from the basin.

Blocks 1, 2, and 3A are thought to contain combined reserves of more than 2 billion bbl of oil, and initial production from them is expected in late 2011. Tullow anticipates reaching peak output of more than 200,000 b/d in 2014-15.

The sale, however, has been dogged for months by a dispute between Uganda and Heritage over taxes. On July 7, Heritage said Kampala had approved the agreement, pending its “demonstrating to government that it will pay any taxes on demand, which may arise from the disposal of the assets.”

At the time, though, Heritage was not expecting to pay any taxes on the sale as it had been advised by experts in the UK and North America that disposal of the assets is not taxable in Uganda.

The two sides continue to disagree on the tax issue, but the acquisition proceeded anyway following a compromise under which Heritage deposited $121.5 million with the Uganda Revenue Authority. The sum represents 30% of the disputed tax assessment of $404.9 million by the URA.

“Heritage continues to work with government to agree a way forward for the tax dispute to be resolved,” the firm said, adding that the balance of $283.4 million on the assessment has been retained in escrow pending resolution of the dispute.

Contact Eric Watkins at hippalus@yahoo.com.

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