Tullow paid Heritage Oil Plc $1.5 billion last month for its interest in two Ugandan blocks, prior to bringing in China National Offshore Oil Corp. and Total SA as partners. Final approval has been held up until the issue of capital gains tax between the Ugandan government and Heritage is resolved.
“In the very short term, it is therefore anticipated that there may be some slow down in activity.” Tullow said in a statement today.
Tullow wants to bring in Cnooc and Total to help develop the Lake Albert basin, which may pump more than 200,000 barrels of oil a day in 2014 or 2015. The explorer increased its estimate for discovered resources in Uganda to 1 billion barrels of oil from an earlier forecast of 800 million barrels, following results from the Mpyo-1 well.
“The situation in Uganda is a major concern,” said Dougie Youngson, an analyst at Arbuthnot Securities Ltd. in London. “The CGT issue needs to be resolved before we are likely to see any further activity and this could have a major impact on the valuation of these assets should the situation continue for a prolonged period of time.”
Tullow retreated 4.6 percent, the steepest decline since June 29, to 1,238 pence as of the 4:30 p.m. close in London. It was the second-biggest loser in the FTSE 100 index of leading U.K. shares.
The tax dispute is expected to be sorted out in a “few weeks,” Tullow’s Chief Executive Officer Aidan Heavey said on a conference call.
“It’s very important that everything is done properly and that we all understand exactly how things could move forward in the future,” he said in an earlier phone interview. “We will take some time now to get clarity on” Ugandan tax legislation before “we move forward.”
At the same time, Tullow said first-half earnings more than doubled on higher crude and natural-gas prices.
Net income rose to $81.7 million from $31.6 million in the year-earlier period, the London-based company said in a statement. Revenue increased 11 percent to $486 million.
The Kigogole-5 and Kigogole-2 appraisal wells were drilled in July and August and encountered 14 meters and 16 meters of oil bearing reservoir respectively, Tullow said. Kigogole-2 was drilled in an area adjacent to the Nsoga-1 discovery, “confirming a deep contact in common” with the Nsoga-1 well.
The company expects to find a further 1.5 billion barrels of resources in Uganda’s Lake Albert basin.
Tullow plans to produce the first oil from its Jubilee field in Ghana in either November or December, the company said. It’s investing about $3.35 billion with partners to pump as much as 120,000 barrels a day next year.
The full-year production forecast was raised to between 57,000 and 58,000 barrels of oil equivalent a day, compared with a previous forecast of between 56,000 and 57,000 barrels.
Tullow expects to boost output to 95,000 barrels of oil equivalent a day in 2011.
The company reported earnings in U.S. dollars for the first time today.