Tullow Sells Uganda Stakes to CNOOC, Total for $2.9 Billion

Tullow Oil Plc (TLW) sold stakes in three Ugandan exploration blocks to Total SA (FP) and Cnooc Ltd. (883) for $2.9 billion, paving the way for the development of the Lake Albert Basin after the deal was delayed by a tax dispute.

Tullow will retain a one-third interest in the blocks, the company said today in a statement. Once Tullow makes tax payments to Uganda, final approval will be granted by the government. Oil production may start later this year or in early 2012, Andy Oliver, head of operations in Uganda, told reporters in the capital Kampala.

The deal moves Heritage Oil Plc and Tullow closer to ending the tax dispute that’s held up plans to develop the East African nation’s oil industry for a year. While both companies still dispute the amount owed, Tullow together with China National Offshore Oil Corp. and Total can now start working toward the goal of producing at least 200,000 barrels of oil a day from the venture in 2015.

“It’s a great deal for all concerned,” Tullow Chief Executive Officer Aidan Heavey said in an interview. “There’s probably close on $10 billion that’s going to be spent developing the basin.”

Last year, London-based Tullow paid about $1.5 billion to Heritage Oil Plc (HOIL) for its interests in Block 1 and 3A in the Lake Albert basin, which holds 1 billion barrels of oil reserves. Uganda withheld final approval of the deal until the tax issue was resolved.

Deposited Taxes

Heritage deposited $404.9 million in taxes claimed by the Ugandan government in two different accounts. The sale of the assets to Tullow “is not taxable in Uganda,” Heritage reiterated today in a statement.

Tullow, acting as an agent for Heritage appointed by the Ugandan government, will pay $313.4 million in disputed taxes to the authorities within 10 business day, it said today. The payment will be split equally with Cnooc and Total, Ian Springett, Tullow’s chief financial officer, told investors on a conference call.

As part of the agreement, Tullow will pay stamp duty on the purchase from Heritage levied at 1 percent. It will also have to pay capital gains tax on the transaction pending the resolution of a dispute between the government and Heritage.

Tullow also disputes the payment of $472.7 million to the government in respect of capital gains tax for the sale of the stakes to Total and Cnooc. Heavey said he expects the final tax bill to be less.

‘Still Uncertain’

“While the tax situation is still uncertain, this closes the chapter on a saga that has been running for over a year,” said Phil Corbett, an analyst at Royal Bank of Scotland Group Plc, which is Tullow’s in-house broker.

Tullow rose 1 percent to 1,459 pence in London. Heritage fell 0.4 percent to 289.9 pence. Total was up 0.4 percent in Paris. Cnooc advanced 2 percent to HK$19.46 in Hong Kong.

Today’s agreement includes Tullow’s interests in exploration Areas 1, 2 and 3A in Uganda. The companies plan to have Total become the operator of Block 1, Tullow operate Block 2 and have Cnooc take control of Block 3A, Heavey said. New licenses have also been given for EA-1 and an onshore area of EA-3A, as well as the rights to develop the Kingfisher discovery.

The partners and the Ugandan government are discussing plans to build a 20,000 barrel-a-day oil refinery to supply fuel to the domestic market, Chief Operating Officer Paul McDade also said today. The companies plan to deploy five drilling rigs in the second half of the year to explore the fields, which may hold an additional 1.5 billion barrels of crude resources.

Total today said the Ugandan fields may pump as much as 300,000 barrels a day. Tullow’s McDade said that this target still has to be appraised and will require “material success” in exploration.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net Fred Ojambo in Kampala at fojambo@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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