Tullow Oil’s plan to sell another stake in its 230,000 barrel per day project in Uganda to France’s Total and China’s CNOOC has been called off due to a tax dispute with the Ugandan authorities, Tullow said on Thursday.
The development follows two years of haggling over the tax.
Initially, Uganda Revenue Authority assessed the tax at $300 million over all of Tullow’s assets valued at $900million, but Tullow disagreed that the transaction was taxable. Since then, there have been negotiations over the amount which finally came down to $167million.
The London-listed firm had previously sold about two-thirds of the project to CNOOC and Total for $2.9 billion, in transactions completed by 2012.
It had planned to sell the two companies around another roughly 22 per cent holding in the project in a deal that had been expected to close in late 2018.
That would have cut Tullow’s remaining stake to about 11 per cent, raising $200 million that would have helped the firm cut its net debt, which stood at $2.9 billion at mid-year, and reduce its operational commitments to the project by around $700 million.
Tullow said the firms could not reach an agreement with the Ugandan Revenue Authority on the tax relief on money Total and CNOOC would have paid to Tullow, leading to the majors declining to extend the deadline for the deal to be completed.
Shares in Tullow were down around 3.3 per cent at 210.1 pence at 1157 GMT.
“Tullow will now initiate a new sales process to reduce its 33.33 per cent operated stake in the Lake Albert project, which has over 1.5 billion barrels of discovered recoverable resources,” it said.
The firm said the partners in the Uganda project had aimed to reach a final investment decision on development by the end of 2019 but that terminating the stake sale “is likely to lead to further delay”.
The Lake Albert region has 1.6 billion barrels of discovered recoverable resources.
“Since 2017, all parties have been actively progressing the SPA. However, despite diligent discussions with the authorities, no agreement on the fiscal treatment of the transaction has been reached.
“The deadline for closing the transaction has been extended several times, clearly demonstrating the endeavours of the parties to find an agreement. The final deadline will be reached at the end of today, August 29, 2019, and as such, the Acquisition Agreement will be automatically terminated,” total ina statement to The EastAfrican.
Robert Kasande, Permanent Secretary Ministry of Energy and Mineral Development said “Tullow will have to look for another buyer or find money from other sources to ensure that the project progresses. As far as government is concerned we need the project to progress.”
Chief Executive Paul McDade told Reuters it was too early to give a new timeframe for the final investment decision or to talk about potential new partners in the project.
He said Total and CNOOC had not yet indicated their view on a fourth partner coming in.
“Whilst frustrations around the project were clear, the termination of the (sale and purchase agreement) and inevitable further delay to the project was an unlikely scenario,” said David Round, analyst at BMO Capital Markets.
“Whilst removal of the deal, resultant delay, and project risking clearly impacts valuation, this also has repercussions for Tullow’s growth and deleveraging story, and puts more pressure on the on-going program in Guyana.”
Tullow has just made a discovery and is doing further exploration work offshore Guyana, one of the world’s most-watched basins.