Tullow Oil (LON:TLW) said this morning that it had resolved its protracted dispute with authorities in Uganda over a deal last year in which Heritage Oil (LON:HOIL) sold to Tullow its 50% stake in the EA-1 and EA-3A licences. In the aftermath of the US$1.45 billion deal the Ugandan Government and the Uganda Revenue Authority said there was a tax liability to be paid. Heritage disputed the tax charge but it was left to Tullow, which wanted to farm down its interests in EA-1, EA-2 and EA-3A and press ahead with exploration and development plans, to sort out the mess.

Under the terms of today’s deal, Tullow will write a cheque for US$313.4m to fix its side of the Heritage deal tax debacle although the Ugandan Government is set to chase Heritage for further payments. That has opened the door for Tullow to sign a sale and purchase agreement with Chinese national oil company CNOOC and Total involving the farm down of a one third interest to each party of the interests Tullow holds in EA-1, EA-2 and EA-3A. The move will trigger a US$2.9 billion payment to Tullow of which the Ugandan authorities have insisted there is a US$472.7m capital gains tax liability. Tullow is disputing this figure, which relates mainly to EA-2, but to ease the sale process has agreed to pay US$141.8m upfront and then enter the normal tax dispute resolution process in Uganda.

Under the Memorandum of Understanding, Tullow and its new partners have been granted new licences over EA-1 and an onshore area of EA-3A and the partnership’s rights to develop the Kingfisher discovery have been confirmed. The partners will now reactivate the significant programme of exploration and appraisal drilling and progress their development plans for the basin which they will jointly present to the Government of Uganda for approval.

Aidan Heavey, Tullow’s chief executive, said: “These agreements have secured the future of oil production in Uganda. Tullow, its partners and the Government of Uganda will now agree a development plan for the Lake Albert Rift Basin with a target of delivering production of at least 200,000 bopd and potentially much more as we continue to explore and appraise the basin. We are looking forward to working with CNOOC and Total, and continuing our strong relationship with…

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