Kampala � Energy minister Irene Muloni revealed that government has endorsed the Anglo-Irish Tullow Oil Uganda's sale of assets to French oil major Total E&P and China's Cnooc, subject to payment of $167m (about Shs614b) in Capital Gains Tax (CGT).
The CGT is a tax on the profit upon sale or disposal of something such as an asset that has appreciated in value over time.
Tullow's transfer of 21.57 per cent of its assets to Total E&P and Cnooc is worth $900m (about Shs3.4 trillion).
"On November 21, I gave conditional consent for this transaction, subject to payment of the tax obligations as assessed by the Ugandan Revenue Authority (URA)," Ms Muloni announced yesterday at the end of year press briefing about the status of Uganda's oil sector.
"In principle, we do not have any problem with the arrangement: how they clear up the $167m is something they will have to arrange with URA," she added.
In January last year, Tullow announced selling 21.57 per cent of its interest in each of the three exploration areas to Total E&P.
Uganda's oil belt--the Albertine Graben-- is split into three Exploration Areas (EAs); 1,2 and 3.
The EA1 is located in Nwoya, EA2 in Buliisa while EA3 is in south Lake Albert in Hoima and Kikuuke districts. Each of the three oil companies owned 33.33 per cent shares in each of the three exploration areas.
The back and forth haggling over the terms of the deal, including operatorship of Tullow's oil fields in EA2 and protracted discussions on CGT, meant that the government had to delay its approval.
This eventually led to rescheduling of the Final Investment Decision (FID) by the oil companies.
The delays in FID subsequently impelled government to postpone projected commercial oil production from 2020 to earliest 2022.
The sale of assets was structured in two ways; $200 million (Shs722b) in cash consisting of $100 million (Shs361b) on completion of the transaction and $50 (Shs180b) million at both FID and First Oil, and secondly $700 million (about Shs2 trillion) in deferred consideration which will be used by Tullow to fund the company's share of the costs of the upstream development project (development of the oil fields) and the associated export pipeline project.
However, in March last year Cnooc evoked its preemptive rights, a key clause in the shareholders agreement, to acquire half of the shares floated to Total E&P which sparked protracted discussions.
Ms Muloni yesterday said it was agreed that Total E&P would operate the oil fields in EA2 (in Nwoya and Buliisa) while Cnooc will operate fields in the southern part (Kingfisher and Kaiso Tonya).
The latest deal gives both Total E&P and Cnooc equal shareholding of 37.5 per cent in Uganda's oil fields while Tullow Oil will remain in a non-operator position with 11 per cent interest as equity.
Tullow's country general manager Jimmy Mugerwa was not readily available for a comment on the matter as he was reported out of the country.
Production licences for both EA1 and EA2 were issued in August 2016, paving way for the technical Front Engineering Designs, which were expected to pave way to FID in early 2018 but that did not materialise.
The FID is an agreement on capital investments on a long term project: when money for the project is availed and project execution commences.
Current projections show that $6.7b (about Shs24 trillion) is the capital expenditure for developing the oil fields in EA1 and EA2 borne by the oil companies and government through the Uganda National Oil Company (Unoc).
Unoc has a 15 per cent stake in each of the production licences but this is being carried by the oil companies until sometime in future when the former has acquired some financial muscle.
Ms Muloni said "given the above progress, we now expect the oil companies to undertake FID before June 2019."
However, despite this development, government and oil companies remain with another hurdle --reaching FID-- of the proposed crude oil export pipeline from Hoima in mid-western Uganda to Tanga port in Tanzania.
Ms Muloni yesterday admitted that discussions on the Host Government Agreement (HGA), which details responsibilities of Uganda and Tanzania, and other shareholding agreements, have dragged on but said it is justified given the costs involved.
The crude oil export pipeline is expected to cost $3.5b (about Shs13 trillion).
"As a country, our primary focus should be on ensuring that the journey towards first oil is one that brings maximum benefit to the country by ensuring that oil and gas resources are produced efficiently, and that Ugandans can competitively participate," Ms Muloni said.
Source: Africa Focus