The Uganda government and the three joint venture partners in the Lake Albert oil project —Tullow Oil, Total E&P, and China National Offshore Oil Corporation —have reached a deal on the sale of Tullow’s assets, this website can confirm.
Details of the new sale and purchase agreements are still highly guarded. However, industry insiders revealed “progress and a deal being reached” following the recent visit of the Total Group chief executive and board chair, Patrick Pouyanné.
The initial farm-down deal, valued at $900m, collapsed in August 2019 after the joint venture partners failed to get clearance from the government. The farm-down was announced in January 2017, with Tullow seeking to sell 21.6% of its 33.3% areas in Exploration Areas 1, 1A, 2 and 3A to its partners.
Sources said that Mr Pouyanné quietly visited the country in early March during the Presidential Investors’ Roundtable at State House, Entebbe, during which he held a meeting with President Museveni.
The meeting was a follow up to Mr Pouyanné’s visit last October when he held a closed-door one-on-one meeting with the president. The March meeting was a “good one and paved a way forward,” said our source, who prefers to remain anonymous.
At last year’s meeting, the two principles agreed to consult their teams and arrive at a harmonised position, which was agreed upon last month.
The contentious issues include the treatment of a capital gains tax worth $185m (Shs673bn) on the transaction payable over a period of 25 years.
The president’s dilemma was to either forego or revise the levy in order to unlock a final investment decision worth about $10bn for Uganda’s oil projects.
The second issue is a disagreement over how much costs the oil firms can recover before paying corporate income tax at the point of oil production; the firms want the government to lift its limit. The more costs the company book, the less tax they will pay.
However, the government insists that the cap on recoverable costs will not be lifted. It also wants the firms to pay the taxes before oil production starts, in line with the Income Tax Amendment of 2017. But because the tax is imposed on profits, the oil firms argue that it is being charged on ‘imagined’ profits.
The third issue is the economics of the planned oil pipeline to Tanzania’s coast.
This website could not immediately establish the exact details of the new deal, but insiders say the finer details are being ironed out and it will be announced soon, most likely after the coronavirus outbreak clears.