Tullow Oil Agrees To Pay Uganda Government $108 million To End Tax Dispute

A tax row that has ensued between oil explorer Tullow Oil and the government of Uganda and the Uganda Revenue Authority in regards to two farm downs to China’s CNOOC and Total may be nearing its end after Tullow agreed to pay $250 million in full and final settlement of its CGT liability.

The payment comprises $142 million that Tullow paid in 2012 and $108 million to be paid in three equal installments of $36 million starting 2016 and 2017.

The agreement to pay the sum also brings to an end legal proceedings ongoing at the Ugandan High Court and an international arbitration that commenced in 2013 after  the URA assessed the CGT payable at $473 million and an assessment by the Uganda Tax Appeals Tribunal (‘TAT’) that and assessed Tullow’s CGT liability for the farm-downs at $407 million less $142 million previously paid.

In the ruling by TAT the tribunal ruled against Tullow on the key issue of the express tax exemption contained in the Production Sharing Agreement for Exploration Area 2 (EA2 PSA) whereas Tullow said it believed that the amount already paid exceeded its liabilities in relation to CGT on EA1 and EA3A.

In its 2014 accounts, Tullow recorded a contingent liability of $265 million in relation to the dispute.

According to Tullow Oil CEO Aidan Heavey both proceedings has been withdrawn even as the company hopes that proposed tax regime changes in the country will make the Albertine region more attractive to investors even as the East African country prepares to enter the development phase.

‘The settlement of this long-running dispute is good news for Tullow and Uganda. In recent months, the Government of Uganda has proposed welcome and necessary changes to its tax regime for oil and gas investments which it is hoped will enable substantive progress to be made towards the sanction of the Lake Albert oil development,’ he said.

Tullow Oil has also faced off with Heritage Oil in regards to indemnity claims against Heritage with regard to Capital Gains Tax payments that Tullow had made on Heritage’s behalf to the Uganda Revenue Authority which the London high court ruled in Tullow’s favor.