UK explorer Tullow Oil has to pay capital gains tax on proceeds from the transfer of working interests, or farm-downs, in its Uganda assets to Frances Total and China National Offshore Oil Corporation (CNOOC), a senior government official said.
p>UK explorer Tullow Oil has to pay capital gains tax on proceeds from the transfer of working interests, or farm-downs, in its Uganda assets to Frances Total and China National Offshore Oil Corporation (CNOOC), a senior government official said.
"The rules on capital gains tax will not change, Tullow will have to pay taxes on its transactions with CNOOC and Total and we shall not allow arguments," Energy Minister Hilary Onek told Reuters recently.
Uganda had conditionally approved the sale of Heritage Oil's assets there, clearing the way for Tullow to start a $10 bn project to develop Uganda's oil reserves.
Tullow said 24 hours later it had received government approval for the farm-down to Total and CNOOC, with whom it has already signed agreements.
"Yes, we gave them the approval for the proposed partnerships with Total and CNOOC, but that approval is conditional upon payment of capital gains taxes."
Heritage said it would receive $1.35 bn in cash from Tullow Uganda for the sale.
Tullow said Heritage had received advice that the disposal of its assets was not taxable in Uganda.
Tullow wholly owns exploration area 2 and is in the process of buying out Heritage Oil from exploration areas 1 and 3A which the two companies currently own jointly with a 50 per cent stake each.
It said it expected the taxes to be levied would be minimal.
"Tullow believes that its capital gains tax liability is minimal given that the value of Heritage's blocks won't change between purchase and farm-down and that Tullow will be working and investing in Uganda for many years to come," said Jimmy Kiberu, Tullow Uganda spokesperson, in a statement to Reuters.
Uganda struck commercial oil deposits on the border with the Democratic Republic of Congo in 2006 and reserves are estimated at two billion barrels. Commercial production is forecast by Tullow to begin in the last quarter of next year.