Uganda, Tullow Oil resolve tax dispute -sources

Mon Mar 7, 2011 9:35pm GMT

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* Govt to announce agreement in "coming days"

* Repossessed fields are set for return - govt source

By Elias Biryabarema and Barry Malone

KAMPALA, March 7 (Reuters) - Uganda has resolved a tax dispute with Tullow Oil (TLW.L), sources for the government and the company said, paving the way for Tullow to sell stakes in exploration assets to France's oil major Total (TOTF.PA) and Chinese group CNOOC (0883.HK).

"The Ugandan government proposed that, as long as it has a guarantee that Tullow will pay the remaining taxes, it has no problem with its proposed partnerships with Total and Cnooc," the energy ministry source said.

"I am aware Tullow has responded positively to that arrangement and I think formal announcements on either side are coming within days."

A Tullow source told Reuters the company was aware of the offer and keen to reach an agreement with the Ugandan government within days.

The breakthrough will allow Tullow, one of Europe's top oil explorers after a series of big finds in Uganda and Ghana, to embark on a $10 billion development programme that will see Uganda start pumping crude next year.

The tax dispute arose after London and Toronto-listed Heritage Oil (HOIL.L) early last year sold its Ugandan properties -- exploration blocks 1 and 3A -- to Tullow with which it co-owned the assets on a 50 percent basis.

Uganda had refused to endorse the deal until Heritage paid $404 million in capital gains tax on the $1.45 billion it earned from the sale.

Uganda, East Africa's third biggest economy, discovered commercial quantities of hydrocarbons in the Albertine rift basin along its border with the Democratic Republic of Congo in 2006. Oil companies estimate reserves of up to 2.5 billion barrels.

After a protracted battle, Heritage made a down payment of $121 million in July and deposited the remaining $283 million in an escrow account in London to be paid to the government after arbitration.

"As part of the agreement the government also decided to return the Kingfisher oil field and exploration area 3A to Tullow Oil and I think the two will not be part of the new licensing round coming later this year," the energy ministry source said.

The government repossessed the Kingfisher field and field 3A after their licenses expired but the move was seen by analysts as an attempt to pressure Tullow.

It is unclear whether the Ugandan government will plump for international arbitration to resolve the dispute with Heritage or go to the local courts.

Analysts say Uganda favours local resolutions because it lacks the cash and legal expertise to slog it out with Heritage in international courts.

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