Tullow Oil Operations in Uganda

Tullow first discovered oil at its Mputa-1 exploration well around the western border the country. As of December 2012 Tullow had not begun production from its Ugandan fields, the development of which suffered setbacks due to protracted tax disputes and negotiations with the government over infrastructure investments.

Activities and Contracts
In the first half of 2010 Tullow accelerated development of the Lake Albert Rift Basin and purchased the interests of Heritage Oil in blocks 1 and 3A. Prior to the sale Tullow and Heritage each had a 50% interest in the two blocks. Italian energy group Eni were originally interested in buying out the assets, but Tullow exercised its pre-emption rights over Heritage's interests in the country. According to a leaked US diplomatic cable from 2009 reported that Tim O'Hanlon, Tullow's Regional Vice President, understood the proposed sale to Eni as a "corrupt back door deal" designed to benefit Ugandan officials.

However these interests were subsequently "farmed down" (working interests sold to other companies) in March 2011 to French Total and Chinese CNOOC to help develop the fields. The farm-down was completed on the 21 February 2012 for a total of $2.9 billion. According to the UK's Telegraph, the Ugandan government had expressed concern that Tullow would be too much of a monopoly if it did not bring in partners to its interests. The final approval for the deal, necessary to allow Tullow to progress with its planned $10 billion investment in the county, took several months to be concluded.

On the 3 February 2012 Tullow signed two Production Sharing Agreements (PSAs) with the Ugandan government for activities in the Lake Albert Rift Basin. Ownership and operating responsibilities in the basin were divided between the consortium partners, with Tullow operating Block 2. In October 2012 however, the Kanywataba exploration area of Block 3A (operated by CNOOC) was reclaimed by the government on expiration of its six-month license. Tullo applied for an extension of the exploration license, citing 'force majeure' after its drilling rigs were damaged at sea, delaying the appraisal of some of its properties, but with no success.

Tax Disputes
Before Tullow could conclude its sale of interests to Total and CNOOC it had to resolve a tax dispute with the Ugandan government's. The dispute related to the $472 million demanded by the Uganda Revenue Authority in capital gains taxes. At the height of the dispute the government went so far as suspending two of the company's licenses, at the Kingfisher oil field and at Block 3A.

In addition, as of November 2011 Tullow also had an ongoing tax dispute with former partner Heritage itself. In order to push through its "farm-out deal" with Total and CNOOC, in April 2011 Tullow paid off a tax bill of almost $313.5 million, an amount it argues it should be reimbursed by Heritage according to the terms of its contract. When Heritage refused to accept responsibility for the payment, Tullow launched a legal action against the company in London, a claim which Heritage considers to have "no basis."

Infrastructure deals
In November 2012 the web portal the East African reported that the future of Tullow in Uganda "hung in the balance" as a result of the company's frustration over investment decisions over whether or not to build a refinery. Officials at Tullow denied the claims.

In July that year Tullow presented a "joint development plan" for infrastructure to President Yoweri Museveni, along with other international oil companies (IOCs), with the focus on a crude pipeline. The government prefers the construction of a large-scale refinery to the pipeline option, causing a delay in negotiations and passage of the plan. Tullow and partners Total and CNOOC would prefer to start up production rapidly and sell crude on the open market, transported via pipeline to the East African coast.

OIl in Uganda reported in a 2012 newsletter that involvement in the refinery project represented a commercial risk for the company, as investment analysts "questioned the wisdom" of a company which specialises in upstream operations becoming involved in a downstream project like this one.

Tullow Group Scholarship Scheme in Uganda
Within the framework of Tullow's regional academic sponsorship scheme, in Uganda over 2012/2013 up to 20 scholarships were to be awarded, six for areas where Tullow is operator and the remaining 14 for the rest of the country.

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