Irish exploration group Tullow Oil is to pay an additional $108 million (€94.7m) to the Ugandan government to settle a capital gains tax dispute.
Uganda's tax appeal tribunal last July upheld a finding by the country's tax authority that the oil company should pay capital gains tax on the transfer of a 66 per cent share in an oilfield it discovered in the country to Chinese player CNOOC and French giant Total.
Originally, the Uganda Revenue Authority demanded $437 million (€383m) from the Irish company, but Tullow paid 30 per cent - $142 million - upfront, while it appealed against the assessment.
Tullow challenged the ruling tax appeal tribunal’s ruling and last year the group recorded a contingent liability of $265 million in relation to the dispute.
The company had previously argued that it had received a tax emeption from the Ugandan oil minister that covered part of the Lake Albert oilfield.
This alleged exemption was set aside by the Ugandan tribunal on the basis that the previous energy minister didn’t have the authority to grant it, sparking a protest by Tullow.
Tullow said on Monday that it had agreed to end the dispute by paying a total of $250 million(€219m), which comprises the $142 million paid in 2012 and a further $108 million to be paid in three equal instalments of $36 million.
The first of these instalments has been paid with the remainder to be handed over in 2016 and 2017. Following the settlement, legal proceedings challenging the tribunal decision have been withdrawn.
The contingent liability already recorded in Tullow’s accounts effectively means the company will not have to take a further hit to its balance sheet in relation to the dispute.
"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," said Aidan Heavey, chief executive of Tullow.
The company has drilled more than 80 wells at Lake Albert, one of the prime assets in its portfolio.
The resolution of the tax dispute helps clear the way for Tullow to press ahead with the development of the massive oilfield.
The company is targeting gross production of 200,000 barrels of oil per day at the field, it said in a presentation to investors earlier this month.
Tullow is listed on the London, Irish and Ghanaian stock exchanges. It has interests in over 130 exploration and production licences across 22 countries.
