Shares in Tullow Oil dropped as much as 5.7 per cent today after Uganda's energy minister suggested the company might have lost one of its oil licences, which has expired, for good.
Tullow said on Wednesday the government had indicated it would not extend the licence until Tullow's former partner in Uganda, Heritage Oil, agreed to pay capital gains on the sale of its interests to Tullow.
That announcement knocked 9 per cent off Tullow's shares on Wednesday, even though Europe's largest independent oil explorer, said it expected a settlement in the coming weeks.
However, energy minister Hillary Onek adopted a less reassuring tone today.
He denied the licence issue was related to the tax spat.
"That licence expired in February, and six months down the road we have not received any application from any one for a production licence, and as per the terms of the PSA (Production Sharing Agreement) it had to revert to the government, and that's what we have done," Mr Onek said.
A Tullow spokesman said the company had been talking to the government about the extension for some time.
When companies first win an oil licence, they are typically given a number of years of exclusive rights to explore. If a company is successful and finds oil, its exploration licence usually entitles it to subsequently receive a production licence for the area, which could last up to 30 years.
The hardened position from Uganda, first reported in local newspapers today, spooked Tullow investors, sending the shares down 3.9 per cent to 1,209 pence at 1107 GMT, lagging a 0.3 per cent drop in the STOXX Europe 600 Oil and Gas index. Heritage shares traded up 2.2 per cent.
Tullow said Mr Onek's comments reflected no more than it had revealed on Wednesday. Some analysts agreed there was nothing new, with Citigroup saying the share drop represented a buying opportunity.
Others said the comments were a sign of a deterioration in Tullow's relations with the government.
"This is clearly a blow to Tullow Oil. This seems to have become very political. Tullow has essentially annoyed the government by completing the purchase of Heritage Oil's assets .. without gaining government approval," said Peter Hitchens, oil analyst at Panmure.
A Tullow spokesman said the company remained confident the issue could soon be resolved and that Tullows legal rights would be protected.
Tullow bought half of Blocks 1 and 3A, in which the Kingfisher field is located, from Heritage last month.
However, Heritage says it is not liable for Uganda's 30 per cent capital gains tax on its billion-dollar profit.
Tullow, which already owned half of the two blocks, supports the government's position that the contracts covering the blocks do not exclude the owners from capital gains tax.
Heritage today repeated its position that it believed tax was not due.
Heritage has received $1.045 billion of the sale proceeds and $400 million has been set aside pending a deal on the tax payments.
Tullow has agreed a deal in principle with France's Total and China's CNOOC to sell each a third of blocks 1, 2 and 3A.
Reuters