Tough year for firms as Tullow deal is delayed

Signing of the agreement between Uganda and Tanzania for the East African Crude Oil Pipeline in Kampala in May, 2017. Construction of the pipeline has been delayed by the falling out over the tax dispute. FILE PHOTO | NMG 

In Summary

• CNOOC and Total failed to align their positions with the govt over the $185m capital gains tax.
• Total said it could not continue to spend money on technical teams when there was no clarity on the way forward.
• Oil companies were first expected to reach Final Investment Decision by December 31, 2017

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By HALIMA ABDALLAH
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The collapse of talks between the Ugandan government and British firm Tullow over a tax dispute, the plunge of the latter’s stock price at the London Stock Exchange and the delay of a Final Investment Decision (FID) marked a difficult year for the country’s efforts to move exploration of its vast fields into oil production.

Negotiations to resolve the tax dispute took a secretive turn as details of a recent meeting between President Yoweri Museveni and executives of the French firm Total E&P excluded some of the key people that normally would be involved.

To cap a rather difficult year, Energy minister Irene Muloni, was fired in the latest reshuffle ending her eight-year reign at the ministry.

Oil companies were first expected to reach FID by December 31, 2017.

The move by Tullow to trade off part of its shares to joint venture partners Total and China National Offshore Oil Company (CNOOC), and consequent tax assessment appear to have derailed the FID.

On August 29, Tullow announced it had terminated the sale and purchase agreement when Total, Tullow, CNOOC and the government failed to reach an agreement over payment of capital gains tax.

Concluding tax negotiations was a precondition to concluding the sale and purchase agreements. The suspension came at a time when negotiations on the building of the East African Crude Oil Pipeline were at an advanced stage. In addition, the Tilenga project had been pronounced technically ready for oil production.

Capital gains tax

In an attempt to resume dialogue Total’s chief executive Patrick Pouyanne met with President Museveni at State House for the third time in a year over the issue. Although details remain scanty, sources say no agreement was reached.

“We offered them a package which they have to consider then they get back to us. All parties are keen to move forward,” Ms Muloni told The EastAfrican three days before the reshuffle.

Apparently, CNOOC and Total failed to align their positions with Uganda government over the $185 million capital gains tax equivalent to thirty per cent of $617 million which is overall investments by Tullow in the country’s oil and gas sector.

The standoff affected the East African Crude Oil Pipeline and upstream operations at Tilenga in September following the unsuccessful sale of Tullow Oil’s 21.57 shares.

Staff layoffs

Total said it could not continue to spend money on technical teams when there was no clarity on the way forward.

Since then the companies have been cutting down on its staff, while service providers who have been gearing up to take opportunities have their capital held up in projects.

“It is premature to say we could do this or that. We have the Tullow deal terminated it means we are back into a shareholder configuration where each of us owns 33.3 per cent. The deal is now in the past so, we need to sit together first as joint venture partners and discuss next steps before we speculate because anything can happen,” said Pierre Jessua told The EastAfrican in an October interview.