Economic and Business News By Leo Odera Omolo
HERITAGE Oil has completed the sale of its oil and gas interest in Uganda after it accepted terms and conditions set by the Government.
The deal will go down the history as the first biggest transaction ever held in sub-Saharan Africa.
The firm sold its entire stake in Blocks 1 and 3A to its partner Tullow Uganda, who paid $1.45b in cash.
“As an exploration company, we felt it more appropriate to exit now and leave the development of the Ugandan oil industry to other companies with the relevant downstream expertise,” Tony Buckingham, Heritage’s boss, yesterday said in a statement.
“We are delighted to have played the key role in developing this new major industry for Uganda. The success of our exploration programmes has generated significant value for the people of Uganda and our shareholders.”
However, Heritage had to deposit $121,477,500 with the Uganda Revenue Authority account of the disputed tax assessment of $404,925,000.
The balance of $283,447,500 has been deposited on an escrow account held in Standard Chartered Bank, pending a resolution between the Government and Heritage of a mechanism to resolve the dispute.
“We will continue to co-operate with the Uganda government and look forward to resolving the tax matter as soon as possible,” the Heritage boss stated.
The transaction follows the Government’s conditional approval endorsed in July 6, allowing Heritage to sell the assets.
The conditions were that the firm would pay $121,477,500 and demonstrate that it is willing to pay the remaining $283,447,500.
In turn, Heritage had to either provide a bank guarantee for the balance or letter of credit from an international bank to the Government to provide security for the remainder of the disputed amount.
Aidan Heavey, the Tullow Oil boss, said: “This was a major step forward for Uganda’s oil industry.
“We now look forward to signing the farm down agreements with CNOOC (Chinese National Oil Offshore Corporation) and Total in the coming weeks and commence work with them on an accelerated basin-wide development plan that is expected to deliver production well in excess of 200,000 bopd from the Albert Rift Basin.”
The biggest single transaction in sub-Sahara Africa was delayed due to a $404,925,000 tax dispute between the Government and Heritage.
Heritage’s position, “based on comprehensive advice from leading tax experts in Uganda, the UK and North America,” was that the $1.5b transaction was not taxable in Uganda.
The firm proposed an option of arbitration in London in the UK over the tax dispute.
But Kabagambe-Kaliisa, the energy ministry permanent secretary, insisted that the firm had to pay taxes “as assessed by the commissioner, Uganda Revenue Authority.”
The announcement brings to an end a furious bidding row between Tullow and Italian giant Eni over Heritage’s oil stakes on the shores of Lake Albert.
Heritage Oil and Hardman Resources, which later sold its stakes to Tullow Oil in 2004, ran a successful exploration campaign that enhanced the value of their licenses at least 10-fold.
Now the petroleum exploration is moving into the development and production phases that requires huge risk capital, access to project finance and long-term investments
Heritage, with little resources, opted to cash out from its bounty. After spending just $135m in Uganda, the firm decided to sell the holdings to Italian giant Eni for $1.35b. But the offer was pre-empted by Tullow. The two firms are equal partners in the blocks.
Two decades of uphill struggle in search for oil and gas has confirmed huge commercial reserves –about two billion barrels in place. This has sparked off investor interest in Uganda.
ENDS