LONDON, March 12 A fight between two oil firms
over Ugandan tax kicks off in London's High Court on Tuesday. At
stake is enough to buy almost half of one of the companies and
finance months of exploration drilling for the other.
The case centres on over $400 million worth of capital gains
tax demands made by the Ugandan government after Heritage Oil
sold assets there to larger Tullow Oil in a
$1.45 billion deal in 2010.
Heritage is embroiled in a separate legal dispute with the
Ugandan government, arguing that no tax is due on the
transaction, which brought an end to its operations there.
Tullow, which has big ambitions in Uganda, has paid the country
most of the money asked for, and has brought the case to win
reimbursement from Heritage.
When the original asset sale was concluded, with Heritage's
agreement, Tullow paid the Ugandan Revenue Authority (URA)
$121.5 million - a third of the original tax demand of $405
million - and put the remaining $283.5 million into an escrow
account, leaving a reduced $1.045 billion payment that went
directly to Heritage in exchange for the assets.
Then, in 2011, Tullow complied with another URA demand for a
further $313.5 million payment, an amount which included the
balance of the original tax demand, plus an extra $30 million
which the URA had added to the bill.
The second payment was made a fortnight before the signing
of a deal that brought top international oil companies Total
and CNOOC into partnership with Tullow in Uganda in a
$2.9 billion farm-down arrangement sanctioned by the government.
Tullow says it had no choice but to pay the sum, and with a
total of $1.718 billion now paid out for an asset that was
initially priced at $1.45 billion, the company is suing Heritage
for breach of contract for not paying back the difference.
Loss-making Heritage, for which the tax demand is equivalent
to almost half its stock market value, argues that Tullow should
not have made the second payment, and says it did so in order to
facilitate government approval of its farm-down.
It has filed a countersuit demanding that the $283.5 million
sum still held in escrow be released to it.