Britain's Tullow Oil PLC said Wednesday it is selling stakes in its Ugandan exploration blocks to France's Total SA and China's state-owned CNOOC Ltd. for $2.9 billion cash, paving the way for development of the oil rich Lake Albert Basin.
The deal, which will leave Tullow with a one-third interest in three blocks, has been hampered by a dispute with the Ugandan authorities over tax payments that also relate to Tullow's previous purchase of Heritage Oil PLC's stake in the fields.
Those disputes must be resolved _ and tax paid to Uganda's government _ for the new deal to become effective and allow development of the basin, which analysts expect to be the backbone of Uganda's push to become a major oil exporter.
An estimated 2.5 billion barrels of oil were discovered in the East African nation in 2006 and the government is expected to approve a $10 billion program to develop the area, which includes the construction of a refinery and a pipeline to the Indian ocean.
Tullow has a target of delivering production of at least 200,000 barrels per day "and potentially much more" from the basin.
The London-based company said there was a clear plan in place for the resolution of the tax disputes and it intends to restart its exploration and appraisal drilling and present development plans to the government for approval.
"These agreements have secured the future of oil production in Uganda," said Tullow Chief Executive Aidan Heavey. "We are looking forward to working with CNOOC and Total, and continuing our strong relationship with the government to bring the benefits of the oil to the people of Uganda."
Tullow last year paid Heritage $1.5 billion for its 50 percent interest in two blocks in the basin, but Ugandan authorities withheld approval of the deal until a dispute over capital gains tax was resolved.
Heritage has paid 30 percent of the $404 million tax bill, but disputes the total figure. Tullow has placed some funds in an escrow account to cover the remainder until the outcome of a tax tribunal, the location and date of which has not yet been determined.
There is a similar dispute over the latest transaction, with Tullow disputing the $472.2 million that authorities claim is due in capital gains tax. Tullow has agreed to pay 30 percent of the amount within five business days of the sale to CNOOC and Total completing. It will then debate the remainder via Uganda's tax dispute resolution process.