Tullow Pays the Price for Delayed Project Approvals

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In short
Tullow Oil Plc has announced that it would take a loss of 115 million US Dollars, approximately 295.2 billion Uganda Shillings, over delayed project approvals and failure to secure extensions on some exploration licenses in Uganda.

Tullow Oil Plc has announced that it would take a loss of 115 million US Dollars, approximately 295.2 billion Uganda Shillings, over delayed project approvals and failure to secure extensions on some exploration licenses in Uganda.
 
This was revealed in its half year operational update, released on Wednesday. As part of the sale of 66.6percent assets to Total and CNOOC in 2012 at 2.9 billion Dollars (7.4trillion Uganda Shillings), Tullow had committed to some deliverables if payment was to be completed.
 
However, due to delayed approvals that it couldn’t disclose due to Commercial Confidentiality, CNOOC and Total will not be paying 79 million Dollars or 208.2billion Uganda Shillings. The Operational Update says the amount to be recovered is dependent upon the timing and receipt of “certain project approvals.” 
 
Additionally, due to the failure to secure extension on three licenses, including Pelican and Crane, CNOOC and Total will not be remitting 36million Dollars, approximately 92.4billion Uganda Shillings.
 
URN, from various sources understands the delayed projects are as a result of delayed approval of the Field Development Plans for Mputa, Nzizi, Kigogole, Nsoga, Ngara, Ngege, Kasamene and Wahrindi, which in-turn means they have been unable to secure a production license. Tullow applied for production licenses in 2013 however, government is taking its time to approve them.
 
A production license is issued to a company granting it the permission to prepare for eventual oil extraction. Oil companies also use production licenses to acquire funding for oil production. At stake is potential investment of about 15 billion Dollars if production licenses are approved.
 
Tullow had always been confident that they would secure project approvals by June 2014. In its 2013 Annual Report released back in March 2014, the company directors expected approvals to be made by the first half of 2014. The basis of this assertion was due to “the progress of ongoing discussions with Government and Partners regarding the development programme for Uganda.” This has not happened and Tullow has paid the price.
 
Tullow had also hinted at a potential exit from Uganda due to delays. With the latest financial loss, George Cozenove, the Head of Media Relations at Tullow in London told URN that it will not affect their operations.
 
Cozenove said the company is making good progress towards developing the oil the exploration team has found in Ghana, Kenya and Uganda and in assessing the significant upside potential in each of these areas.
 
Aiden Heavy, CEO Tullow Oil in a statement in the Operational Update said Tullow is still engaged in a Capital Gains Tax dispute with Uganda government, a case currently before the Tax Appeals Tribunal. In 2013, Tullow also abandoned appraisal activity of the Ngasa Fields on Lake Albert after terming it as “uneconomic.” Tullow lost 67 million Dollars, approximately 172 billion Uganda Shillings, on this venture after investment on exploration activities. The license has since reverted to government.
 
Uganda has only issued one production license and that is for the Kingfisher field where CNOOC is the main operator. In December 2013, Total E&P, which operates Area Exploration 1A and 1 at the northern tip of Lake Albert and the Murchison Falls National Park also applied for a production license. Total is yet to confirm whether it submitted a second application in June.  

 

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