April 18, 2012 10:56 pm

Uganda sale dispute weighs on Heritage Oil

By Michael Kavanagh

The shadow of the legal dispute over a $1.45bn sale of assets in Uganda continues to fall on Heritage Oil, which slipped into loss last year.

Shares in Heritage edged down 1.9p to 144.6p on Wednesday as it outlined the latest steps in its three-way tax battle with fellow London-listed explorer Tullow Oil and the Ugandan government, valuing its equity at £375m.

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Heritage, founded by former mercenary and security adviser Tony Buckingham, remains in dispute over tax claims for $435m by Uganda’s government following the sale of oil blocks in the African country in 2010.

A 2009 agreement by Heritage to sell its Ugandan interests to Italy’s energy group Eni was complicated by Tullow exercising of pre-emption rights over Heritage’s interests in the country.

Under the terms of that deal, Heritage retained just over $1bn of $1.45bn paid by Tullow for its interests, while $283m was retained in escrow in London and a further $121m was deposited with the Ugandan government until the tax dispute was resolved.

Both Heritage and Tullow continue to dispute the government’s claims that it owes capital gains tax from the sale of the assets. Heritage is pursuing arbitration proceedings in London.

But Tullow and Heritage also remain in disputeover the fate of $313m of tax that has now been paid by Tullow to the Ugandan government. That payment was aimed at easing a farm-out deal of its acquired assets worth $2.9bn with Cnooc of China and Total of France to develop the oil reserves in the Lake Albert basin.

On Wednesday, Heritage once again insisted that Tullow’s claim of breach of contract over Heritage’s refusal to reimburse it for the $313m payment “had no basis”.

The company declined to comment on the likely timetable for an eventual resolution to the tax disputes.

An update on the legal deadlock came as Heritage confirmed a move into a full-year loss of $69m compared with a profit of $1.22bn made in the previous year, during which it disposed of its Ugandan interests.

Paul Atherton, chief financial officer, said Heritage had ended the year with gross cash of $331m, which, after allowing for an outstanding $127m bond, still left it with net cash with which to pursue further exploration.

Heritage is drilling for gas in the Kurdistan region of Iraq and expects the beginning of exports from the semi-autonomous region to Turkey by 2015, said Mr Atherton.

But shares in Heritage and other oil and gas companies operating in the Kurdistan region of Iraq were hit earlier this month following an export ban imposed by the regional government following a stand-off over delayed revenue payments by federal authorities in Baghdad.

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