UK-BASED Tullow Oil look to international arbitration to appeal a decision by Uganda’s Tax Appeals Tribunal (TAT), which found it owed US$407 million in tax.

Tullow was initially issued with a US$472 million capital gains tax assessment by the Uganda Revenue Authority (URA) in 2012, following the sale of 66 per cent of its Ugandan assets to CNOOC and Total in 2012.

The company paid the 30 per cent stake of the assessment – about US$142 million – in order to launch the initial appeal, which in part concerned an express tax exemption granted by the then-Minister of Energy over the Production Sharing Agreement for Exploration Area 2 (EA2 PSA).

“Tullow is extremely disappointed that the TAT ruled that the then Minister of Energy did not have the legal authority to grant such an exemption,” the company said.

“Tullow believes that the TAT has erred in law and Tullow will challenge the EA2 assessment through the Ugandan courts and international arbitration but hopes that further direct negotiation with the Government can resolve this matter.”

Tullow chief executive Aidan Heavey said the company was very concerned by the ruling

“Tullow is Uganda’s largest foreign investor and a major taxpayer,” he said. “Over the last 10 years, Tullow has spent $2.8 billion in Uganda and discovered 1.7 billion barrels of oil.”

“This money was spent by Tullow on the understanding that our contracts with the Government, which contained important incentives to invest that were vital at a time when no oil had been discovered in Uganda, would be honoured.”

“We will now carefully consider all our options to robustly challenge this ruling,” he said.

The news came shortly after Tullow’s Gardim-1 exploration well, drilled on the eastern flank of the Chew Bahir basin in the South Omo licence, onshore Ethiopia, failed to return a commercial oil discovery after reaching a total depth of 2,468 metres.

This was the second wildcat to be drilled in the Chew Bahir basin without a commercial discovery, company exploration director Angus McCoss said.

“Whilst our analysis continues, initial indications suggest that the targeted seismic anomalies related to lavas that flowed into a lake basin,” he said.

“Having gained valuable data, including evidence of thermogenic gas, we look forward to the next phase of our exploration campaign in Ethiopia.”