Settling a long-running tax dispute with the Ugandan government is a positive development for the nation's energy sector, Tullow Oil announced Monday.
Tullow said it agreed to pay $250 million in a final out-of-court settlement with the government of Uganda. The Ugandan government ordered the company to pay $437 million in capital gains tax following the 2012 sales of oil field licenses to French energy company Total and the China National Offshore Oil Corp.
Tullow appealed the charges, saying the new payment followed "constructive discussions" with the Ugandan government. Legal proceedings have been withdrawn.
"The settlement of this long-running dispute is good news for Tullow and Uganda," Tullow Chief Executive Aidan Heavey said in a statement. "In recent months, the government of Uganda has proposed welcome and necessary changes to its tax regime for oil and gas investments which it is hoped will enable substantive progress to be made toward the sanction of the Lake Albert oil development."
The Lake Albert basin in Uganda has a target output of 200,000 barrels of oil per day. The U.S. Energy Information Administration said Uganda holds an estimated 2.5 billion barrels of oil reserves. The Ugandan government estimates it could recover about half of that.
The Bank of Uganda in a monetary policy report from April said there are lingering questions over the nation's oil development given the low price of oil and the investments needed to exploit the type of crude oil found in the country.
The Ugandan bank said a failure to launch oil production by 2018 could impact the long-term prospects for the nation's economy.
