Tullow confident about tax ruling

Tullow Oil is confident the Dutch-based International Arbitration Court will overturn a ruling by the Ugandan Tax Appeal Tribunal saying it owes a further $260m in unpaid tax regarding the 2012 farm-out of assets.

Tullow farmed out 66% of those assets to Chinese State oil firm, CNOOC and French utility, Total in 2012. The company recently won a separate ruling, in London’s Court of Appeal, relating to capital gains tax linked with the initial purchase of the assets from Canadian firm, Heritage Oil & Gas two years earlier.

The secondary case could take up to a year to appeal, but is likely to reach the IAC for a final ruling.

Meanwhile, Tullow is likely to see a dramatic dip in revenue next year as it sells off its remaining non-core gas assets ahead of ramping up production at its big investment plays in western Africa.

The Irish-founded exploration firm is in the midst of disposing of 14,000 barrels per day equivalent of non-core gas assets in Asia and the North Sea; all of which will be fully sold by year’s end.

It’s currently investing in western African assets producing around 66,000 barrels of oil per day. This will increase to 100,000 bopd by 2016 once its next big asset — the Tweneboa Enyenra Ntomme project, off the coast of Ghana, comes on stream in 2016.

Speaking on the back of first half results, Tullow’s chief, Aidan Heavey said that if the company doesn’t complete a planned farm-out deal at Tweneboa — which is on track and on budget — it will still proceed to full production by 2016.

Tullow is aiming to lower its stake in Tweneboa from 47.5% to around 30% and although investment activity in the mainstream exploration market has dried up in favour of onshore, unconventional North American shale exploration — or fracking plays — Tullow remains in talks with a number of parties.

The company yesterday reported revenues of $1.26bn — down by 6% year-on-year — for the first half of 2014, with gross profit down by 12% at $673m; with both figures in line with expectations. Tullow’s mounting exploration cost write-offs — $150m, to date, this year — arising from failed drilling activity are also likely to decrease as the company focuses more on lower-cost production assets.