The High Court in London has ruled in favor of oil and gas explorer Tullow Oil TLW.LN -1.34% PLC (TLW.LN) in a legal action against Heritage Oil HOIL.LN +2.59% PLC (HOIL.LN) over the recovery of $313 million of tax payments made to the Ugandan government, the companies said Friday.
Heritage said it strongly disagrees with the judge’s decision and would look at its legal options, with a view to appealing the ruling.
The case relates to a deal in 2010, when Heritage sold its 50% stakes in two oil blocks in the Lake Albertine Rift basin in Uganda to Tullow for $1.45 billion. The Uganda Revenue Authority said that Heritage was liable for capital gains tax on the sale, a claim that Heritage contests.
Heritage declined to pay the tax and the government prevented completion of the sale, hampering Tullow’s plans to sell on part of the assets to French oil company Total S.A. FP.FR +2.15% (TOT) and China’s Cnooc Ltd. 0883.HK +4.14% (0883.HK).
In order to allow its deal with the other companies to proceed, which was a vital step in the development of the oil discoveries in the country, Tullow paid the Ugandan government $313 million in outstanding capital gains tax on the sale of Heritage’s assets.
Tullow and its partners in Uganda have discovered at least 3.5 billion barrels of crude reserves along the country’s western border with Congo. After months of back-and-forth negotiations, the companies have said they are close to an agreement with the government over construction of a refinery and export pipeline to tap the oil, which could require investments of more than $12 billion in the country.
In his judgment, Mr. Justice Burton found in favor of Tullow’s indemnity claim for $313 million in its entirety. He also dismissed Heritage’s counterclaim that it should be allowed to reclaim $283.5 million it had paid into an escrow account, pending the resolution of the dispute with the Ugandan authorities.
A further hearing will be scheduled to address matters arising from the judgment, such as the amount of interest Heritage owes to Tullow on the $313 million, and Tullow’s submissions in respect of payment of its costs by Heritage, Tullow said in a statement.