Tullow Oil was the FTSE 100's second-biggest faller yesterday after the company admitted its deal to buy a stake in a key Ugandan oil field is being held up by a tax dispute between the seller, Heritage, and the government in Kampala.
Tullow's stock plunged by 6 per cent in afternoon trading, recovering slightly to close down 4.6 per cent at 1238p, despite half-year results from the company showing revenues up by 11 per cent to $486m (£314m), profits nearly tripling from $31m to $89m, and 14 successful strikes out of 17 exploration wells.
Although Tullow's $1.5bn purchase of Heritage's interests, the Lake Albert oil field, has been approved by Uganda, a row over whether Heritage owes capital gains tax has stalled the completion of the deal, which in turn puts the brakes on Tullow's plan to farm down parts of its newly increased stakes to China National Offshore Oil Corporation (Cnooc) and Total.
The timing was bad for Tullow. An earlier understanding that Heritage's tax bill had no bearing on Tullow moving ahead with its farm-down arrangements was changed only this week, just in time for the expected delays to be included in the group's financial results and spook the market.
The company hopes for a cooling-off period of between two and four weeks, allowing the tax question to be separated again from its arrangements with Cnooc and Total to accelerate development of the Lake Albert fields. "Our desire is to see the Heritage tax issue decoupled from our farm-down process," Ian Springett, Tullow's chief financial officer, said. "We think that in two, three or four weeks we will see these issues resolved."
The uncertainty over Lake Albert also overshadowed Tullow's confirmation that the first phase of its massive Jubilee field off the Ghanaian coast will go into production before the end of the year.