Uganda’s oil exploration area Block 4 B has been sold to a second buyer in less than six months with government not raising any queries about the manner the transaction was carried out in the new oil industry.
This comes just a week after the government said Dominion Petroleum Company [Uganda] Limited, was initially awarded the licence should not leave the industry until its contract expires in 2013. The 510-square kilometres area is located around Lakes Edward and George Basin and was licensed to Dominion Petroleum Limited on July, 27, 2007.
In May, the Daily Monitor reported that the Block had changed ownership to Ophir Energy after the company paid Dominion Petroleum about $186 million to acquire its entire exploration rights over 5 Blocks in Uganda, DR Congo, Kenya and Tanzania, all measuring 23,812 square kilometres.
However, information available now shows that just five months after the acquisition, Ophir Energy has also sold off the Block to another oil company identified as Octant Energy Corporation.
A statement by Mr Ron Blakely, the director of Ophir Energy, says the company has already taken steps to close its office in Uganda and surrender Block 4B, adding that an application to relinquish the Block has been made to the Uganda government.
Despite this development, the government has insisted that it does not recognise the two buyers: Ophir Energy and now Octant Energy Corporation. In a statement, Mr Ernest Rubondo, the commissioner for Petroleum Exploration and Production Department, said Dominion signed a production sharing agreement with the government on July 27, 2007, granting it exclusive rights to explore petroleum until 2013 and that government does not recognise Ophir.
Mr Honey Malinga, the assistant commissioner at PEPD, told Saturday Monitor that government was yet to approve the transactions of Dominion Petroleum (Uganda) Ltd. Clauses 84 and 86 of the newly enacted Petroleum Exploration, Development and Production Act says the transfer and surrender of a licence cannot be effected without the written consent of a minister. It is also unclear how Ophir Energy could have gained ownership of the rights over Exploration Block 4B without the consent of the minister.
The quick purchase and sale of the Block by Ophir Energy appears to have been triggered by a financial loss due to increased administrative and operational costs associated with the assets it acquired from Dominion Petroleum Limited. Mr Blakely said in an August 28 statement that the total liabilities of the company increased from $28m in December 2011 to $139m by June 30, 2012.
Mr Blakely explained that the increase was due to the addition of a deferred tax liability of about $57m (Shs143b) recognised following the acquisition of Dominion. In an apparent bid to trim the loss, the company said it had completed the sale of Block V that it also acquired from Dominion Petroleum in the DR Congo.
The Uganda government could lose millions of shillings in capital gain tax if the confusion that has marred Dominion acquisition continues.
However the full implication of Dominion Petroleum Ltd pull-out and acquisition by Ophir Energy and now Octant Energy Corporation will be determine after studying what its agreement says on termination. However, given that it has never hit oil in Uganda, the pull-out will mean that Uganda will not have to refund any money the oil company spent during its search for oil.
While appearing before the parliamentary ad hoc committee investigating the oil sector, last month, Dominion Petroleum General Manager Antony Knaggs said the government never asked the oil company for capital gains tax when it was bought off by the UK-based Oil Company Ophir Energy.
MPs have already accused the company of failing to pay taxes and yet claiming recoverable cost. The MPs claimed last month that the UK based company had submitted a recoverable cost bill worth $24m (Shs58b) to the Ministry of Energy.
Uganda presently has six licensed exploration areas also called Blocks. They comprise Pakwach Basin, Paara, Buliisa, Kaiso-Tonya, Kingfisher, and the Lakes Edward and George Basin. Unlike Lakes Edward and George Basin whose ownership has gained controversy, the rest are jointly owned by CNOOC, Tullow Oil and Total E & P.
It is not yet clear how much money Octant Energy Corporation has paid for the Block but the company announced in March that it intended to raise up to $65m (Shs163b) to among other things, pay for geological exploration and drilling costs for Block 4B.
Mr Bukenya Matovu, the communications officer for the Ministry of Energy and Mineral Development, said they do not care about what the respective firms were saying but government still had a contract with Dominion Petroleum. He said every company selling their rights through transfer of licence would have to pay due taxes to government.
On information that Octant Energy has written a Letter of Intent to government, Matovu said the letter was merely a statement indicating interest by the company and does not signify transfer of licence.