Heritage Oil Plc

Heritage Oil Plc

April 18, 2011 02:00 ET

Heritage Oil Provides Uganda Update

CALGARY, ALBERTA--(Marketwire - April 18, 2011) -


Heritage Oil Plc (TSX:HOC)(LSE:HOIL), an independent upstream exploration and production company, announces that Heritage and its wholly owned subsidiary Heritage Oil & Gas Limited ("HOGL") have received Particulars of Claim filed in the High Court of Justice in England by Tullow Uganda Limited ("Tullow") seeking $313,447,500 for alleged breach of contract as a result of HOGL's and Heritage's refusal to reimburse Tullow in relation to a recent payment made by Tullow of $313,447,500 to the Uganda Revenue Agency ("URA"). Heritage and HOGL believe that the claim has no basis and will vigorously and robustly defend it. Heritage and HOGL have also reserved their other rights against Tullow and against the Government of the Republic of Uganda ("Government").

The URA purported to issue Agency Notices under the Ugandan Income Tax Act designating Tullow, as agent for HOGL, for payment of an alleged tax liability resulting from HOGL's sale of its interests in Blocks 1 and 3A to Tullow (the "Sale"). The Sale completed on 26 July 2010 for a cash consideration of $1.45 billion, including $100 million for a contractual settlement, of which HOGL received $1.045 billion in cash. The URA made a purported demand that Tullow pay the amount of $313,447,500 under the Agency Notices and Tullow has informed HOGL that it paid the entire amount to the URA on 7 April 2011.

Tullow is purporting to claim against HOGL under the tax indemnity provisions and against Heritage under the guarantee provisions of the Sale and Purchase Agreement between the parties dated 26 January 2010 (the "SPA").

Heritage believes the claim is misguided for the following simple reasons:

  • The decision to pay the URA $313,447,500 was made without HOGL's knowledge or consent, contrary to the very clear provisions under the SPA as supplemented by a supplemental agreement made between HOGL, Heritage and Tullow prior to completing the Sale on 26 July 2010 (the "Supplemental Agreement"). The Supplemental Agreement is explicitly clear that it is for HOGL alone to manage the tax dispute with Government yet Heritage and HOGL consider that Tullow's agreement to pay the URA was made contrary to the terms of this agreement, for Tullow's own commercial reasons.
  • HOGL is disputing that any tax arises in Uganda from the Sale. Heritage's and HOGL's position remains, based on comprehensive advice from leading tax experts in Uganda, the United Kingdom and North America, that the Sale is not taxable under Ugandan law.
  • The payment was not made in compliance with the Ugandan tax provisions relating to agency notices, even if the Agency Notices are assumed to be valid, which Heritage and HOGL does not accept.

Tullow explained the commercial rationale for making the payment to the URA in a letter to HOGL dated 17 March 2011, which stated that, "If Tullow were to refuse to pay … the Government would not permit the farm-down to proceed."

Escrow Monies

HOGL is now pursuing the release of $283,447,500, plus interest, held in escrow with Standard Chartered Bank in London, following Tullow's admission that its payment of $313,447,500 to the URA has discharged HOGL's alleged tax liability. Funds no longer need to be held in escrow, since monies were placed in escrow on completion of the Sale to provide for a potential payment to Government/URA in discharge of the alleged tax liability relating to the Sale, where this alleged liability was duly resolved between HOGL and Government/URA.

Arbitration in London

Heritage and HOGL continue to review their options to recover approximately $121 million held on deposit with Government, which could include commencing arbitration proceedings against Government in London in accordance with the provisions of the Production Sharing Contracts for Blocks 1 and 3A.

Notes to Editors

  • Heritage is listed on the Main Market of the London Stock Exchange and is a constituent of the FTSE 250 Index. The trading symbol is HOIL. Heritage has a further listing on the Toronto Stock Exchange (TSX:HOC)

  • Heritage is an independent upstream exploration and production company engaged in the exploration for, and the development, production and acquisition of, oil and gas in its core areas of Africa, the Middle East and Russia

  • Heritage has a producing property in Russia and exploration projects in the Kurdistan Region of Iraq, the Democratic Republic of Congo, Malta, Pakistan, Tanzania and Mali

  • All dollars are US$ unless otherwise stated

  • For further information please refer to our website, www.heritageoilplc.com

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Except for statements of historical fact, all statements in this news release – including, without limitation, statements regarding production estimates and future plans and objectives of Heritage – constitute forward-looking information that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate; actual results and future events could differ materially from those anticipated in such statements. Factors that could cause actual results to differ materially from anticipated results include risks and uncertainties such as: risks relating to estimates of reserves and recoveries; production and operating cost assumptions; development risks and costs; the risk of commodity price fluctuations; political and regulatory risks; and other risks and uncertainties as disclosed under the heading "Risk Factors" in its Prospectus and elsewhere in Heritage documents filed from time-to-time with the London Stock Exchange and other regulatory authorities. Further, any forward-looking information is made only as of a certain date and the Company undertakes no obligation to update any forward-looking information or statements to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events, except as may be required by applicable securities laws. New factors emerge from time to time, and it is not possible for management of the Company to predict all of these factors and to assess in advance the impact of each such factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information.

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