Tullow Oil tax settlement price better than expected, says JPMorgan Cazenove

JPMorgan Cazenove said that Tullow Oil’s settlement of a tax dispute with the government of Uganda and Ugandan Revenue Authority clears another obstacle in the path of developing East Africa’s substantial oil resources.

It said that Uganda’s decision to settle may imply that there is tangible progress on the vital oil export pipeline, with Uganda more clearly positioning to move forward with the project.

“Given the liability reduction and implied project de-risking, we expect Tullow shares to outperform today, and look for further updates on the Uganda-Kenya pipeline in the coming weeks,” said JPM.

The brokerage said the price of $250m is better than expected, down from the most recent assessment in July 2014 of $407m and the $473m originally assessed on the transaction.

“The $157m saving (Tullow booked a $265m contingent liability in its 2014 accounts) will help to ease some of the forecast strain on Tullow’s balance sheet in coming years,” said JPM.

The brokerage rates Tullow at neutral with a 424p price target.

At 10:25, Tullow shares were up 0.8% at 364.10p.