Uganda defers decision on Tullow's farmout arrangements

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 11 -- Uganda said it will defer for a month its decision over farmout arrangements for several oil blocks made between Tullow Oil PLC and potential partners Total SA and China National Offshore Oil Corp.

“Our expectation is that by April we will have finished our evaluation and that the government will give the go-ahead for the transactions to proceed,” said Kabagambe Kaliisa, the energy ministry’s permanent secretary.

“We have told everybody in the world that we are looking for strong investment in this sector. We are looking for companies that have strong market capitalization,” Kaliisa said.

The need for a decision arose after Tullow's preemption of partner Heritage Oil's stake in Blocks 1 and 3A along with the subsequent farm-out of stakes in Blocks 1, 2, and 3A to Total and CNOOC.

In February, Tullow indicated it planned to bring in a partner to help with development of the Ugandan assets and also with construction of downstream facilities, such as a refinery and a 1,200-km export pipeline (OGJ Online, Feb. 8, 2010).

The government’s decision partly confirms media reports this week quoting Tullow that Total and CNOOC were likely to buy a total of two-thirds of its Uganda oil assets under agreements with the local government to be signed in the next weeks.

Total and CNOOC presented their part of the proposals to the government last week and had been expecting a response by the end of March. But any disappointment on the part of the two firms has to be tempered by the perceived need of the Ugandan government to be seen as in control of the nation’s resources.

More to the point, according to analyst IHS Global Insight, “the Ugandan government is keen to ensure that it gets any reconfiguration of the development consortium (and its obligations) right at this stage, rather than rushing a decision that it will later come to regret.”

Uganda, Kenya discussions
Meanwhile, in a move that may have a significant effect on the negotiations, Uganda and neighboring Kenya have resumed discussion on the planned extension of the Mombasa to Eldoret oil products pipeline.

Most noteworthy, the two sides are reported to be discussing an option that would see the line reversed to allow passage of products from Uganda to Kenya. Such a reversal is in keeping with the wishes of Kampala, which has sought to have its oil refined in the country instead of merely exported.

In that connection, the Ugandan government last month let a contract to Foster Wheeler AG’s Global Engineering & Construction Group for a feasibility study of a 150,000-b/d refinery, which would be Uganda’s first (OGJ Online, Feb. 2, 2010).

Earlier, Tim O'Hanlon, Tullow’s vice-president for African business, underscored the importance of the refinery project, along with export pipelines, for Uganda’s aim.

“Uganda's oil basin development plan is an integrated project that requires building of a refinery that is linked with pipelines to supply local, regional and international markets," said O'Hanlon (OGJ Online, Sept. 17, 2009).

Contact Eric Watkins at hippalus@yahoo.com.

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