Tullow to delay start of production in Uganda

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Jan. 12 -- Uganda has 2.5 billion bbl of commercially viable oil, according to a senior executive of Tullow Oil, who added that the firm will not begin production in 2012 as earlier planned.

Tullow’s Uganda manager Brian Glover told an investors’ conference that the firm’s exploration has been “phenomenally successful” but that poor infrastructure in the region meant a delay in production.

“The rail network could be pivotal, but it’s not in great shape,” Glover said, adding that the lack of infrastructure meant it would be “quite challenging” to begin production in 2012 as earlier planned.

Glover made clear that the problem of infrastructure extends well beyond Uganda, and is a regional issue—as is the firm’s oil development.

“This is not just a Ugandan project. This is an East African project,” Glover said, adding that “without the supply chain in place, we are not going to be able to get this done.”

Tullow has been looking to construct a pipeline to carry Uganda’s oil to Kenya’s Port of Mombasa, while Uganda has proposed construction of a refinery instead that would serve the region need for oil products.

Tullow has since agreed to the refinery plan, and Glover told the conference that the facility, which will be built in the central-western part of the country, would have a capacity of 200,000 b/d.

Tullow’s discovery of large deposits of crude in Uganda has in fact disrupted earlier plans to build a products pipeline from Kenya to Uganda. Now, the two governments are said to considering a reversal of the pipeline’s original direction as well as its ability to carry crude instead of products.

Despite the pitfalls, Glover said his firm’s investment in Uganda will increase to about $10 billion over the next decade, up from the $800 million spent so far on oil exploration.

Glover also alluded to the problems that have arisen over the tax dispute between Uganda’s government and Heritage Oil, which sold Tullow its 50% stakes in two blocks last year.

Tullow had hoped the acquisition would enable it to bring in China’s state-owned CNOOC and France’s Total SA as partners, but Uganda’s government claims that it is owed a substantial sum in capital gains tax from Heritage.

“We are not quite there yet,” Glover said in connection with the CNOOC-Total farmin, which Uganda has so far blocked until the issue is resolved.

Following Glover’s remarks, Elly Karuhanga, chairman of Tullow Uganda, told local media that Tullow and Uganda’s government have resolved the tax dispute that has held up the company’s plans to start producing the East African nation’s first oil.

“For all intents and purposes, the tax issue is resolved and we are discussing the way forward,” said Karuhanga, who provided no further details of the alleged solution.

Last month, the plot over Heritage’s stakes thickened when when word emerged that Italy's Eni SPA was seeking a meeting with Uganda's President Yoweri Museveni over its interest in the country's oil licenses in the Lake Albertine Graben (OGJ, Dec. 13, 2010, p. 26).

Contact Eric Watkins at hippalus@yahoo.com.

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