Tullow discovers more oil in Uganda, negotiates with Congo

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 27 -- Tullow Oil PLC announced a new oil discovery in Uganda and also is negotiating with neighboring Congo (formerly Zaire) to reacquire exploration rights to two blocks there.

The announcements coincided with reports that China's three main oil companies—China National Petroleum Corp., China Petroleum & Chemical Corp., and China National Offshore Oil Corp.—are looking to acquire stakes in the Uganda blocks already being worked by Tullow and its partner Heritage Oil.

Heritage and Tullow hold interests in three licenses on the Ugandan side of the Lake Albert rift basin. Heritage is operator of Blocks 1 and 3A, holding a 50:50 stake with Tullow, while on Block 2 Tullow is operator with a 100% stake (See map, OGJ, Feb. 11, 2008, p. 36).

Tim O'Hanlon, vice-president of Tullow's African business, said the UK firm is close to acquiring the rights on Blocks 1 and 2 on the Congo side of the oil-rich Albertine Rift as well.

Congo Oil Minister Rene Isekemanga Nkeka said a final decision on the blocks is due in the coming days, but Tullow would share them with other operators.

"[Tullo] will certainly be there…. They will be an operator on both blocks," Isekemanga Nkeka told Reuters in an interview. "They will work with other operators. The government doesn't want a monopoly system."

The companies had signed a production-sharing agreement with Congo in July 2006 for Blocks 1 and 2. However, the country revoked their exploration rights in 2007 before they could start drilling activities, claiming the firms used Ugandan military forces to violate its borders.

Relations between the two countries worsened in 2007 when a military conflict resulted in the killing of Carl Nefdt, a Heritage-contracted geologist.

In November 2007, Congo soldiers also arrested two geologists working for Mineral Services Ltd., a Heritage Oil subsidiary, contending that they had illegally entered Congo from Uganda.

To end any further disputes, the governments of Uganda and Congo in May 2008 agreed to redraw the border between the two countries, recognizing that the ongoing dispute presented an obstacle to oil exploration.

In March, Uganda and Congo agreed to upgrade diplomatic relations to ambassadorial level, and according to analysts, this is expected to end years of strained relations and open the way to commercial development of the reserves.

O'Hanlon said the governments both recognized the importance of cooperating and of having the same oil company operating on both sides of the Albertine rift.

Recent discoveries
O'Hanlon's statements coincided with an announcement by Tullow that the Karuka-2 exploration well drilling the Vundu prospect on Uganda's Block 2 encountered oil-bearing sands.

Tullow said the Karuka-2 exploration well, which was drilled and logged, reached a total depth of 897 m and encountered "limited thin-bedded, oil-bearing sands" at 764-772 m.

Karuka-2 is 6 km southwest of the Karuka-1 well and was a higher-risk well designed to test upside potential in the secondary escarpment play.

"Downhole pressure testing and sampling indicate moveable waxy crude in reservoir close to a possible oil-water contact," Tullow said. "However the upside potential in the structure is limited."

The Karuka-2 well is being suspended and the rig will then move to drill the amplitude supported Nsoga prospect in the Victoria Nile Delta play which is expected to spud in April.

In addition, the company said the Nabors 221 rig is fully rigged up on the shore of Lake Albert and is expected to commence drilling the Ngassa-2 exploration well imminently.

"Ngassa is the largest prospect in the basin and is expected to take up to 90 days to drill," Tullow said.

The news follows an announcement by Tullow and partner Heritage Oil earlier this month that said exploration in Uganda had so far shown resources of at least 600 million bbl, enough to support the building of a 1,500-km pipeline across Kenya to the Port of Mombasa on the Indian Ocean.

Chinese companies
In addition to the Congo government, the Tullow-Heritage success in Uganda is exciting the interest of mainland China's three largest oil and gas companies.

All three Chinese firms are said to be interested in bidding for a stake in the Uganda development in a deal expected to reach about $500 million, but Beijing tends to choose one mainland company to proceed with a bid to prevent Chinese companies from bidding the price higher.

"They're looking to sell down to raise funds for development and mitigate risk," an analyst told the South China Morning Post, referring to Tullow and its partner Heritage Oil. "There should be big enough interest, and I would expect to see the Koreans and Japanese in there as well."

Contact Eric Watkins at [email protected].