Tullow Oil plc announced that it has completed the farm-down of two thirds of its Ugandan licences to China National Offshore Oil Corp (CNOOC) Limited and French oil major Total for $2.9 billion earlier today. The news that British firm Tullow has finally brought in partners to develop its oil fields in Uganda paves the way for commercial oil production to begin in the country.
Tullow’s sale of much of its stake in Ugandan oil fields follows the recent signing of Production Sharing Agreements (PSAs) and the Kingfisher production licence with the government of Uganda.
Tullow’s news comes as Uganda’s parliament is about to begin debating on two crucial bills that will guide the sector in years to come. The two bills are the Petroleum (Exploration, Development and Production) Bill 2012 and the Petroleum (Refining , Gas Processing and Conversion, Transportation and Storage) Bill 2012. A third bill on Revenue Management is expected to be tabled in parliament soon.
The completion of Tullow’s farm-down marks the start of massive oil production plans by the three companies. Tullow has said that small-scale oil and gas production for the local power market will commence in 2013 from the Kaiso-Tonya area. Major production from the Lake Albert Basin is anticipated to commence approximately 36 months after a basin-wide plan of development is approved by Uganda’s government. Based on this timetable, the ramp-up to major production would commence in 2016.
However, some sceptics believe that major production could only commence in 2017 or even later, making Uganda seem a less attractive investment opportunity than its neighbours Kenya and Tanzania which are both making significant progress in their oil discoveries.
Tullow also announced that, in accordance with agreements with the Ugandan government, operatorship responsibilities within the basin will be divided between the partners. Total will operate Exploration Area-1 (EA-1) and Tullow will operate Exploration Area-2 (EA-2). In the former Exploration Area-3A, CNOOC Limited will operate the new Kanywataba licence and the Kingfisher production licence.
The three partners are to commence drilling activities in the area to undertake a wide-ranging exploration and appraisal programme this year. Immediate exploration priorities include drilling of the Kanywataba prospect, a series of prospects west of the Nile starting with the Omuka well in EA-1 and further appraisal work in both EA-1 and EA-2.
While many are optimistic about the plans which are in the pipeline, however, there are also concerns about the speed at which the sector is advancing without sufficient regulations to guide it. Despite the resolution by parliament in October to halt any deals between the government and the oil companies, new developments, including the signing of new PSAs three weeks ago have not come as a surprise. Uganda’s President Yoweri Museveni is seen to be the person who is single-handedly making the decisions, a role that leaves oversight, especially by parliament, non-existent.
Over the next weeks, parliament will deliberate on the oil sector bills. The results of their debates and discussions will determine the future of Uganda’s rich natural resource, especially regarding how it is managed. The bills have already received plenty of criticism as they could, among other things, hand over a lot of power to the oil minister who would in turn be influenced by the president. The bills, according to some, also do not clearly promise transparency and many clauses could call for secrecy by officials and the proposed Petroleum Authority.
How parliament deals with this discourse will be of critical interest. The need to deliberate in a non-partisan manner is paramount. In the past, MPs have allegedly been given financial inducements that have made them rather biased. It is the Ugandans wish that this does not happen again, especially in light of the reports that some of the MPs have started receiving 103 million Uganda shillings ($43,900) for private cars.
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