Italian oil firm, Eni, is back in contention in the hunt for oil in Uganda.
This follows the expiration of the exploration license to the prized block 3a last week.

If indeed Eni does bid for a licence, it will make a significant shift in the hunt for more oil reserves in Uganda that could see the game shifting from small, specialty oil prospecting firms from Canada to mainstream oil majors.

This could see significant foreign investment flows going into Uganda’s emergent petroleum economy.

The small players like Heritage and Tullow play a big role in finding vast oil reserves in difficult places and then flip over their production licences to big oil firms who have access to huge capital outlays that are needed to bring oil to market.

It is this reality that is driving the sands to shift in the murky game that Uganda’s oil production programme has become as the original players who found the oil-- face off with new competitors for oil licences. Some have been pushing hard to get a good bargain out of their licenses.

After seemingly losing out after the Irish firm Tullow Oil exercised its pre-emptive rights in the acquisition of Heritage Oil’s fields in Uganda, the Italians are back in the game. The licences that were due for renewal expired at midnight on September 7, effectively throwing the incumbents out.

On the stroke of September 8, Energy Minister Hillary Onek wrote to Heritage and Tullow informing them of the expiry of the licence.

“You are therefore requested to ensure that all the restoration work detailed in the Environmental Impact Assessment for the respective activities undertaken during the tenure of the Exploration Licence is undertaken as required,” Onek said in his letter.

The event which freed the fields that are host to the proven 200 million barrels Kingfisher well was apparently one of the aces in the Ugandan government’s cards in its ongoing wrangle with oil explorers over unpaid tax dues.

The Uganda government which is still recovering from the public anger it faced after it lost out of $287 million in tax revenues to prospector Heritage Oil, is now determined not to miss out on the capital gains tax in future deals.

Technically, the fields are on the market once again and although Tullow have been told they would be considered favourably in the new round of bidding, the circumstances are different now.

First the price of the fields has gone up considerably since they are now a known find and Tullow would need to match possible steep offers from industry giants such as Eni and even erstwhile partners total and the China National Offshore Oil Company CNOOC

Although the proven Kingfisher well with a flow rate of 14,000 barrels per day has tended to dominate any discussion of Uganda’s oil fields, industry experts say the real target for anybody waiting in the wings is Pelican, a huge prospect to the South that some observers believe will even turn out bigger than Kingfisher.

It is with this knowledge in mind that Tullow’s courters have suddenly dropped it like a leper.

According to the oil exploration and production sharing agreements Uganda signed with the oil prospectors, once a find is announced, the oil firm has up to two years to file a development plan and apply for a production licence.

While heritage which made the kingfisher discovery in 2007 did not seek the necessary permits because it planned to cash in on its fortune and exit Uganda; Tullow got so taken up by efforts to enforce its preemptive rights that it forgot to fulfil this small but critical formality.

While the Italians who initially courted both Tullow and Heritage had receded into the background after their proposed buyout of heritage was scuttled by Tullow¹s preemptive rights, they have recently bounced back.

The EastAfrican has learnt that Eni has renewed contracts with its local suppliers for another six months, suggesting that they have not given up on Uganda yet.

According to oil industry sources, Eni which has so far spent $15 million on its Uganda programme has opted to play a waiting game.

This is the first time the company is spending so much money on a programme in a country before it has secured any tangible assurances that they will get a production licence.

The Italians apparently have the upper hand however, because they are the only company to have put together a basin-wide development plan and feasibility studies.

This, coupled with Eni track record and financial resources are considered to be strong selling points to Uganda which is eager to bring its fields into the production phase.