Tullow may exit Uganda over refinery dispute

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Tullow workers at a rig in Buliisa County. Picture: Esther Nakkazi

Tullow workers at a rig in Buliisa County. Picture: Esther Nakkazi 

By ANGELO IZAMA, Special Correspondent

Posted  Saturday, November 17   2012 at  13:19

In Summary

  • TRANSACTIONS: In the first half of 2010, Tullow progressed a series of transactions, which culminated in the purchase of Heritage Oil and Gas Ltd’s (“Heritage”) interests in EA-1 and EA-3A in July 26.
  • FARM-DOWN: The process to subsequently farm-down interests to CNOOC and Total, with each partner taking a one third interest in EA-1, 2 and 3A, was signed in March 29, 2011, following the signing of a MoU between Tullow and Uganda in March 15, 2011.

The future of Tullow Oil in Uganda hangs in the balance, as the Irish prospecting firm is reportedly frustrated by the lack of progress on arriving at “a final investment decision” about whether to build a pipeline or a refinery.

“Our programme for appraisals is complete and the development means we either pump crude oil or refine it, so there is currently not much work in the field,” said Tullow’s publicist Cathy Adengo.

Despite the company’s overall spokesman George Cazenove stating in an e-mail response last week that: “Tullow is not planning to exit Uganda and has stated repeatedly that it is committed to Uganda for the long-term,” several well-placed sources in the industry say the lack of movement on the issue is causing the company to internally consider its exit options.

This is informed by the protracted nature of the disagreement between the oil companies and the government on whether crude or refined products are the best way to commercialise oil production in Uganda.

“Unlike the two other oil companies in Uganda — France’s Total and China’s CNOOC, both industry giants — Tullow does not have the financial resources to play out a prolonged waiting game,” said analysts who spoke to The EastAfrican.

In its interim management statement released on November 14, Tullow says that, together with its partners, it has presented a “joint development plan” to President Yoweri Museveni. The plan was presented in July, almost four months ago. This plan emphasizes a crude-pipeline option while the government prefers a medium-sized refinery to begin with.

Consequently, no agreement has been reached. “We can’t agree on anything,” a senior executive with Tullow said on condition of anonymity.

Meanwhile, the industry is abuzz with word that the oil companies have put together a rebuttal of the official document the Uganda government is relying on in pursuing its refinery option — a 2010 report by the firm Foster-Wheeler.

“They are attacking the Foster-Wheeler report, which recommends a refinery and not a pipeline as the best option for Uganda,” said legislator Stephen Birahwa Mukitale, who claims to have seen the oil companies’ response.

“The president is under tremendous pressure to agree to a pipeline as the principal option,” added Mr Mukitale, who represents the oil-rich Buliisa County.

Crude oil

However, technocrats at the ministry dismissed the oil companies’ proposal that Uganda’s oil be exported in crude form.

“What you describe about evacuation of crude oil is wishful thinking and the arrogance of those peddling it is immeasurable,” said Ernest Rubondo head of the Petroleum Exploration and Production Department in an e-mail. There is no official word from State House.

In the process of placing phone calls to set up meetings with senior government officials, Tullow and its partners have confronted a political process that is less likely to produce a decision quicker than three years earlier. In 2009, the legislature, which is currently considering new laws governing oil production amid allegations of bribery, was less active in the sector.

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