Value of Uganda oilfields rises as Zuma joins race

Monday September 27 2010

Presidents Jacob Zuma, centre, Yoweri Museveni and South African Minister for Defence Lindwe Sisulu during a state visit to Uganda in March. File Photo

Presidents Jacob Zuma, centre, Yoweri Museveni and South African Minister for Defence Lindwe Sisulu during a state visit to Uganda in March. File Photo 

By Michael Wakabi

After turning the tables on Tullow Oil in Congo with a $9 million signature bonus to the Democratic Republic of Congo government, South African President Jacob Zuma’s nephew Khulubuse Zuma’s men have landed in Uganda — sending tremors throughout the oil industry as the country prepares a new round of licensing for Exploration Area 3A, which is home to proven oil reserves.

However, whether the country will benefit from the anticipated intensified jockeying for its oil wealth is a moot point.

As things stand, with the new oil and gas policy that has been under discussion for the past two years yet to become law, much still depends on the whims of individuals in the government.

“There is really no firm policy over how the new licensing round is going to be handled or how Tullow will fare in all this; as the energy minister has said, a way forward is yet to be decided,” said a source at the Petroleum Exploration and Production Department.

No officials were available to confirm or dispute reports doing the rounds in Kampala that as much as $1 billion has been offered to Uganda in signature bonuses by Medea Development SA, the oil company associated with Mr Zuma.  

The buzz over Uganda’s oilfields follows the expiry of the exploration licence for Block 3A that stretches from the southeastern banks of Lake Albert to the country’s border with the DR Congo.

Uncertainty also continues over the fate of the Kingfisher Well that Tullow Oil recently bought for $1.5 billion but lost in August after it failed to apply for a production licence within stipulated time limits.

The licence for Block 3A expired on September 7, radically changing the game and threatening to tear apart alliances that had begun to coalesce around Tullow Oil, which was primed to farm out two-thirds of its interests to partners.

Although industry experts put the fair value of signature bonuses for Block 3, which is home to the 200 million-barrel Kingfisher Well, at $100 million, figures ranging from $250 million to $1 billion are being bandied about.

For Uganda, which has received a paltry $1 million in signature bonuses from all prospectors, this would be a quantum leap.

According to a report on Uganda’s petroleum exploration by UK-based advocacy group Platform, in comparison, the DR Congo received $3.5 million in signature bonuses for Block 1A, which borders Uganda, in 2008.

More recently, Medea Development confirmed that it had paid $9 million, before the DR Congo government threw out Tullow and gave the fields to Medea last July.

Uganda low earnings from signature bonuses so far are attributed to the fact that, in the beginning, the government negotiated directly with the oil prospectors and did not earn any money in the first rounds.

It was suggested recently that any subsequent licensing for oil exploration would be subject to bidding but the legal framework for this policy intention is not in place.

While the Kingfisher Well has tended to dominate any discussions about Uganda’s oil find, insiders suggest that the newcomers are looking beyond that, especially at three other prospects in Block 3 that promise to yield more oil than Kingfisher.

By the time Heritage Oil exited Uganda, it had completed 3D seismic surveys on the three prospects — Pelican, Crane and Sunbird — all under Lake Albert. According to oil experts, offshore fields tend to contain more oil because sediments in them are usually richer and thicker.

Other players

Until the tax dispute that soured relations between Uganda and the first firms to find oil, it had been widely expected that Tullow Oil would farm out a third of its interests to French Giant Total and the China National Offshore Oil Company, CNOOC.

This plan however faces uncertainty because of the ongoing tax dispute between Uganda and erstwhile partners Heritage and Tullow.

Believed to be working quietly in the shadows is Italian giant Eni, said to be eying a piece of the cake as an independent rather than a partner, as had earlier been suggested.

Although analysts believe the dispute between Tullow and the Ugandan authorities will be resolved to the mutual satisfaction of both parties sooner rather than later, the entry of Medea and perhaps other players potentially complicates the picture, given the influence peddling and intrigue that has characterised deals in the sector in recent times.