The Total Uganda general manager Pierre Jessua spoke with Julius Barigaba on the key pending issues and timelines before Uganda joins global crude oil exporters’ club.
How has been Total’s journey eight years into the Lake Albert project?
It’s been long but this is a strategic project for Total Group and we have committed to it.
We have had major achievements — we have identified viable development schemes and had discussions with bidders to narrow down the issues, obtained key environmental approvals and finalised project critical agreements such as the production licences and the inter-governmental agreements between Uganda and Tanzania.
We have had some issues like the drastic fall of the prices, climate change and Covid-19. We have had to adapt our global operations to remain resilient. There have been some challenges along the way with regards to aligning some of the legal and commercial requirements, but we have been able to register significant milestones.
There is increased scrutiny on the project by both national and international actors and NGOs, which has increased our zeal to maintain compliance with the highest human rights standards and International Finance Corporation standards on human and environment activities. It’s been frustrating in certain respects but there is progress too.
After the recent Host Government Agreement (HGA), what happens before oil starts to flow, and when will that be?
The September 11 visit of our CEO Patrick Pouyanne allowed all parties to reach an agreement, which was a prerequisite for the Final Investment Decision (FID), which will need the HGA in Uganda, and the back in, which is basically a document that describes the way Uganda National Oil Company (Unoc) joins the partnership.
Those documents have not been signed, they have been initialed ahead of a legal process of agreement, with the Cabinet and the Attorney General. But technically, it’s a key milestone.
President Yoweri Museveni and Mr Pouyanne agreed to expedite all key issues. Two prerequisites for the achievement of the FID were agreed upon, namely, the Unoc upstream “back in” and Uganda HGA for East African Crude Oil Pipeline (Eacop).
However, the midstream project (Eacop)still needs a similar agreement on the HGA in Tanzania. Discussions were initiated; there will also be intensive work to ensure the harmonisation of the respective laws and rules for both the Uganda and Tanzania HGAs — what we call the enabling legislations.
We also need to complete the discussions on shareholders’ agreement and tariff and transportation agreement.
On the Tullow transaction, basically, all hurdles have been overcome and should only be a matter of days or weeks to closing of the deal.
What about the other pending approvals and award of contracts?
On the technical aspects, in Uganda, the international oil companies await the approval of the environmental and social impact assessment for Eacop (in Uganda) and for the Tilenga feeder pipeline connecting the central processing facility to the starting point of Eacop at Kabaale.
We are also working towards the recommendations to award the main contracts for Tilenga and Eacop. We are working on call for tenders for the main contracts, we are receiving some bids and others should be received in the next few weeks. We are all engaged to have the FID by the end of 2020. Appraisal reports for the wells and pipeline, will take three years to complete. A lot of work still remains to be done, but we have all the will to progress. We anticipate achieving first oil in 2024.
Your CEO said reaching the HGA was a long and bumpy road. How were the key sticking points resolved?
Continuous dialogue has enabled us to resolve several issues such as the agreement between Uganda and Tanzania as well as ensuring an alignment between the HGA in both countries.
Earlier this year, the Total group CEO announced the company would slash its capital expenditure (Capex) by more than $3 billion. How feasible is December 2020 for FID?
It is a paradox because we were in the region of $70 per barrel some years ago and we were not at the current level of negotiations with government.
But we believe our project has its merits, complying with our strategy of finding low-cost oil. We have acquired the reserves brought by the shares of Tullow at a good price, so we are meeting certain parameters.
We have a willingness to invest in low cycle oil. With a barrel around $40 means you have a market which is more favourable than a barrel at $60 or $70. So the idea is to be at a counter cycle, considering that in four years’ time, the price of oil will not be where it is.
We have to be extremely disciplined, making sure that this project flies at low cost. It will not fly at $20 or $30 a barrel. We have to make sure we have the best way to monitor and control our expenditure.
It means all stakeholders — suppliers and contractors — have to ensure they provide the best price.
Is Tilenga not affected by Capex cuts?
In March, our CEO announced plans to ensure the group remains resilient – including organic Capex cuts of more than $3 billion, thus reducing 2020 net investments to less than $15 billion.
We found some ways to cut Capex but it was not for Tilenga. For an FID coming at the end of 2020, the Capex will start to be spent in 2021.
Research and consultancy group Wood Mackenzie says only nine FIDs are expected in 2020 of 50 that were in the pipeline before the oil price collapse. What put Tilenga among the nine?
The fundamentals of the Lake Albert project are good. The production capacity is 230,000 barrels per day, with large reserves of more than a billion barrels. It is economically viable and fits within the group’s strategy of developing low cost oil projects as shown by our agreement to acquire Tullow’s entire interests in the Lake Albert development project for less than $2 per barrel of oil.
How much has Total invested here since farm-in in 2012?
As joint partners, we have invested about $3.5 billion in the Lake Albert project. On Eacop, funded exclusively by Total, we have spent $360 million. With the acquisition of Tullow’s interests in the Lake Albert project, the overall consideration paid by Total to Tullow will be $575 million.
The Production Sharing Agreement gives a 78-22 per cent revenue split between government and oil companies. How long will it take Total to recoup its investment here?
We have worked with the government to ensure an economically viable project that meets our investment criteria. The exact time for the investment to be recouped is a function of the final cost, production and price.
State-owned Unoc comes on board as a shareholder in Eacop and joint operator in EA 1, 2 and 3A. From an operation perspective, what does Unoc bring on the table?
It is normal practice for the national oil company to own shares and participate as a partner. It brings value to all parties. Unoc is mandated to hold and manage the 15 per cent state participating interest in the joint venture partnership with the international oil companies. After a Joint Operating Agreement with Unoc will be signed, enabling it to take an active part in project investment decision making, including sanctioning of work programmes, budgets, contracts and expenditures.