There is plenty to cheer than mourn about after Tullow oil deal failed
THE INDEPENDENT | RONALD MUSOKE | Following the August fallout of Tullow Oil Plc’s farm down to Total E&P Uganda and China National Offshore Oil Corporation (CNOOC), the government appears to be going after a three-pronged come-back strategy: remain bullish, handle activities leading to first oil separate from Tullow’s farm down fumble, and aggressively look out for new investors in the oil sector.
The government’s bullish face was on show at the recent annual Energy and Mineral Joint Sector Review (JSR) on Sept.17-18 at the Munyonyo Commonwealth Resort in Kampala.
Many of the attendees trooped there expecting to hear “concrete” updates on the latest developments surrounding the Aug.29 announcement that the Sale and Purchase Agreements (SPAs) between Tullow, Total and CNOOC had been left to expire without a deal and Total’s subsequent announcement that it was suspending activity on the East Africa Crude Oil Pipeline (EACOP).
But it became immediately clear that the people with the answers had skipped the conference; starting with the Minister of Energy and Mineral Resources, Irene Muloni, to the country managers of Total, Tullow and CNOOC. It was announced that Muloni was in Austria on official duty but the big names in Uganda’s oil; Total, Tullow and CNOOC, who often hog the discussion, were barely mentioned.
With the top voices away, the discussion was left to Energy ministry officials and members of the diplomatic community.
Cedric Merel, the Head of cooperation at the European Union Delegation in Kampala who led the discussion side of the diplomats had one major question; what will happen to the Final Investment Decision which was expected to be undertaken by Total, CNOOC, and Tullow?
Although Merel wanted answers to the immediate concerns, the answers from the government official took a long-term perspective.
Simon D’Ujang, the minister of State for Energy and Robert Kasande, the permanent secretary were determined to paint the country’s faltering oil and gas sector in rather optimistic colours.
D’Ujang referred to the current stalemate between the oil companies and the government as a “small hiccup.”
“Although we have encountered a small hiccup, we are engaging as partners and we are discussing,” D’Ujang said, “This is not strange at all in any business undertaking.”
Activities to continue
Meanwhile Kasande said the oil companies had not yet notified the government with regards to the suspension of activities.
“The collapse of Tullow Oil’s Purchase and Sale Agreement would not end Uganda’s oil and gas industry,” he said.
Kasande said since Tullow has been looking for resources to invest in the Ugandan project, it expects the British oil firm to go back to the market to look for these resources.
In the meantime, the Final Investment Decision Management Committee which he chairs and comprises CEOs from CNOOC, Total and Tullow Oil, the Uganda National Oil Company (UNOC) and the Petroleum Authority of Uganda (PAU) will soon meet in Kampala to determine the way forward on several pending agreements.
These include the host government agreements, the transportation and tariff agreement and the shareholder agreement (for the EACOP).
“These will continue until Tullow finds the money and hopefully concludes the farm down,” he said. The idea, Kasande said, is to remain on course for the Final Investment Decision which the government officials still hope will happen by the end of this year.
“We had expected that first oil would happen three years after FID,” he explained, “If FID happens this year, we will still be on course because most of the preliminary activities have been undertaken.”
Kasande insisted the companies cannot choose to walk away because they have a proven oil resource which they have since booked in their reserves and even the stock exchange. The Lake Albert Development Project is expected to pump out 230,000 barrels of oil per day at its peak.
Kasande told The Independent on the sidelines of the sector review that the government is at the moment undertaking road shows that are meant to promote the second licensing round.
“After this has been done and the companies have expressed interest in exploration, they will have access to the government database so that they can evaluate the potential of the blocks,” he said.
Thereafter, he said, expressions of interest by interested companies will be accepted followed by evaluation and due diligence.
“We expect that the conclusion of this licensing will be in the last quarter of 2020,” he added.
Kasande said besides international oil prices, the two other factors that make investing in exploration in oil and gas frontier basins like Uganda are legislation and potential of the blocks.
“On these two fronts, Uganda is doing well,” he said. “While Uganda is still a frontier basin, at least until we produce our first oil, the potential has been proven and all indications point in the direction that we will have this infrastructure (pipeline and oil refinery).”
The government officials said there is a lot more to be cheerful about. Let’s focus on the progress that had been made before the recent Tullow announcement, they said.
They listed the Environmental and Social Impact Assessment for the two upstream projects of Tilenga and Kingfisher that had been completed with the National Environment Management Authority (NEMA) approving Tilenga while Kingfisher was in the final review stages.
They also mentioned the Route Alignment and Resettlement Action Plan (RAP) implementation for the EACOP, the Products Pipeline Corridors, the brand new international airport in the oil region, and the Kabaale Industrial Park for oil related industries. These projects, the officials said, had either been completed or were underway.
Meanwhile, the lead oil refinery investor, the Albertine Graben Refinery Consortium (AGRC), has also made progress with the Front End Engineering Design (FEED) studies that will eventually inform the Final Investment Decision of the project.