Uganda signs oil development pact with Tullow, Total, CNOOC

Cape Town (Platts)--6Feb2014/703 am EST/1203 GMT


The Ugandan government has signed a long awaited deal with UK-based Tullow Oil, Total and China National Offshore Oil Corp, to develop its oil sector, paving the way for the country's first commercial crude production.

The pact details plans for the construction of a refinery that may be ready in 2017, an export pipeline to Kenya's northern port of Lamu and a power plant, Irene Muloni, Uganda's energy and minerals minister said Thursday.

The memorandum of understanding, the terms of which were agreed last month, requires the oil companies to "support" plans to develop a refinery, the minister said. At the same time, the government is required to support the operators on the study of an export pipeline via Kenya, she said.

"The conclusion of the MoU is a significant step for Uganda as it gives a roadmap for the commercialization of petroleum resources discovered in the country," Muloni said.

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Uganda discovered oil in 2006 but the transition to development has been delayed by years of disputes over taxes and differences between the companies, as well as the government's insistence on refining the oil before exporting.

But in April last year, the government agreed with the companies to build a smaller refinery than it had initially wanted to supply local markets, and a pipeline to neighboring Kenya.

REFINERY, EXPORTS

The ministry's assistant commissioner, Robert Kasande, Thursday said the government had shortlisted six companies to build the plant and winners will be selected in April. Kasande said the government aims to take a 40% interest in the plant and offer a private investor the remaining 60%. Vitol and Marubeni are understood to have expressed an interest in the project.

The refinery is planned to have an initial capacity of 30,000 b/d when it comes onstream in 2017/18 at an estimated cost of $2.5 billion. The government has said it hopes to double the plant's capacity to 60,000 b/d two to three years later, raising the total cost to $4-5 billion.

The Ugandan government is evaluating eight production licenses with Tullow and one with Total, Kasande said.

As soon as the licenses are issued, oil companies will be in position to begin large-scale development of the crude fields, which are estimated to hold reserves estimated at 3.5 billion barrels of crude. China National Offshore Oil Corporation received its first production licence for the Kingfisher field late last year.

The three companies are expected to invest more than $10 billion to develop the oil fields in the Lake Albert Rift Basin.

Uganda and Kenya have agreed in principle to cooperate on the construction of an export line for Uganda's oil, but a final agreement and financial backing is seen as being complicated by local politics as much as the logistical challenges.

The 1,400 km (868 mile) pipeline project is estimated to cost some $4 billion to build and will need to be heated and buried to maintain continuous flow of Uganda's very waxy crude, according to observers.

--Namala Doreen, newsdesk@platts.com
--Jacinta Moran, jacinta.moran@platts.com
--Edited by Jeremy Lovell, jeremy.lovell@platts.com

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