Tullow Oil Uganda to Get Production Licence

2-April-2012

Following recent media reports that oil explorers Tullow Oil expects to start oil production in its Ugandan fields on a small scale late this year, a senior official in the Ministry of Energy and Mineral development has refuted the claims.

Mr. Dozith Abeinomugisha, the Principal Geologist, has said they (Ministry) do not expect to see oil this year as there isn't appropriate infrastructure in place.

"The Ministry has so far issued out only one production license for the Kingfisher well (to be managed by Chinese firm CNOOC). Tullow oil has no production license at all, they have just applied for the production of 50MW of electricity at Zinzi.

"If that is what they are talking about then may be, because production (of oil) can only take place when the essential infrastructure is in place. You produce crude and put it where, gas and put it where? So you will most likely not see oil this year", said Abeinomugisha.

He was speaking during the Ministry's interface with the media to update them on the recent developments in the oil and gas sector in Kampala last week.

Reuters quoted Mr. Ian Cloke, Tullow oil's South and East Africa Exploration Manager as saying the company expects to start production of oil in its Ugandan fields on a small scale late this year and also drill 20 wells in the East African nation.

He is quoted as saying, "We are looking at small scale production expected to start in late 2012."

After over six months of haggling, Tullow inked an agreement to transfer part of its assets to French company Total and The Chinese National Offshore Oil Corporation PLC (CNOOC). Under the deal Tullow transferred 66.6% of its assets in a transaction considered to be worth about $2.9b.

The deal got the green light after the government signed Production Sharing Agreements (PSA's) and the production license for the Kingfisher oil field with Tullow Oil Uganda.

The asset transfer is equally divided with each of the three companies taking about 33.33% and will operate different exploration areas.

The Ministry officials were non committal as to when actual oil production in Uganda would commence.

Ms. Irene Batebe, the Petroleum Officer-Refining said that studies for the setting up of a refinery in Uganda had been concluded and that it was justified given the low refining capacity in the region.

"The region's total demand is estimated at 164,000 barrels per day and yet the region has only one 70,000 barrel refinery at Mombasa that is producing at half capacity.

"Uganda's oil consumption in 2010 was at 21,000 barrels per day and yet supplies are expensive and often unreliable. A refinery in Uganda would save the situation," Abeinomugisha said.

She added that the refinery would be ready in three or four years' time, a period when experts believe oil will begin flowing.

With the discovery of oil in Kenya, doubts have however risen on the viability of building a refinery. Analysts say the East African countries may agree to build one large refinery at the coast which can serve the entire region.

Mr. Honey Malinga, the Assistant Commissioner Geophysics in the Petroleum Exploration and Production department at the Ministry of Energy and Mineral Development said Uganda's refinery is viable.

"Basing on the feasibility study, it doesn't matter whether we have two or 10 refineries in the region," Malinga said.

He however, told the East African Business Week that the date for oil production would only depend on the commitment of the oil companies.

"For us as government we don't have the funds so we are depending on the International oil companies that have come on board to fast track the process," Malinga said.

This then raises serious doubts whether Uganda will ever build an oil refinery since it is unlikely that Tullow or any oil company will commit funds for an inland refinery when there is another at the coast.

By EMMA ONYANGO: The East African Newspaper