Uganda First oil production date not known

Tuesday, 30th August, 2011

It has been postponed thrice. But now Tullow Oil Uganda has come out openly, saying they do not know when Uganda will start its commercial oil production.

This is a major shift, signalling that there might still be a number of unresolved issues. Peter Hartmann, the production manager, also indicated that they do not know the amount of oil to be produced. There is no production plan in place yet either, he added.

"We are still in the early stages. And at the moment, the volume of the oil reserves is also not known," he told New Vision in an interview. "Therefore, we cannot put a timeline to that (commercial production) because we are still in the exploration phase and appraisal period."

The latest disclosure is unusual. Since 2007, when commercial crude oil reserves in the Lake Albert basin were confirmed, Tullow has come up with different production timelines.

The British explorer first promised that the early oil production scheme would start in 2009. This was after it had signed a memorandum of understanding with the Government.

The deal was to produce 4,000?5,000 barrels of oil per day to meet Uganda?s energy needs. But it did not happen.

In August 2010, Aidan Heavey, the Tullow founder and boss, said crude oil production would start with 10,000 barrels per day this year. This would have risen to 150,000 barrels in 2013.

This excited Ugandans and raised expectations and boosted Tullow?s stock prices.

Therefore, the latest announcement will disappoint the expectant public, especially at a time when Uganda is facing acute energy shortages and rising fuel prices. Today, a litre of petrol costs sh4,000. Diesel is sh3,500.

Hartmann noted that the firm had embarked on well-testing to estimate the oil reservoirs and their behaviour for future production plans.

"The testing process is critical in determining the production timeline. This means it is premature now to state the production timeline," he explained, adding: "If we don?t test the oil well, we can?t estimate how the field will behave or how much we will produce."

He said the process would also help then know when production would start.

Well-testing for the Kasamene-1A, Kigogogle-1, Kigogole-3 and Ngiri-2 oil wells starts in the next two to three months.

Cathy Adengo, the Tullow communication manager, said cumulative barrels from Kigogole-1 will be 2,900, Kigogole -3, 4,700, Kasamene -1, 15,000 and Ngiri -2, 4,200, lasting one month.

"These volumes are important to ascertain information on the reservoirs required for optimal design of the production facilities and project scope." She said the crude oil would initially be stored on site in specialised tanks for unspecified period.

Adengo also noted that the firm was in talks with the Government to review the proposal to sell the crude oil for industrial use.

Ernest Rubondo, the commissioner in charge of petroleum exploration and production, confirmed the negotiations. "Normally, the crude is burned, but we have asked them to avoid wastage. As they look for potential buyers, they will store the crude on site," he said.

Rubondo said there were some deals embedded in the oil sharing agreements, which must be finalised before the crude is sold.

The deals will help determine the price at which the crude would be sold.

Tullow concludes the sale of part its stake worth $2.9b to Total and Chinese firm, CNOOC next month.

By Ibrahim Kasita: The New Vision Newspaper