Uganda’s government and Tullow Oil PLC ended months of wrangling over potential tax issues by signing two new production-sharing agreements that will enable the Anglo-Irish firm to complete a $2.9 billion farmout deal with Total SA and China National Offshore Oil Co (CNOOC).
“The new licenses being signed today are key to the conclusion of the [farmout],” Uganda’s Energy Minister Irene Muloni said, referring to the EA-1 and Kanywataba licenses in the Lake Albert Rift basin.
“On the recommendation of the government, Tullow is expected to [farmout], or partly divest its assets in Uganda to CNOOC and Total as agreed,” said Muloni.
“Today’s signing is a vital step towards the development of the Lake Albert Rift basin and the oil and gas industry in Uganda and East Africa,” said Tullow Chief Executive Officer Aidan Heavey.
Tullow will now hold a 33.33% interest in the EA1 license. Total SA and CNOOC will each have 33.33%.
In March 2011, Tullow signed an agreement to sell two thirds of its Uganda assets to CNOOC and Total, saying it agreed on “a clear plan” for the resolution of outstanding tax disputes on the various sales with the government and the Uganda Revenue Authority.
However, Uganda’s President Yoweri Museveni refused to sign off on the planned sale due to a disagreement with Tullow on whether to include a so-called “stabilization clause” in the contracts to protect the firms from potential future losses if the government changed its tax laws.
Uganda’s Oil Minister Irene Muloni said Tullow ended that problem this week by signing the new agreements. “Government’s proposal to revise the standard stabilization clause was accepted by Tullow and has been adopted,” she said.
According to Muloni, Tullow also agreed to the government’s long-standing demand for construction of a refinery in Uganda and that the government will consider plans for a pipeline to export crude only if more oil is discovered.
The Ministry of Energy's Commissioner for Petroleum Ernest Rubondo expects Total and CNOOC to sign the sales and purchase agreements to conclude the farmout deal within 2 weeks.
However, a Tullow spokesman urged caution, acknowledging that issues with the government such as the stabilization clause had been resolved, but that other legal questions remain to be answered.
“There is a due legal process to be gone through to get to completion and there can always be legal complexities to reach a conclusion," he said.
“I believe the matters with the government have been resolved…. There is a stability clause in the agreement that all that parties are happy with. The partners expect the development to include an appropriately sized refinery and an export pipeline,” he added.
In December, Total said it had entered into discussions with Uganda over construction of a pipeline to transport Ugandan oil to the coast of Kenya for export.
Uganda has discovered more than 2.5 billion bbl of oil, and the ministry of energy expects the discoveries to reach up to 6 billion bbl after completion of full exploration of the Lake Albert Rift basin.
Last June, acting as interim operator of Uganda’s EA1 onshore license, Tullow drilled two wells that proved oil accumulations at large seismic and gravity data anomalies.
The Jobi-East-1 well went to 563 m and discovered 20 m of net hydrocarbon-bearing reservoir in a fault block adjacent to the giant Jobi-Rii oil field, while the Mpyo-3 well went to 513 m and intersected 21 m of oil-bearing reservoir sands at 340 m (OGJ Online, June 6, 2011).
Contact Eric Watkins at email@example.com.