Idle Tullow oil rigs could cost govt billions
Sep 16, 2011
UGANDA is likely to pay several billions for two idle oil drilling rigs which Tullow oil firm imported in December last year. Tullow hired the rigs from Swiss and Polish companies at about sh500m per day for explorations in the Lake Albert region.
UGANDA is likely to pay several billions for two idle oil drilling rigs which Tullow oil firm imported in December last year. Tullow hired the rigs from Swiss and Polish companies at about sh500m per day for explorations in the Lake Albert region.
Experts in the oil industry say Uganda will have to pay back the money when commercial oil production starts.
By IBRAHIM KASITA
Oil rigs that were hired by Tullow Oil Company for operations in the Lake Albert region nine months ago, remain idle despite high daily rental charges.
This is likely to raise the costs that will be paid back by the Government when commercial oil production starts, a situation that could reduce Uganda’s oil share benefits.
Two rigs – OGEC K900 and WEATHERFORD 721 – were hired for exploration and appraisal wells in Blocks 1, 2 and 3A in the Lake Albert region in December, New Vision has confirmed.
OGEC K900 was hired from a Polish firm, Oil and Gas Exploration Company –Kremco, while WEATHERFORD 721 was hired from Weatherford International Ltd in Switzerland.
According to Tullow Uganda’s tender document, the rigs cost at least $7,719,200 (sh21b) to assemble in Uganda.
In addition, sources privy to oil operations told New Vision that the OGEC K900 rig costs $100,000 (sh280m) daily in rental fees, while WEATHERFORD 721 costs $80,000 (sh224m).
The charges started when the rigs arrived in Uganda in December. However, Tullow officials argue that monies are only refunded following a rigorous approval process with government stakeholders.
The rigs were scheduled to drill the wells in June/July this year. But they have remained unused to-date. OGEC K900 is stationed in Kasangati in Wakiso district, while WEATHERFORD 721 is at Kigogole-5 well in Bulisa district.
Kim Breakwell, Tullow Uganda well engineering manager, confirmed that the idle oil rigs were being paid for but refused to reveal the costs.
“We are the interim operator of all the three blocks and we are trying to balance our work-load in our business in the three blocks. Everyone anticipated that the production sharing agreements (PSAs) would be signed much earlier than now,†he explained.
Breakwell said the rigs were supposed to be used mid this year (June/July) but have remained idle due to ‘circumstances outside our control.â€
He, however, refused to state the costs of bringing the rigs into Uganda, the daily rental fees and the support service providers.
“I’d rather not get into how much. I am not in position to say that (actual daily payments). That is commercial and contractual confidential information and it will be unethical to disclose it,†he said.
He said oil rigs were brought in earlier than the expected drilling time because of the long lead time of procuring and transporting them.
“The lead time to physically get a large asset such as a drilling rig into a landlocked country like Uganda could be as much as eight months. It is not like procuring a consumer item,†he said.
Breakwell explained that the rigs were got in anticipation that a new production sharing agreement (PSAs) between Tullow, China’s National Offshore Oil Corporation (CNOOC) and France’s Total and Uganda would be completed earlier.
The Government entered into a memorandum of understanding with Tullow Uganda in March this year to pave way for the sale of its interest to Total and CNOOC.
According to Tullow’s operation requirements, each rig has 15 standby trucks and two cranes to support it. This means that the two rigs have about 30 trucks and four cranes on standby.
The sharing agreements that the Government entered with Tullow also show that all exploration, development and production expenditures are regarded as “cost recoverable.â€
Recoverable costs also include service costs such as direct and indirect expenditure in support of the oil operations, which also covers transport and renting of the rigs.
According to Tullow’s oil well sequence per rig chart, WEATHERFORD 721 rig was supposed to drill Ngege-B, Ngege-C/H, Ngege F and Mpaaraki-B wells.
OGEC K900 was to drill Ngassa-1, Kanywataba-1 (Sunbird-1) and Kanywataba-C.
But the workplan indicates that the wells were planned for environment impact assessments and not actual drilling. The earliest drilling date is December this year and is expected to go on up to mid-2012.
Sources privy to Tullow’s operations said the WEATHERFORD 721 rig cannot drill the hard surface rocks in the Lake Albert region.
Breakwell explained: “We are drilling in a geological highly faulty region. We have to drill a number of wells to find out what the structure is and understand it. Because the structure is faulty, you find surprises. It is a constantly changing environment,†he said.
Jimmy Kiberu, the Tullow Uganda corporate affairs manager, said whether the costs are “recoverable†or not will depend on the Government.
“The safety net is government. It has got to consent to the costs and until government consents, it is not possible to say that the costs will be borne by taxpayers,†he said.
Fred Kabagambe-Kaliisa, the permanent secretary in the energy and mineral development ministry, said the most important question to ask was whether the costs incurred (through the idle rigs) are part of the recoverable costs.
“We have the average costs of drilling a well so nobody can come and claim they have spent more than what we already know,†he explained.
The PS said there are “circumstances beyond control†that may have affected the operations of the two rigs.
“The issue of recoverable costs is important. But we must handle it scientifically and professionally,†Kaliisa advised.
However, industr
Experts in the oil industry say Uganda will have to pay back the money when commercial oil production starts.
By IBRAHIM KASITA
Oil rigs that were hired by Tullow Oil Company for operations in the Lake Albert region nine months ago, remain idle despite high daily rental charges.
This is likely to raise the costs that will be paid back by the Government when commercial oil production starts, a situation that could reduce Uganda’s oil share benefits.
Two rigs – OGEC K900 and WEATHERFORD 721 – were hired for exploration and appraisal wells in Blocks 1, 2 and 3A in the Lake Albert region in December, New Vision has confirmed.
OGEC K900 was hired from a Polish firm, Oil and Gas Exploration Company –Kremco, while WEATHERFORD 721 was hired from Weatherford International Ltd in Switzerland.
According to Tullow Uganda’s tender document, the rigs cost at least $7,719,200 (sh21b) to assemble in Uganda.
In addition, sources privy to oil operations told New Vision that the OGEC K900 rig costs $100,000 (sh280m) daily in rental fees, while WEATHERFORD 721 costs $80,000 (sh224m).
The charges started when the rigs arrived in Uganda in December. However, Tullow officials argue that monies are only refunded following a rigorous approval process with government stakeholders.
The rigs were scheduled to drill the wells in June/July this year. But they have remained unused to-date. OGEC K900 is stationed in Kasangati in Wakiso district, while WEATHERFORD 721 is at Kigogole-5 well in Bulisa district.
Kim Breakwell, Tullow Uganda well engineering manager, confirmed that the idle oil rigs were being paid for but refused to reveal the costs.
“We are the interim operator of all the three blocks and we are trying to balance our work-load in our business in the three blocks. Everyone anticipated that the production sharing agreements (PSAs) would be signed much earlier than now,†he explained.
Breakwell said the rigs were supposed to be used mid this year (June/July) but have remained idle due to ‘circumstances outside our control.â€
He, however, refused to state the costs of bringing the rigs into Uganda, the daily rental fees and the support service providers.
“I’d rather not get into how much. I am not in position to say that (actual daily payments). That is commercial and contractual confidential information and it will be unethical to disclose it,†he said.
He said oil rigs were brought in earlier than the expected drilling time because of the long lead time of procuring and transporting them.
“The lead time to physically get a large asset such as a drilling rig into a landlocked country like Uganda could be as much as eight months. It is not like procuring a consumer item,†he said.
Breakwell explained that the rigs were got in anticipation that a new production sharing agreement (PSAs) between Tullow, China’s National Offshore Oil Corporation (CNOOC) and France’s Total and Uganda would be completed earlier.
The Government entered into a memorandum of understanding with Tullow Uganda in March this year to pave way for the sale of its interest to Total and CNOOC.
According to Tullow’s operation requirements, each rig has 15 standby trucks and two cranes to support it. This means that the two rigs have about 30 trucks and four cranes on standby.
The sharing agreements that the Government entered with Tullow also show that all exploration, development and production expenditures are regarded as “cost recoverable.â€
Recoverable costs also include service costs such as direct and indirect expenditure in support of the oil operations, which also covers transport and renting of the rigs.
According to Tullow’s oil well sequence per rig chart, WEATHERFORD 721 rig was supposed to drill Ngege-B, Ngege-C/H, Ngege F and Mpaaraki-B wells.
OGEC K900 was to drill Ngassa-1, Kanywataba-1 (Sunbird-1) and Kanywataba-C.
But the workplan indicates that the wells were planned for environment impact assessments and not actual drilling. The earliest drilling date is December this year and is expected to go on up to mid-2012.
Sources privy to Tullow’s operations said the WEATHERFORD 721 rig cannot drill the hard surface rocks in the Lake Albert region.
Breakwell explained: “We are drilling in a geological highly faulty region. We have to drill a number of wells to find out what the structure is and understand it. Because the structure is faulty, you find surprises. It is a constantly changing environment,†he said.
Jimmy Kiberu, the Tullow Uganda corporate affairs manager, said whether the costs are “recoverable†or not will depend on the Government.
“The safety net is government. It has got to consent to the costs and until government consents, it is not possible to say that the costs will be borne by taxpayers,†he said.
Fred Kabagambe-Kaliisa, the permanent secretary in the energy and mineral development ministry, said the most important question to ask was whether the costs incurred (through the idle rigs) are part of the recoverable costs.
“We have the average costs of drilling a well so nobody can come and claim they have spent more than what we already know,†he explained.
The PS said there are “circumstances beyond control†that may have affected the operations of the two rigs.
“The issue of recoverable costs is important. But we must handle it scientifically and professionally,†Kaliisa advised.
However, industr