Firms agree on oil value addition

By Ibrahim Kasita

The joint venture exploration and production partnership of Tullow, CNOOC Uganda and Total have finally accepted to support Uganda’s petroleum value addition road map that could cost between $7b and $9b investment.

The partners decided on a plan to use oil and gas assets for electricity production.

The firms have also accepted to supply crude oil to the refinery before considering exporting it.

“The memorandum of understanding requires the oil companies to support the Government in its efforts to develop the refinery including public endorsement of the project,” Irene Muloni, the minister of energy and mineral development said.

She affirmed that before the refinery is constructed and commissioned, the oil companies will supply crude oil from the contact areas to be used for power generation.

“Excess associated and non-associated gas will be used for power generation or any other viable options,” the minister stressed.

President Yoweri Museveni urged the oil firms to “move fast” because Ugandans have waited for long to see the first oil production.

“We as Ugandans are a bit impatient because we want to use the oil money for the development of infrastructure,” he said in a statement yesterday.

“I call upon the oil companies to be fast so as to revamp the economy of Uganda. Oil is important. We want fast development in order to go to double digits in the growth of Uganda’s economic growth (GDP) of 11 and 12.”

The agreement follows protracted negotiations between the joint venture partnership and the Government that delayed the signing of the memorandum that was expected in late September when the first production license was issued for the Kingfisher field.

The Tullow-CNOOC-Total partnership has been against the refinery in favour of construction of the pipeline to the Indian Ocean to export the crude oil to the international market.

To ensure that a middle ground is reached, Uganda has softened its stance and agreed to provide support to the oil companies to acquire approvals for studies for an export pipeline.

The Government has also pledged to initiate discussions with neighbouring states in relation to a cross border framework for the pipeline.

This means that Uganda will develop the refinery with an input capacity of 60,000 barrels per day whereas the partners will develop a pipeline or any other viable options to export the crude.

“The refinery shall have the right of the first call on production volumes and from the licensed areas,” the minister asserted.

However, the agreement also provides for the expansion of the refinery beyond the 60,000 barrels per day in the event that additional resources
are confirmed in the licenced areas.

Uganda’s commercialisation plan is based on the current discovered recoverable reserves in the country estimated at a range of 1.2 to 1.7 billion barrels of crude oil.

Jimmy Mugerwa, the Tullow Uganda country general manager, said the delay in signing the deal was because the project involves “huge investments.”

“We are talking about close to $15b investment. Our boards had to think and discuss before making decision. It is huge investment,” he said.

But authorities indicate that the whole first phase of the commercialisation of the petroleum resources will cost between $7b and $9b.

Xiao Zongwei, the CNOOC Uganda general manager, pledged to “deliver the project as quickly as possible” to meet all stakeholders’ expectations. “It is our duty,” he said.