Tullow Oil UK gives hope for future of Uganda's oil

OIL

Discussions to kick start the oil and gas activities in the country are in high gear. According to sources, the final discussions are expected in the coming weeks, writes Martin Kitubi.

Recently, Tullow Oil flew in the country, sources in the energy ministry have revealed. They discussed a number of issues including the finalisation of the Final Investment Decision (FID, mainly for the crude oil pipeline.

Mark MacFarlane, the Chief Operating Officer at Tullow Oil UK headed the delegation that came to hold discussions with the energy ministry. Once signed, the FID will mark the start of the construction of the East African Crude Oil Pipeline (EACOP).

"The Tullow oil bosses came from the UK. They had a closed-door meeting with our ministers and they made promises," the source who spoke on condition of anonymity said. The development was confirmed by Sarah Opendi, the Minister of State for Mineral Development. 

In an interview with New Vision at Parliament, Opendi said that the ministry reached some agreements with Tullow oil, but declined to give details.

According to Opendi, the ministry discussed the sale of Tullow shares to the joint venture partners Total E&P, and China National Offshore Oil Corporation (CNOOC).

She revealed that Tullow promised to finalise the process with joint venture partners in three weeks before the FID is signed. "The Tullow bosses visited the country last week, they promised to conclude their agreements at the end of this month or early April," Opendi said.

In 2017, Tullow entered into a Sale and Purchase Agreement to farm down 21.5% of the participating interests to Total E&P and China National Offshore Oil Corporation (CNOOC).

Uganda Revenue Authority then valued the Capital Gains Tax from the transaction at $167m (sh600b), one of the cause of the delays. However, Opendi noted that they did not discuss the tax dispute.

According to Opendi, the government is working tirelessly to ensure that they finalise the deals for the oil and gas activities to resume.

Opendi (centre), MacFarlane (second-right) and other officials from the ministry after the discussion on oil activities at the energy ministry offices in Kampala recently

 
"President Yoweri Museveni is determined to see this oil out of the ground such that it can contribute to the development of this country," she said. Additionally, she said, there are ongoing discussions between the Government and the other oil and gas companies to ensure that oil developments kick-off.

"There has been a stalemate where oil companies suspended activities. We understand that a number of local companies have been affected, but activities will resume soon," she said.

Stakeholders In an interview with New Vision, John Bosco Lubega, the managing director Geo-Tech Solutions Uganda Limited, a local company in Jinja, recommended that activities need to resume soon to reduce on losses made. At the moment, he said, the equipment they procured for the oil and gas activities, is lying idle and that it is expensive to maintain it. "‘We are paying a lot to maintain the oil and gas equipment we had procured. It is idle at the moment," he said.

Lubega revealed that in 2019, they had procured equipment specifically for the oil and gas activities. It included a Cone Penetrometer Test (CPT) truck valued at Euros 80,000 (about sh320m). A CPT truck is used to evaluate stratification, soil type, soil density and in situ stress conditions.

It is also used to evaluate mechanical soil properties, shear strength properties, deformation, and consolidation characteristics before any oil facility is constructed. In the meantime, James Muhindo the national co-ordinator at Civil Society Coalition on Oil and Gas (CSCO), recommended that the Government should finalise grievances in compensation.

"The stalemate should be utilised to properly compensate people. The process should be in the rush," he said. Cause of delays There are four key agreements delaying the signing of the oil pipeline deal. These include, the harmonisation of the Host Government Agreement (HGA)  Implementation Tullow entered into a Sale and Purchase Agreement to farm down 21.5% of the participating interests to Total E&P and China National Offshore Oil Corporation between Uganda and Tanzania, Share Holding Agreement and the Tariff and Transportation Agreements.

The above, alongside the conclusion on the Capital Gains Tax dispute between the government and the international oil companies, she said, are yet to be realized. Just like oil deals, the signing of the HGA has dragged for years. In May 2017, Uganda and Tanzania signed the Inter-Governmental Agreement (IGA) for the pipeline project.

The IGA provided a foundation for other project agreements, including HGA, Shareholders' Agreements and other Financing Agreements. However, three years later, none of the above agreements have been realised. Earlier, Uganda and Tanzania had promised to sign HGA before end of 2018, however, the targets were moved to 2019 and now 2020.

The HGA will ensure that both Uganda and Tanzania benefit from the Oil Pipeline project. Currently, the energy ministry documents indicate that nine meetings for negotiations on the Host Government Agreement have been held with the pipeline project team.

On the harmonisation of the Host Government Agreement, the minister said, four meetings have been held and that harmonisation stands at 90%. Once this is concluded, it is expected that negotiations for the Shareholding Agreement, and the Tariff and Transportation Agreement will commence.

"It is expected that the Final Investment Decision for the East African Crude Oil Pipeline will be undertaken following conclusion of these key project agreements," a document on the status of oil and gas activities reads.

The status report was recently handed over to the new Minister of Energy and Minerals Development, Dr Mary Goretti  Kitutu. According to the document, for the FID to be undertaken, international oil and gas companies demanded that the Host Government Agreements are concluded. The HGA will also pave way for the signing of the Share Holding Agreement and the Tariff and Transportation Agreements for the project. According to the document, the realisation of FID is pegged on the progress in the above negotiations.

This implies that the shorter the negotiations, the closer the deal, and the longer the negotiations, the further the delays. Under the current progress, the document said, the government had targeted to undertake the FID during the current first quarter of 2020. With this development, it means, the deal is likely to be signed between now and March 2020.

Other delays

In her handover report to Kitutu, the former energy minister Irene Muloni told Journalists that Front-End Engineering Design (FEED) for the pipeline was under review by the government. According to Unitel Technologies, FEED is an engineering design approach used to control project expenses and thoroughly plan a project before a fix bid quote is submitted.

In addition, she said, an engineering procurement construction management (EPCm) contractor, Worley, was identified and started on the EPCm for the project early works. "The detailed design work for the pipeline and its Above Ground Installations (AGIs) will commence as soon as the FID is taken," Muloni said.

At the handover, Muloni said, a number of technical studies including geophysical and geotechnical surveys for the pipeline route in both Uganda and Tanzania have been completed.