Govt supports Eni’s bid in oil deal

Jun 01, 2010

UGANDA wants Italian oil firm, Eni, to be involved in the development and production of its nascent oil and gas industry. The move is aimed at tapping the firm’s financial muscle.

By Ibrahim Kasita

UGANDA wants Italian oil firm, Eni, to be involved in the development and production of its nascent oil and gas industry. The move is aimed at tapping the firm’s financial muscle.

Eni is interested in Heritage Oil’s 50% stake in exploration blocks 1 and 3A in the Lake Albert basin valued at $1.5b.“Eni has expressed a desire to be given an opportunity to participate in the development of exploration areas 1, 2, and 3A in which Tullow is a major holder,” Fred Kabagambe-Kaliisa, the energy ministry permanent secretary, stated in a May 21 letter.

“It had also indicated that it had prepared an integrated development strategy for the oil and gas sector.”Uganda is about to start producing oil after confirmation of the presence of two billion barrels of oil in the Lake Albert basin.

Oil and gas operations are moving into the development and production stages, which require the necessary risk capital, access to project finance and long-term investments.

However, the oil reservoirs must first be tested and appraised. Power generation and transmission facilities may cost $300m, oil processing and transportation equipment $1.5b, refinery development $2b, further drilling $200m and expanded storage and pipeline infrastructure $4b.

The energy ministry is now carrying out consultations to ensure that Eni, with a market capitalisation of over $100b and equity production of about two million barrels per day, joins the industry.

The firm operates in 77 countries. The permanent secretary revealed that Eni had expressed its interest in the Heritage stake even before Tullow pre-emptied the deal. “Eni wants to participate in the exploration and production operations of the oil and gas sector and to carry out oil processing,” Kaliisa pointed out.

The Italian firm, listed at the Milan and New York stock exchanges, spent close to $15m preparing an integrated oil and gas development plan for Uganda. This was when it had entered into a sales and purchase agreement to buy Heritage’s 50% interest in blocks 1 and 3A.

“We will approve a company whose market capitalisation is three times the size of the required investment,” Kaliisa explained.

The required investment is about $10b.However, Paul McDade, the Tullow chief operations officer, said Eni would not join the share sale deal.

“I can confirm that Eni’s participation in our farm-down process will not be possible,” he said in a May 25 letter. He reasoned that if the Italian oil giant participated in farm-down process, it would raise questions of “transparency of the arrangement.”

“To suggest any change at this stage will, we believe, adversely affect the basin development timetable. It will destroy the goodwill that has been built among the proposed partnership and with the Government.

“It is also unacceptable to us, Total and CNOOC,” McDade said.“We look forward to getting all the necessary consent papers to complete the deal with Heritage and execute the farm-down arrangements.”

Uganda wants to license several oil firms to avoid monopoly. The firms must also support the Government’s development strategies, including early commercialisation of the oil resources, value addition and training of Ugandans in oil-related activities and processing.

This calls for a strong operating experience in refining and pipeline development, which, experts say, Eni has developed over the years.

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