Angelo Izama

Source: allAfrica.com

11 September 2011

 

Uganda's nascent oil sector is abuzz with news of formalisation of a partnership between three oil companies next week, which executives say will "unlock production.

 

The signing ceremony between Tullow Oil, French-based company Total and China's National Offshore Oil Company (CNOOC) this week, concludes their merger process known as a "farm down".

 

According to Tullow's Corporate Communications officer Jimmy Kiberu, until now, the company has been the interim operator of the three oil blocks in western Uganda, which are the subject of their partnership talks.

 

Top company officials led by Tullow's General Counsel and Graham Martin Jacque Marraud Des Grottes, the senior vice president for exploration and production in Africa, will represent Total at the ceremony to be held on September 15.

 

Seeking licence

 

Once signed, the three companies, will move beyond exploration to a production phase, whose activities are yet to be determined.

 

However, Mr Kiberu says they are yet to get a production licence from the government of Uganda to start developing their oil fields. In an interview, he said the six-month negotiation process has been a learning curve for the three companies.

 

Uganda's oil sector had been hit by contentious tax disputes that preceded the entry into the market of Total and CNOOC.

 

The disputes involving Tullow's takeover of assets belonging to former partner Heritage Oil had threatened to undermine confidence in the sector.

 

"Progress has been made on paper and we are looking at a production licence for Kingfisher (one of the oil fields that is ready for extraction)," Mr Kiberu said.

 

Calculated deal

 

On Friday, the head of the Petroleum Exploration and Production Department (PEPD), Mr Ernest Rubondo, said the government welcomed the entry of larger firms into the market, adding that since oil had been discovered, its extraction was only a matter of time: "We are still finalising a few things but all seems set to go next week."

 

Mr Rubondo said the partnership would bring a variety of capabilities from Total and CNOOC, whose "pockets are deeper" and have bigger operations outside Uganda. It is understood that in anticipation of production, the companies have been hiring new staff and acquiring offices and equipment.

 

According to sources, Total intends to commence operations with 50 expatriate staff and close to 300 locals.

 

Mr Rubondo, however, said the government is working with the companies to reduce the number of expatriates in favour of locals.

 

Uganda has no pipeline to move crude or a refinery yet and while industry insiders say negotiations are advanced to make crude oil available for electricity production, it is not clear if the price per barrel has been agreed or if and to what extent capacity is available to generate electricity from local oil.

 

It's also unclear if production means sharing the oil barrels between the government and the oil companies - who will sell their crude for that purpose.

 

While Mr Rubondo has described the government systems as "streamlined" for oil production, there is no separate law yet for the management of the sector after government withdrew two bills it had initiated for the sector.

 

Instead, government officials tell this newspaper that a new law, the Public Finance Act, currently in a draft form, will be the primary legislation to manage the relationship, especially financial, between the government and the companies.