Rival groups fuelling death of infant oil industry

An audit done earlier by Ernst & Young raised some queries about the verification of the sums that the oil firms claim to have invested but a technical audit, which certain government technocrats are reluctant to do, would help set a benchmark and a reference point for future oil well drilling activities.

Vultures ahead
None of the officials in the oil firms, the energy ministry, Uganda Revenue Authority or other government officials were willing to comment on this matter, citing its sensitivity. Those officials who spoke to us did so on condition of anonymity in order not to jeopardise on-going negotiations between government and the oil firms.

Our investigations, however, reveal that the absence of strong institutions and predictable government positions has allowed personal interests to interfere with government policies and positions.

Several months after a Petroleum Bill was drafted to set up a National Oil Company as well as the relevant laws to explore, produce and refine the country’s oil resources, it is yet to be discussed and passed by Cabinet – and is likely to be pushed to the back-burner during the silly election season.

The lack of these institutional safeguards has left decision-making vulnerable to the clash of egos and personal interests. It has led to the government sending out contradictory positions and left Uganda’s young oil industry vulnerable to the vultures. And it appears that you either join the vultures or risk being devoured by them.

Remember the text message sent to Eng. Onek’s cell phone? Well, security sources investigating the matter told Daily Monitor that the account number and bank named in the text message do not exist. The phone used to send the text has been switched off since and the matter has all the markings of a malicious hoax.

Ugandan oil timeline

*1997 Heritage Oil starts exploring for oil in Uganda, this is the first time oil exploration activities have taken place in Uganda in over 60 years.
*2004 Tullow acquires energy Africa shares for $500 million and enters the Ugandan Market.
l2006 Hardman Resources announces the first successful commercial discovery of Oil in Uganda and commences to generate a series of positive and encouraging media reports about every find they make.
*2007 Heritage Oil announces King fisher find, a maximum flow rate of 13,893 bopd is estimated making this the biggest find in Uganda at the time
*2007 Tullow acquires Hardman Resources gaining 100 per cent interest and operatorship of Block, which is 50 per cent at 1.1 billion, the deal is inflated given that the two Heritage blocks go for 1,450 billion much later in 2010.
*2008 Tullow fails to achieve early production promise, blames it on world prices.
Tullow announces Ngasa find, this cost $100 million for a single well which is the most expensive ever drilled in Uganda yet very little oil is actually found, mainly gas.
*2009 Tullow announces it wants to sell a portion of their assets in order to develop the oil fields in Uganda including construction of a refinery.
*November 2009 Tullow announces a sale of some of their assets will take place in Jan 2010.
December Government blesses Eni - Heritage deal and announces that Tullow will not be allowed to stand in the way of the deal. Mid December Tullow vows to stop the Eni-Heritage deal.
Government backtracks, issues statement through the State minister Lokeris. Line minister Onek is silent and refuses to comment.
*January 2010 the Italian Foreign Minister visits Uganda and promises his government’s support for the oil sector including construction of a refinery.
*January 2010 Tullow drops plans to sell its assets in Uganda - announcement made by the Aiden Heavey. Eni CEO Scaroni announces they have a 14 billion dollar development plan with financing ready for Uganda.
* January 2010 Tullow preempts the ENI Heritage deal on the January 17 basically they are forced to do so. They stand to lose on the 1.1 billion investment made by buying Hardman which appears to be a less attractive than previously thought.
*February Tullow announces shares will be floated on the Ugandan stock exchange by April.
*February Heritage and Tullow announce sale of Heritage to Tullow will take place in the first quarter of the year
*April – June Taxation becomes a big issue Government insists Heritage should pay capital gains on the transaction. Negotiations take place
The case drags on for 6 months
*July 2010 6; A month preemption deadline about to expire.
July Heritage threatens to withdraw from the SPA and sends a letter to that effect to Ugandan government. Government asks for and is granted a one week extension
HO officials return for talks, Government insists tax must be paid and declines Heritage offer of a 30 per cent deposit and arbitration in the UK as per the PSA.
Heritage officials fly out of the country
*July 2010 Heritage and Tullow meet in London Heritage threatens to withdraw from the whole deal if Tullow do not pay Heritage. Fearing a breakdown of the whole deal, Tullow decides to pay Heritage. This is a huge commercial risk taken without the consent of the Government and Tullow shareholders. Tullow pays this money in the belief that Government will be put under pressure to give unconditional approval for the takeover of the Oil assets.
Tullow announces the takeover of Heritage Uganda.
The Minister signs a conditional consent for the takeover, in London Tullow claim they have received unconditional consent.
Tullow shares rise sharply on the LSE. The President announces the deal is void till the tax is paid and he takes over all negotiations related to the oil industry in Uganda.
*August 2010 Tullow officials including Aiden Heavey fly into Uganda for talks to resolve the issues.
President insists the taxes must be paid otherwise the deal is off. A letter is sent by government to Tullow indicating the appraisal licence for block 3A will not be renewed or extended and the Government plans to take back ownership of this block. Tullow share price on the LSE loses 1 Billion pounds in four days
Government tells Tullow to stop drilling activities in Block One after completion of the next appraisal well till transactional and tax issues are resolved.
*September 4 2010 Tullow officials fly into Entebbe for emergency talks with the Government as the September 7 deadline for Block 3A approaches.