Saturday February 4 2012

Government, Tullow sign fresh oil agreement

By Barbara Among

The government and oil company Tullow have signed a fresh Production Sharing Agreement; giving the UK-based company rights over the oil fields and rights to sell it is shares in the fields.

As a result of this signing, Tullow will now finalise arrangements with China Oil Company, CNOOC and France’s Total for completion of the farm-down and the related transfer of monies. The agreement signed today is for exploration licences over Exploration Area 1 and Kanywataba Prospect and also the Kingfisher field.

“On the recommendation from government, Tullow is expected to farm-down, or partly divest its assets in Uganda to CNOOC and France’s Total for completion of the farm-down and the related transfer of monies.

The agreement signed on Friday is for exploration licences over Exploration Area 1 and Kanywataba Prospect and also the Kingfisher field.

“On the recommendation from government, Tullow is expected to farm-down, or partly divest its assets in Uganda to CNOOC and Total as agreed in the MoU,’ said Energy Minister Irene Muloni. She said the Cabinet had approved the deal despite a protest from Parliament.

According to Ms Muloni, the farm-down will facilitate raising the required capital for development of the oil fields discovered in the country to-date and the new licences yesterday are key to the conclusion of the farm-down. This would also avoid a situation where Tullow has monopoly in three Exploration Areas.

“The legal opinion received was that the resolutions were advisory to the Executive. These resolutions have been discussed by the Executive in Cabinet at great length and His Excellency the President wrote to the Honourable Speaker of Parliament in regard to the resolutions. The Ministry has subsequently been cleared to conclude these transactions,” Ms Muloni said in a statement.

Tullow has also presented plans of how the three companies will partner in the two licenses with each holding 33.33 per cent interest. The Joint Operating Agreement between the companies provides that Total will operate Exploration Area 1, Tullow will operate Area 2 and CNOOC will operate the Kanywataba Prospect Area and the Kingfisher field.

It was agreed in the MoU that the government would return the Kingfisher Field to Tullow if the taxes were paid and upon Tullow’s application pursuant to Section 20(3) of the Petroleum Act. According to government, Tullow paid the taxes April 7, 2011. The company also duly applied for a production licence over the Kingfisher Field.

However the Production Licence for Kingfisher will become effective within one year subject to Tullow satisfying requirements such as giving minimum plans together with the exploration expenditure and an advisory committee consisting of representatives from government and the licensee to review and approve all annual exploration work programmes, budgets and production forecasts.

It was also announced yesterday that Tullow agreed to government’s policy of establishing a refinery in the country and consideration for export of crude will be made as more reserves are discovered in the country.

Mr Aidan Heavey, Chief Executive Officer of Tullow, commented yesterday: “Today’s (yesterday’s) signing is a vital step towards the development of the Lake Albert Rift Basin and the oil and gas industry in Uganda and East Africa. I look forward to working in partnership with the government of Uganda and CNOOC and Total as we progress this world-class asset.”

The renewals come just a week after President Museveni revealed that the companies involved in the deal had requested to include a stabilisation clause to shield them from possible loses in case Uganda increased its tax policy but the failure to agree on what sort of formula to calculate any compensation now stands in the way of the $2.9 billion (Shs7.3 trillion) deal.

Several explorations licences of the main oil fields expired over a year ago meaning that Tullow had continued manning oil wells without legal documents. They include exploration licence for blocks 1, 2 and 3A.

Although Tullow had signed a memorandum of understanding (MoU) with government on March 15, 2011, subsequent to which it paid $313m (Shs816.6b). The said MoUs were not enough to facilitate the farm down between Tullow, Total, and China’s oil company, CNOCC.
Government asked the company in September 8, 2010 to vacate the oil fields.

The third and last exploration period under the Production Sharing Agreement between government and Tullow over exploration Area 31 of the Albertine Graben expired and the Kingfisher field area had reverted back to government. The exploration licence had been granted on 8 September 2004.

bamongi@ug.nationmedia.com

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