Museveni, oil firm bosses meet over Tullow-Total deal

Kampala. President Museveni on Monday evening agreed with the principles of Tullow Oil Plc selling off its majority shareholding in Uganda’s oil sector to French oil major Total E&P, as long as it will accelerate government’s ambitious plan of seeing first oil out of the ground by 2020.
The President, during the meeting with oil company executives, and technocrats from the Ministry of Energy at State House Entebbe, sources intimated, raised no objection but said he would continue consulting “my people to ensure everything is done in accordance with the law”.
In attendance were Total senior vice president for Africa Guy Maurice, Total general manager Adewale Fayemi, Tullow general manager Jimmy Mugerwa, Energy minister Irene Muloni, and heads of Petroleum Directorate and Petroleum Authority.
The meeting was convened to brief the President about the sale and purchase agreement transferring the Anglo-Irish exploration company’s interests to its French joint venture partner in Exploration Areas 1A (EA1) at the northern end of Lake Albert (in the Murchison Falls National Park), Exploration Area 2 (EA2) to the east of Lake Albert in the Butiaba region, and Exploration Area 3 (3A)-Kingfisher, in the Albertine Graben, for a total of $900m (about Shs3.2 trillion).
Tullow, which entered Uganda in 2004, now retains 11.76 per cent shareholding having sold off 21.57 per cent.
The company entered the then Uganda’s bleak petroleum sector after acquiring 50 per cent interests in EA1 and EA2 of Canadian oil explorer Energy Africa with the other 50 per cent belonging to Australia’s Hardman Resources and UK’s Heritage Oil and Gas Limited. In 2007, Tullow acquired Hardman’s interests and in 2010 took over that of Heritage.
In 2012, Tullow farmed down 66.66 per cent of its shareholding to Total and China’s National Offshore Oil Corporation (Cnooc) under a joint venture partnership (an arrangement usually short-term for a single purpose such as to share costs or access new markets) with each commanding 33.33 per cent interests.
The environment become frostier let alone bothersome to shareholders in London with the absence of a commercialisation plan, which was agreed to here in 2014 to have a crude export pipeline to either Kenya or Tanzania, and a mid-size refinery which the President has stuck to since commercial oil discoveries were announced in 2006.
In 2014, for example, having made an oil discovery at the Ngassa Fields (EA2) and announcing it with pomp in 2009, Tullow called off more appraisals and development works on the field in Buliisa District and also which stretches to neighbouring DR Congo, saying it no longer made economic sense.
The following year came with the erratic plunging of crude oil prices from from $100 per barrel to further downwards to below $50. Not just Tullow but all oil companies reacted by cutting operational costs, starting with employees and activities. Last year wasn’t any better. Tullow’s public Affairs director in Uganda Abdul Kibuuka told Daily Monitor that the main reason for the sale “is because the next phase is capital intensive and it would take long to obtain traditional capital finance from the market in a low crude oil price environment”.
Total now commands majority shares with 55 per cent and Cnooc, which got the first production licence for Kingfisher.
Total’s global CEO Patrick Pouyanné said in a statement issued yesterday: “Following the agreement on the Tanzanian export pipeline route, this transaction gives Total a leadership position to move this project efficiently toward final investment decision (FID) in the current attractive cost environment, while providing strong alignment and a pragmatic financing scheme for our partner Tullow.”
Both Uganda Revenue Authority officials and Energy minister Irene Mulono were unavailable for comment on the Capital Gains Taxes that the deal attracted but a senior official told this newspaper that a substantive position will be communicated pending “valuations, closing of the agreement and government approving the deal.”

Tullow projects

Since entry about 13 years ago, Tullow Oil says it has spent close to $2.8b (about Shs10 trillion) in the first phases of the oil production cycle—exploration and appraisal. In August last year, Tullow along with Total, were granted eight production licences climaxing the last two phases and paving way for the next phases leading to pumping of first oil—development and production—but which are capital intensive. Earlier projections put capital expenditure at $8b (about Shs27 trillion). Currently, the three partners are prepping for engineering feasibility studies that will form basis for final investment decision (FID) in the coming phases.

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