Government , Total finally agree on oil deal

What you need to know:

  • The demands also extended to having an elaborate Host Government Agreement – a contract that governs rights and obligations of a foreign investor in a host country with regard to a project.

Government is expected to announce a breakthrough in negotiations over the country’s oil and gas industry after a meeting between President Museveni and French oil company Total’s chief executive Patrick Pouyanne on Friday.

State House sources last night confirmed the meeting between the two officials but said a full statement would be issued on Saturday.

The statement is expected to reveal that the French company has reached a final investment decision on its oil interests in Uganda. The decision is usually the last commitment by investors and follows assessments that show the viability of the project.

The announcement is expected to unlock up to $10 billion of investment in the country to get the crude oil deposits out of the ground and onto the world market. Apart from the investments in the oil wells in western Uganda, the flagship project is expected to be a crude oil export pipeline to the Indian Ocean through Tanzania.

Other investments already underway include a new airport in Kibaale, near Hoima, roads in the part of the country with proven crude oil deposits, and an assortment of camps and other facilities to cater for the thousands of workers expected to work in the oil and gas sector.

Government plans to also build a refinery to process some of the crude oil within the country for the domestic and regional market.

Although efforts to get funding for the refinery have so far not been successful, it is expected that a decision to go ahead with the development of the oil fields and export crude oil might make the refinery project also viable.

In April Total announced that it would acquire Tullow Oil’s assets in Uganda for $575 million. While this was lower than earlier valuations, the move, which China’s CNOOC chose not to pre-empt, gave Total a controlling stake in the oil project and allowed it to move forward faster.
Tullow, which previously owned a majority stake after buying out Heritage Oil, has run into financial headwinds and was seen as unable to raise finances quickly enough for its stake in developing the oil fields.

Before the meeting today, Uganda had tabled demands to have the Uganda National Oil Company, the commercial arm of Uganda’s oil assets, join the project for the pipeline which will export the oil.

The demands also extended to having an elaborate Host Government Agreement – a contract that governs rights and obligations of a foreign investor in a host country with regard to a project.

“We have today reached major milestones that pave way for the Final Investment Decision in the coming months” a statement released by Total to the press after the meeting yesterday said.

It was the second time that Mr Museveni and Mr Pouyanne were meeting after the first ended in a stalemate.
Uganda is banking on Total E&P and CNOOC, which are the two companies in the joint venture for the country’s oil resources, to arrive at a Final Investment Decision, to start the drilling, refining and selling of the country’s oil resources.

A lot; from budgets to national development to Uganda’s economic miracle is pegged to the national oil.  So much so that Mr Museveni, following the meeting is quoted as saying;“Our oil will be used to develop our infrastructure, and ICT to enhance durable capacity of our country,” But Oil, he added, was  only a ‘small fraction of the national wealth’.

The Final Investment Decision, pegged at $3.5 billion will bring to life a 1445-kilometer-long oil pipeline threading through  Albertine to Tanga in Tanzania, that will not only be the world’s longest heated crude oil pipeline but will also be the biggest joint East African investment in the community’s history.

The meeting, it is reported from two statements, ended in the signing of the Host Government Agreement and a commitment from Mr Museveni to nudge President John Pombe Magufuli to ‘resolve other pending issues’.
Total, on it’s part, has committed to restart the acquisition of land on which the pipeline will pass.