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Ronke Luke

Ronke Luke

Ronke Luke has experience advising senior executives (including at the ministerial level) on initiatives to develop and increase uptake of advanced energy and environmental technologies…

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Total Ups Its Stake In Uganda’s Oil Development

Total increased its stake in Uganda’s oil development with the purchase of 64.71 percent of Tullow Oil’s interests in Exploration Areas 1, 1A, 2 and 3A. The agreement announced by Tullow Oil (Tullow) on January 9, 2017, was effective as of January 1, 2017. The sale, for $900 million, leaves Tullow with an 11.76 percent interest in Uganda’s upstream and pipeline development project.

In August 2016, Uganda granted Total and Tullow 25-year licenses for Exploration Areas 1 (EA1) and EA2. The firms were expected to make final investment decisions within 18 months of the issuance of the licenses, with first oil expected in 2020.

Tullow retains interests in Uganda, but Total and CNOOC now appear to be the leaders in developing Uganda’s oil fields. Tullow entered Uganda in 2004. In 2009, the Irish firm confirmed commercial quantities of oil in Uganda’s Lake Albert Rift Basin. It farmed down its equity for $2.9 billion to Total and CNOOC in a series of transactions that gave each partner an equal third share in basin development.

After agreeing in August 2015 to a joint pipeline with Kenya along a northern route, Uganda broke with its neighbor to announce in October 2015 that it was pursuing a southern route with Total through Tanzania.

Although the two countries don’t admit to being in a regional race to be first, in December 2015, media in Kenya reported that President Kenyatta convened a State House Team to report to him the modalities necessary for Kenya to become an oil exporter by September 2016. Just before this deadline, Tullow announced in August 2016, that first oil – 2,000 barrels per day - was possible by June 2017. The solution involves transporting crude 1,089 kilometres by road and rail to the export terminal in Mombasa.

Related: Uncertainty Looms Over Australian LNG

Kenyan media indicates deep skepticism in some quarters. There is a strong view amongst industry observers that the economics make no sense. The quantities are too small and costs of transporting crude without a pipeline far outweigh any earnings Kenya may realize at current prices. Further, the rush to exporter status might backfire if Kenyans as a result demand reductions in their costs for refined petroleum products, placing an additional, fully avoidable, burden on the government.

Uganda is still committed to regional development. It plans a 60,000 barrel per day refinery complex to be supplied with crude from its discoveries. Total announced it would take a 10 percent stake in the $4 billion project. Sixty percent of the development is open to private investors; forty percent is reserved for regional governments. Kenya has agreed to take 2.5 percent of its 8 percent offering; indicating that it may also refurbish a mothballed refinery in Mombasa. Uganda is still looking for a construction partner for the refinery. Talks with RT GlobalResources LLC, a unit of Rostec State Corp. of Russia, and South Korea’s SK Engineering & Construction Co. so far have been unproductive. With its recent purchase of the majority of Tullow’s Uganda interest, Total is indicting its confidence in Uganda’s oil development plans.

By Ronke Luke for Oilprice.com

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