19 June 2012

Africa: Uganda First in Queue, Says Tullow's Heavey

In his first public appearance in Uganda, Aidan Heavey, Tullow's Chief Executive Officer, said "Uganda is first in the queue" in the areas it intends to invest heavily in in Africa.

He also said that developing Uganda's oil industry will require about $12bn to $14bn, a revised figure from the $10bn that has for long been thrown around.

"We [Tullow] are great believers in Africa. We are not going anywhere. We are 100% committed to having Uganda oil come on stream. Uganda is first in the queue...", said Heavey. He was speaking on the sidelines of a Tullow Oil-sponsored cocktail for the Uganda Chamber of Mines and Petroleum, a body that lobbies for a conducive working environment for both government and investors.

Heavey's statement about the symbolism of Uganda's potential to Tullow's investment portfolio is heavy; it sheds more light on the company's plans in East Africa, where it has struck oil in Kenya and is eying gas prospects in Tanzania. The statement makes strong clarification to what is becoming an intense yet fuzzy debate about the oil resource potential between Uganda and Kenya.

Although Uganda struck oil in 2006, and has had a more than 90% successful discovery rate, fetching the country so far 2.5 billion barrels of oil, Kenya's discovery of oil at the Ngamia well in March totally changed the oil play in the region. Online debates raged that Kenya might have more oil than Uganda since the Ngamia basin was far bigger than Uganda's entire oil region.

Others speculated that if Uganda decided to continue with its rigid stance as witnessed in the past during the impasse on the capital gains tax and the stabilization clauses, then Tullow just might decide to put much of its attention - and money - on Kenya. Heavey, however, said that the company has enough capital to undertake all its projects at once. The company has assets worth $20bn - that is more than the value of Uganda's Gross Domestic Product.

To be sure, Heavey said that it was important for governments to create an enabling environment because there is currently little money chasing after investments. He said those governments offering a stable investment environment currently attract the largest amount of capital. Heavey, who was in the country recently to meet President Museveni and a host of ministry of Energy and Mineral Development officials, said that their meeting discussed the oil development plans in the Albertine graben, "financial issues" and "world affairs".

The issue of finance is becoming an important point of discussion as Uganda's government looks for funds to have appropriate infrastructure in place for the oil industry. At the moment, it is not clear where government will find close to $2bn to build a refinery. Government is still pushing for a public private partnership with the other East African states to share the financial burden of building the refinery. But with Tullow striking oil in Kenya in March, there are worries that Kenya - East Africa's largest economy - might pull out of such plans as it has an underutilized 70,000 barrels per day refinery in Mombasa.

About two weeks ago, the United Nations Development Programme called for proposals for a feasibility study to establish an international Diaspora bond. Part of the money from the bond is to help Uganda put in place effective infrastructure for the oil industry. Elly Karuhanga, the chairman of the chamber and chairman of Tullow Uganda, asked Heavey to put Uganda back at the forefront of the company's investment plans after a torrid time, that, he said, was in the past.

He was alluding to the turbulent time when Tullow first fought off interest from Italy's ENI to buy Heritage Oil's assets in early 2010, Government's insistence for Tullow to pay tax on behalf of Heritage in 2011, bribery allegations lodged against the company in October 2011, and the delay to sanction the Irish firm's farm-down of two thirds of its assets to China's CNOOC and France's Total E&P.

Robert Kasande, project manager of the refinery development at the Petroleum Exploration and Production department, said government is now ready to support the oil industry's plans. Heavey also delved into the controversial subject of whether Uganda should have a refinery or pipeline. He said that Uganda should consider the option of having both. "You cannot have an oil industry without a pipeline," he said. "The refinery is just an offshoot for the oil industry."

The option of the pipeline is crucial because it widens a country's option if the internal demand for the petroleum products is not enough. That way the country can export the products to other parts of the world.

Plans to build a pipeline from Eldoret in Western Kenya to Kampala continue to meet challenges; Libya's Tamoil, which won the tender to undertake the project, was hurt by last year's uprisings in its home country and both the Kenya and Uganda governments, which have a stake in the project, are yet to agree on some of the key elements like costs of the project.

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