11 May 2019

Uganda: Tullow Decries Oil Project Delays

Delays by governments in granting approval to oil projects risks eroding the value of Kenya's and Uganda's commercial crude oil discoveries, Tullow Oil has warned.

The firm's executive vice-president for East Africa Mark MacFarlane, said benefits do not start with crude output, "and further delays will affect the country and communities."

Tullow Oil Plc has invested over $4 billion in exploring for crude oil in north western Kenya and western Uganda leading to discoveries, but the period for obtaining approvals is delaying the final investment decision (FID).

Tullow with its partners need approvals to make the FID to build oil production facilities with crude export pipeline from South Lokichar to Kenya's Lamu port and Hoima in western Uganda to Tanzania's Tanga port respectively.

Tullow Oil Plc, Total SA and Africa Oil Corporation have jointly discovered 560 million barrels of commercial crude oil in South Lokichar basin which straddles block 10BB and block 13T in northwestern Kenya.

China National Offshore Oil Corporation (CNOOC), Total and Tullow have jointly discovered 6.4 billion barrels of crude in the Albertine basin in western Uganda near the border with the Democratic Republic of Congo.

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Albertine project's FDI was to be made before end of 2018 but was delayed as Uganda's government is yet to approve Tullow's farm-down (partial sale) of assets to Total and CNOOC partly caused by a capital gains tax row.

Tullow agreed in January 2017 to retain 11.76 per cent in exploration area 1, 1A, 2 and 3A for consideration of $900 million upon transferring its 21.57 per cent stake to Total under the sale and purchase agreement.

CNOOC exercised pre-emption rights on the same SPA terms and conditions under joint operating agreement to buy 50 per cent of stake to be bought by Total. Each of three firms had 33.33 per cent equity in EA 1, 1A, 2 and 3A.

The South Lokichar project has the potential to influence the dynamics of Lamu Port South Sudan Ethiopia Transport corridor.

The flow of 100,000 barrels per day will deliver benefits associated with the crude pipeline and Lamu port on the coastline.

FID for the South Lokichar field is expected to be reached by the end of this year for Kenya to export commercial crude by 2022.

The South Lokichar crude project is facing delays as Kenya is yet to negotiate legally-binding heads of terms relevant to establish commercial structures for field development.

Legally binding heads of terms have confidentiality clauses with enforceable obligations and termination procedure outlined. Non-binding heads of terms covers details of proposed agreement and target completion dates.

Mr MacFarlane said tasks that must be completed for the South Lokichar basin to reach FID by the end of 2019 include commercial framework agreements with Kenya's government, as well as agreements over land title and water supply.

"In Kenya, we need all levels of government to move faster and make decisions. We can only move as fast as the slowest government department," he said.

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