Oil Rig

Uganda’s planned oil refinery may start two years behind schedule after project studies were delayed.

The front-end engineering design ( FEED), initially due for completion last year, has only just begun, according to the country’s Energy Minister Irene Muloni made a statement in Kampala.
“FEED is just beginning and it will impact on the completion of the refinery. “For the refinery there is definitely a slippage,” Muloni said.

A consortium led by General Electric Co. is contracted to build the 60,000 barrel-a-day plant in the Hoima district of western Uganda. It will take oil from fields being developed by Total SA, Cnooc Limted. and Tullow Oil Plc, due to start flowing in 2020.
Minister Muloni said Plans have also been submitted for a 900-mile crude-export pipeline via Tanzania, which will be completed before the refinery.

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Other partners in the GE-led group, which will own a 60 percent stake in the refinery are Yaatra Ventures LLC, Italy’s Saipem SpA and Kenya-based private-equity firm FireWorks Capital. Uganda has said Total will also invest, as will the Tanzanian and Kenyan governments.
Muloni insisted Uganda is still targeting the start of oil production in 2020, even though Cnooc has suggested output may begin a year later because of delays to final investment decisions.

In 2006, Tullow began to get encouraging exploration results and flow tests from some initial wells. Further significant discoveries and appraisal success led in 2009 to the basin development commercial volume threshold being exceeded. Following further success, contingent resources are now estimated to be around 1.7 billion barrels of oil.

The Lake Albert Development Project is a major development which expects to achieve around 230,000 bopd when it reaches plateau. Development plans were approved by the government in August 2016 to develop the first 1.2 billion barrels of oil. The Government of Uganda has agreed an export route through Tanzania to the Port of Tanga.

Tullow farm down in Uganda
A series of transactions took place in 2010-2012 whereby Tullow acquired 100 per cent of the three licences before farming down a third of the equity to both CNOOC and Total. The transaction was for a total consideration of $2.9 billion and effectively unitised the basin equally between all three parties ahead the basin development.

On 9 January 2017, Tullow announced that it has agreed a substantial farm-down of its assets in Uganda to Total. Under the Sale and Purchase Agreement, Tullow has agreed to transfer 21.57 percent of its 33.33 per cent interest in Exploration Areas 1, 1A, 2 and 3A in Uganda to Total for a total consideration of US $900 million.

CNOOC Uganda Limited (CNOOC) subsequently exercised its pre-emption rights under the joint operating agreements to acquire 50 per cent of the interests being transferred to Total on the same terms and conditions. The farm-down leaves Tullow with an 11.76 per cent interest in the upstream and pipeline, which will reduce to 10 per cent when the Government of Uganda formally exercises its right to back-in.
The consideration is split into US $200 million in cash, consisting of US $100 million payable on completion of the transaction, $50 million payable at FID and $50 million payable at first oil. The remaining US $700 million is in deferred consideration and represents reimbursement in cash of a proportion of Tullow’s past exploration and development costs. The deferred consideration will fund Tullow’s share of the development and pipeline costs as the Lake Albert Development reaches a series of key milestones.

The Joint Venture Partners have officially notified the Government of Uganda of the farm-down, seeking its approval of the transaction. Tullow now anticipates that the farm-down will complete in the second half of 2018 with cash payment on completion and payment of deferred consideration for the pre-completion period (including the whole of 2017) being received in 2018.
Once production commences, the government’s current potential share of oil resources is estimated to be US $50 billion, representing approximately 80 per cent of oil revenues after exploration costs are recouped, based on approximate reserves of 1.7 billion barrels of oil.

Uganda’s petroleum history
Petroleum systems in rift basins, like the Lake Albert Rift Basin, were formed over eight million years ago. Natural oil seeps on the shores of Lake Albert have been recorded over many years and in 1938 the first exploration well was drilled. This well demonstrated that there was an oil source in the basin but it was nearly 70 years before any further activity took place. To date, oil has been discovered on the eastern shores of Lake Albert, and onshore to the north of the lake. While the area is highly prospective, it is also home to around 400,000 residents and recognised as one of Africa’s most beautiful environments.