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Saturday, 20 February 2010 13:53

Oil Giants Rush For Fields

By Mikaili Sseppuya

KAMPALA, Uganda, February 18 (Business Week) — Russian, Chinese, French, Italian, Indian and other oil companies are among firms that have already expressed interest in investing in Uganda's oil reserves estimated at 2 billion barrels to date.


 A press statement from the State House recently said President Yoweri Museveni had met a delegation from Tullow Plc, led by Mr. Paul McDade, the Chief Operating Officer and Mr. Elly Karuhanga, the president of Tullow Uganda.


Tullow is the major oil explorer with oil fields in the Albertine Rift Valley 250 kilometres west of the capital, Kampala. The statement said the Tullow Plc delegation was later joined by a group from the China National Offshore Oil Corporation which expressed interest in joining Uganda's oil and gas sector by partnering with Tullow.


It quoted President Museveni as saying the "government will discuss all proposals by companies operating in the oil and gas sector adding that the country looks forward to welcoming prospective investors.


Earlier, Russian Lukoil also expressed its interest through its Vice President for Business Development, Mr. Andrei Sapozhnikov, who presented proposals to President Museveni.


"Sapozhnikov expressed interest in the oil exploration, refinery and the training of local manpower to facilitate the development of the sector," a statement from State House said. Lukoil, according to the firm's website, is Russia's second largest oil company and the second largest private oil company worldwide by proven hydrocarbon reserve. it understood that Libyans and Italians have long had an interest in Uganda's oil.


Earlier the London Sunday Times newspaper had reported that CNOOC was negotiating to buy 50% of Tullow's holdings in blocks 1, 2 and 3A in the Albertine Graben at a US$2.5billion


Last week, Italian Eni SpA withdrew its offer to Heritage Oil and Gas Company for its 50% of shareholding in Blocks 1 and 3A after Tullow had exercised its pre-emption rights as partner to take over that share for US$1.5billion. French oil giant Total was also reported to be in the running for Tullow's stake. It had been a favourite with Tullow all along.


Sources close to the oil industry said contracting agreements in the oil industry are complicated.


"The process of getting oil contracts completed is a complicated business and people should not just jump to conclusions about company A or B getting this or that tuff," the source said. "It is, however, definitely a good thing if many interested firms make offers for Uganda's oil. Some of the firms making offers may be just rivals trying to spoil the market for other players, carrying on their rivalry here," the source said.


They also explained that it could be easy to jump to unjustified conclusions. "These arrangements do take time and have complex legal and serious financial implications," the source said.


"The parties to them are not like any firm because they have interconnections so anything hastily done may unravel a deal which takes so long to weave, and the country might find itself stuck with nobody willing to risk dealing with you or your oil."

Uganda's oil is sweet and waxy meaning it contains little sulphur, which is good but being waxy means it solidifies at room temperature making it very expensive to transport as crude and its location, is far and difficult to extract.


Developing the infrastructure needed to get the oil out of the ground to the market, is very expensive business which involves a lot of planning. Oil exploration has been going on for sevearl years but the first oil discovery was found in 2006.

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