Uganda oil inches forward
Uganda hopes to see its first crude oil exports by 2022
The partners in Uganda's oil export project insist they are still on track to make a final investment decision (FID) by mid-2019, as obstacles on the path towards first production are slowly cleared.
Total, China's Cnooc and UK independent Tullow are developing discoveries in the Lake Albert region of landlocked Uganda, which is estimated to have total resources of some 6.5bn bl of crude oil in place. Production will be transported from a hub at Homa, near Lake Albert, to Tanga on the Tanzanian coast through a 1,445km (898 mile) pipeline, with a capacity of around 216,000bl/d. First exports had originally been pencilled in for 2020, but various delays have led the government to shift the date back to 2022.
One major blockage that may be close to removal is a long-running tax dispute between Tullow and the Ugandan government. This has prevented the planned $900mn farm-down of Tullow's one-third stake in the development to Cnooc and Total, which would leave Tullow with a stake of around 10%.
Tullow said in February that an agreement over the amount of capital gains tax was near completion. "It's been a long time coming, but we feel we are over the final hurdle and now the paperwork is being prepared," said the firm's chief executive Paul McDade.
Upstream and pipeline front-end engineering and design for the project were completed in 2018, ahead of the planned award of engineering, procurement and construction contracts in 2019.
Tullow made the first large Ugandan discoveries over a decade ago. It says environmental and social impact assessments (ESIAs) for both the Tilenga and Kingfisher developments that comprise the project were submitted to the national environmental management authority for review-approval is expected in the first half of 2019. Tilenga, at the north end of Lake Albert, is being led by Total, while Kingfisher, in the south, is being led by Cnooc.
Progress has also been made on securing land access, and the development of transport infrastructure, such as roads and an airport, needed for the project to proceed, according to Tullow. In 2018, Uganda signed an agreement with a GE-led consortium to build a refinery to process 60,000bl/d, which is likely to cost upwards of $3bn. The government says it is expected to be operational by 2023.
Ensuring the logistically complex, heated pipeline to Tanzania is completed on schedule may prove to be the biggest headache for the developers. Total, which is leading the $3.5bn pipeline development, is confident that it will be sufficiently advanced for FID to be taken in June or July, while Uganda's energy minister Irene Muloni has insisted the pipeline will be operational by 2022.
Project financing for the pipeline has been "progressing well", according to Tullow. "In the first half of 2019, the [joint venture] partners anticipate completing key commercial, technical and land agreements with the governments of Uganda and Tanzania as well as the submission of an ESIA for the pipeline to both governments," the company said in its 2018 results statement.
However, by late February, Uganda and Tanzania had yet to sign the host government agreement (HGA) needed for the pipeline to progress, as they struggle to agree on revenue sharing, local content and other issues. The two countries have set a deadline of end-June 2019 to complete the HGA.
Further delays would be unhelpful not only for the existing project, but also for future investment, with confidence in Uganda's ability to complete oil developments on time taking a further knock. A new licensing round, due to be launched in May 2019, will test investor interest.
The Uganda National Oil Company (UNOC) said in September 2018 that it planned to jointly explore fresh acreage in the Lake Albert region with Cnooc. The companies signed a memorandum of understanding to work towards identifying and developing a block in the Albertine Graben, though details have yet to emerge.