Uganda: Eni pounces on Lake Albert oil
Eni makes bid to purchase Heritage
UGANDA's undeveloped Lake Albert oil basin could become an Eni province, if the Italian company's bid to buy Heritage's assets succeeds. But, in December, Heritage's partner in the basin, Tullow Oil, was considering mounting a challenge to Eni, with the aim of bringing in new partners on its own terms.
Tullow had started the process to bring in another participant for the basin's development – which will involve constructing a pipeline across Uganda and Kenya to the coast in October, but negotiations were overtaken by the late-November announcement that Heritage had agreed the sale of its Ugandan assets to Eni.
Eni agreed to pay $1.35bn plus a contingent $150m for Heritage's 50% interests in Blocks 1 and 3A and was to take over as operator. Tullow holds the other 50% of the blocks and also holds 100% of Block 2, lying between them. Heritage, a UK-based company, said that as a result of the sale it would not continue with its planned acquisition of Turkey's Genel Energy, which holds interests in Iraq.
Tullow's immediate response was to say it was considering using its right of pre-emption to buy the Heritage interests itself. The firm was understood to have had until the end of December to make its move. Tullow would then farm-out to new partners of its choosing – although the choice would have to be approved by the government, which has been pressing for a refinery to be built in Uganda as part of the oil development and is likely to push for a firm with downstream experience.
Eni and Tullow both have strategies for developing in Africa's new oil areas. Recently, Eni has been making government-level agreements covering exploration linked with social projects, while Tullow lays emphasis on its ability to work non-confrontationally with African governments. Eni's bid to emerge as operator for the two Lake Albert licences would leave Tullow in the shadow of the much larger company – and there was speculation last month, although Eni rejected it, that the firm might seek to strengthen its position further by farming-in to Tullow's holdings.
Tullow says reserves in the Lake Albert basin have exceeded the threshold for commerciality, with 0.7bn barrels of contingent resources discovered. About 1.5bn barrels remains to be found, according to the firm's estimate. So far, about 28 wells – mostly into shallow targets – have been drilled in the basin, with a high success rate. There are forecasts that production could reach 150,000 barrels a day. But, with a long and costly pipeline and a refinery to be constructed, the basin is certain to be a high-cost development.