Uganda set to sign pact with Tullow to allow for oil production

Story by Reuters

Uganda has completed negotiations with Britain’s Tullow Oil and its partners and will soon sign an agreement that could pave the way for the start of crude production. East Africa’s third-largest economy struck hydrocarbon deposits in the Albertine rift basin but commercial production has been delayed and is not expected until 2016 at the earliest.

In a speech at a private function for Tullow late on Thursday and seen by Reuters on Friday, energy minister Irene Muloni said the government would shortly sign the memorandum of understanding (MoU) with Tullow and its partners, France’s Total and China’sCNOOC. Developing Uganda’s oil fields and building the required infrastructure would cost between $15 billion and $22 billion, although there were plans to try to reduce that, Muloni said.

‘Negotiations about this MoU are now fully complete and we anticipate its signing very soon. This is a significant milestone since the market framework is critical for the commitment of project financing,’ she said. Muloni did not say when the signing would take place. The pact will detail the facilities required to be put in place, such as pipelines and a refinery, the roles of the different parties, and the flow rates for oil fields before actual production can start.

Uganda, which has 3.5 billion barrels worth of crude reserves, has agreed with oil firms to both a medium scale domestic refinery and a pipeline connecting to Kenya’s newly-built Indian Ocean port of Lamu to export excess crude. The refinery is to start with a small processing capacity of 30,000 barrels per day but is expected to be scaled up and capped at 60,000 barrels.

Tullow has previously said Uganda could earn about $50 billion from its oil resource over the fields’ production life, estimated to be several years.