Details of Uganda-Tullow Oil Deal Revealed

Kampala, Sep 28, 2009 (New Vision/All Africa Global Media via COMTEX) -- TUOIF | Quote | Chart | News | PowerRating -- UGANDA secured one of the best deals in the world for its oil exploration.

In an exclusive interview with Saturday Vision, Tullow Oil, the biggest oil company in Uganda, revealed that for every 10 barrels, the Government gets eight.

"Only one country in Sub-Saharan Africa has better terms than Uganda and that is Angola. In Ghana, the government gets 60%," said Aidan Heavey, the chief executive officer of the Irish company, which has so far invested $500m in Uganda.

The deal is the more remarkable as Uganda is landlocked. This implies that it takes the oil company longer to get its money back than, for example, in Ghana where the oil is produced in the sea and exported as crude oil.

"The area we are working in is 1,200km from a port. We have terms that are very much in favour of the Government. It is expensive to work with waxy crude. Yet, we still pay 100% of the costs."

According to Tullow, 800 million barrels of oil have so far been confirmed in Uganda but they are looking at a potential of two billion barrels.

"Of what we have discovered so far, the impact on Uganda would be about $2b (sh4 trillion) a year in revenue for probably 20 to 30 years. The country now has an asset worth nearly $50b (sh100 trillion)."

In comparison, Uganda's total budget for public expenditure this financial year is sh6.6 trillion. In addition, he reckons 10,000 jobs will be created as soon as oil production starts. "It will be transformational to the whole area."

Asked if Uganda should refine the oil rather than export it as crude, Heavey said a proper evaluation needed to be done on the needs of Uganda and the region, and what was financially possible.

"The idea of Uganda having a refinery makes absolutely common sense. The only issue is the size and type of refinery."

Tullow Oil is currently negotiating with the Congolese government to get the concession for the other side of Lake Albert, arguing it would streamline the operations.

"We have a culture of being very strict on environmental and social issues. It is very important that whoever is working on the other side of the lake has the same culture," he said.

"From an environmental point of view, the last thing you want is pollution in such a beautiful area. If you have an oil spill in the lake, it would be a disaster for the villagers."

He noted that enough oil had been discovered for Uganda to go alone but that it made sense from a regional point of view to produce the oil from Congo and Southern Sudan through one system.

"It might make sense if you had a central hub for distribution in Uganda and have other countries linked to that central hub. That would be a cost-effective way of doing it. It could be a project that brings stability in the whole area."

The Tullow boss dismissed concerns raised by NGOs that oil is a curse. He argued that when oil was found in Africa 40 years ago, there were few controls and regulations.

"Most of the contracts were in favour of the foreign companies. There was little regulation in relation to transparency, environmental and social issues. Quite frankly, some of the things that happened in the past were a disgrace. The oil companies have a lot to answer for."

The world has changed a lot, he said. "Today, oil companies have to be transparent. They have to consider environmental and social issues. The terms now are very much in favour of the governments. The system of regulations has changed dramatically."

Tullow, which currently works in 16 African countries, strives at making its two biggest investments in Africa examples of how it should be done.

"We are involved in two huge projects, in Uganda and Ghana. It is very important for us and our reputation that these prove to be the opposite of what people think."

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