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NEWS ANALYSIS
BUSINESS
Oil investors
fire workers,
close operations
What did the country do wrong
www.independent.co.ug
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COVER STORY
10
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COVER STORY
face. It announced
Japans Toyota Tsusho
as the winner of the
contract to carry out a feasibility study for
its oil pipeline. For Total, the sting in the
announcement made on centre court dur-
ing the Energy Sector Review conference at
Speke Resort Munyonyo in Kampala was
in the choice of pipeline route. Total had
wanted it through Mombasa; the govern-
ment had pushed it to another Kenyan port;
Lamu.
pushing enough. Whatever the case, few
in mid-January 2015, barely 100 days after
arriving at the French majors Kampala
headquarters on Plot 21, Yusuf Lule Road,
internal dynamic. Apparently, under his
friend, the former Total boss Christophe de
Margerie, who was killed in a plane crash
-
Francois Rafin
triates. Currently, only about 40 of the expa-
triates are remaining and over 30 of these
are set to be recalled by May.
Despite being bigger and richer, Total
E&P is following in the footsteps of Tullow,
Kenya and others in Ghana. And any time
this year, according to a source, London
is expected to give a directive for further
restructuring.
Errnest Rubondo
you cant keep holding back the whole sec-
tor simply because of just 2 or 5 percent of
the oil to be recoverable. What about people
who studied at Kigumba and in Trinidad
and Tobago and Dundee and are now on
the street with no jobs? What about Ugan-
dans who borrowed money and invested
and are now choking on these loans?
The former Tullow Oil President for
Africa likened the recalling of the Total boss
to a recalling of an ambassador by a country
after collapse in relations.
The Oil sector is highly risky, he told
The Independent, and it requires a lot of
money, which these investors borrow from
Issue 354.indd 11
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COVER STORY
A tanker at the Malaba border point transporting fuel to Uganda. With Uganda set to build a larger refinery, investor interest is heating up for its oil.
timelines.
A source has intimated to The Indepen-
dent that the oil companies were in January
forced to push back till mid-2016 the execu-
tion of the Front End Engineering Design
(FEED), which basically involves the pro-
curement, engineering and construction for
the mid-stream industry.
-
sion (FID). Even if this is approved in 2017,
the procurement and engineering phase
would take another 36 months. That means
Karuhanga added that where the prices
are now it is impossible to make an invest-
ment decision and if the prices stay where
they are for the next two years Uganda
might not be in position to produce oil.
Oil prices collapsed from over $130 just a
few months ago to less than $50 per barrel
because of increased US shale production
and the fact that big producers like Saudi
Arabia, Venezuela and Russia declined to
reduce their production.
There is no evidence prices will go up
again in a short time. Experts say that the
current oil price dip resembles the fall
between the 1980s-1990s, which incidentally
was the longest of all the other oil price falls.
Issue 354.indd 12
1,000
800
800
600
600
400
400
200
200
$SU
Jul 2014
Oct 2014
Jan 2014
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COVER STORY
mum of 30 percent of recoverable oil. It
appears Total and Tullow are proposing less
than this percentage.
Tullow, which has never been keen on the
production side of its upstream activity in
Uganda and is looking to sell, has registered
the heaviest of losses. While its share price
has been halved, it has also lost money as a
result of these delays.
As part of its 2012 farm down to CNOOC
and Total, it had agreed that they would
only pay it a certain balance if they got pro-
duction licences and if an investment deci-
sion was reached at a certain point.
In addition, a loss on disposal charge is
expected of $0.5 billion, mainly relating to
an updated assessment of the recoverability
of the Uganda contingent consideration
and the partial sale of the UK Schooner and
-
ary trading statement.
In the same statement, Aidan Heavey, the
Tullow Oil Chief Executive announced that
Tullow would continue to cut expenditure
in East Africa and re-allocate our future
capital to focus on delivering high-margin
oil production in West Africa which will
business.
The reduced exploration programme, he
noted, will predominately focus on a num-
ber of high-impact, low-cost exploration
opportunities in East Africa.
In East Africa, Tullow operates in only
Uganda and Kenya. Compared to Uganda,
in Kenya the oil companies are active oper-
ating about 10 rigs. As noted already, in
Uganda only one rig is still active and will
soon be demobilised.
Uganda currently has reserves of 6.5 bil-
lion and this covers only 40 per cent of the
area that has oil. But because of this frustra-
clear they will express any interests in the
expected round of licencing of fresh blocks.
Elly Karuhanga
there is no business.
Mugarura advised that government
needs to sit with the oil companies and talk
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