Uganda's ambitious oil-export timetable

The government's keen, the companies are willing—is Uganda's oil boom finally on the way?

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After years of delays, Uganda says it wants developers to push ahead post haste with the oil development that could transform the country's economy, setting a 2020 target for first production. But political, technical and financial challenges make that a tough deadline.

To get things moving, more than a decade after oil was first discovered around Lake Albert, the government wants a final investment decision on the multi-billion-dollar development by end-2017. France's Total and China's Cnooc are now the project's major players.

Once built, the development should produce at least 230,000 barrels a day, most of it going to export markets via pipeline and some to a local refinery. Tullow Oil, which was responsible for the earliest major Ugandan discoveries, relinquished operatorship of one of the three blocks in January, when Total moved to boost its stake in the overall development to 54% by agreeing to pay $0.9bn for an extra 21.57% from the London-based company.

Tullow, Total and Cnooc had previously held one third each of the three-block development. Following the stake purchase, Total now operates blocks 1 and 2, and Cnooc operates block 3.

Uganda has plenty of reasons to want to fast-track oil production. The country has been pouring money into infrastructure projects and overshooting debt targets, so oil revenues would help balance the books.

But getting to FID this year will be tough, given Total is still weighing up its options for front-end engineering and design for the two blocks it operates. France's TechnipFMC is reportedly pitted against US firms CB&I and Fluor in a competition due to end in mid-2017. Cnooc's plans for the Kingfisher field in block 3 are more advanced, with Chinese firms likely to win Feed contracts there.

Then there is the small matter of building a 1,500km pipeline from the oilfields to the Tanzanian coast to enable the exports on which the project's viability will depend. That route was only chosen in April 2016, when Total and the government backed it over a northerly route that would have also included Kenyan oil. A lot of work still needs to be done.

Political potholes

While the government seems keen to smooth the way for the development, political problems could yet slow it down. Total's acquisition of the Tullow stake removed one potential bottleneck, by reducing cash-strapped Tullow's role in the project, and boosting that of Total, which has much deeper pockets. However, it may yet cause another one.

Honey Malinga, the commissioner at Uganda's state-run Petroleum Exploration and Production Department, has said that Total's monopoly position in the country's upstream sector as a result of the deal would attract scrutiny, according to local press reports. He noted that in the past, Tullow had been forced to sell down stakes in the oil project to Total and Cnooc because the government wanted to diversify the shareholder base and suggested that similar concerns would be weighed when deciding whether to approve January's stake sale. Tullow confirmed the approvals process was continuing, but would not comment on its likely outcome.

How much of a snag this could prove is unclear. It will probably be resolved through a battle of wills within government circles—the Uganda National Oil Company, which has the right to take 15% carried stakes in the oil fields, has said it supports Total's stake acquisition.

The government wants a final investment decision on the multi-billion-dollar development before the end of 2017

The timetable for construction of a 60,000-b/d oil refinery close to the oilfields is another politically sensitive part of the project. The government's insistence that the refinery should be built in time for the arrival of first oil production, to provide a regional flagship facility, threatened to put a brake on the whole development.

Efforts to expedite the refinery's construction were thwarted when Russian firm RT GlobalResources, the company favoured to lead the $4bn refinery project, pulled out of talks last year, putting the original completion deadline of 2018 beyond reach. Total took a 10% stake in the refinery last October to keep up momentum, but by early March the government had not selected a new lead investor.

Completion of the first phase of the refinery project has been put back to 2020 at the earliest and demands it should be built before production starts may yet be quietly dropped.

The sense of urgency is not only plain on the government side. The oilfield consortium will want to capitalise on cheap services before the global oilfield-services sector starts to tighten again.

The pipeline also needs to be built by 2020, if the government's aspirations are to be realised. Getting that done from scratch in three years sounds ambitious, but Chinese firms managed to build the 1,500km Greater Nile Pipeline in Sudan in fewer than 18 months, back in the late 1990s, before that country's division. Chinese firms will be in the running to build the Uganda-Tanzania pipeline too.

The odds are on some form of FID emerging this year, though first oil might lag the 2020 deadline by a year or two. The timing will depend as much on Uganda's ability to handle administration of such a large project, as on the efforts of the companies involved.

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