Government and Tullow Oil have finally signed a new production sharing agreement licensing two oil fields for oil exploration. The conclusion of the agreement means that Tullow Oil can now sell off part of its stake to Franceâ€™s Total and Chinaâ€™s CNOOC in what is technically known as farm down process.
The conclusion of the agreement means that Tullow Oil can now sell off part of its stake to France’s Total and China’s CNOOC in what is technically known as farm down process.
Tullow last year said it was selling one third of each of its assets in Uganda to CNOOC and Total for US$2.9billion but the transaction was delayed due to tax disputes with government and Heritage oil.
Aidan Heavey, Tullow chief executive officer on Friday confirmed that they have finally concluded two agreements with government for licenses in Exploration Area 1 and Kanywataba both located in Lake Albert Rift. He says the signing is a vital step towards the development of Lake Albert Rift and the oil and gas industry in Uganda.
Heavey also confirmed that Tullow has been awarded a license for Kingfisher oil well for oil production and not exploration as it has been in the past. A production agreement means Tullow can now begin the process of producing oil.
The signing of the agreement had also been delayed because government of Uganda was objecting to demands by oil companies insisting on including a clause that would protect them in case taxes rose.
President Yoweri Museveni and some of the government bureaucrats have been opposed to the so-called stabilization clause. The stabilization clause if included in the agreement would stabilize the incomes of oil companies in case taxes in Uganda increased.
It is not clear how the two parties have resolved the standoff over the protective clauses. Kabagambe Kalisa, the Energy Ministry Permanent secretary could not deny or confirm the conclusion of the deal. He said he is hesitant to comment on the matter because he is on leave.
The new agreements have been entered in disregard of a Parliamentary resolution asking government to halt any transactions in the oil sector until when new laws on the sector are concluded.
Winnie Ngabirwe, a member of activists’ groups pushing for transparency in the oil sector under Publish What You Pay, said they are disappointed that government has disregarded the Parliamentary resolution.
She says it would have been better for the agreements to be signed under new laws that would ensure that Ugandans benefit from the oil.
Government is suggesting a range of laws for the oil sector but it is yet to table them to parliament for consideration and enactment.
Energy Minister, Irene Muloni has in the past indicated that the proposed law will be enacted before end of this year.