Uganda-Kenya oil pipeline deal ‘paves way for regional development’

The UK-based oil company said that approval of the ‘northern route’ pipeline, which will enable exports of crude oil from Lake Albert in Uganda and Kenya’s South Lokichar Basin, was a “major milestone”.

The 1,500-kilometre pipeline was approved in a joint communique issued by Ugandan president Yoweri Museveni and Kenyan president Uhuru Kenyatta. The heads of state said the agreement was needed “to avoid any further delay in commercialising petroleum resources”.

Tullow said “all appraisal activities and pre-front end and engineering design studies have been completed” and that it is awaiting the award of production licences.

In addition, Tullow announced that “significant progress” had been made by Uganda’s government “on several fiscal matters”, such as an amendment to the country’s VAT Act in June 2015 “to relieve oil exploration and development from VAT”.

Tullow entered into three Ugandan exploration licences in 2004 following the acquisition of Energy Africa. Tullow said that since the first discovery was made at Uganda’s Mputa-1 well in 2006, it has drilled more than 80 wells in the Albert Rift Basin and proven recoverable resources of around 1.7 billion barrels of oil. Mputa-1 is 220 kilometres northwest of Kampala and onshore eight kilometres from Lake Albert.

A memorandum of understanding (MOU) between Tullow and Uganda, agreeing a “commercialisation plan”, was signed in February 2014. The MOU covered the “integrated development of the upstream with a production plateau in excess of 200,000 barrels of oil per day (bopd), an export pipeline and a refinery of 60,000 bopd to be developed in a modular manner starting with 30,000 bopd”, Tullow said.

In 2012, Tullow concluded the sale of two-thirds of its Ugandan licences, bringing in two new partners “to help shape the development” of the Lake Albert Rift Basin. As a result, 66.66% of the firm’s Ugandan licences were sold to the China National Offshore Oil Corporation (CNOOC) and Total for $2.9bn. Tullow, CNOOC and Total each now have a one-third interest in each of three exploration areas – the EA-1, EA-2 and EA-3.

In October 2014, the World Bank and other international institutions pledged a combined total of more than $8bn in new financial assistance to support infrastructure projects including the development of oil and gas pipelines across all eight countries in the Horn of Africa including Kenya.

The bank said last May that the discovery of 6.5bn barrels of oil reserves in the Albertine region of Uganda “present an opportunity for the country to generate government revenues for domestic investment and catalyse domestic private sector development”.

According to the bank, while the oil reserves “represent a temporary boon, as revenues from oil reserves will be finite... their impact on Ugandan economy and society, if deployed strategically, could be far more long-term”.

The bank’s acting country manager for Uganda Sajjad Shah said: “Oil revenues can be used to finance priority domestic investments crucial for diversified growth. Even before oil production commences and oil revenues start coming in, local enterprises can participate in supplying the industry and start growing their business and the national economy in general.”