Final investment decision problems cause delay of first oil for Uganda

Following today’s news that Tullow has reached an agreement to sell its assets in Uganda;

Conor Ward, Upstream Oil & Gas Analyst at GlobalData, a leading data and analytics company, offers his view on the country’s problems to reaching first oil:

“With the news that Tullow Oil has reached an agreement ‘in principle’ for the sale of its stake in Uganda to Total SA, it is still expected that Uganda is unlikely to see first oil for a number of years as final investment decision (FID) has already seen multiple delays.

“Tullow and its partners in Uganda (CNOOC and Total SA) have struggled to reach FID in the country due to various disputes with the Ugandan authorities, the most recent being over tax consideration over the farm-down of Tullow Oil’s project equity, which was a prerequisite for them to make FID. Furthermore, there were multiple delays to the associated multi-billion-dollar pipeline project – firstly due to disagreements with the construction route, and recently Total SA decided to suspend all works on the project after termination of the farm-down agreement with Tullow.

“The country’s lack of infrastructure still poses as a significant hurdle, the necessity for a new build 1,445 km pipeline requires significant investment before production can commence. The pipeline is estimated to add an estimated US$3.5bn to the project. Total SA have said that it will look to drive down costs on the project, which will be of utmost importance in the current economic climate as we estimate the break-even price for the projects to be over $40/ bbl.

“Today, a major step has been taken toward the settlement of disputes in Uganda, however as this agreement is only ‘in principle’ it could be some time before a full agreement is reached. With the current oil price environment and COVID-19 outbreak, all project participants have reduced capex budgets for the year, so it still remains highly unlikely that we see FID for these Ugandan projects this year.”

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