Tanzania-Uganda Pipeline Deadlock Very Disruptive - Chinese Firm

Kampala — China National Offshore Oil Corporation (CNOOC) has said the deadlock surrounding commercialisation of Uganda's oil is disruptive to the economics of its business.

Speaking during the 6TH East African Oil & Gas Convention in Kampala yesterday, Mr Gao Guangcai, the CNOOC vice project manager, said as a Joint Venture Partner they were barely able to

make decisions towards the Final Investment Decision (FID) and commencing oil fields development.

"We cannot handle the FID as earlier planned. It is now very difficult to negotiate with government. This is not good for the (economics) of our business," Mr Gao, told an audience of largely foreign nationals, who had gathered for the two-day oil and gas convention in Kampala.

CNOOC is a Joint Venture Partner with Tullow and Total E&P on a number of projects including the East Africa Crude Oil Pipeline.

This is probably the first time a Joint Venture Partner has spoken out since Total E&P suspended all activities on the East Africa Crude Oil Pipeline on September 5.

The suspension followed an August 29 termination by Tullow of its farm-down deal to Total E&P and CNOOC over a deadlock on capital gains tax.

Tullow had been seeking to reduce its holding in the undeveloped Lake Albert oil project from 33 per cent to 11 per cent.

However, the negotiations collapsed with Tullow citing frustration and unending delays on the part of the Ugandan government.

Speaking at the same event, Ms Deborah Malac, the US ambassador in Uganda, said her government was committed to supporting and ensuring that all investors with undertakings in Uganda's oil and gas sector have their contracts respected and protected.

"We are ready to ensure that we support all processes that will see [oil] contracts in Uganda are enforceable. We are asking government to fully utilise our [window under the Extractive Industries Transparency Initiative] to complete its commitment and ensure that there is total transparency in this important sector," she said, adding the US was also keen to ensure that local governments scale up social expenditures in order to strike a balance on benefits.

Uganda has been shifting commitments on first oil production since 2009.

Recently, government pushed ahead its first oil deadline from 2021 to 2023. However, the deadlock on the pipeline is likely to force further delays.

Tanzania, which is a regional partner in the 1,444KM oil heated pipeline from Hoima to the Port of Tanga, noted it was anxiously looking forward to rapid progress of the project.

However, Dr James Mataragio, the Tanzania Petroleum Development Corporation managing director, disclosed that the gas producing country would directly start commercial oil production over the next five years.

"We started explorations in 2015 over the Eyasi Wembere basin in central Tanzania. We are generating realistic targets. We are now moving to issue out tenders for 3D Seismic Surveys, since most of the shallow wells have returned commercially viable outcomes. We shall close on the FID (Final Investment Decision) and start production of Oil within the next five years," Mr Mataragio said.