The Time for Compromise has Arrived!

Before going into the details, I wanted to request that you donate money to provide scholarships for students at our Virtual University of Uganda. This is a UK registered charity and also has the facility to gain a tax deduction in the US and EU. Donations in the UK are eligible for GiftAid. Right now we have 15 students taking either our MBA Oil & Gas or our Diploma in Upstream O&G Management. The students are often deterred from taking our programs since they can’t afford our modest $250 to $350 per module fees. Ten modules is what it takes to get a Masters degree. If the people of East African are going to benefit from the development of their natural resources, they need the benefit of high quality education which they can apply in their day to day work environment.

Meanwhile down to business…..

Ugandan hydrocarbon developments in East Africa have been put on hold until the parties involved in the Albertine Development resolve their commercial issues. The recent Uganda Oil Conference was originally targeted to be able to announce the Final Investment Decision but the Tullow sale to Total and CNOOC was concluded unsuccessfully at the end of August. The disagreement centres around the liability for capital gains tax to be paid by Tullow on the sale of 22% of their working interest for $900m USD. President Museveni continues to be confident that the situation can be resolved. The country has invested several hundred million USD in infrastructure in the Hoima region including the construction of an international airport which is well underway under the supervision of COLAS, a UK firm. There are still many unresolved issues such as the pipeline tariff which I think is already too high at $12.2 per barrel.

In the meantime, the Ministry in Uganda are pressing ahead with the 2nd Licence Round for 5 blocks on trend with the current discoveries. The Ministry will be conducting a session in London on October 14th to describe the opportunity. EOI’s are now to be submitted by Nov 22nd.

Downstream infrastructure continues to be constructed with storage and jetties being built to transport product across Lake Victoria from Kisumu in Kenya to Uganda at a cost of nearly $300m USD. Tanker traffic on the roads will be reduced saving lives and wear and tear on the roads.

Next door in the Democratic Republic of Congo ( DRC) Tullow, Total and CNOOC are re-establishing their interest in Block 3 which Total had indicated earlier this year that they were going to relinquish.

Ethiopia is progressing the development of its gas infrastructure to enable the development of its Calub Hilala gas resources. I think I first looked at this project in 2009.

Mozambique is moving ahead despite the security issues in the northern part of the country. This map from Stratfor illustrates the hotspots. Total has now completed the acquisition of Anadarko’s share in Area 1 and has taken over as operator. I suspect that the Mozambique government is looking to gain some capital gains tax from this transaction. They have successfully gained tax from previous sales of these assets,

Further north in Somalia is hoping to complete the adoption of a new petroleum Law.  Shell and Exxon still have the near shore licences under force majeure but new seismic offers explores some new areas to try their hand.  It is Somalia and the border dispute with Kenya has not been resolved yet.

Lastly, Kenya….Tullow’s Lokichar development is awaiting completion of the ESIA and the partial sale of some of Tullow’s interest.  FID is hoped for in 2020.

Early last week, I was able to participate in a workshop sponsored by the World Bank and the EBRD.  Plexus Energy’s Jay Wagner developed and facilitated the workshop entitled:‘Labour Influx and Social Impact Management’. Mega projects like those being developed in East Africa are classics that require all of the lessons learned from elsewhere.  The World Bank is developing new ‘Guidance Notes’ to capture lessons learned from previous projects especially in Africa.

Greg Coleman