Why Tullow exit is good news for Uganda first oil

Unlike Tullow, the remaining two investors (Total and CNOOC) are well capitalised companies with strong technological capacity, and with guaranteed markets for crude oil, all of which are critical success factors for upstream investments. The two are able to take longer-term views of global oil markets and prices when committing final investment decisions despite the prevailing low oil prices.

Lined up for final investment decisions are production development to exploit 1.4 billion barrels of recoverable oil, and a 216,000 barrels per day (bpd) crude oil export pipeline via Tanzania. Production will also enable actualisation of the 60,000 bpd oil refinery in the Lake Albert vicinity.

The flexibility in investment decisions brought about by Tullow exit is exactly what Uganda has been waiting for to commercialise first oil by 2022/23, which will be about 16 years since oil discovery in 2006. Uganda has already developed a robust upstream and midstream legal and institutional framework necessary for an immediate sector take-off.

Total is also known to have oil exploration ambitions across Lake Albert in the DRC, which would augment economies of scale for Uganda oil export logistics. Further, being a downstream petroleum marketer in the region, Total is likely to take a more positive and supportive view of the planned oil refinery investment.

In Kenya, Tullow is a 50 percent player in the Turkana oil JV with Total holding a quarter, and Africa Oil the other quarter. For different reasons, Tullow and Total are selling varying fractions of their Turkana oil interests.

My opinion is that Tullow will sell its entire interest in Kenya to meet urgent liquidity targets, and entirely vacate the East African region to concentrate in ventures elsewhere (Ghana and Guyana).

I also do not believe that Total will ultimately maintain any presence in the Turkana oil JV. Firstly, when in 2014 Kenya and Uganda had nearly sealed a deal for a joint venture crude oil export pipeline from Lake Albert through Turkana to Lamu, it is believed that Total convinced Ugandan authorities to dish the JV and instead pump oil via Tanzania. Total cited perceived security concerns along the Lapsset corridor, concerns that the company may still harbour.

Secondly, Total’s current presence in Turkana oil JV was by default not by plan. Total had acquired the entire oil and gas assets of Maersk, which included a 25 percent participation in Turkana by Maersk. There is no convincing indication to suggest that Total has any plans to maintain any presence in Turkana, unless it is token speculative presence.

Africa Oil, the quarter partner in Turkana JV, may not have the necessary capital and technology to lead development of Turkana oil resources. It is therefore important that whoever is approved by the government to purchase Tullow and Total interests should be sufficiently capitalised to inject ample cash to develop both the production and export infrastructure.

It would be a pity if we end up with speculators whose interests are to buy the assets low and sell them high when the market strengthens.

As Tullow withdraws from the region, the pioneering role they have played in putting East Africa on the upstream oil and gas map should be fully acknowledged. Further, despite being a lower-tier upstream company, Tullow has set strong foundations on which Uganda and Kenya upstream oil sectors can take off.