Although Tullow has agreed with the CNOOC and Total to sell them each 33% each of its oil stake in Uganda for a total $2.9 billion, there is worry the two companies might pull out. The other possibility is that since the companies have not yet paid Tullow, they might compete with Tullow on equal terms if licensing is ever considered under new bidding process.
Oil drilling in western Uganda
Of course Tullow’s current value in Uganda assets would be greatly affected if the court orders an injunction or agrees that their purchase of half of Heritage Oil and Gas assets was null and void prayed by the petitioners. Tullow will need to pray more since the government will not lose much if the injunction is ordered and might use some time to re-organise the ministry in charge of oil, refine its laws and policies relating to Oil and Gas exploitation and marketing. Tullow is aware there are many other players willing to jump into the oil sector which has few players today because of the moratorium on further licensing until a new law on oil exploration and production is put in place.
Petitioner wants to halt intended sell of Tullow assets to CNOOC and Total
Most of what Tullow can do might be in playing political cards than depending on legal provision which even to amateur puts them in an unfortunate position. As in the case of the MoU, Tullow might be able to pull another political MasterCard to secure their interests from the government politically. And things aren’t looking bad if this option is considered.
Although the Parliament of Uganda had earlier resolved that the government halts the signing of any oil deals until further investigations are carried out into the operations of the oil sector and especially the bribery allegations, the ruling NRM caucus recently supported the government to approve the farming out of Heritage Shares to CNOOC and Total. Uganda President Yoweri Museveni recently promised that his government will grant approval to the farm out by January 2012.
And with the Judiciary currently on holiday (for the festive season), many political manipulations are possible to delay the case or pass a law that makes the current provision none bearing. But Denis Musede, one of the petitioner’s lawyers says they have applied for a certificate of urgence from the Judiciary for the petition to be heard. “Intended sell is to take place any time before the end of January; we want a temporary injunction restraining the transaction before the hearing of the main suit,” Musede says.
The petitioner is basing on a letter by former Energy Minister Hilary Onek’s written on August 17, 2010, to prove that Tullow does not legally own Kingfisher well.
“The period within which you are supposed to have applied for a petroleum production license for the Kingfisher field expired in February 2010,” Mr Onek wrote to Tullow and Heritage. In accordance with the powers entrusted to the minister under section 19 (1) (b) of the Act, I hereby direct that the Kingfisher (Kajubirizi) Discovery Area has ceased to form part of the Petroleum Exploration Area 3A (EA-3A) under the exploration license granted to you on September 8, 2004,” the letter reads in part.
Mulumba also wants court to compel Heritage and Tullow to account “to the government for benefits accumulated ever since their illegal utilization of Exploration Area 3A and pay a statutory fine of 100 Uganda shillings for acting without a valid license.” Kitara says the government should also be compelled to undertake a though audit of the exploration activities to determine the actual rig activities that Tullow and Heritage have carried out.
“As you might be aware, oil rigs are hired on a daily basis. There have been reports that rigs have not been deployed as per approved plan with the ministry and therefore Tullow will go ahead to claim money from the government for utilization of rigs when they were not actually working. This is the main area where oil companies are likely to fleece Uganda as the government has limited capacity to monitor their expenditure which are to be recovered. Widespread corruption by government officials also makes this hard as the amounts in question are huge,” Kitara says.
Hard test for government and Oil companies
Even if the government and oil companies manage the hard task of convicting court there is a valid license to Tullow (which actually has bought all its stake from other licenses in the past four years) Mulumba wants court to declare that the government granted exploration licences to the oil firms in total disregard of the Public Procurement and Disposal of Public Assets regulations which provided for open bidding.
The Minister of Information and National Guidance Mary Karoro Okurut when contacted said the Attorney General’s Office is responsible for such legal matters, but assures that the government will respond soon to the court petition.
Cathy Adengo, the corporate communications manager of Tullow says the legal team is preparing a formal response to the court petition and to defend the company’s interests in Uganda. The company has in the past also claimed to be under the target of oil sector mafias who are not happy with its prime asset position in the Uganda oil sector.
While Tullow is a multinational company operating oil related business in different country, the stage is now set for them to show they are undertaking prudent oil deals and activities, and that they can wither any storm.
Also see our other Uganda oil related articles
Uganda government production sharing agreements with oil companies
Uganda government approves Tullow oil takeover of Heritage assets
Fosterwheeler final report on Uganda oil industry refinery
Parliament pins Bank of Uganda Governor for spending first oil money on buying fighter jets
Government of Uganda outlines oil production program
Uganda urged to invest oil revenues in income generating activities
Uganda buoyant over oil prospects as Museveni outlines key strategy
Government asked to solve land purchase conflicts in oil producing areas
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