Uganda seals deal to build refinery, export pipeline


KAMPALA -- The Ugandan government and three international oil companies have agreed to build an export pipeline and refinery in the East African country, ending a deadlock that has delayed the development of large oil discoveries on its western border for almost two years, said the office of Uganda's president.

The refinery will have the capacity to process 30,000 bpd of oil, much less than the government had initially planned.

The agreement resolves one of the most contentious elements of a protracted debate over how Uganda should develop its newfound oil reserves. It brings the government and the trio of Tullow Oil, Total and Cnooc a step closer to a final decision on an investment that could total more than $12 billion and lead to the first significant oil exports from the east coast of sub-Saharan Africa.

Ugandan President Yoweri Museveni said the agreement was long overdue. "We have wasted too much time. We are now with the issue of oil for seven years. We need to make our final decisions," he was quoted as saying in a statement.

Negotiations over the country's final oil development plans are continuing, and the two sides expect a final deal to be reached in the next few weeks, said government officials who didn't wish to be named. The parties are yet to agree on the oil production targets for the project.

"We are hopeful that...2013 will mark the agreement and sign-off of the development and commercialization scheme with the government of Uganda," which would then allow the project to go ahead, the three companies said in a joint statement.

With an estimated 3.5 billion bbl of untapped oil reserves, Uganda is expected to join Nigeria, Angola and Sudan among sub-Saharan Africa's major crude producers. But the government had withheld consent for the development of the fields since last year due to a spat with the companies, chiefly the size of the refinery.

The government had pushed for the construction of a refinery with the capacity to process as much as 180,000 bpd of oil, initially for domestic consumption and then for regional export. But the oil companies argued that a refinery of this size would be prohibitively expensive to construct and would produce more fuel than the local market could consume.

During several meetings with Ugandan authorities in recent weeks, the three companies said they argued that a refinery with a capacity to meet the local market demand, combined with an export crude pipeline, would "achieve the maximum value of the Ugandan oil."

The agreement to build a refinery with a capacity of just 30,000 bpd was reached following a meeting on Saturday between Mr. Museveni and representatives of the oil companies, a presidential spokeswoman said.

It follows a warning from Total in February that failure to include an export pipeline in the plan would stall the Ugandan development.

The deal is "a very positive development as it clearly shows a will in Uganda to get the development going," said a person close to one of the oil companies who didn't wish to be named. The person also said the agreement was verbal and hadn't yet been signed.

Discussions over the level of oil production that Uganda should target are continuing. The government has said it wants a gradual production increase to avoid the rapid depletion of the reserves, but companies are pushing for faster growth, to as much as 200,000 to 230,000 bpd by 2020. Three potential export pipeline routes are also being considered.

Dow Jones Newswires

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