The questions surrounding Tullow vs Eni in Uganda

Tullow’s decision to pre-empt Eni’s purchase of Heritage’s assets in Uganda has raised more questions than a US tax return. But there are two central ones more important than any other: Does Tullow have a firm agreement with a major oil company willing to buy half the fields on Uganda’s Lake Albert? and: Who will the Ugandan government side with, Eni or Tullow?

Aidan Heavey, chief executive of Tullow, tried hard to answer the first question when he said: “We are in a position right now that we can talk to the [Ugandan] government about the companies. This suggests that we already have firm offers from major companies.”

One of the the rumoured candidates is ExxonMobil, which is the world’s largest listed company, so perhaps Mr Heavey was giving something away when he added: “A lot of those companies are the world’s largest…It’s a nice choice to have.” Total, of France, Europe’s fourth largest energy group, is the other possibility being suggested by people close to the deal.

The fact that Mr Heavey is unwilling to name the company/ies he has waiting in the wings raises doubts about how firm the agreements he has struck really are.

The reason he will not reveal names is probably because he does not want to anger Ugandan government officials by suggesting he is presenting them with a fait a complis, rather than a choice that they will ultimately make.

If so, he has a point. Despite his caution today’s The Daily Monitor, a Ugandan newspaper, quotes Hillary Onek, the country’s energy minister, as saying:

“Neither Heritage, nor Tullow can claim rights to Uganda’s oil blocks. All rights are void until the government gives its OK. I am not comfortable with the way they [Tullow] are conducting themselves. I have demanded they present us with their proposals so the government can study them and decide on which way to go.”

It is impossible to know what Uganda will decide. Both Tullow and Eni have lobbied hard. But in the end, the decision over who gets to turn Uganda’s oil into commercial production is far more important to Uganda than it is to Tullow, Eni, Exxon or Total, all of which – unlike the country – have major assets elsewhere.

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