Kate Mackenzie Tullow the likely winner of Uganda oil match

The Ugandan government appears to have agreed to back Tullow’s purchase of Heritage’s oil fields in the country, ending a bitter dispute with Eni of Italy.

Peter Lokeris, the Minister of State for Mineral Development, tonight told Uganda’s New Vision news website - where official news is often leaked:

“We met on Wednesday and considered the pre-emption right of Tullow and approved it. The decision is final,” he said in a phone interview yesterday.

“We appreciate what Tullow has done in finding the oil and we respect the sanctity of the law,” Lokeris said.

The FT has independently verified that his statements are correct. It appears Tullow has come out on top, however, Uganda has in the past sent mixed signals and no official statement has yet been made.

Eni and Tullow would not comment on the statements. Uganda is believed to hold 1bn barrels of oil, enough to initially provide 150,000 barrels a day. But the bigger prize is the country’s potential, which is believed to be at least twice as big.

Bringing Uganda’s oil to market, however, will be neither easy or cheap. The companies will need to invest more than $11bn in tapping the oil, building a pipeline to an Indian Ocean port, a building a refinery in Uganda. This is why Heritage sought to sell its stake to a larger, more sophisticated company. Tullow itself raised $925m last week in a share placing, mostly to help fund the Heritage purchase.

The government had initially voiced strong opposition to Tullow taking a monopoly position. Tullow, which will own all of Uganda’s major oil fields if the Heritage deal proceeds, has promised the Ugandan government that it will quickly sell half of the assets to either Cnooc, the Chinese oil group, or Total.

Eni was keen to enter Uganda to boost the company’s oil reserves and solidify its position as one of the big oil companies most committed to Africa. Tullow wanted to maintain a big position in Uganda and is keen to operate the development.

For Cnooc, Uganda adds reserves and oil that will help fuel the company’s and China’s growth – a priority for Beijing, which has made it a policy to send its companies abroad to secure oil, especially in Africa. For Uganda, oil provides badly needed income, but also opens the possibility of the kind of corruption and unhealthy dependence that has been the downfall of several other African countries.

Related links:

Being rich in resources really is a curse (FT Energy Source)
The skinny on Uganda, Tullow and everyone else
(FT Energy Source)