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Uganda signs roadmap to commercial oil production

Published on NewsOK Modified: February 6, 2014 at 6:46 am •  Published: February 6, 2014

KAMPALA, Uganda (AP) — Uganda's government has signed an agreement with three foreign oil companies, a government official said Thursday, clearing the way for commercial production of crude reserves.

A memorandum of understanding signed on Wednesday lays out the strategy for oil production amid warnings that the sector hasn't been transparent enough to avoid corruption and misuse of oil revenue.

Signing of the agreement had been delayed amid disagreements over strategy, with Uganda's government insisting on the construction of a $2 billion refinery even as its partners said there wasn't sufficient local demand to justify such an expenditure. Only up to 1.7 billion of the 3.5 billion barrels of crude reserves will be recovered, said Energy Minister Irene Muloni.

The agreement was signed with Britain's Tullow Oil, France's Total and the state-owned China National Offshore Oil Corporation, which already has been licensed to develop the first oil block in the Albertine rift basin near Uganda's border with Congo. Tullow and Total have not yet been issued production licenses for up to nine oil blocks.

"The conclusion of the memorandum of understanding is a significant step for Uganda as it gives a roadmap for the commercialization of petroleum resources discovered in the country," said Muloni, who was flanked by representatives of the oil companies.

Under the agreement, she said, some of the crude will be used to generate power locally while the rest will be refined for domestic consumption or exported as crude through the Indian Ocean coast. Uganda's government will build a refinery with a capacity of 60,000 barrels per day while its partners will build an oil pipeline to transport crude for export through neighboring Kenya, she said.

The government is studying proposals from at least six potential investors in the refinery, she said.

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