Uganda, Tullow Finally Sign $2.9m Oil Deal

this web unhealthy geneva; font-size: small;”>Energy Minister Irene Muloni has today February 3 issued a Production Licence over the Kingfisher Field at Amber House, recipe Kampala.

The two exploration licences in the PSAs and the production licence have been issued under Sections 9 and 22 respectively of the Petroleum (Exploration & Production) Act, Chapter 150 of the Laws of Uganda, 2000.

The signing ends a stalemate over a tax dispute.

Government and Tullow entered into a Memorandum of Understanding (MOU) regarding the development of the petroleum resources discovered in Exploration Areas 1, 2 and 3A.

“The parties to the MOU, recognizing the time lost during the tax dispute over the sale of Heritage’s interests in Uganda to Tullow Uganda Limited, agreed to grant new licences over the Kanywataba, Prospect Area and Exploration Area 1, for Six months and One year respectively,” Muloni said.

It was agreed in the MOU that Government would return the Kingfisher Field to Tullow if the taxes were paid and upon Tullow’s application pursuant to Section 20(3) of the Act. The taxes were paid on April 7 2011 and Tullow duly applied for a production licence over the Kingfisher Field.

The Production Licence for Kingfisher will become effective within one year subject to Tullow satisfying requirements.

The Exploration Licence for Kanywataba Prospect and EA 1 have the following Production Sharing Agreement provisions. One is minimum work programme together with the minimum exploration expenditure.


The second provision is an advisory committee consisting of representatives from Government and the licensee to review and approve all annual exploration work programmes, budgets and production forecasts.

An initial royalty based on progressive incremental production and an additional royalty as a percentage of the value of the recovered reserves is the third provision.

It was also agreed there must be state participation by government or its nominee at production level.

Cost recovery limits for oil production and gas production has been set at different levels and production sharing will be based on incremental production after deduction of initial royalty and the cost recovery.

The two parties further agreed that Tullow pays signature bonus of US$ 200,000 and US$ 300,000 respectively upon signing of the PSA to government.

Each of these two PSAs in addition have provisions for a discovery bonus of US$2,000,000.

All taxes will be paid in accordance with to the laws of Uganda and the rate of income tax presently stands at 30%.

The parties observed there was a requirement to train and employ suitably qualified Ugandan citizens in addition to payment of annual training fees to government.

Tullow will as well make payment of annual surface rentals computed differently for exploration and production phases per square kilometre.

One of the key aspects that delayed the Signing of these PSAs was the issue of stabilisation and the proposal by oil Companies to export the crude Oil. Government’s proposal to revise the standard stabilisation clause was accepted by Tullow and has been adopted in the PSAs signed today.

In addition, Tullow has agreed to government’s policy of establishing a refinery in the country and consideration for export of crude will be made as more reserves are discovered in the country.

The Albertine Graben, the area with the potential for petroleum production in the Western rift valley of the country is now subdivided into eleven Exploration Areas (EAs).

Out of these, EA 1, EA2, EA4B, EA5 are licensed to Tullow Uganda Limited, Tullow Uganda Operations Pty Ltd., Dominion Uganda Limited and Neptune Petroleum Uganda Limited.

The new EA 1 licence area lies in the Pakwach Basin, and covers a total area of 3,058 square kilometres.

The area covers parts of the districts of Nebbi, Nwoya, Kiryandongo, Masindi and Buliisa.

The Kanywataba prospect area and the Kingfisher Production Area formed part of the original EA3A prior to relinquishment by Heritage.

Kanywataba prospect covers a total area of 171 square kilometres and lies in Ntoroko District, while Kingfisher Production area measures 344 square kilometres and lies in Hoima and Kibaale Districts.


In October 2011, Parliament issued a number of resolutions regarding the Oil and Gas sector.

Regarding the resolution placing a moratorium on executing oil contracts and transactions be put on the executive arm of government until the necessary laws have been passed by Parliament, Muloni said the legal opinion received was that the resolutions were advisory to the Executive.

“These resolutions have been discussed by executive in Cabinet at great length and President Museveni wrote to the Speaker of Parliament in regard to the resolutions,” Muloni noted.

She said the ministry had subsequently been cleared to conclude these transactions.

On the recommendation from Government, Tullow is expected to farm-down, or partly divest its assets in Uganda to CNOOC and TOTAL as agreed in the MOU.

This farm down will facilitate raising the required capital for development of the oil fields discovered in the country to date and the new licences being signed today are key to the conclusion of the farm down.

This would also avoid a situation where Tullow has monopoly in three Exploration Areas.

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