Tullow oil investment profile in Uganda

This is a verbatim intelligence briefing by the government on Tullow’s investment profile in Uganda trying to justify why Tullow should be cleared to continue oil operations in Uganda.

17 Aug, 2011

RE: TULLOW INVESTMENT PROFILE IN UGANDA

Suffice to comment here that I used that e-mail I forwarded to you about the speculation that Tullow might reconsider its business interest in Uganda, if and when it successfully hit spuds North Eastern Kenya and other of its interests elsewhere; to get around meeting your requirement on its overall financial input in Uganda.

The source is an employee of Tullow, so he writes his submission based on the current thought-process within Tullow visa vie Government of Uganda (£OU). He is like doing PR for the company. He also definitely knows who/what he was reporting to. So most of his submission shows the “frustration” Tullow has with GO(J.

But I guess for your interest the monies the company

 

FIANACIAL OVERVIEW

A well placed secondary source within Tullow Oil (U) reported as follows: –

1.   Currently it has invested just under USD1 bn (accounted for within the last audit USD 885 million this does not include 2011) into Uganda in 6 years of which the current estimates is that today, 90% of all expenditure by the company is spent directly in Uganda.

2. That if Tullow was to assess the impact to some detail, one would see the following results: –

(i)              Tullow currently pay in excess of (J&X 2bn on PAVE per

month
(ii)              Tullow currently pay about (J&X 500 m – Ibn on

WITHOLDING TAX
(iii)             Tullow currently pay in excess of UGX 300m on NSSF

per month

That the above payments are on an average spending of USD 20 – 25m spend per month.

SOURCE COMMENTS

1.   When one takes those numbers and multiply them by the potential of three operators, 25 major service companies such as OGEC, Wheatherfords, Halliburton, Slumberger, Baker Huges and others and then add a lost potential from another 100 smaller direct local service companies such as MSL, SIL, Three Ways, Bemuga and others. Source thought that the “loose loose” scenario of lost time due to protracted negotiations visa vie this type of investment could remain unnoticed.

2. That further during the development phase the “burn rate” would increase substantially and so with it, the direct and indirect taxes related to it and all supplier payments and expenditures would be transacted through the Uganda banking sector. More multipliers

Parliament of Uganda

In simple terms 18 months ago, Uganda was the forerunner to become a “Hub” and the strategic player for Oil and Gas within the region given the recent discoveries of reasonable amounts of extractable crude oil, a strong operator with a proven record and capacity to discover and produce Oil (Ghana was an industry record Greenfield to production project). This position was only strengthened via an open and transparent Joint Venture process which not only portrayed Uganda as an investment destination but of more importance, identified two of the 6 world leaders in development and production, CNOOC and TOTAL, this bringing together all necessary skills deliver Uganda as a Regional Hub” .

However, for this to work successfully, numerous factors have to align:

Trust and cooperation between the Oil Companies and the GoU.

Robust international and bi-lateral relationships focusing on a mutually beneficial strategy around Oil evacuation routes, pipelines and a refinery to maximize profitability and harness regional stability, especially with DRC, Sudan and Kenya.

But most of all, time is of the essence and lost time is our enemy.

The current situation 18 months down the line is at best, erosion of value for Uganda and realistic possibility that sooner rather than later, a ‘loose loose’ situation for both Uganda and the Joint Venture. The ‘deal’ is already heavily weighted in favour of Uganda to the extent that the Oil Companies are severely challenged to find residual value yet still the bottlenecks and negotiations continue and the marginal benefits achieved today are already having negative ramifications on lost time towards development, production and inward investment. The situation only made worse by the current Global

 

including 2011) into Uganda in 6 years of which the current estimates is that today, 90% of all expenditure by the company is spent directly here, in Uganda. If we were to assess the impact in some detail, you would see the following interesting results:

Tullow currently pay in excess of UGX 2b on PAYE per month

Tullow currently pay about UGXSOOm-UGXlb on WHT per month

Tullow currently pay in excess of UGXSOOm on NSSF per month

The above payments is on an average spend of $20m-25m spend per month

fake those numbers and multiply them by the potential of three operators, 25 major service companies such as OGEC, Weatherfords, Halliburton, Slumberger, Baker Hughes etc and then add a most potential from another 100 smaller direct local service companies such as MSL, SLL, Three Ways, Jemuga etc. I think you will agree that the “loose loose” scenario of lost time due to protracted negotiations visa vie this type of investment cannot remain unnoticed.

Further, during the development phase the ‘burn rate’ would increase substantially and so with it, the direct and indirect taxes related to it and all supplier payments and expenditure would be transacted through the Uganda banking sector…. More multiplied benefit. Although some of this (10-30%) is paid offshore due to contractor services being based elsewhere, most of the funds originate and flow though ‘le Ugandan banking sector, again contributing to the economy. This is an example of how we subtly contribute to local participation.

 

Ends

Also see more of our stories and documents on oil in Uganda

Download Forsterwheeler report on Uganda Oil Industry

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