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Cnooc loses Uganda prospect after failing to strike oil

Nicholas Bariyo

KAMPALA -- Uganda has taken back control of a prospective oil area licensed to China' s Cnooc Ltd., UK-listed Tullow Oil PLC and Total SA after initial drilling failed to yield any crude, the government said in a short statement Wednesday.

The Kanywataba oil prospect, where drilling activities were operated by Cnooc, has reverted to government control after the six month exploration license expired. The license will now be re-auctioned in the country' s next auction of oil rights, the government said.

However, a source close to the oil ministry said the decision was taken because Cnooc didn' t adhere to its anticipated work program, forcing the government to take over the license.

"They were supposed to drill three [exploration] wells in the six-month period, but only drilled one," said the person.

Both Cnooc and Tullow declined to comment.

The area was initially controlled by Tullow and then allocated to the Chinese firm as part of a $2.9 billion deal to split its acreage across the Lake Albert area three ways with Cnooc and Total.

According to the government, the license had been issued to Tullow in part to make up for delays to its operations caused by a lengthy and complicated tax dispute.

In 2010, Tullow bought out a 50% stake from former partner Heritage Oil PLC (HOIL.LN) but Uganda held off approving the transaction after Heritage refused to pay capital gains tax on the $1.4 billion deal. The delay led to the expiry of the license before exploration activity could take place.

The government finally approved the sale early this year allowing Tullow to sell a 66% of its stakes in three oil blocks to Total and Cnooc. While the deal is expected to lead to the three firms investing $10 billion in its country' s oil sector, the government remains embroiled in a spat with the companies how the crude should best be used.

10/24/2012

 

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