- Posted February 7, 2013 by
Tullow Oil’s inaccurate projections cause budgetary chaos in Africa
Tullow reported in its July 2012 Interim Statement that, based on data from its Ngamia-1 oil well, Kenya could have more oil potential than its neighbour Uganda. This statement led the Kenyan government to change its energy policy and to withdraw from a Ugandan-based oil refinery project, before the East African nation realised the information was misleading. Oil experts are now saying that the reservoir quality of this Kenyan well is “poor”.
Poor performances in Ghana are also influencing the firm’s reputation on the continent; low productivity from the firm’s flagship Jubilee project has led to declining revenues for the government. According to a Ghanaian think tank, in Q1 of 2012 the total government revenue came to less than $60 million and projected total revenues for 2012 should come to less than $240 million.
“Because the government budgeted for oil revenue of more than $650 million, the shortfall in the budget is correspondingly more than $410 million,” stated Accra-based Imani, “The 2012 shortfall is nearly three times more than the 2011 oil-related budget shortfall of about $140 million.” The think tank also added that the government also budgeted to receive $200 million in corporate taxes from the oil companies, but reports indicate that these firms are in no position to pay.
Despite Tullow attributing the drop in productivity to “sand contamination of the flowlines that carry the oil from the underwater wells into the storage facilities on the sea surface”, Imami claims that there are too few wells in production and that the rush to commence production has resulted in shortcuts being taken.
In 2009, Tullow Oil drilled its Ngassa-2 exploration well in Uganda, shortly afterwards claiming that the find had the potential to be “the largest in the basin” and “substantially de-risked” the overall feasibility of the project. However the firm has not drilled anywhere near the targets projected since then and the country has not produced oil yet, with industry experts forecasting that Uganda is “a long way from commercial oil production”.
These views have not stopped other oil giants such as France’s Total and the China National Offshore Oil Corporation from expressing an interest in the firm’s oil potential. The two firms acquired two-thirds of Tullow’s leases in the country for $2.9 billion in 2011, a move that Tullow’s CEO branded as a safeguard for the future of Uganda’s oil production. Also hindering the progress to Ugandan oil production is the status of an oil refinery project which is being debated by the government. Though a $1.5 billion refinery was agreed to be built, media reports elsewhere attest that the Ugandan government has demanded an oil refinery nine-times bigger than the one pre-agreed.
Compounding the company’s problems in Uganda are two ongoing court cases relating to tax disputes. The first case, which is also pending, is being contested in London where the oil company is seeking arbitration over the Ugandan government’s imposition of $404 million worth of capital gains tax following its purchase of Heritage Oil’s Ugandan assets for $1.5 billion.
The second relates to a dispute lodged with the World Bank-affiliated International Centre for Settlement of Investment Disputes (ICSID) in Washington. At the end of 2012, Tullow Oil brought legal proceedings against the Ugandan government over its demands for 18% VAT to be placed on exploration-related machinery the firm imported into the country.