Tullow Oil has signed two production-sharing agreements with Uganda, allowing it to complete a deal with China's CNOOC and France's Total that will pave the way for commercial oil production.

Ugandan energy minister Irene Muloni said today Tullow had agreed to the construction of a refinery - a key sticking point in talks as the companies had wanted to export the crude.

"They have agreed to the government's policy of establishing a refinery in the country to produce petroleum products for the country and the region," she said.

"Consideration for export of crude will be made as more reserves are discovered in the country."

Tullow said they had no comment on the refinery.

The Ugandan government has in the past said the refinery would cost $2 billion and would be developed in three phases.

The facility is expected to begin with a limited refining capacity of 20,000 barrels per day, ratcheting up over a number of years to a peak of between 150,000-200,000 barrels per day.

Uganda discovered oil in the west of the country, along the border with the Democratic Republic of Congo, in 2006. Production had been expected to start early this year but wrangling over tax and other issues delayed development.

"Tullow will now finalise arrangements with CNOOC and Total for completion of the farmdown and related transfer of monies as soon as possible," it said today.

A farmdown involves a licence holder inviting other operators to help develop a prospect and share the spoils.

Tullow said the licences covered the EA-1 and Kanywataba licences in the Lake Albert Rift Basin, and that it had also been awarded the Kingfisher production licence.

"Clearly it's a positive that they'll receive the cash and the development of the Ugandan resource can now go ahead," Numis analyst Sanjeev Bahl said.

"It's taken over 18 months for them to get to this point and finally it's been completed. It's positive for sentiment, more than a change to numbers."

Reuters