Tullow rejects claim it will take excessive Uganda profit

EXPLORATION GROUP Tullow oil has rejected claims that its existing deal with the Ugandan government will see it make excessive profits from the oil it has discovered in the African country.

A report from London-based lobby group Platform claims production-sharing agreements between Tullow and the Kampala government will guarantee the company and its partners “excessive profits” while burdening the state with all the risks.

Citing leaked documents from multinational accountancy and consultancy firm Ernst Young, Platform claims that Tullow will be able to make a 30-35 per cent return. “This represents a very high profit level for the oil industry, even for risky projects, and indicates excessive profit-taking at the expense of the host government,” says the report, which adds that typical returns are less than 20 per cent.

However, the Irish company yesterday pointed out that its production-sharing agreements are in line with similar deals done between oil companies and governments all over the world.

“The Ugandan people will be the main beneficiary of revenues from oil production in Uganda when it begins,” the company said.

“Tullow and its partners alone have taken on and will continue to take on the immense financial capital risk of developing the Lake Albert Basin.”

Platform highlighted the report this week as speculation continues that Tullow is ready to sell a stake in its Lake Albert oil fields to either Total of France or Chinese state-owned group CNOOC.

The Irish company’s three exploration blocks in the Lake Albert basin could potentially contain up to 2.2 billion barrels. Tullow intends bringing in a partner to develop the infrastructure to get the oil to the market. Uganda’s government must approve such a deal.

Platform’s Uganda-based campaigner, Taimour Lay, argued that if oil prices rise, the government cannot increase the tax it claims on Tullow’s profits. He urged the Kampala administration to put pressure on Tullow to renegotiate the contract.

However, one London analyst pointed out that given the risks that Tullow and its partners face, some perspective was needed. “Tullow and any potential partners could have to spend billions of dollars on developing the oil fields in the Lake Albert area and transporting the produced oil to a refinery and/or through a pipeline to the coast on the Indian Ocean.”

He explained that the government does not have the money or or technical know-how to carry out this work, meaning it has to rely on companies such as Tullow.