Tullow Oil Eyes Uganda Partners, Chinese On List

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LONDON (Dow Jones Newswires), Feb. 27, 2009

U.K.-based oil exploration and production company Tullow Oil PLC intends to begin serious discussions with a shortlist of companies who might join the development of a major oil export project in Uganda in the second half of this year, a person familiar with the matter told Dow Jones Newswires Thursday.

China National Petroleum Corp. and China Petroleum and Chemical Corp, also known as Sinopec, have had contacts with Tullow advisors and are among around 10 shortlist candidates, the person added.

"Tullow is keen to get the show on the road," said the person. It may be willing to sell up to half its stakes in the oil fields discovered in Uganda's Lake Albert region to the new partner, the person said.

"We have always talked about the fact that we would consider a farm-down at some point to finance development" of the Uganda project, said a Tullow spokesman.

The company's primary focus now is another major exploration well to be drilled in the area in March, and consideration of a farm-down, meaning the sale of part of its stake in the field, will be on hold until this is complete, he said.

Tullow's partner in the Ugandan oil fields, Heritage Oil PLC may also be open to a partial or total sale of its assets there, the person said. To date, Heritage has said it plans to retain its stake in the fields and move forward with export plans.

State-owned Chinese companies have been taking advantage of the collapse in commodity prices and financial crisis to strike strategic resource deals.

Aluminum Corp. of China, or Chinalco, struck a controversial $19.5 billion deal with mining giant Rio Tinto PLC earlier this month giving the state-owned company minority stakes in a suite of prime iron ore, copper and aluminum assets.

Hot on the heels of that deal, China Development Bank government reached a long-term deal to lend $25 billion to two Russian energy companies, OAO Rosneft and OAO Tatneft in exchange for an expanded supply of oil.

The Chinese bank is also in advanced negotiations with Petroleo Brasileiro SA to lend around $10 billion to fund the development of vast deep water oil reserves, backed up by long-term supply agreements with Chinese oil companies.

Chinese companies already have a large presence in East Africa's main oil producer, Sudan.

Heritage estimates that fields discovered so far in the Lake Albert area contain as much as 2 billion barrels of oil. Exploration and appraisal continues in the region and, "it has multi-billion barrel potential," said Heritage Oil's vice president of exploration Brian Smith at a London conference last week.

Production from the area could eventually reach 150,000 barrels a day of waxy crude, which would probably require a 1,300-kilometer heated export pipeline to the Kenyan port of Mombasa.

This export plan could cost between $1.5 billion and $2 billion and take until 2015 to complete, said Smith. The Ugandan government hasn't yet decided if it will allow an export pipeline and Heritage is also looking at exporting around 10,000 barrels/day by rail through Kenya by 2011, Smith said.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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