Congo Declines to Ratify Key Tullow Oil Licenses

LONDON (Dow Jones Newswires), June 24, 2010

Congo's government has declined to ratify U.K.-listed Tullow Oil's licenses for two key oil exploration blocks, instead awarding them to companies owned by a relative of South African President Jacob Zuma.

The presidential decree from Kinshasa confirmed long-stalled licenses for some U.K. and African oil companies, but replaced Tullow and its partners with Caprikat Ltd. and Foxwhelp Ltd., owned by the South African businessman Khulubuse Zuma.

The decree, supplied to Dow Jones Newswires by non-governmental Web site and signed Friday by President Joseph Kabila, show blocks 1 and 2 of the Albertine Graben were awarded to an alliance between Caprikat and Foxwhelp.

Attempts to reach Kabila's office for comment were unsuccessful Thursday.

The move is a setback for British-Irish independent Tullow which, along with partners Heritage Oil and state-oil company Congolaise des Hydrocarbures, or Cohydro, had been awarded the licenses by the government in 2006. The licensees were still awaiting ratification by President Kabila. Tullow owns a 48.5% stake in each of the two blocks.

The blocks are located along Lake Albert. Tullow has made huge discoveries on the Uganda side of the lake--the resource base is in excess of 800 million barrels of oil--which it plans to turn into an integrated project with China's Cnooc (CEO) and French oil major Total.

Total had already looked at joining Tullow on the Congolese side if the awards had been ratified.

Heritage referred calls to Tullow, which it described as the operator in the partnership. Cohydro couldn't be reached.

A Tullow spokesman said, "We are reviewing our options but have no doubt about the legal validity of our claims to these blocks."

But he said the awards of key blocks to unknown companies will raise questions about the transparency of the country's oil sector.

"This is a sad day for the DRC," the spokesman said. "The award of these licenses to unknown British Virgin Islands-registered companies does nothing to help Africa build any sort of reputation for transparency."

Khulubuse Zuma hailed the decree as a landmark decision that establishes a strategic alliance between Congo and South Africa.

"The contract ... is an important first step in the establishment of a wider industrial partnership between the two countries in the oil and gas sector," he said in a statement.

Kabila also ratified rights to two other blocks in eastern Congo that had been awaiting his approval since December 2007. He confirmed a license shared by U.K. independent companies Soco International and Dominion Petroleum, and another license issued to South Africa's South Africa Congo Oil on another block. Cohydro is a partner in both blocks.

Dominion and Soco declined to comment. South Africa Congo Oil could not immediately be reached.

The decrees come as Congo-Kinshasa is ramping up the development of its oil resources after the recent appointment of new petroleum minister, Kabila loyalist Celestin Mbuyu.

Next month, Soco expects to spud a well in another onshore block, Nganzi, the first onshore drilling in 40 years in the African nation. Eni SpA (E), which has announced an agreement to help Congo develop its oil, has expressed interest in entering the block, according to people familiar with the matter.

Despite Congo sitting on a significant oil and gas potential, years of civil strife kept the country's production at about 20,000 barrels of oil a day.

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