Key issues of contention in Uganda’s oil sector reflected in case against Tullow and Government

Kampala based lawyer Hamada Mulumba has filed a petition in the High Court seeking an injusction against the government granting of oil licenses and approving oil deals and halting the activities of Tullow oil company.

Through Bwambale , Musede and Co. Advocates, Mulumba states that 50% of the stake Tullow Bought from Heritage Oil was had already reverted to the government. Mulumba wants a declaration that Kingfisher discovery ceased to form part of the petroleum exploration area for Heritage and Tullow when Heritage failed to ask for a production license for block 3A after the exploration lincense had expired beyond the renewable eight years provided by the law.

Mulumba wants court to restrain the Attorney General, Heritage Oil and Gas Limited and Tullow Oil Uganda from “undertaking any further dealings including but not limited to exploration, production, selling, assigning, transferring any interest in exploration Area 3A (EA-3A) kingfisher (Kajubirizi) of the Albertine Graben.” Tullow which co-owns 3A with Heritage bought the later interests at 1.5billion US dollars in 2010. The company which now owns almost 100% of all the oil wells so far identified is planning to farm out 33% of its stake of France’s Total and another 33% to China’s CNOOC. The government is yet but expected to approve the sale by end of January 2012.

Here is a summary of the key issues of concern

The government is not ready to undertake oil production (more preparation and laws needed)
All Heritage Oil and gas assets sold to Tullow were null and void as the former’s license on Block #A (Kingfisher exploration had ended) and as per 19 (1) (b) of the Act they reverted the government.
The Memorandum of understanding signed between Tullow and Uganda government to normalize the license issue is null and void as it is inconsistent with the Petroleum Exploration and Production Act 1993
Licenses for the oil blocks should be made in accordance with the Public Procurement and Disposal of Public Assets Authority Act (open bidding).
The Court cases between Tullow oil and Heritage Oil and gas, as well as between the Uganda Revenue Authority (on behalf of the Uganda Government) and Heritage Oil and Gas –are warning signs of how uncertain it is that Ugandans will benefit from the oil sector.
The recent corruption allegations that top ministers have received hefty bribes from oil companies to give the companies favourble deals have further increased worries on the running of the oil sector and increased concerns that Ugandans might not benefit from the oil resource.
The increasing insistence by the government to keep oil production sharing agreements secret raises issues at what the government is hiding, how much has been given away and whether oil companies and not taking advantage of the country.
The confidentiality (secrecy) clauses in the Production sharing agreements no longer apply since the license with the companies with which the agreements were signed have since expired. According to section 59 of the Production Sharing agreement, the confidentiality clauses cease to exist when the license ceases to exist. It is for this very reason Ultimate media decided to publish the oil agreements.