CNOOC signs US$1.5b deal for oil fields in Uganda

PUBLISHED : Thursday, 31 March, 2011, 12:00am
UPDATED : Thursday, 31 March, 2011, 12:00am

China's main offshore oil and gas producer has signed a deal to buy a one-third stake in a major onshore oil development project in Uganda for US$1.47 billion, establishing its second foothold in Africa.

China National Offshore Oil Corporation is buying the 33 per cent interest in the development of exploration from London-based Tullow Oil.

French oil giant Total will also buy a third stake at the same price, leaving Tullow with the remaining share. The deal allows them to explore three sites in Uganda.

CNOOC, which has already invested in oil projects in Nigeria, has now made five major overseas acquisitions in the last 12 months. It struck two deals to invest in Chesapeake Energy's unconventional oil and gas projects in the United States and two deals to buy into several South American oil and gas assets.

Including the Ugandan deal, state-controlled CNOOC has committed itself to spending US$11.53 billion on developing the five projects, underlying China's desire to secure its energy supply and protect itself against any future surges in fuel prices.

CNOOC, which also has oil and gas projects in Indonesia, Australia, Iraq and South America, said it would be paying cash for the Ugandan stake. It had around US$8 billion in the bank at the end of last year.

The corporation expects to be able to complete the deal by July, pending approvals from the Ugandan and Chinese governments.

The three exploration sites are located in the Lake Albert Rift Basin, part of a remote wildlife conservation zone, which will need a 1,300-kilometre pipeline to link it to the Kenyan coast for exporting.

Based on exploration and appraisal work carried out so far, Tullow estimates the areas to contain at least a billion barrels of recoverable oil reserves. And Total estimates another billion barrels lie within the sites.

CNOOC president Li Fanrong called the project 'one of the largest onshore oil and gas developments in Africa in recent years'.

Tullow said the project is targeted to deliver at least 200,000 barrels of oil a day, while Total's exploration and production president Yves-Louis Darricarrere said peak production could exceed 300,000 barrels a day.

CNOOC's oil and gas output last year averaged the equivalent of 900,000 barrels of oil a day.

US brokerage Sanford Bernstein's senior analyst Neil Beveridge said in a research note that the Ugandan deal's price of US$4.40 per barrel of proven reserves was in line with market expectations. With production expected to begin in 2015, he said the project would help boost CNOOC's slow-growing reserves.

Its share in the project's proven reserves amounts to some 11 per cent of the corporation's total reserves last year.

Total announced that a study is to be conducted on the feasibility of building a refinery in Uganda to allow the nation 'to benefit directly from refined products'.

The French company has a 20 per cent share in Uganda's fuel distribution market and is already a partner of CNOOC in its major offshore oil project in Nigeria.

In for the long haul

The Lake Albert Rift Basin contains at least a billion barrels of oil. But a pipeline this long, in kilometres, is needed to export it: 1,300