Oil company Total E&P will now focus on negotiations with government to ensure that the Final Investment Decision (FID) is made.
The FID is the point at which everything is in place for a project to go ahead. It’s the project execution phase begins and the big money starts being spent on project construction.
Here, a wide range of contracts and permits are in the place which have allowed companies to agree with its investment structure and terms with its finance providers.
Nathan Morgan, Total E&P Uganda’s public affairs director said this will ensure that there will be demand for manpower, goods and services.
He said in order to reach a FID, it is crucial that key project documentation, such as the Host Government Agreements and Shareholders Agreement for the EACOP project, are finalised and put in place.
Total E&P suspended all tenders and other activities and laid off staff on the pipeline this week. This was after the deal where the company, together with China National Offshore Oil Company (CNOOC), were to buy Tullow’s interests in the oil industry collapsed.
CNOOC also laid off staff last week.
The conclusion of the deal would have paved way for a speedy reach of the FID, now been seen as far away than it was when the deal was on the table.
“Total, together with its partners CNOOC and Tullow, will continue to focus its efforts on progressing the development of the Lake Albert oil resources and will work closely with the Government of Uganda and the Government of Tanzania to conclude the negotiations on the remaining matters required to reach FID,” said Morgan in a communication to URN.
He added: “Once all these matters are resolved, there will be a rapid resumption of the activities resulting in significant demand for manpower, goods and services.”
This is not the case in Uganda today. Companies are still negotiating with the government on tax issues, recoverable costs.
Morgan said “we believe…we will succeed in starting the Development phase of the project, paving the way for investment and oil production in the country.”
Tullow said when it terminated the deal that it was going to look for the new investor but industry watchers say it is going to be difficult for it to attract a new investor.
Total and CNOOC had agreed to buy 21.5 percent of Tullow’s stake for $900 million. Government wanted a capital gains tax on it.
The companies wanted a tax relief, saying they would invest much of the money back in the industry.