JOHANNESBURG Nov 15 Oil in Africa tends to
depend on the three "Big Gs" of geology, geography and
governance and investors in east Africa's much-hyped finds are
discovering the hard way what happens when they are not
Six years after Uganda struck oil in its interior, all of
the pieces are beginning to click into place for a boom that
holds the promise of prosperity for one of the continent's
A number of oil firms including Total and Tullow
Oil plc are engaging and plans are in place for the
infrastructure needed to exploit estimated reserves of around
3.5 billion barrels.
But production is still not seen before 2015 and may take
longer, while the pipeline to get the oil to the coast for
export will not be in place before 2018 at the earliest.
Compare that to the Atlantic coast nation of Ghana 2,000 km
west, which took only 3-1/2 years to crank out its first barrel
of crude after oil was discovered and is already seeing its
first exports, and it looks like Uganda has missed out.
"Here's a country that discovered oil in 2006. Hasn't
produced a drop. And they say they will only export crude when
they have a refinery and the best estimates for operators like
Total is 2017 for production," said Dr Duncan Clarke,
chairman of oil/gas advisors Global Pacific & Partners.
"So this is 11 years of an interrupted exploration cycle
which typically you associate with a war or civil conflict or a
meltdown ... 11 years of lost impact in GDP growth."
ON-SHORE VS OFF-SHORE
Where the geology in east Africa has been favourable for
oil, the geography has been less so.
Huge gas discoveries off Tanzania and Mozambique are
extremely promising but the Indian Ocean waters off east Africa
have yet to produce a commercially viable oil source.
Land-locked Uganda's on-shore oil reserves are certainly on
a commercial scale but they lie 1,300 kms from the coast and so
a costly pipeline is the only way to export the crude.
Neighboring Kenya is not land-locked but the oil encountered
there at two wells by British explorer Tullow and its partner
Africa Oil Corp has also been onshore.
Ghana's Jubilee field by contrast is conveniently off-shore
and its location places it bang in the heart of a mature oil
region where nearby countries like Nigeria have been producing
the commodity for decades.
"Ghana is very familiar with everything to do with an oil
economy because of its neighborhood," said Tara O'Connor,
managing director of Africa Risk Consulting.
For Uganda by contrast - and east Africa in general -
everything about oil is new.
"No matter where you are in the world, where there's no
infrastructure and no history of the oil business, it will take
at least half a dozen years to go from exploration phase to
development concepts," Tim O'Hanlon, Tullow's vice president for
Africa, told Reuters.
Governance also matters - a lot.
In the case of Ghana, its development into a stable
democracy with a relatively diverse economy helped to get the
"Ghana was in a very good position to meet the challenge of
becoming an oil producer because it had already diversified its
economy," said O'Connor.
Diversification also meant Ghana, a rising gold producer and
the world's second-biggest cocoa grower, did not regard oil as a
get-rich-quick fix for the fiscus.
"Tax stability is important for any investor, and Ghana has
maintained a stable fiscal regime for existing investors," said
Martin Kelly, Wood Mackenzie's lead analyst for Africa.
In Uganda, analysts say tax disputes point to a growth in
"resource nationalism" as the government of long-time President
Yoweri Museveni eyes oil as a panacea to its fiscal woes.
Explorer Heritage Oil and the Ugandan government
are in arbitration after the Britain-based firm disputed the tax
bill from the sale of its assets there to Tullow for $1.45
billion in 2010.
The oil explorer has argued its earnings were not subject to
capital gains tax because the transaction in question was
executed outside Uganda. Critics have said the government
appears to be changing the goal posts.
"In Uganda, you have potential rent seekers emerging out of
the political system who see oil as a way to compensate for the
lack of fiscal discipline," said O'Connor.
Uganda has also thrown another obstacle in the way of
actually extracting oil by insisting that any development plan
involve the construction of a refinery - a hugely costly
undertaking with an estimated $2.5 billion price tag that is
fraught with risk.
The Ugandan government and operators working there disagree
over how big the refinery needs to be.
Operators say its capacity should not exceed 60,000 barrels
per day to be attractive to investors but the government insists
a facility with a maximum output of 120,000 bpd is viable and
can easily attract investors.
Ghana has also had delays. It began pumping oil from its
Jubilee oil field in November 2010 and while it had hoped to hit
250,000 barrels per day by 2013, it has averaged under 80,000.
Still, the rewards of getting past the barriers to
production quickly are evident: Ghana's economy expanded almost
15 percent last year and the government expects 2012 growth of
just over 7 percent.