Tullow Downplays Falling Oil Price Effects on Investments in Uganda

2162 Views Kampala, Uganda

In short
Tullow is involved in exploration activities in Uganda and is currently awaiting the award of production licenses that have delayed for almost over two years. In an email to URN, the oil company noted that the changes in oil prices will not affect the performance of the company in Uganda.

Tullow oil has played down a possibility of reviewing its investments in Uganda as a result of falling global oil prices. Global oil prices have been falling since June 2014. Currently the average price is about US$48 per barrel, which is a 58% price drop from the US$110 prior to June 2014.

As a result of the falling prices, the Tullow Oil Plc share price at the London Stock Exchange has more than halved as investors are weary of the falling global prices.

Tullow is involved in exploration activities in Uganda and is currently awaiting the award of production licenses that have delayed for almost over two years. In an email to URN, the oil company noted that the changes in oil prices will not affect the performance of the company in Uganda.

"The project in Uganda is a long-term, multi-decade project and variations in the oil price, which have to be expected over the life cycle of very long projects, don't fundamentally change its value," George Cazenove, The head of media relations at Tullow Oil Plc said in an email.

Since 2004, Tullow financial statements indicate that investment of about US$2.8billion in exploration activities. With this investment, Tullow expects to make a return on the investment once production starts. Additionally, investments in the oil sector once production licenses are issued, is expected to be in excess of US$10billion.

Even with the changes in the oil prices, Cazenove is rather upbeat that over the next 12 months their investment will remain unscathed.

"Our work in Uganda over the next 12 months will be focused on the technical work required to take the project towards production," he adds.

The Tullow sentiments were however dispelled last evening when media reports from the UK, where it is listed, noted it would downsize due to falling oil prices.

The London Telegraph and Reuters all quoted a source within Tullow saying "Tullow will be a smaller company." The media reports however do not indicate which countries will be faced with job cuts. A trading and operational statement from the oil company is expected on 15th January 2015.

Oil companies globally have been downsizing as a result of falling oil prices and yet exploration costs remain the same.

Other oil companies like Total and CNOOC were yet to respond to our request for a comment regarding their investments in Uganda.