Contract News - Tullow And Heritage Lose DRC Licence
1 May 2008
The Democratic Republic of Congo (DRC) has awarded one of the two oil blocks located in Lake Albert to a consortium including South Africa's Devine Inspiration Group and state-run PetroSA and H Oil. UK-based Tullow Oil and partner Heritage Oil from Canada signed production sharing contracts (PSCs) for both blocks in 2006, but the DRC has disputed the legality of the contract. In mid-2007 the DRC's government claimed that Tullow had not paid the required signature bonus for Block 2, although according to the company, US$500,000 was paid for blocks 1 and 2. The government now argues that the contracts were signed by a deputy minister who did not have the authority to do so as the PSCs had not received presidential approval.
According to Dieumerci Mutombo, the ministry cabinet director, said that only one of the blocks has been taken away from Tullow and Heritage and awarded to the new consortium. Mutombo further said 'our position is that we cannot give the entire lake to a single operator'. The two blocks on the DRC's side of the lake are located on the border to Uganda, where Tullow holds exploration licences for three blocks, two of which are held in partnership with Heritage. This border area has been subject to violence in the past, with the DRC accusing Tullow and Heritage of violating the border with the help of the Ugandan army. While both companies have denied the charges, violence did break out several times last year, in which several Congolese civilians and an employee of Heritage was killed in a skirmish between its private security firm and DRC forces.
The news illustrates some of the risks international oil companies (IOCs) face when exploring in Africa. Overall, while Africa offers an opportunity for small IOCs to gain access to unexplored, but potentially extremely attractive, acreage, the risks are not evenly distributed across the continent. There are substantial risks that investment in certain states will be jeopardised due to arbitrary changes to contracts or broader political trends. The DRC produced some 20,000 barrels per day (b/d) of oil in 2005, according to the Energy Information Administration. While there is currently no production from Lake Albert, Tullow and Heritage have yielded positive results, suggesting the presence of significant levels of hydrocarbons in the Ugandan side of the lake.