JANUARY 7, 2010, 11:12 A.M. ET.UPDATE: Uganda Oil Reserves In 3...

JANUARY 7, 2010, 11:12 A.M. ET.UPDATE: Uganda Oil Reserves In 3 Blocks Could Hit 6B Barrels
By Nicholas Bariyo
DOW JONES NEWSWIRES
KAMPALA, Uganda (Dow Jones)--Oil reserves in Uganda's three blocks along the Lake Albert basin could be at least 6 billion barrels up from the current estimate of 2 billion barrels once appraisals are completed in around two years time, the energy minister told Dow Jones Newswires Thursday.

In an exclusive interview, Hilary Onek said appraisal of oil fields in blocks 1, 2 and 3A is set to start to establish the exact size of the reserves, which are expected to rise to 6 billion to 8 billion barrels. The three blocks are currently licensed to U.K.-based Tullow Oil PLC (TLW.LN) and Heritage Oil PLC (HOIL.LN).

"Oil wells drilled so far in the blocks have returned 94% discovery rates, the potential is enormous," he said.

Oil has been discovered in 32 out of the 34 wells drilled since 2006 with less than half of the oil fields drilled, he added.

Occurrences of oil were easily detected in the Albertine basin because of its location in East Africa's western rift valley, he said.

More oil is expected to be discovered in Uganda's northern and northwestern regions and exploration activities will take place there in the future, the minister said.

Appraisals will involve drilling more fields in the three blocks both onshore and offshore.

Uganda is expected to start oil production in the next two to three years and Onek expects the country to have a 150,000 barrels-a-day refinery in place as well as an export pipeline to the Indian Ocean by 2013-2014.

Uganda will need to put in place infrastructure, like road and rail lines, in the oil region ahead of production and the government is considering building a second oil pipeline to link the area to Rwanda, Burundi and Tanzania once the country reaches full-scale output, Onek said.

Uganda is currently drafting a new oil law, to be tabled later this year which will provide for the establishment of among others a national oil company to manage the oil resource. The new law will also pave the way for the licensing of the remaining five blocks in the Albertine rift, he added.

The government is evaluating the proposed acquisition of Heritage Oil's interests in blocks 1 and 3A by Italy-based Eni SpA (E), Onek said, which is being contested by Tullow.

"As government, our main aim is to ensure that the cost of investment in exploration remains the same," he said, adding that the interest of larger companies like Eni in Uganda shows its potential.

Government officials say that 60 international companies have already expressed their interest in exploring for oil once the new licensing round resumes. London-listed Cairn Energy PLC (CNE.LN) is among the companies interested.

Sourav Das, the senior manager in charge of corporate communications at Cairn India Ltd. (532792.BY), a unit of Cairn Energy, told Dow Jones Newswires in Kampala that Uganda's oil region has a lot of similarities with the Rajasthan oil project, where Cairn is developing a 600-kilometer reverse flow pipeline from the Mangala field to the Gujarat coast at a cost of $1 billion.

"Like the oil from the Mangala field, Uganda's oil is waxy and requires heating to be pumped through a pipeline," he said.

Cairn executives are in the country but Das declined to give more details of their visit.

-By Nicholas Bariyo, contributing to Dow Jones Newswires; +256 75-262 4615; [email protected]