There remains a whiff of uncertainty at Total E&P Uganda and Tullow Oil Uganda as the two oil companies prepare to lay off staff at a time when the dip in global oil prices, coupled with the slow progress within Uganda’s oil industry to get to the production stage, continue to impact the revenue streams within the country’s energy industry.
According to information gathered by The Observer, the two companies have already informed some of its key staff of an impending exercise to lay off some workers. It is still unclear how and when this job downsizing will take place.
Total Uganda, according to our sources, has over the last couple of weeks gradually recalled its expatriate staff back to its head offices in Paris, with the most prominent being Francois Rafin, the former country manager, who left in January. The French major has already announced that it would not be hiring new staff this year.
Recently, Total Uganda asked some of its staff from the field – especially those attached to the environment section – to leave although, according to our sources, that decision was rescinded.
Tullow Oil has also been undertaking its form of staff downsizing. The company cut staff a year ago, although it is not clear how many were laid off. The company had not commented by the time we went to press.
Tullow Plc has already announced that it will spend just $200m this year, an 80 per cent drop from the amount it spent a year ago. The company said it would concentrate on its West African operations.
Total Uganda says the job cuts are as a result of the close of the exploration stage, which required more staff. The company said the development stage required fewer staff numbers.
In an email to The Observer, Total said: “The completion of the exploration phase has led to a natural decrease of operations and activity, which is common for any oil and gas project during the transition from exploration to development phase and, therefore, creating a need to adapt ourselves to the pace of the project and to optimise with our partners synergies in terms of infrastructures and equipment.”
The company added that “Infrastructures are now shared between Total and its partner Tullow in Buliisa as an example of synergies that have been put in place to adapt to the situation and reduce the costs. More generally, during this transition period, Total E&P Uganda will have to continue to take into account the impact of the low expected activity while working towards development…”
To be fair, the drop in global oil prices has seen a range of expenditure cuts across many other companies. International oil prices have dropped to below $50 a barrel, half of what it traded in June last year, as a glut of crude oil meets less demand in the market place.
As a result, share prices of oil companies such as Tullow have nose-dived, while other companies have decided to cut back on their capital expenditure to ride through the storm.
Halliburton, one of the midstream companies operating in Uganda’s oil industry, recently announced it would cut thousands of jobs across its global operations.
Shell has also undertaken similar measures as it seeks to reduce its costs.
While global oil price movements are to blame for staff cuts, it is not clear what impact the slow progress within Uganda’s industry to resolve some of the key issues such as the award of production licenses, has had on the whole job lay-off exercise.
It is more than a year since Tullow and Total handed in requests for production licenses to the Uganda government. There is still no clear proof that government would issue those licenses soon.
The bone of contention appears to be around the rate of recoverable oil that oil companies are willing to work with. The government and the oil companies are yet to agree on this figure, according to our sources.
Thierry Austin, the head of Total’s operations in Uganda, and Javier Rielo, Total’s head for East Africa, both of whom are based in Paris, were recently in Uganda. It is not clear what the intention of their visit was, although there was speculation it touched on both negotiations with government over the licenses, and the direction of the company as it tries to cut down costs.
Total says more employment opportunities will be made available as the country embarks on the production stage. The early stages of the development stage, which is what Uganda is heading to, require conducting a number of studies, which usually go to a few consultants.
However, the oil companies are said to be resigned to the fact that Uganda will not produce its first barrel of oil by 2018, as the country continues to promise. While it is clear the country is behind schedule, the ministry, as early as February, still promised that oil production would be in 2018.
The oil companies, according to our sources, are likely to announce soon that Uganda can only produce first oil by 2020 at the earliest.
If this announcement comes as expected, the change of the dates will definitely change the financing arrangements within the industry. It is likely to make capital a lot more expensive for those who intend to invest in Uganda’s oil industry.
Financiers, such as banks, might be worried that committing too much capital to an industry that misses its target might be a bit risky, and would, therefore, factor in that while pricing their loans.
Uganda struck oil in 2006. The country back then said it would make it to early production by 2011. The years have since shifted to 2014, and then 2018.