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Congo President Strips Tullow of Oil Licenses

Source: The Wall Street Journal 6/25/2010, Location: Africa

Congo's government refused to ratify Tullow Oil PLC's licenses for two key oil-exploration block deals and awarded them to companies owned by a relative of South Africa's president.

The presidential decree, which Joseph Kabila signed Friday, replaced U.K.-based Tullow and its partners with Caprikat Ltd. and Foxwhelp Ltd., owned by the South African businessman Khulubuse Zuma.

The order shows that Blocks One and Two of the Albertine Graben were awarded to an alliance between Caprikat and Foxwhelp. Attempts to reach Mr. Kabila's office for comment were unsuccessful Thursday.

Tullow and partners Heritage Oil PLC and state-oil company Congolaise des Hydrocarbures, also known as Cohydro, had been awarded the licenses by the government in 2006 but were awaiting Mr. Kabila's ratification. Tullow owns a 48.5% stake in each of the two blocks, which are located along Lake Albert.

Tullow is one of the world's largest independent oil companies and has made huge discoveries on the Ugandan side of Lake Albert, where it has begun drilling appraisal wells and expects production to start next year.

To shoulder the project's financial burden, Tullow has enlisted assistance from France's Total SA and China's Cnooc Ltd. Total had considered joining Tullow on the Congolese side if the awards had been ratified.

"We are reviewing our options but have no doubt about the legal validity of our claims to these blocks," a Tullow spokesman said. He said that the awards of key blocks to unknown companies will raise questions about the transparency of the country's oil sector.

"This is a sad day" for Congo, the spokesman said. Heritage referred calls to Tullow, which it described as the deal operator. Cohydro couldn't be reached.

Mr. Zuma hailed the decree as a landmark decision that establishes a strategic alliance between Congo and South Africa. "The contract…is an important first step in the establishment of a wider industrial partnership between the two countries in the oil and gas sector," he said in a prepared statement.

Mr. Kabila ratified rights to two other blocks in eastern Congo, which had been awaiting his approval since December 2007. He confirmed a license shared by Soco International PLC and Dominion Petroleum Ltd., of the U.K., and a license issued to South Africa Congo Oil Co. on another block. Cohydro is a partner in both blocks. Dominion and Soco declined to comment. South Africa Congo Oil couldn't be reached.

The decrees came as Congo is ramping up the development of its oil resources and has appointed a new petroleum minister, Kabila loyalist Celestin Mbuyu.

Next month, Soco expects to drill a well in another onshore block, Nganzi, the first onshore drilling in 40 years in the African nation. Eni SpA, which has announced an agreement to help Congo develop its oil, has expressed interest in entering the block, according to people familiar with the matter.

While Congo possesses significant oil and gas potential, years of civil strife have kept the country's production at about 20,000 barrels of oil a day.

Tullow's shares closed down 4.1% at £10.87($16.25) on Thursday.

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