March 13, 2009 / 11:29 AM / 8 years ago

INTERVIEW-Heritage Oil sees Uganda oil production next year

* Sees Tullow wells producing in 2010, Heritage in 2011

* Considering consortium to fund required infrastructure

By Duncan Miriri

MOMBASA, Kenya, March 13 (Reuters) - British explorer Heritage Oil HOC.TO expects oil production to start at Ugandan wells in 2010, a senior company official said on Friday.

Heritage and partner Tullow Oil (TLW.L) found crude in several wells dug between 2006 and 2008 in the Albertine Basin, which spans Uganda's border with Democratic Republic of Congo.

Energy prospectors are increasingly turning off the beaten path and searching east and central Africa for hydrocarbon deposits, although experts warn the global financial crisis is threatening to stem some of those plans.

"The earliest production could be next year and that is Tullow. They may be producing by 2010 into a small topping plant," Heritage's vice president for exploration and production, Brian Smith, told Reuters in an interview.

"Heritage is hopeful that we can begin production in 2011," he said on the sidelines of a regional oil and gas meeting in the Kenyan port city of Mombasa.

Smith said production plans were being discussed along with the construction of a refinery and an export pipeline.

"There are many options for how the oil resources of Uganda will be developed," he said.

MULLS REFINERY

The east African nation is contemplating building a small refinery to cut dependence on neighbouring Kenya's ageing refinery. Transportation of fuel to Uganda from the Kenyan coast is hindered by creaking infrastructure between the countries.

Supply was also severely disrupted last year when Kenya was hit by post-election crisis violence, leading to fuel shortages in Uganda and neighbouring Rwanda and Burundi.

The discoveries of commercially-viable deposits in the Albertine Basin has, however, forced a rethink of the plan, Ugandan energy officials say.

They are now considering a more than 100,000 barrels a day capacity refinery at a cost of $1.3 billion in about two years.

Smith said Heritage is working closely with the government to ensure the oil finds are developed in the right way. But he added more work needed to be done to prove there were enough reserves to sustain the capacity.

"Before any decision on the refinery to build, you would actually have proven reserves to deliver the capacity that is required to support a refinery," he said.

"We are not quite there yet."

Smith said the discoveries, estimated by Heritage at over 2.5 billion barrels of crude, have a greater than 50 percent chance of existence and to justify a massive capital project like a refinery would need a better than 90 percent chance.

He said their investment in the project, combined with equity partner Tullow's, runs into hundreds of millions of dollars. He said the global slowdown had not had any immediate impact on Heritage's operations, but added it was looking into all the possibilities for funding in the future.

"We wouldn't necessarily have to seek additional finances in the traditional way of financing, project financing from the banking community, for instance. There are other options of putting together a consortium for a pipeline, putting together a consortium for rail transport etc," said Smith.

"There are many ways we can find to approach this issue." (Editing by Daniel Wallis and James Jukwey)

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