Mr. Paul McDade, Tullow Oil's Chief Operations Officer revealed that his company would commence production of crude oil from its Kasamene field in block 2.

"We will start producing about 500 to 1,000 barrels a day in the middle of this year," McDade said, ending the anxiety that has been going on for years as to how soon Ugandans would see their oil finally out of the ground.

McDade said production will progressively rise to 10,000 barrels next year and to 150,000 barrels in 2015.

The announcement followed Tullow's signing of a Sale and Purchase Agreement (SPA) with Heritage Oil for the 50% stake in Blocks 1 and 3A in a US$1.5bn deal after the Irish firm exercised its pre-emptive rights. Italian oil giant Eni SpA had earlier offered the same amount for Heritage's stake.

McDade said that while the initial production was not economically significant, it was a great step forward for Ugandans to know that their oil was being utilised for industrial use.

"We would like to produce oil on a test basis to see how the oil wells behave and how the crude can be transported by truck since it is waxy. We will have to heat the oil to keep it flowing," he said.

He said the oil would be used for the local industry and power generation.

Tullow plans to invest between $300m and $400m in this initial phase but would later raise its investment to about $5b to produce 150,000 barrels per day.

McDade's trip to Kampala followed Heritage's extra ordinary meeting on Monday where shareholders approved the sale to either Tullow or Eni. Either way Government will have to approve the transaction and go with either Tullow or Eni.

Heritage had said it expected to get all the government approvals by the first quarter of this year.

Following the signing of the SPA, Tullow said it expected to farm out some of its shares in the oil fields to other companies that will help it develop the oil fields.

It also acknowledged that government still had to approve of whichever company Tullow will partner with in the production of oil from the various fields.

McDade disclosed that the two companies which Tullow preferred to work with were the Chinese state-owned China National Offshore Oil Corporation (CNOOC) and French major Total.

He said the Chinese were 'the best in building refineries and moved fast.' CNOOC has just built a big refinery in China which can refine the same quality of oil as in Uganda in a period of two years.

McDade also said Tullow was looking forward to working with the Ugandan national oil company which is in the process of being formed.

Regarding criticism that they had not delivered on the early production scheme, he said Tullow preferred drilling more wells to access the total oil reserves rather than spending all their money on one small oil field.

"A refinery is a very expensive project for the private and public sectors. You cannot put in place a refinery unless you are sure that you have enough oil supply for 20 or more years," he said.

He said Tullow and its partner, Heritage, had so far invested about $700m in Uganda.

Last week Tullow also announced that they placed 80 million new shares on the London stock exchange to fundraise for its operations in Uganda and Ghana where they also have fields at production stage.

The announcement said 'the success of the pre-emption and subsequent farm down process will increase the level of activity and rate of spend as Tullow moves into a phase of accelerated exploration drilling and more significant development expenditure as the Company works towards Uganda becoming a material oil-producing country.

McDade said Tullow's board has concluded that raising equity capital is required both to facilitate the Ugandan acquisition and, together with the proceeds from the anticipated farm down process.

The release quoted Tullow's boss Aidan Heavey as saying the placing would give Tullow the right capital structure to deliver for all stakeholders.

Libya and Iran are among other countries that have expressed interest in building a refinery in Uganda as have other major oil companies.