Ugandan firms receive Shs900b oil deals
Wednesday, January 25, 2023
President Museveni (with hat) and Vice President Jessica Alupo, government officials and oil sector players during the commissioning of the oil drilling in Kikuube District on January 24, 2023. PHOTOS/ PPU
By
Frederic Musisi
What you need to know:
- Out of the $1 billion (Shs3.6 trillion) for provision of goods and services on the Kingfisher project, contracts worth $270 million (Shs986 billion) were awarded to Ugandan companies mainly in areas of civil works, hospitality management, transportation and ICT
Cnooc Uganda Ltd, the operator of the Kingfisher oil field whose early drilling works were flagged off yesterday, will invest approximately $580m (Shs2.1 trillion) this year and next year in the quest to fast-track oil production to start in the last quarter of 2025.
The cost of developing the oil field, which will pump Uganda’s first crude oil, is estimated at $2b (Shs7.3 trillion) as per the Petroleum Authority of Uganda (PAU) that among others, reviews and approves oil companies’ work plans and budgets.
The frenzied investments kicked in last year, with Cnooc sinking $346m (Shs1.2 trillion) into the same project after the government and the oil companies—French TotalEnergies EP and Cnooc—announced investment of $10 billion (Shs36.5 trillion) to bring Uganda within touching distance of starting commercial oil production in 2025.
Once commercial oil production starts, Cnooc will spend another $1.5 billion (Shs5.5 trillion) over a 20-year period for maintenance of the project. The significant amount of money, however, still goes back to foreign Engineering, Procurement and Construction (EPC) firms employed on projects alongside local ones.
In the grand scheme of things, this year—much like its predecessor—kicked off on a high note yesterday with the launching of early oil drilling works of the first oil well at the Kingfisher oil field. The oil field is located 2km off the shores of Lake Albert in Kikuube District.
The key milestone yesterday came almost a year after the oil companies and their local partners—Uganda National Oil Company (Unoc), and Tanzania Petroleum Development Corporation (TPDC)—closed the long-awaited Final Investment Decision (FID). This paved the way for the awarding of some 92 tenders totalling $1 billion (Shs3.6 trillion) for provision of goods and services on the Kingfisher project alone.
Of the $1 billion, according to PAU, contracts worth $270 million (Shs986 billion) were awarded to Ugandan companies mainly in areas of civil works, hospitality management, transportation and ICT.
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Mr Museveni launches oil drilling on January 24, 2023
What next?
With the early oil drilling works for the Kingfisher oil field ticked off, next in line is to kick start similar works on oil fields under the Tilenga project that straddles Nwoya and Bullisa districts operated by TotalEnergies EP.
But the uphill task is the development of the 1,443km East African Crude Oil Pipeline (Eacop) that will transport Uganda’s waxy crude oil from the Kingfisher field and Tilenga to Tanga port in Tanzania where it will be loaded in containers en route to the international market.
The closure of financing—nearly $4.5 billion (Shs14 trillion)—remains a tall order but officials say there is a sliver of hope. Uganda’s section of the Eacop is 296km through 27 sub-counties, three town councils, as well as 171 villages in 10 districts of Hoima, Kikuube, Kakumiro, Kyankwanzi, Mubende, Gomba, Sembabule, Lwengo, Rakai and Kyotera.
Tanzanian President Samia Hassan Suluhu’s Beijing visit last November offered some clarity on the course of the Eacop, according to highly placed sources.
However, questions abound whether the pipeline can be ready in two-three years to transport crude oil to the market. The Eacop company is currently fast-tracking land acquisition for the project right of way but since infrastructure development in Uganda is never short of drama, including bureaucratic headwinds, only time will tell.
No mean feat
Ms Irene Batebe, the Energy ministry Permanent Secretary, described the launching of Kingfisher oil field spudding as a “momentous occasion”, pointing to the government’s unwavering commitment to first oil in 2025.
“As a country, it implies that we are about to join the league of oil-producing countries behind Angola, Nigeria, and Libya,” Ms Batebe remarked.
The other medium considered for commercialisation of Uganda’s oil is the proposed 60,000 barrels per day (Bpd) refinery, but it remains a far cry. The government, in 2017, awarded a consortium of American and Italian firms the tender to design, finance and construct the refinery project, but besides the usual rhetoric, there is seemingly slow progress on that front despite recently announcing that its financing will be closed by this March.
The commencement of drilling of the development and production wells is in effect the start of trials for oil drilling using the rig that was hauled in the country last August and assembled in November. The process will culminate in commercial production in late 2025, but could stretch into 2026.
2026 electioneering
All this means oil will be a tool for electioneering that year. Early indications are that President Museveni, who in 2015 said he cannot “hand over power to wolves” (Opposition)—“people without vision” and accused them of being after “my oil”, is revving up for a seventh electoral term in office.
During the 60 years of independence, Uganda has never seen a peaceful transfer of power. Despite the last 36 years under President Museveni’s National Resistance Army/Movement being relatively peaceful, a breakdown of institutions, systemic corruption, nepotism and cronyism have continued to stick out like a sore thumb. There are fears that the problem could be exacerbated when oil revenues start flowing.
Key milestone
Yesterday, President Museveni, who has usually taken credit for Uganda’s oil discovery, extolled scientists led by the former Energy ministry Permanent Secretary Kabagambe Kaliisa, former Petroleum Exploration and Production Department (PEPD) commissioner Reuben Kashambuzi, and Petroleum Authority of Uganda (PAU) executive director Ernest Rubondo, for their pivotal role in shaping the oil journey as it is today.
“How would I take on personal responsibility when I didn’t know?” Mr Museveni said of the decision taken by his government in its early days 37 years ago to send a group of Ugandan scientists abroad to study oil and return home to take charge, unlike many African governments which relied on foreign expertise.
“I want to salute the scientists and the oil companies—we started with small ones like Hardman, Heritage, and now here we are, with Total and Cnooc,” the President said, adding, “I want to congratulate Cnooc for moving forward. I hope others are also moving forward.”
Vice President Jessica Alupo (right) at the commissioning of the oil drilling on January 24, 2023
Kingfisher lowdown
The Kingfisher oil field, formerly known as Exploration Area (EA) 3A, is part of the Kingfisher Field Development Area (KFDA) that straddles Kikuube and Hoima districts. The KFDA is operated by Cnooc Uganda Ltd, which awarded the tender for construction of the required infrastructure to pump oil to a joint venture of China offshore Oil Engineering Company, and China Petroleum & Construction Corporation.
It is the successful drilling of oil wells at EA31 in 2006 by the Australian wildcatter, Hardman Resources and its Anglo-Irish partner Tullow Oil PLC, that led to the summation of Uganda’s oil deposits as “commercially viable.” The announcement was made by President Museveni during a national prayer breakfast convened at Kololo Independence Grounds in Kampala.
Tullow Oil PLC subsequently acquired Hardman’s stake, and in 2011, the former farmed down (sold stakes) to the French TotalEnergies EP and China’s Cnooc. Following commencement of operations in Uganda in February 2012, Cnooc was tapped operator of the EA3.
At the time, only the Kingfisher oil field had a production license, which had been conditionally granted to Tullow around the time of the farm down. The conditions to be satisfied included, among others, submitting an amended and restated Field Development Plan and Petroleum Reservoir Report acceptable to the government, in accordance with the Petroleum Act and International Petroleum Best Practices.
The reports were submitted in November 2012, and rigorously reviewed, leading to lifting of the conditions on September 16, 2013, and its production license awarded on September 25 that year.
The oil fields are owned jointly notwithstanding the individual operatorship by Cnooc and TotalEnergies. TotalEnergies commands 56.7 percent stake in the fields, Cnooc with 28.3 percent, and Unoc, 15 percent.
Unoc is the statutory body mandated to manage Uganda’s commercial interests in all petroleum licences.
Mr Rubondo revealed yesterday that the Kingfisher oil field is estimated to have 560 million barrels of oil in place, out of which 190 million barrels of oil (33 percent) is expected to be produced over a period of 20-25 years.
“The oil field is expected to have a maximum production of 40,000 barrels of oil per day for five years after which, production will begin to decline,” he noted. “The drilling rig, which you have just switched on, Your Excellency, will be used to drill all the planned 31 production wells of this oil field. Twenty of these wells will be used to produce oil, while 11 of the wells will be used to inject water in the reservoir to help improve production.”
According to PAU, investment in development of the Kingfisher oilfield is expected to cost more than $2 billion (Shs7.2 trillion) over the next three years until shortly after production starts.
Mr Rubondo revealed that the Kingfisher project is already employing “over 1,500 people, of whom, 1,300 are Ugandans and about 500 are from the communities surrounding the project.”
Out of the $1 billion (Shs3.6 trillion) for provision of goods and services on the Kingfisher project, contracts worth $270 million (Shs986 billion) were awarded to Ugandan companies mainly in...
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