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Uganda approves oil production licences for Tullow, Total
An oil rig being used to drill oil at one of the sites in the Albertine region in Uganda. PHOTO | FILE
Uganda’s oil production plans are now in earnest after the Cabinet approved the issuance of production licences to France’s Total and Britain’s Tullow Oil.
Speaking to
The EastAfrican, the Minister for ICT Mr Frank Tumwebaze said a formal announcement will be made by the Ministry of Energy.
Kampala had already issued an oil production licence to China National Offshore Oil Company (CNOOC) in 2013. The three firms, which jointly own the Kingfisher block in the oil rich Albertine region, discovered 6.5 billion barrels of crude oil in the area in 2006.
The oil firms have also agreed to participate in the construction of the Uganda-Tanzania pipeline that is expected to be complete in 2020.
Uganda, suffering from a prolonged sluggish growth, hopes that crude wealth will boost the economy; despite an ongoing glut in the global oil sector.
On Monday, the government invited three Nigerian firms and one from Australia to negotiate for production sharing agreements for new exploration blocks. The government had announced its first competitive bidding round for six blocks in February last year. Only seven oil firms out of 16 that had picked bidding documents submitted their bids.
The government expects to start crude exportation by 2020.
The oil production licences issued will run for a period of 25 years.
Uganda approves oil production licences for Tullow, Total
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Cautious excitement as Uganda issues oil licences
An oil rig in western Uganda. The issuing of production licences and rolling out plans for further exploration for oil and gas in Uganda is expected to increase investments in the sector. PHOTO | FILE
In Summary
- Officials are looking beyond the current glut in global oil supply — in fact, they think it presents a good investment window, and therefore better negotiating capacity for both the Ugandan government and oil companies.
- Last week, the government announced that it would issue five production licences to joint venture partners Total Exploration and Production Company and Tullow Oil Uganda, in addition to the one it had earlier issued to the China National Offshore Oil Company (CNOOC). It also announced expansion of the exploration block
The issuing of production licences and rolling out plans for further exploration for oil and gas in Uganda is expected to increase investments in the sector.
Officials are looking beyond the current glut in global oil supply — in fact, they think it presents a good investment window, and therefore better negotiating capacity for both the government and oil companies.
Production and exploration from major markets have been declining over the past two years as producers look to push up prices. The US, a major consumer of both domestic and global oil, has seen a number of rigs from its shale gas fields close as prices tanked.
“We are preparing for good days instead of sitting back because the time will come when supply from major producers will decline but the demand will keep increasing,” said a source familiar with industry operations.
Last week, the government announced that it would issue five production licences to joint venture partners Total Exploration and Production Company and Tullow Oil Uganda, in addition to the one it had earlier issued to the China National Offshore Oil Company (CNOOC). It also announced expansion of the exploration block as it invited four firms to negotiate production sharing agreements (PSAs). PSAs are the last step towards granting of exploration rights.
READ:
Uganda approves oil production licences for Tullow, Total
The issuance of the latest production licences means the government is moving towards commercialisation of the oil and gas resource, currently confirmed at 6.5 billion barrels of crude, out of which between 1.4 billion and 1.7 billion barrels are recoverable. Tentative estimates show that the country could earn $2 billion annually.
“There is a cautious excitement because of past stalemates where there was too much politics and we missed opportunities when prices were at their peak… This will be a sector added to the economy and we hope the money will be put to proper use,” said Moses Asasira, project co-ordinator of Adroid Consult.
The development is a result of discussions that took more than two years between the government and the oil companies on the Field Development Plan and Petroleum Reservoir Report.
Infrastructure
By Press time, however, oil companies had not received any official communication from the government regarding production licences.
In 2013, the Energy Ministry issued the first production licence to CNOOC for the King Fisher field. Although CNOOC operates the field, Tullow and Total own equal shares of 33.3 per cent in the field. The partners will invest $2 billion to develop the field in preparation for actual oil production.
The investment will be spread over four years beginning with infrastructure like roads leading to the well, which is partly offshore and partly onshore, drilling 40 development wells, piping and building a central processing plant. The announcement of opening of negotiations for PSAs for the new exploration area means the government is now moving to open the 60 per cent upstream blocks, which it estimates will have even more reserves compared with the current 40 per cent in Bunyoro’s Albertine Graben.
The key aspects to be discussed during the negotiations will include the respective work programmes, national content and fiscal aspects like royalty.
“Further due diligence will be undertaken on the successful bidders with regard to their financial, technical and health, safety and environment management capabilities prior to the issuance of licences,” said Ernest Rubondo, director of petroleum in the Energy Ministry.
The four companies are Armour Energy Ltd of Australia — which will negotiate for Kanywataba Block; WalterSmithPetroman Oil Ltd of Nigeria for the Shallow and Deep Plays in the Turaco area; Oranto Petroleum International Ltd of Nigeria for the Shallow and Deep Plays in the Ngassa area; and Niger Delta Petroleum Resources Ltd of Nigeria for the Shallow and Deep Plays in the Ngassa area.
READ:
Uganda shortlists Nigerian, Australian firms for oil licensing
At the start of the bidding process, 17 companies presented bid documents. Sources familiar with the transaction told
The EastAfrican that some companies could go for joint ventures in blocks that involve deep and shallow well drilling, but details remained scanty.
In February 2015, the government lifted a seven-year moratorium on exploration and offered six blocks covering 3,000 square kilometres for exploration.
The six blocks are Turaco (425 square km), Kanywataba ( 344 square km), Ngassa (410 square km), Taitai and Karuka (565 square km), Ngaji (895 square km) and Mvule (344 square km). The Graben covers an area of 23,000 square km out of which 1,100 square km have been explored.
Although the bidding process failed to attract oil majors like Total E&P, CNOOC and Shell, it emerged that some of the companies that bought the bid documents abandoned the process midway after being pre-qualified.
Russian consortium African Global Resources (JV comprising Telconet Capital Ltd, RT-Global Resources LLC and JSC Tatneft) — had been pre-qualified among six other companies, but pulled out at the last minute.
Both RT Global Resources and Telconet were also involved in the consortium that was selected as the preferred bidder for the refinery deal. The deal collapsed last month following Russia’s pullout, again at the last hour.
READ:
Uganda begins fresh negotiations for oil refinery
Concerns have been raised as to why the government is making the moves in the face of low crude prices, but sources told The EastAfrican this is the ideal time for both government and oil companies.
“The production licences will show Uganda as an area with high potential and so when companies and government negotiate for exploration, we shall each get better terms,” said a source. For companies, it is easier to negotiate for lower prices when contracting service providers.
In an earlier interview, Permanent Secretary in the Energy Ministry Kaliisa Kabagambe explained that in 1997 when Uganda signed first PSA’s, crude was $22 a barrel.
Cautious excitement as Uganda issues oil licences