Home East Africa State of affairs in Uganda’s promising oil and gas sector

State of affairs in Uganda’s promising oil and gas sector

by Teddy Leting
State of affairs in Uganda’s promising oil and gas sector

Uganda has a promising Oil and Gas sector, which is tipped to change the economic prospects of the country once the resources are commercialized.

According to an overview of the Oil and Gas sector, prepared by the Ministry of Energy and Mining Development in December 2018, the country has an estimated 6 billion barrels of oil, with 1.4 billion reserves recoverable.

Albertine Graben is the principle prospective area for Petroleum exploitation, with 21 oil and gas discoveries. 14 of the fields are under development, with production licenses already issued.

According Uganda’s Ministry of Energy and Mining Development, the prospectivity of the country’s Albertine Graben presents a drilling success rate of over 85 percent, against a global average of 22 percent for the oil industry, with one of the lowest finding costs of less than $1 per barrel.

In addition to the above, new exploration work by Armour Energy Limited in the Kanywataba Exploration Area in Ntoroko District and by Oranto Petroleum in the two stratigraphic licenses in the Ngassa Exploration Area in Hoima District has commenced. This exploration work has potential to increase Uganda’s resource base from the current confirmed 6 billion barrels.”

To ensure efficient and optimal management of the country’s oil and gas resources, Petroleum Authority of Uganda reviews, approves and monitors the work programmes for the five licensed oil companies.

Petroleum Authority milestones

The Authority formulated a three-year Strategic Plan to cover institutional building, enabling exploration, increasing the resource base, commercialisation of the discovered oil and gas resources and enhancing the impact and sustainability of the petroleum sector.

So far, PAU says, Armour Energy Ltd (AEL) has concluded on the geochemical analysis as the first step towards evaluation of the petroleum potential of the Kanywataba exploration license area.

“The samples acquired are currently being analysed at Activation Laboratories in Canada and at Graystone Laboratories in the USA. In addition, AEL is currently reprocessing the seismic data which was previously acquired over this license area as well as planning for the acquisition of new additional seismic data over the area,” says the Authority in a document.

China National Oil Offshore Corporation (CNOOC) Uganda Ltd, Tullow Uganda Operations, Pty Ltd and Total E&P Uganda B.V. completed the Front End Engineering Design (FEED) studies for the development of the fields in the Tilenga and the Kingfisher Projects in 2018. This included technical design of the oil and gas facilities, preparation of the project scope, cost estimates, and execution strategy for both Tilenga and Kingfisher projects.

The companies have also undertaken a re-evaluation of the resources in the oil fields, which has enabled a better understanding of these fields. Planned recovery rates for the fields in the Tilenga project now range between 16% and 39% with an average of 25%. While the planned recovery rates for the Kingfisher field is now estimated at 33%.

According to the Authority, Geotechnical and Geophysical surveys, Subsurface Studies, Drilling and Surface Engineering Studies, together with ground water surveys for both the Tilenga and Kingfisher were carried out in 2018.

“These are undertaken to optimise the development strategies of the projects and prepare for the installation of the planned infrastructure,” it says.

PAU approved the 2018 annual budgets of the five licensed companies, amounting to US$ 483 million, which was a significant increase compared to the US$218 million approved in 2017.

The Authority went ahead to use the funds in undertaking the designs of the infrastructure for the oil fields and feeder pipelines, carrying out geotechnical and engineering surveys, especially over the areas where the infrastructure was planned to be located, land acquisition and undertaking Environmental and Social Impact Assessments (ESIA) for the projects.

In 2019, the Final Investment Decision (FID) for the project is set to be assembled and key construction work to commence.

“Towards the end of 2018, a total estimated investment made in the sector amounted to US$ 3.7 billion, with US$ 3.5 Billion in the Upstream and US$ 0.2 Billion in the Midstream. The Economic Evaluation of the projects is undertaken to ensure profitability of the projects is maintained, and in order to secure Government take from the sector,” a statement from the Authority states.

In 2018, there was a noticed recovery in the oil price, reaching a 4 year high of US$86.29 per barrel in October. However, this declined to slightly below US$60 per barrel in Mid December 2018 and averaged at US$63.8 for January to March 2019.

Crude oil Prices were predicted to average at US$72 per barrel in 2018 and US$69 per barrel in 2019, up from US$40 and US$52 in 2016 and 2017 respectively.

In addition to the oil prices, other drivers of profitability of the upstream projects which include cost and expected recoverable reserves have also improved following the FEED studies. The profitability of Uganda’s upstream projects has since improved with the point forward internal rates of return now estimated to be above 20%.

To achieve a maximum economic value from the projects, PAU is working with other sectors in the economy such as the health, transport, housing, tourism, agriculture and education so as to identify and strengthen linkages between the oil and gas sector and the broader economy. This will facilitate holistic benefit for the country during the anticipated peak period of investment and thereafter.

Further, the Authority monitors the participation of Ugandans in the supply of goods and services to the oil and gas activities, with a view to achieve value creation and retention for the country. The key aspects monitored include employment, capacity building, enterprise development, and transfer of technology.

“As at 30th December, 2017, the oil companies directly employed 231 people of which 191 (82%) were Ugandans. By the end of 2018, the companies were expected to employ over 380 people, 250 (66%) of whom were expected to be Ugandans. The decrease in percentage of Ugandans employed during 2018 was attributed to the more complicated phase of FEED studies which require highly technical skills which are not yet available in the country,” PAU says.

During 2017/2018 the licensed oil companies procured goods and services equivalent to $41.3m. Out of this, $8.7 million (21.17%) went to Ugandan-owned entities, $2.8 million (6.97%) went to Ugandan companies with foreign ownership, and, the International companies had contracts worth 29.7million (71.85%) in value.

The percentages of services provided by Ugandan entities, according to PAU, is expected to increase as activities migrate from the design phases to construction work on the ground.

In 2018, the Authority published the National Supplier Database (NSD) for the second year running, and the number of applications received increased from the 774 in 2017 to 2,558, and subsequently the number of registered entities increased from 513 to 1,752.

Of these over 1,000 were Ugandan registered entities. Registration on the NSD 2019 is ongoing and has so far, 1,011 entities being qualified.

Boosting skills in oil and gas sector

On 1stFebruary 2019, PAU launched the National Oil and Gas Talent Register (NOGTR), to provide a centralised database of Ugandans with oil and gas related skills, training and experience. Over 600 professionals were registered on the NOGTR at the end of March 2019.

PAU in corporation with the licensed oil companies, the Ministry of Education and Sports (MoES) together with the public and private sector training institutions is working to develop certified technical skills required for the sector.

“To date, 768 technicians have been trained and acquired international certification, and training of 240 welders is ongoing. PAU is undertaking a registration drive in Albertine Graben and a media campaign countrywide to publicise the benefits of registration on the NSD and the National Oil & Gas Talent Register (NOGTR),” the Authority says.

The Ministry is at the moment working on a framework that will have new exploration companies licensed.

“With 90% of the Albertine Graben Unlicensed, my Ministry is planning to undertake the second licensing round and grant new exploration licenses in the country during 2020,” says Irene Muloni, Minister of Energy and Mineral Development- Uganda.

Working closely with both Government and non-Government partners the Authority aims to ensure environment protection, human health and safety during oil and gas activities.

This includes supervision and monitoring of field activities, inspections, audits, and reviewing reports submitted by oil companies to ensure that environment, health and safety issues are well addressed.

The Authority also coordinates capacity building initiatives for relevant Government ministries, departments and agencies in aspects of health, safety and environment management of oil and gas.

The Environment and Social Impact Assessment (ESIA) for the Tilenga project was completed and submitted to NEMA by Total.  As part of the review process ESIA, the PAU organised the Tilenga project public hearings in Buliisa and Nwoya districts in November 2018.

The public hearings provided a forum where all stakeholders, including Project Affected Persons, local communities, Civil Society Organisations and the general public were brought together to express opinions and offer suggestions on the Tilenga project.

The Authority reviewed designs for Tilenga, KFDA and EACOP projects to ensure that safety in design approach is adopted for the proposed projects. This ensures that hazard identification and risk assessment are integrated early in a project lifecycle to eliminate or minimise risks to personnel and members of the public, the environment, and the assets and reputation of the oil and gas sector.

“We are also progressing with the Construction of the East Africa Crude Oil Pipeline (EACOP) which is a 1445Km heated pipeline from Hoima in Uganda to the port of Tanga in Tanzania at an estimated to cost US $3.5 billion,” says the Minister.

“The FEED for EACOP is under review, whereas the field surveys for land acquisition of the 296km of the pipeline and the Environment and Social Impact Assessment are due to be completed.”

Other aspects of PAU’s regulatory role that are under implementation include participating in negotiations for the Project Framework Agreement for the Uganda Refinery Project and the Host Government Negotiations for the EACOP Project, together with monitoring their respective geotechnical studies.

PAU is also managing the country’s Petroleum Data Repository for digital and physical data (Geo-scientific, engineering, costs, and national content).

“As a country, our primary focus should be on ensuring that the journey towards first oil is one that brings in maximum benefits, by ensuring that the oil and gas resources are produced efficiently, and that Ugandans can competitively participate through provision of goods and services,” the Minister says.

By Ben Oduor and Teddy Leting

You may also like

Leave a Comment

OKB price
5909.46 KES+1.8%