Govt, oil companies disagree on production

Feb 11, 2015

EMERGING details central to the delayed issuance of oil production licences point to three factors, among them how much oil can be recovered during production

By David Mugabe

 

EMERGING details central to the delayed issuance of oil production licences point to three factors, among them how much oil can be recovered during production.

 

Senior sources in the industry and Government have both acknowledged that there remain several sticking issues before commercial production can begin since the end of exploration. 

 

Key among them is the disagreement on the percentage of recoverable oil spelt out by the oil companies in their submitted field development plans.

 

The Government is holding out for a higher percentage with a minimum of 30% while oil companies want a lower percentage. This is also linked to the second issue, which is the kind of technology and investment that would be applied for production.

 

The minerals state minister, Peter Lokeris, acknowledged in a recent meeting that there have been protracted technical discussions between the Government and the oil companies surrounding how Uganda can maximally benefit from its 6.5 billion barrels of oil reserves. Initial estimates say about half of this oil as recoverable.

 

“One oil company will suggest a certain type of technology, while we prefer another type of technology,” noted Lokeris.

 

The three companies Tullow, CNOOC and Total have submitted field development plans. Only CNOOC has got a production licence. But according to the Government, CNOOC got a production licence first because their field development plans were very detailed and their technical plans were good.

 

Total Exploration and Production’s (Total’s E&P) single application for the Ngiri field and Tullow’s eight applications remain unapproved.

 

A meeting with the President aimed at ironing out some of the sticky issues is scheduled for February 17, according to close sources.

 

A recent meeting between the Uganda Chamber of Mines and Petroleum (UCMP) and Prime Minister Ruhakana Rugunda a few days ago revealed the extent of the frustration of the entire extractive industry.

 

Led by UCMP chairman, Elly Karuhanga and top government leaders, private sector players questioned the commitment of the Government on taking the industry forward because of lack of time frames and regressive fiscal policies like taxation on exploration and foreign expatriates.

 

In his response to the private sector, Rugunda acknowledged that the Government needs to respond in a more effective business-like manner and move forward.

 

“I think our colleagues in the private sector have made a very strong case and I think the issues boil to one point. That the Government needs to be more definitive; clear time frames are necessary to ensure there is movement forward,” said Rugunda.

 

“Let’s remove as many removable issues as possible. We may have less control over the international market but let us do what we can within our means,” he added.

 

Staff losing jobs

Already, the biggest casualty has been Francois Rafin, Total’s boss who left in January, less than six months since taking up his slot in Kampala. 

 

The French national seemed to argue for a prioritisation of the pipeline as opposed to the Government’s wish for a refinery first.

 

Over 120 employees in the oil and gas industry have been laid off between 2008 and 2014 as a result of inactivity following the numerous shifting of the oil production timeline since 2012. 

 

Industry sources confirm that the affected firms are those providing third party services to the industry such as transportation, carrier cranes, catering and forklifts.

 

One company had 75 employees in 2008 and have since scaled down to just 20 workers because of inactivity.

 

“Contracts are issued for one year and sometimes they are cancelled before the year ends, yet the staff are very expensively trained,” said a senior private sector source who chose to remain unnamed.

 

About five companies have been affected directly while oil firms have also laid off or are set to lay off staff. All of this is largely attributed to the delay in issuance of production licences with sources confirming that there is now a clear possibility of a further delay in extracting the first oil for Uganda.

 

Conrad Nkutu, the Tullow Oil communications chief, acknowledged the arrival of a senior Tullow Oil executive over the weekend. The executive spent the whole of Monday in high-level meetings with the Government.

 

Nkutu, however, declined to divulge the details of the meeting. He also rubbished reports of Tullow staff leaving the company or losing jobs.

 

“It is completely baseless (that Tullow is laying off staff). There are too many rumours, we have a $3b investment in this country,” noted Nkutu.

 

The issue of shifting timelines was raised by the chairman of the National Oil Company (NOC) during the 2014 mineral wealth conference.

 

He questioned why there is no agreed timeline that everybody can work towards.

 

“Employees and companies have to be protected. You invest but are not certain what will happen next. If production was started in 2012, we would not be worried about the current oil prices. Because of inactivity, some of the people we trained have now gone to Kenya,” said a private player in a logistics firm.

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