Oil sector faces tough times with Coronavirus pandemic 

OIL SECTOR

Just when you probably thought that Uganda and oil companies were about to reach a Final Investment Decision (FID) for the country's oil projects, then, the novel coronavirus struck, writes Pascal Kwesiga  

Just when you probably thought that Uganda and oil companies were about to reach a Final Investment Decision (FID) for the country's oil projects, then the novel coronavirus struck.

In the early stages of the coronavirus attack, starting in China last December, you may not have thought that the virus, which has so far spread to over 100 countries, would have effects on oil and gas projects in Uganda.

The coronavirus effects are not restricted to prices of crude oil — which Uganda is seeking to start producing — due to reduced demand occasioned by a fall in global economic activity.

They have extended to small activities, such as stakeholder engagements — that have to be undertaken before oil resources development and production. 

Already, the Chinese firm - CNOOC (China National Offshore Oil Corporation) - has suspended field visits by its teams to Kingfisher fields on the shores of Lake Albert, shared between Uganda and DR Congo.

In a March 11 letter to the permanent secretary in the energy ministry and the executive director of the petroleum authority, CNOOC stated that the suspension of trips to fields under its operatorship is a measure of precaution to minimise unnecessary exposure and contact of persons whose recent travel itineraries are not known.

The company said it believed that its measure, coupled with others proposed by the health ministry, will significantly reduce the spread of the infection that has so far infected over 200,000 people and killed more than 10,000 globally.

However, over 80,000 have recovered from the contagious disease. "We apologise for any inconvenience this may cause and look forward to your co-operation, as we all continue to monitor this situation," the letter read.

According to a source, some of the activities the company has suspended include the quarterly engagements with stakeholders in the host community and guided tours around the fields for government employees.

"We have mainly suspended these engagements and we shall not be taking people to the fields and give them guided tours. Meetings are also being handled through video conferencing," a source said.

The petroleum authority has also suspended some of the activities due to the virus. Some of the activities which have been suspended by the petroleum authority include the district leaders' visit to Tilenga and Kingfisher fields, which had been planned for March 18 and 20.

The coronavirus pandemic has put many sectors on a standstill, including the oil industry

 
Other activities

The other activities, that have been delayed according to the stakeholder engagement officer at the authority, Seith Muhumuza, include engagements between the authority and CNOOC and Total as well as media engagement.

New Vision has established that Total has suspended some activities and has written to the petroleum authority to that effect. Peter Muliisa, the head of corporate and legal affairs at the National Oil Company, said the firm has also postponed field stakeholder engagements.

"We are really trying to limit the movement of our staff to the field. But the office environment is okay, although we have put in place measures that would enable us continue to work at home, should that become necessary," he added.

Muliisa stated that the joint venture partners — CNOOC, Total and Tullow — have postponed similar activities, too.

However, he said the deferment of the aforementioned activities would not affect steps being pursued to realize the Final Investment Decision (FID) for the oil projects.

"We are finalising the commercial issues that are standing in the way of realising FID. We shall rely on technology to complete what needs to be done and have FID as soon as possible. Once those issues are sorted, we shall release the roadmap for FID," Muliisa stated.

The decision, which was expected last year, was not reached after the Tullow farm down, a key transaction to FID, fell through over disputes over tax treatment of the deal between the oil companies and Government.

Tullow announced that the transaction, which collapsed in August, would have to be restarted. The Government and joint venture partners say they are working around the clock to realise FID.

The decision will signal the beginning of the development phase of the Kingfisher and Tilenga oil fields and production might be realized three years later. The development phase will involve establishing well (development), central processing facilities at Tilenga in Buliisa and Kingfisher in Kikuube district, a feeder pipeline from the production fields to the proposed Kabaale Industrial Park in Hoima.

Others will include the development of the Uganda-Tanzania crude oil export pipeline and later a refinery and a finished petroleum products pipeline between Hoima and Mpigi.

Kingfisher, which is under the operatorship of CNOOC, could produce about 40,000 barrels of crude oil per day. Tilenga is projected to generate about 200,000 barrels of crude oil per day. The CNOOC-Uganda president, Zhao Shunqiang, recently said the joint venture firms continue to engage the Government with a view of expediting the realization of FID. "It (FID) will be (realised) soon," Production  Kingfisher, which is under the operatorship of CNOOC, could produce about 40,000 barrels of crude oil per day  Zhao stated.

The National Environment Management Authority (NEMA) has cleared the development of Tilenga and Kingfisher fields for oil production. It has issued the joint venture partners with permits endorsing their environment and social impact assessment reports.

Developers of various projects are required to conduct studies to establish the possible positive and negative environmental and social impacts that could arise from their activities.

They are also expected to spell out measures that would be used to mitigate or prevent the identified possible negative effects.

Hard times

From the current look of things, Dr Lawrence Bategeka, a senior economist, said the coronavirus outbreak would result in an economic depression.

With developing and developed economies now focusing on saving lives, he noted, the effect on development and planned programmes, such as oil development activities, as well as FID, could be far-reaching.

"Some sectors like tourism have completely collapsed. You cannot think about development when the most important thing now is saving human life. You cannot think of other issues when your house is burning. And we do not know when the problem will be contained," he noted.

Bategeka, a legislator, observed that countries like Uganda, which are import-dependent, should brace themselves for tough times and even start revising their budgets.

"Development assistance is not going to be at the level we expected and we are not going to raise the money we need for the budget. Our agriculture is rain-fed and we do not have a strong manufacturing sector. Countries are shutting down because saving human life is now the most important issue and not development," he added.

Guard Benda, the chairman of Publish What You Pay, an international Nongovernmental organisation, said the outbreak and continued spread of coronavirus could have varied effects on Uganda's nascent oil sector, if not contained now.

"Economies are not performing well because of reduced activity. It means there is no money because the demand for oil has been declining and it could continue because of reduced economic activity," he added.

Benda also observed that the Government and oil companies would also resort to "boardroom" business and skip some of the most important steps and activities to beat their timelines.

"Stakeholder engagements are important activities. It means they could be rushed through when things normalise and that is bad for some of the stakeholders," he noted.