The turnaround in Uganda's oil and gas industry

By Ibrahim Kasita

ALREADY the petroleum exploration and production department has embarked on promoting the refinery project to attract investors in a move aimed add value addition

By Ibrahim Kasita

PRESIDENT Yoweri Museveni and the National Resistance Movement (NRM) party are closer to turn Uganda into an oil producing nation.

When he won the 2011 elections, the President embarked on fast-tracking petroleum development.

The move aimed not only to avoid frustrating investors but also ensure that Uganda meets its energy needs while earning petrodollars.

So strong was the President’s resolve that he appointed Irene Muloni, a calm but assertive energy engineer, as minister of energy and mineral development and her task was to ensure that the oil sector moves on in a transparent and accountable manner.

Oil giants enter Uganda

Muloni, who is also Bulambuli Woman Member of Parliament has not disappointed. She approved the $2.9b transaction involving UK’s Tullow Oil, France’s TOTAL and China’s National Oil Offshore Corporation (CNOOC).

This precipitated Tullow to transfer 66.6% shares to TOTAL and CNOOC, opening the doors for the entry of international Oil Majors. Tullow retained 33.3% interests.

This means that Uganda can anticipate major oil production in the near future after a basin-wide plan of development is approved and based on the pattern of negotiations, ramp-up to major production would commence in five years’ time.

Petrodollars start flowing

The development also opens gates for possible $10b investments in the Uganda’s oil and gas industry.

Already the petroleum exploration and production department has embarked on promoting the refinery project to attract investors in a move aimed add value addition to the crude oil, boost employment to the locals and give chance to service provision by local entrepreneurs.

Not only that. The NRM strategic decision earned the treasury $472.7m in capital gains tax that was levied from the transaction. This is in addition to the $404.5m collected from the earlier transaction between Heritage and Tullow

Long-term vision

But the success in the oil and gas discoveries did not start yesterday. The strong foundation was laid way back in 1986 when NRM had just ascended to power.

Resistance Movement (NRM) vision of enhancing human capital development yielded to a strong and skilled manpower to meet the modern petroleum knowledge needs.

The first specialised training in petroleum aspects in Uganda started in the 1980s and the first batch included Reuben Kashambuzi (retired former Commissioner in the Petroleum Department) and Fred Kabagambe-Kaliisa (Permanent Secretary in the Ministry of Energy and Mineral Development).

The two named officials have displayed exemplary leadership in Uganda’s nascent oil and gas industry in which young and brilliant professionals have been mentored.

Since then specialised training has been consolidated with numerous short term courses in various aspects of the oil industry covering technical, legal and economic matters.

The training made the department independent in production of promotional materials, acquisition of Geological, Geophysical and Geochemical data, processing and interpretation of data, negotiating production sharing agreements, monitoring of petroleum operations and preliminary analysis of rock and oil samples.

In 1991, the Petroleum Exploration and Production Department was created with a mandate to establish the petroleum potential of the country and promote it.

It is core function is to acquire process and interpret geophysical, geological and geochemical data with a view of assessing the country's petroleum potential, promotion of petroleum exploration in the country and monitoring and regulating licensees undertaking petroleum exploration and production.

Other functions includes initiation of  policy and legislation on petroleum exploration and development, building  national capacity in the field of petroleum exploration and development and spearheading the implementation of the objectives of the National Oil and Gas Policy.

This was aimed at creating a conducive environment for investment to allow us attract investors in the virgin oil industry.

The Department acquired more data, packaged it and promoted it at international conferences and other meetings.

Dividends paid

The efforts paid dividends. In 1992, Uganda attracted the first international oil company in the names of Petrofina, which was licensed to the entire Lake Albert Rift. However, the firm withdrew from the venture the following year with no work done as it went burst.

In 1993, the Petroleum (Exploration and Production, Conduct of Exploration Operation) Regulations came into effect.

Indeed, the skills acquired and the regulations put in place were used to sub-divide the Albertine Graben into 12 exploration areas with five active production sharing agreements.

Government also made sure that relevant software and equipment were procured so that we managed to package the information to promote the fields in international conferences.

The promotion attracted international oil companies because there was good investment climate.

Investors flock

Four years down the road, international oil companies expressed interest. Heritage Oil and Gas Uganda Ltd became the first international oil company to operate in Uganda in 1997. Then Energy Africa joined a year later.

Hardman, an Australian firm, also came on board in 2001. Other International Oil companies like Dominion, Tower Resources (Neptune) joined the scramble and partition of Uganda’s oil fields.

In 2000, the petroleum exploration and production Act (1985) was reviewed and the Energy Policy was then put in place in 2002. 

The Policy, emphasized training and capacity building especially in exploration business, promotion and exploration of oil and gas resources to achieve local production and monitoring and regulatory aspects (work programme and environment protection).

In the same year up to 2006, the private sector together with government embarked on joint programmes.

These paid off. In 2006 when the waraga-1 discovery was made and a year later, Uganda confirmed there was commercially-viable oil in the Lake Albert basin after the Mputa, Waraga, Kingfisher and Kasamene fields indicated good flow rates and excellent reservoirs.

With the confirmation of commercial oil reserves currently at 2.5 billion barrels and the need to ensure that the resource is utilized in a way that will create lasting benefits to the country, the NRM Government found it necessary to put in place a National Oil and Gas Policy to address the entire spectrum of exploration, development, production and utilization of the country’s oil and gas resources more comprehensively than had been provided for in the Energy Policy of 2002.

February 2008, the National Oil and Gas Policy was formulated after a very wide consultation process which involved review of petroleum  policies of many oil producing countries, discussions within different institutions of Government, Local Authorities and Cultural Institutions especially those in areas with the potential for petroleum production, Civil Society and the academia, among others.

The key issues which were identified as having been brought about by the discovery of oil and gas in the country and needed to be addressed in the National oil and gas policy were Institutional Development, Size of Reserves, Oil and Gas Revenue Management, Impact of Oil and Gas Activities on the Environment, Contribution of Oil and Gas Resources to the Energy Mix, Investment Promotion, National Participation and Public Anxiety and Expectations.

What is in the next four years?

The next stage is to transform the discovered oil assets under the ground into wealth. As of today, the Petroleum Revenue Management and Petroleum Resource Management Bills await Parliament to debate on them and pass them into law.

These laws are critical in the management of the fully-fledged emerging petroleum industry as they will provide rules for establishing key legal and institutional framework.

President Museveni has ruled out options to exporting crude oil after feasibility studies confirmed that building a refinery was a cheaper and profitable options, a strategy that will ensure value addition and steady supply of petroleum products.

Phased development has been considered, starting with a small refinery of about 20,000 barrels per day to provide training for Ugandans in preparations for a bigger one.

The goal is to “use the country’s oil and gas resources to contribute to early achievement of poverty eradication and create lasting value to society.”

 But this will need well informed, debates, transparency and accountability, as well as predictable environment. 

 

ALREADY the petroleum exploration and production department has embarked on promoting the refinery project to attract investors in a move aimed add value addition