23 December 2012

Uganda: Energy Minister Clarifies On Oil Exloration Area 4b

The Daily Monitor of Saturday December 15, 2012 ran a story with a headline "Uganda's oil field sold again five months later".

The Ministry of Energy and Mineral Development would like to correct the wrong impression created by this headline over the status of Exploration Area (EA) 4B in South Western Uganda.

In the first instance, it is important to understand what an Oil Field is! An Oil Field is an area of land or seabed underlain by rocks bearing petroleum in amounts that justify commercial exploitation.

There has not been any oil and/ or gas discovery or discoveries in the Southern part of Lake Edward and Lake George Basin (or Area 4B). Therefore referring to any transactions that may take place in Area 4B as "sale of an oil field" is grossly misleading and wrong.

Dominion Uganda Limited (Dominion) was on July 27 2007 granted an Exploration Licence with exclusive rights to explore for petroleum in Exploration Area 4B covering area size of 2,021 square kilometres.

The Exploration License was for a maximum time of 6 years, phased into three (3) Exploration Periods with an initial period of 2 years and renewals of two period of two years each, upon satisfaction of clearly laid out obligations in both the Petroleum (Exploration and Production) Act, Cap 150 (Petroleum Act) and the Production Sharing Agreement. In 2009, the license was renewed for the second Exploration Period that ended in July 2011.

In the first and second Exploration Periods, DUL acquired and interpreted 6560 line kilometres of magnetic and gravity data, 500 line kilometres of seismic data and undertook geological and geochemical studies both on land and the lake.

DUL used these data to identify drillable prospects and subsequently Ngaji-1 Well, located near Rwenshama village in Rukungiri District was drilled in June 2010.

The well reached a Total Depth of 1769m and did not encounter oil or gas and it was subsequently abandoned, plugged and the site (area) restored.

Using the information obtained from Ngaji-1 well, Dominion planned to acquire additional seismic data on Lake Edward and across the Uganda-Congo border with its partners before drilling more wells in the area to fulfil what was agreed upon in the PSA before the expiry of the exploration license.

In 2011, Dominion applied for the renewal of their license to enter into the third and final exploration period which would expire in July 2013.

Before the renewal could be granted, Dominion was asked to provide a detailed work program for the third Exploration Period as agreed in the Production Sharing Agreement signed in 2007 (PSA).

As the Ministry was still in discussions with Dominion over the renewal of the Exploration Licence for the third and last license period, the Ministry received a request for approval of acquisition of Dominion's shares by Ophir Energy Plc.

The Ministry then requested DUL that, for the Minister to issue an Instrument of Consent to the transaction, documentation regarding the acquisition indicating fiscal and technical responsibilities of the new parties be submitted to the Ministry for review and consultations with other Government institutions before giving approval or refusing in accordance with the Petroleum Act.

It is important to note that transactions of this nature (mergers, acquisition, take-overs e.t.c) are common practice in the oil and gas industry especially during the initial stages of exploration where oil exploration companies work together to spread their risks.

While Government was still reviewing the submitted documents used for the acquisition of Dominion Petroleum Limited by Ophir Energy plc, Dominion submitted a notice of surrender of the Exploration Licence to Government.

The Ministry then informed Dominion to follow the legal and regulatory requirement before the Certificate of Surrender could be issued.

The Ministry and Dominion are at the moment carrying out verification exercise of assessing the Assets to be handed-over to Government and other compliance issues in areas like environment, taxes among others. When all the stipulated requirements have been met by Dominion, ultimately the area will revert to Government in preparation for future licensing round.

In view of the above information, Government neither renewed Dominion's

Exploration License for the third Exploration period nor approved any transactions between Dominion Uganda Limited and Ophir Energy Plc or Octant Energy Corporation as required by Section 44 of the Petroleum Act of 1985.

Therefore, the claims made in the article that Government could lose millions of shillings in Capital Gain tax if the confusion that has marred Dominion's acquisition continues are not true.

On the contrary, the Dominion's matter is being handled within the applicable laws in consultation with all the relevant institutions.

Finally, I want to emphasize that, it is our sole responsibility as stakeholders, the media inclusive to always ensure accurate information is made available to the public.

The Ministry of Energy and Mineral Development is committed to ensuring that the development of Uganda's emerging oil and gas sector is taken forward in an efficient and transparent manner.

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