Engineers preparing an oil rig in Western Uganda last year.When on Sept.25 Ministry of Energy and Mineral Development officials appeared before the media to announce the issuing of the country's first production licence to the Chinese firm, CNOOC, both excitement and tension were evident in the air. It was easy to explain.
The first oil discovery was first announced seven years ago thus raising the expectations of millions of impoverished Ugandans, but since then, bickering over this and that has left everyone wondering when - actually if - the oil would ever come out of the ground. This announcement has now interrupted a lull of more than a year since Tullow announced a partnership with CNOOC and Total in February 2012.
"This marks an important milestone in the progress of Uganda's Oil and Gas Sector," a visibly excited Peter Lokeris, the acting Energy Minister, said. The announcement means that Uganda, which has estimated reserves of 3.5 billion barrels, can now expect its oil to flow in four years' time, if CNOOC's plan is to go as planned. The Kingfisher oil field is to be operated by CNOOC, though it is also jointly licensed to Tullow Uganda Ltd, Total E&P Uganda B.V. Lokeris said the licence, which remains valid for the next 25 years, was approved following a "satisfactory review" of the CNOOC's field development plan.
Over the last seven years, the government has left the oil companies frustrated because of the costly delays in getting the paperwork in order. Yet Ghana, which discovered its oil about the same time, was able to produce just three years after discovering its oil.
However, according to Ernest Rubondo, the commissioner in the Petroleum Exploration and Production Department (PEPD), the government issuing its first production licence to CNOOC means it is now confident that in four year's time, Uganda's oil will finally flow.
CNOOC, established 31 years ago to serve as the Chinese partner of oil companies exploring and extracting oil and gas in Chinese waters, has now emerged as the surprise pace-setter. China's largest producer of offshore crude oil and natural gas, and one of the largest independent oil and gas exploration and production companies in the world, mainly engages in exploration, development, production and sales of oil and natural gas. The corporation has since grown steadily to become one of the world's largest integrated oil companies, working across the resource's value chain-- right from upstream (exploration), to refining, processing, storage and retailing.
In July, CNOOC expressed interest in investing in Uganda's oil refinery following meetings between Prime Minister Amama Mbabazi and the CNOOC chairman Wang Yilin during Mbabazi's state visit to China. Only a courageous better would put a wager on the company not getting the deal.
According to Robert Kasande, a ministry official in charge of refinery development, a call for potential refinery investors will be issued by mid-October now that modalities of how to proceed have been cleared by the transaction advisor, Taylor DeJongh, a US-based energy firm. The government estimates that the two projects could cost more than $ 6 billion (about Shs 15.6 trillion).
Concerns over the likely impact of the projects on the environment have been rife but Lokeris said an environmental and social impact assessment (ESIA) is underway to look into drilling and production operations, central processing facilities, together with the pipeline and power routes. With the requisite laws already in place, the ESIA will also assess all the project stages including construction, operation and decommissioning and emergency response planning for the field with its priorities on the safety of people, preservation of the environment and minimization of asset losses. An oil spill contingency plan for the field will also be prepared for the drilling operations as well as the construction and production phases.
Jin Weigen, the CNOOC Uganda vice president, was optimistic about their conserving the environment, saying the company has always worked to " ensure a harmonious evolution between the company and Society, between human beings and nature." "As a responsible company, CNOOC Uganda Ltd is committed to a sustainable, environment friendly and efficient development of Kingfisher oil field," he said.
The extent to which environmental activists will be convinced is what remains to be seen. But as the energy ministry officials celebrated a key milestone after many years of hard work amid rampant pervasive public expectations, the questions from a rather skeptical media remained unanswered. How come Tullow which has been here for much longer has not been issued with a production licence yet CNOOC - which has been here for slightly over a year - managed to get it? What has CNOOC done differently?
Rubondo was adamant in arguing that no preferential treatment had been given to CNOOC. He said the Kingfisher field - together with Mputa and Waraga oil fields - were the very first discoveries in Uganda, which were soon taken over by Tullow Oil. And following the farm down in February last year, the Kingfisher field was given to CNOOC to operate-- because of its experience in offshore exploration - which they will now develop following the issuance of the licence.
Rubondo suggested that Tullow's long wait could as well be over soon as its application for three production licences covering Mputa, Nzizi, Kasemene, Wairindi, Ngoga, Ngara, Ngege and Kigogole oil fields scattered around Hoima and Buliisa Districts, are not too far off either.
Local companies, which have been rubbing their hands in anticipation, can also expect to cash in earnest in line with the local content provisions of the law.