Uganda's Oil Sector Expects U.S.$ 1Billion Investment in 2019

Crude oil.

Uganda's oil and gas industry is expected to rake in investments worth over US$ 1 billion this year,according to senior energy ministry officials.

The outlay for this year is part of the close to US$20bn that the government expects over the next three years as the joint venture oil company partners step up activities to commercialize Uganda's petroleum resources which were discov¬ered over a decade ago.

The development of the upstream proj¬ects are being taken forward by the three joint venture partners, CNOOC Uganda Ltd, Total E&P Uganda and Tullow Uganda Operations Pty Ltd.

Eng. Irene Muloni, the Minister of Energy and Mineral Development said recently that the government expects a pick-up in activity in the sector this year following a calm 2018 that involved designs of key production infrastruc¬ture such as the East African Crude Oil Pipeline and the two central processing facilities.

She said the government has also revised its timelines for first oil by 24 months to 2022 following a series of missed deadlines.

According to the government's original road map, first oil was scheduled for 2020 but the joint venture oil companies failed to submit their final investment decisions in time. Muloni said the gov¬ernment had expected the key decisions to be made latest end of 2017 or in the first quarter of 2018.

"Unfortunately, it has not happened and 2018 has come to an end," Muloni said, "That means Uganda's first oil shifts."

At the time the government announced the 2020 first oil timeline; many observers said the schedule was quite ambitious considering the range and cost of infrastructure involved.

In the field, for instance, oil companies needed to develop infrastructure to produce the oil. These included drilling and completing more than 400 wells, setting up two central processing facili¬ties, laying of over 200km of in-field flow lines, laying approximately 150km of feeder pipelines, construction of base camps and minor access roads, among others.

Besides the crude oil pipeline and refinery development, the oil companies had to do Front End Engineering Designs before making their final investment decisions for the two central processing facilities.

These include the Tilenga project which covers Buliisa and Nwoya districts and the Kingfisher project which covers Hoima and Kikuube districts--both esti¬mated to cost about US$ 8 billion.

The Tilenga project will have a pro¬cessing facility with capacity of up to 190,000 barrels of oil per day and the Kingfisher project, 40,000 barrels per day. These processing facilities will feed into the refinery and the 1,445km crude oil pipeline.

But putting in place the essential mid¬stream infrastructure, including a 60,000 barrels per day Greenfield refinery, a crude oil export pipeline and a products pipeline--facilities needed almost at the same time-- has proved difficult.

The government only managed to find investors for the US$4bn oil refinery in Hoima in April, last year, following the signing of a project framework agree¬ment between the government and a consortium of companies led by the US giant, General Electric (G.E).

The Albertine Graben Refinery Con¬sortium is comprised of YAATRA Africa (Mauritius), Lionworks Group Limited (Mauritius), Nuovo Pignone Interna¬tional SRL (a General Electric company domiciled in Italy) and SAIPEM SPA (Italy).

Josephine Wapakhabulo, the Chief Executive Officer at the Uganda National Oil Company (UNOC) referred to the signing ceremony as a "game changer" for the country.

But the agreement only became effec¬tive from Sept.7, 2018, and the con¬sortium is now undertaking technical studies (FEED and ESIA) together with other pre-FID activities such as devel¬oping a financing strategy, financial modelling, raising capital and risk anal¬ysis and the supply and demand consid¬erations for the project.

Muloni said the government has given the refinery consortium a maximum of two years to reach a FID after which they will embark on construction of the refinery. It is expected to be ready in 2023.

The energy minister says Uganda has also made progress with the construction of the US$3.5bn East Africa Crude Oil Pipeline (EACOP) which is a 1445 heated pipeline from Hoima in mid-western Uganda to the Indian Ocean port of Tanga in Tanzania.

Muloni says the FEED for the crude pipeline was finalized last year and submitted to the government. However, the two neighbouring states spent 2018 negotiating with the JV partners on how the crude export pipeline should be developed.

So far, four rounds of negotiations of the host government agreements between the government of Uganda and the lead project sponsors have been held since February, 2018, but there remains "sticking issues" on the economic model of the project and the allocation of pumped oil to both the refinery and the EACOP.

Muloni says she expects the host gov¬ernment agreements to be signed "soon" so construction of the pipeline can start.

"We have gone a long way but there are a few areas that we have not agreed on because there are still a few points to agree on," She said, "We expected the JV partners to make their FID to allow the construction of the pipeline."

"We have invested a lot of time into this process (and) I am confident that we will achieve a win-win situation."

Another stumbling block between the government and the JV partners has revolved around Tullow Uganda Pty Ltd's farm down of its stake in Uganda's oil operations.

Although Tullow entered into a sale and purchase agreement to farm down 21.5% of the participating interests to Total and CNOOC for up to US$900 mil¬lion, it appears negotiations over how much capital gains tax is due the govern¬ment has been quite contentious.

When the transaction goes ahead, Tullow will remain with 11.7% partici¬pating interest and a non-operator.

However, Muloni says, she gave "con¬ditional consent" on Nov.21, last year, for the transaction to proceed, subject to Tullow's payment of the tax obliga¬tions as assessed by the Uganda Revenue Authority (URA). The URA says Tullow must pay US$ 167 million.

"For me, as a licensee, I have given con¬ditional consent to this transaction sub¬ject to payment of the tax obligation as assessed by URA," Muloni said, "What now remains is that once this transaction gets out of the way, the companies need to make a final investment decision."

"Producing oil involves many stake¬holders each with a key role and time¬lines to meet. That is why these pains¬taking decisions have been taking long," Muloni said.

Government remains upbeat

She, however, remains upbeat, saying Ugandans should appreciate the signifi¬cant progress made so far in taking for¬ward the key projects leading to first oil.

"We have already fallen off the schedule by a year. If we can catch up, then we can look at the tail end of 2021 or at least a slight cross into 2022."

"As a country, our primary focus should be on ensuring that the journey towards first oil is one that brings in maximum benefit to the country, by ensuring that the oil and gas resources are produced efficiently, and that Ugan¬dans can competitively participate through provision of goods and ser¬vices."

"There is no short cut for a country whose agenda is sustainable exploitation of natural resources in order to create lasting value for society."

More From: Independent (Kampala)

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