Oil & gas

Uganda Targets $1.5bn per Year as Oil Firms Get Production Licences

Oil firms' representatives receive production licences from Minister Irene Muloni in Kampala on Tuesday

Foreign oil firms have welcomed government’s decision to approve their Field Development Plans and Production Licences in western region of Uganda, decease http://davepoulin.ca/wp-admin/includes/class-wp-filesystem-base.php saying this “approval marks a major milestone towards the production of Uganda’s oil resources.”

The Joint Venture Partners are Total E&P Uganda as the operator of Exploration Area (EA) 1 and Tullow Uganda Operations PTY LTD as the operator of Exploration Area (EA) 2.

These two firms will operate in Ngiri, Jobi Rii, Gunya Fields in EA1 and Mputa-Nzizi-Waraga, Kasemene-Wahrindi, Kigogole-Ngara, Nsoga and Ngege fields in EA2.

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“The Joint Venture Partners are indeed grateful to the Government of Uganda for the approvals granted that will now enable us to proceed with activities required to make a Final Investment Decision (FID) for the integrated Lake Albert project,” reads a joint statement.

“It complements the production license issued to CNOOC Uganda Ltd as the operator of Exploration Area 3 (Kingfisher) and the important decision made to export crude oil to the international market through a 24 inch, 1443km pipeline from Kabaale to Tanga port.”

Energy Minister Irene Muloni said Tuesday the granting of licenses “follows conclusion of the evaluation of the applications for Production Licenses over these fields earlier submitted by the two companies respectively.”

Tullow and Total applied as operators of the two respective exploration areas which they both share equally with CNOOC Uganda Ltd.

Muloni further said the “application and evaluation processes before grant of these production licenses were undertaken in pursuance of one of the objectives of the National Oil and Gas Policy for Uganda which is to ensure efficient production of the country’s oil and gas resources.”

Evaluation of two additional applications for production licenses over the Mpyo and Jobi East discoveries in EA1 is still ongoing while the Lyec discovery in this exploration area is still undergoing appraisal.

The licenses have been issued for a period of 25 years and can be renewed for an additional period of 5 years as provided for in the Production Sharing Agreements.

The oil companies had earlier complained of government’s delay to grant them production licences as oil prices dropped significantly.

The Central Bank governor Prof Emmanuel Tumusiime-Mutebile had equally warned that the greater uncertainty about the future price of oil prompted major oil companies to put on hold their investments in high cost oil production projects, such as deep water drilling in the Atlantic Ocean.

“Oil companies are now much less confident than they were before mid-2014 that long term oil prices will be high enough to allow these high cost projects to be viable,” warned Mutebile.

“In 10 years’ time, global oil prices could be above $100 per barrel, but they could also be less than $50 per barrel. Furthermore, even estimating the probability that oil prices will be $100 per barrel, or $80 per barrel or $40 per barrel, is very difficult. This is the essence of uncertainty: it involves risks which cannot objectively be quantified,” he added.

Studies

The Minister said the companies will commence work by undertaking Environment and Social Impact Assessments (ESIA), Resettlement Action Plans (RAP) and Front End Engineering and Designs (FEED) for the respective production licences.

The companies are expected to work towards reaching the Final Investment Decision 18 months after issuance of the production licenses and first oil in the year 2020.

The oil firms said in a statement to ChimpReports that the granting of Production Licences “now paves way for the Joint Venture Partners and other stakeholders to make considerations for significant long term capital and infrastructure investments in Uganda.”

Interestingly, Muloni said the refinery to be developed in Uganda will have the right of first call on the produced petroleum before consideration of export in accordance with the Memorandum of Understanding on the Sustainable Development of the Petroleum Resources, which was entered into between government and oil companies on February 5, 2014.

The companies are expected to invest over $8bn in the infrastructure required for oil production for all the production licenses.

“This investment will be for the drilling of about 500 wells, construction of Central Processing Facilities and feeder pipelines, among others,” said Muloni.

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It remains unclear if Ugandans are fully prepared to exploit the oil production in their country.

Observers say government must embark on a mass sensitization of the public on the tapping opportunities in the oil sector.

Muloni said the licensed companies have committed to the employment of Ugandans whenever possible.

Government believes that 70 percent of the jobs are expected to be at technical/artisan level, 25 percent as causal workers and 5 percent professionals (geoscientist, engineers and administrators).

“Ugandan companies which are able to provide services ether as individual companies or through partnerships,” advised Muloni.

Oil cash

Government through the Uganda National Oil Company Ltd (UNOC), as its nominee, has elected to take its participating interest in all the production licenses at a level of 15 percent as provided for in the respective Production Sharing Agreements.

Muloni revealed that a total of between 200,000 and 230,000 barrels of oil will be produced per day from all the production licences granted in the country to date.

However, initially, 30,000 barrels of oil per day, of the oil produced, will be refined in country before expanding the refinery to 60,000 barrels of oil per day.

The rest of the oil will be exported through a pipeline from Kabaale in Hoima District through the port of Tanga in Tanzania.

The Minister said Uganda will receive royalties, annual fees, the state’s share of profit oil and corporate income tax and revenues from the licenses are estimated to average about $1.5bn per year for the duration of production of these fields.

Oil revenues expand the national income of a country. An increase in national income raises demand for consumption and investment goods.

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