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Uganda’s Long Road To Join The Oil Club

On January 24th, 2023, Uganda made a double score- its partners in oil and gas commissioned the first-ever oil drilling operation in the Kikuube district, on the other hand, East African Crude Oil Pipeline (EACOP) was issued with a license to start work. These milestones signify that the country’s oil and gas journey is on the track. 

Uganda’s Joint Venture Partners are; China National Offshore  Oil Corporation (CNOOC) and TotalEnergies. Uganda is represented by the Uganda National Oil Company (UNOC) in the partnership. CNOOC is the operator of the King Fisher Development Area whose rig is drilling already. TotalEnergies is the operator of the Tilenga project. Both projects are located in the Albertine Rift, Western Uganda. 

CNOOC Uganda Limited is a subsidiary of CNOOC Limited, an upstream company engaged in oil and gas exploration and production. It entered the Ugandan market after the acquisition of the one-third interest of Tullow’s Assets in Uganda in 2012. Tullow has since exited Uganda’s oil and gas market. 

In 2013, the government issued the first oil production licenses for the King Fisher field to CNOOC.  The license paved way for the company to engage in technical works leading to oil production.

The minister for Energy and Mineral Development Hon. Ruth Nankabirwa Sentamu congratulated the partners for the latest achievements. “The milestone will enable the government of Uganda to join the oil club,” she said.

Hon. Nankabirwa observed that the oil and gas have seen overwhelming support across the political divide- ideally, both the NRM-leaning legislators and the opposition have worked together through the processes of creating enabling laws, regulations, and overall support for the project. 

The resources

The King Fisher project area holds 566,000 million bopd out of which 196,000 million will be recoverable at the rate of 40,000 bopd.  The area is both onshore and off-shore but directional drilling will be applied to avoid getting to Lake Albert which is shallow and cannot sustain the operations. 

The ceremony that happened in the remote district of Kikuube, CNOOC’s operation area has far-reaching implications for both China, Tanzania, and Uganda. 

Overall, Uganda has 6.5 billion bopd in place with 1.4 billion bopd recoverable. 230,000 barrels will be produced daily at peak production.

Diplomatic ties

CNOOC spudding is a landmark for China- Uganda Corporation and will contribute more to practical cooperation between the two countries. China will work closely to extend bilateral trade – promote China-Uganda tourism, support infrastructure development…,” said the Chinese ambassador to Uganda, Zhang Lizhong during the commissioning of the oil drilling.        

Overall, he said China will implement 9 programs for Uganda, but equally, it has plans for the entire African continent. 

The commissioning also gives hope to Tanzania, a Joint Venture Partner in the East African Crude Oil Pipeline (EACOP) EACOP  is a legal entity and also a physical system that begins from Kabale in Hoima and ends 1,443 km in the port of Tanga in Tanzania. It will ship crude oil produced from Tilenga and King Fisher Project areas to overseas markets.  

At the ceremony, the government of Uganda issued a License that gives a green flag for EACOP development activities to commence. The Tanzanian License shall be issued in February 2023.  

Attaining lasting value

The contractors adhered to the rules issued by the Petroleum Authority of Uganda (PAU) to make use of local goods, and services except in situations where the two are not locally available. The rigs, for example, were transported from the port of Mombasa by local logistics companies and assembled at the project area in Kikuube by both Uganda engineers and Chinese engineers. This ensures technology transfer, one of the essentials for achieving National Content.  

All the Project Affected Persons have been compensated and the company continues with the livelihood restoration and construction of resettlement homes.      

Job creation

The Executive Director, of the Petroleum Authority of Uganda, Mr. Earnest Rubondo said the CNOOC project alone has contributed to job creation, for example, 92 contracts were approved valued at $ 1 billion. $ 270 million of which went to local companies in areas of civil works,  ICT medical, logistics,  and catering services.  

Read PAU’s full speech here.

The hiccups

But it was not all smooth, there were several hurdles encountered earlier. For example activities in the oil fields were impacted by the stand-off between Tullow Oil and the Uganda government over Capital Gains Tax accruing from the Tullow farm-down of its interests. Concluding tax negotiations was a pre-condition to letting the farm down reach its conclusion.

That delay led to another problem, Joint Venture Partners TotalEnergies, and CNOOC terminated the farm-down on the basis of the expiry of the Sale and Purchase Agreements.

The termination happened at the time the country expected the partners to announce the FID which had been rescheduled for the end of  2019, from an earlier timeline of 2017.  

The  COVID-19 pandemic which saw a complete halt to several economic activities threw the spanner in the wax. In Feb 2022 when the FID was finally announced, hope was restored to industry players. 

Hon. Nankabirwa said that CNOOC put on an impressive show by accomplishing its part in record time- less than a year from the time FID was announced.

“We have ensured that we leave no stone unturned. We have put in place all the requirements…We are going to drill knowing that we have `taken care of all environmental and social aspects of the project,” said Nankabirwa.

Ostensibly, the Environment and Social Impact Assessment for the King Fisher project was approved by National Environment Management Authority (NEMA).

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