Government plans to auction 6 oil blocks

Government officials look at an oil drilling site in Buliisa District. Government has been called upon to be transparent after putting up six blocks for auction. File photo

What you need to know:

The government is responding to investors’ interest in the country’s resource.

Kampala- Energy minister Irene Muloni has announced six new blocks will be put up for auction under a competitive bidding arrangement. This will be the first time oil blocks in Uganda are auctioned under competitive bidding.

The six new blocks up for auction are Turaco, Kanywataba, Taitai, Ngassa, Ngaji and Nvule, all in the Albertine region.

“We had to respond to the significant number of investors who have expressed interest in investing in the country’s oil and gas industry over the period since the moratorium on licensing was put in place,” Ms Muloni said.

This comes hot on the heels of the announcement that RT Global Resources of Russia had been picked to construct the oil refinery in Hoima.

This gives oil and gas suppliers such as logistics companies hope having bore the brunt for the limited activity in the oil sector for the last two years.

With exploration work having been completed by end of 2013, contractors had to downsize because oil companies did not require their services.

“A number of local players are now suffering from the downturn in the short run and many of them are laying-off people,” says Mr Jeff Baitwa, the managing director Three Ways Shipping Group.

On Tuesday evening, however, government opened licensing for the exploration of oil for the first time since the moratorium was issued in 2008.

The move, according to Mr Dennis Kamurasi, the vice chairperson Association of Uganda Oil and Gas Suppliers, will give the sector a lease of life.

“The situation has been bad for the suppliers. Equipment has been lying there un-used but this decision by government means our members can now start preparing to submit bids for supply contracts,” Mr Kamurasi told Daily Monitor.

More investment
Ms Muloni said the move would attract additional investment in the oil and gas sector on top of increasing the known reserves from 6.5 billion barrels. Investment would also come from suppliers as they set themselves to provide camp services, transport, logistics and food.

By October 2015, the government hopes to have picked the winning bidders. According to officials from the energy ministry, at least 400 companies had expressed interest in acquiring exploration licences prior to this announcement.

Some of the parcelled out areas that have been put up for auction had been declared uneconomical to further exploration by oil companies before.
Tullow declared the Ngassa discovery area uneconomic to explore after sinking money worth $64 million in the well.

Heritage could not find commercial quantities of oil in the Turaco discovery. Part of the Kanywataba area reverted to government after the licence expired before exploration works could be completed.
Mr Fred Kabagambe Kaliisa, the permanent secretary Ministry of Energy and Mineral Development, told reporters that if some oil companies failed to make discoveries, then others may use better technology and find oil.

“In the oil business, you can go and hit a dry well but that should not stop anybody else from being able to explore for oil,” he said.
Mr Kabagambe also pointed out that for some discoveries, the oil companies run-out of time to carry out proper tests.

Demand for production licences

Mr Elly Karuhanga, the president of the Chamber of Mines and Petroleum said this move by government had been long overdue but demanded production licences are issued to Tullow and Total.

“We want to see progress in other areas, just like we have seen with the exploration licences. Please sort out the issue of production licences,” Karuhanga said while making the request to the Energy minister. He noted that investors had been patient enough.

Tullow has been waiting for a licence to start production since 2012 and there have been signs of frustration from the company officials. Total has also been on the waiting list since it submitted its first application at the end of 2013. Disagreements on how much oil each company will be able to extract have stalled the issuance of licences.

This delayed issuance comes at a time when oil prices have been at their lowest level in the last five years, leading the companies to start down-sizing. Tullow said it will be laying off some of its work force in order to cut down on expenses.

The government did reveal that licences for oil production could be issued by mid year, though they are cagey on an exact month.

Transparency
Global Witness, a campaign group has called on government to ensure the process of selecting a bidder is a transparent one considering the social and environmental implications.
“The government should carefully select companies based on their previous track record. Those with a history of corruption, criminality, human rights violations or weak environmental protection should be excluded from the bidding,” A statement from Global Witness reads.

The statement further insisted that government publish details of individuals and companies behind the bids for transparency purposes.