Can Uganda’s oil sector achieve the 2017 target?
Posted Tuesday, November 5 2013 at 02:00
As the government races to build infrastructure for oil production, among other requirments, proponents say rushing may create further problems for the sector in future. Daily Monitor’s Isaac Imaka and Frederic Musisi take a peerless look at the current state of the oil sector and possibility of hitting the 2017 target.
KAMPALA- Public debate on the oil and gas sector was sparked by the October 2011 controversial Parliament debate that resolved that transparency and accountability must be the cornerstone of the oil sector.
Since then, Parliament has passed two laws for the sector and the last one on public finance management is in the works.
The inquiry into bribery allegations made in Parliament against top government officials is yet to be concluded but reliable sources say the report is done with the investigating committee which has neither acquitted the accused ministers nor exonerated them.
“How could we implicate them or acquit them yet our efforts to visit the countries (UAE and Malaysia) where the crime was allegedly done were frustrated?” one of the top technical brains on the committee said.
The report is most likely to suffer a still birth because it has been overtaken by events: Tullow has since farmed down to Total E&P and Cnooc and so far one production licence has been awarded.
The creation of a National Oil Company (Noc) is in final stages and licensing in the upper Graben was halted until the company is formed– it will be the one farming down to any interest companies.
It appears, as one Petroleum Exploration and Production Department official said, pushing for the report will be dragging the sector several steps back from progress so far made.
But where does this progress stand? According to a 2013 KPMG report, Oil and Gas in Africa: Africa’s reserves, potentials and prospects, the discovery of enormous oil reserves in Uganda in 2006 and subsequent discoveries- so far standing at 3.5 billion barrels- have sparked hopes among investors and large oil companies that the country could become a lucrative new player on the global oil stage.
It is now believed that Uganda could be sitting on one of the biggest onshore oil reserves in Sub-Sahara Africa. If events go according to plan, the report notes, Uganda could transform itself into a mid-size oil producer in coming years, with the reality being that it could be one of the top-50 oil producers in the world.
When the government awarded Cnooc a production licence in September, the question among journalists who attended the press conference was why not Tullow, a company that has been here longest and actually brought Cnooc and Total on board.
The official line is that it does not matter who gets the licence first since the three partners have an equal share in all the fields.
But a top executive of one of the partners said, during a meet up in his office, that it would have been a wrong idea for the government to entrust its first production with a company whose main expertise is in exploration.
“Tullow is a small company and it has no experience in producing oil in an environment like Uganda and it knows,” he said. “There is no way any serious government would give it a production licence to gamble.”
The chief executive’s comments point to a serious issue in the sector– the lack of trust in Tullow’s production competence by the government and the ‘deliberate’ delay in approving their field development plans.
Tullow submitted its first Field Development Plan (FDP) for the Nzizi Well last year, shortly after CNOOC’ Kingfisher submission, but are yet to receive a production licence.
An FDP is a detailed plan of how an oil company plans to produce the oil and in which capacities.
While addressing Parliament in December 2012, President Museveni expressed anger at an oil company which had submitted what he called “unrealistic and insincere” recoverable oil estimates in its field development plan.
He told the House that the company’s plan was rejected and asked to submit acceptable figures.