What you need to know:
- The second licensing round comprised of five biddable blocks of the Avivi covering the districts of Obongi, Adjumani, Amuru and part of Arua and with an aerial coverage of 1,026 km, Omuka covering the districts of Nebbi, Nwoya and Buliisa with an aerial coverage of 750 km, Kasuruban covering the districts of Buliisa, Hoima and Masindi with an aerial coverage of 1,285 km, Turaco covering the districts of Ntoroko with an aerial coverage 635km, and Ngaji covering the districts of Kanungu, Rukungiri and Rubirizi with an aerial coverage of 1,230 km.
Government has given Uganda National Oil Company (UNOC) a green light to start oil exploration in the Kasurubani Contract Area stretching over 1,285 kilometres across the districts of Masindi, Hoima and Buliisa.
This follows the issuing of a petroleum exploration licence and the signing of a production sharing agreement between government and the oil company.
A production sharing agreement manages the relationship between a licensee, or the Exploration Company and government. It spells out how oil benefits such as royalties, cost and profit oil will be shared in percentage terms once a discovery is made.
UNOC’s principal shareholders; the Ministry of Finance, and Ministry of Energy witnessed the signing of the agreement yesterday at the Ministry of Energy headquarters led by Energy minister, Ruth Nankabirwa.
Nankabirwa noted that UNOC are the new entrants to contribute in establishment of additional petroleum reserves to the current resource of 6.0 billion barrels of oil and recoverable reserve of 1.4 billion barrels of oil in the country.
“The additional resources are to ensure sustainability of oil production and economic viability of the refinery and the East African Crude Oil Pipeline [EACOP],” the Minister said.
Bright Irumba Clovice, speaking in acting capacity for the Petroleum Authority, said the new exploration activity will not only increase on the experience of Ugandans, and UNOC in the exploration field, but also on national content participation at the most strategic level.
The national oil company is now charged with securing a suitable joint venture partner to engage in the exploration.
Cabinet in a last month’s meeting, approved the signing of Production Sharing Agreements and grant Exploration licences for an initial two-year period to UNOC for the Kasurubani block. This also included DGR Energy Turaco Uganda SMC Limited for the Turaco Licence.
UNOC and DGR-Global – the two successful companies from the Second Licensing Round commenced in May 2019.
Six oil companies applied for prequalification for the five blocks on offer, and four were shortlisted.
The Energy Ministry also plans to announce a third licensing round during the East African Petroleum Conference and Exhibition, scheduled to take place in May 2023 in Kampala.
Key provisions of Production Sharing Agreement
The agreement provides for a Petroleum Exploration Licence with an acreage of 1,285 square kilometres, of six years of exploration period, split into three exploration periods of two years each.
It also stipulates that, the minimum work period shall include; reprocessing of existing seismic data, acquisition of new seismic data, interpretation of seismic and oil well data, and drilling of at least two exploration wells.
The agreement requires that an advisory committee is constituted, chaired by the Petroleum Authority of Uganda, and consisting of representatives of government and the UNOC, to review and approve all annual exploration work programmes, budgets and production forecasts.
It also requires payment of royalty (to government) based on the gross total daily production in barrels of oil per day, with the rate of royalty for both production sharing agreements ranging from 5.5 percent to 18 percent.
The cost recovery limit for both cost oil (covering costs) and cost gas is set at 65 percent each.
Production sharing based on the R- factor, which largely depends on the profitability of the project.
UNOC is required to pay the government for a signature bonus, research and training fees per year, and annual acreage rental fees for the first exploration period for the Kasurubani Contract Area.
So far, a signature bonus of $100,000 (Shs368 million) and annual acreage rental fees of $25,700 (Shs94.7 million) for the Contract Area have been paid to the Uganda Petroleum Fund.
The research and training fees per first year of the first exploration period worth US $30,000 (Shs110.5 million) for the Contract Area have been paid to the Uganda Petroleum Fund account.
The monies accruing from the signature bonus, research and training fees, and the annual acreage rental fees for the Contract Areas at the signature amount of US $155,700 (Shs573.6 milion).
Performance guarantee or commitment to acquire suitable joint venture partners during the first exploration period.