President Museveni (right) with his Tanzanian counterpart Samia Suluhu Hassan at the signing ceremony of the East Africa Crude Oil Pipeline Tripartite agreement last year. PHOTO/PPU

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Govt, firms to seal deal to kick-start Uganda oil project

What you need to know:

  • Fifteen years since the discovery of oil in Uganda, President Museveni will today officiate at the ceremony for announcement of the long awaited Final Investment Decision.  
     

Sunday, October 8, 2006, did not look pleasant, especially for such a grand day. At a national prayer festival convened at the Kololo Independence Grounds, President Museveni revealed that [after many years of exploration] petroleum engineers in the ministry of Energy had confirmed Uganda’s oil reserves to be commercially viable.

Three months earlier, Australian oil exploration company Hardman Resources and its Anglo-Irish partner Tullow Oil had conducted and announced successful tests on the Mputa-1 well, 8km from the Lake Albert shores in [then] Hoima—during which drills, oil successfully flowed to the surface. Similar tests conducted at another well Waraga-1, 19km away had returned realisation of an average of 36,000 barrels of oil per day, hence making the oil finds significant.

The national prayer feast was hence themed, to ‘thank God’ for bequeathing Uganda with black gold—bringing it closer in the league of Africa’s oil club with the likes of Libya, Nigeria, Angola, and Equatorial Guinea. The oil wealth in these countries, however, propelled endless dictatorships and grand scale corruption while majority of the populations lagged behind.

In a speech woven with religious anecdotes, the President, who six years earlier had promised that the term leading to 2006 would be his last but engineered a dubious scheme to remove term limits from the Constitution and was now back in office for a third term having polled 59 percent in the elections eight months earlier, said with the discovery, Ugandans should firmly wave goodbye to poverty, hunger, disease and donor dependency.

“There is a lot of nonsense in the papers that oil will be a curse. No way, the oil of Uganda can be a curse,” he remarked. “Oil becomes a curse when you have got useless leaders and I can assure you that we (NRM) don’t approach that discipline even by a thousand miles; this oil is a blessing,” he added. Several years later—15 exact—President Museveni will today officiate at the ceremony for announcement of the long awaited Final Investment Decision (FID) between government and the international oil companies, French Total Energies and China’s Cnooc.

Tanzania’s President Samia Hassan Suluhu and the TotalEnergies SE chief executive, Patrick Pouyanne, by press time last evening, were expected to grace the occasion. The two principals, along with President Museveni, last year in April convened at State House-Entebbe to witness signing of the key agreements for the proposed East African Crude Oil Pipeline (EACOP).

TotalEnergies SE is the parent company of TotalEnergies EP Uganda B.V licensed to operate in Uganda, alongside Cnooc. The two ventured into Uganda in 2012 after each acquiring a 66.66 per cent stake from Anglo-Irish Tullow Oil PLC, which recently sold off its entire stake, and closed shop in the country.

What this means
“This officially marks the beginning of the detailed Engineering, Procurement and Construction (EPC) phase by the Joint Venture Partners and, therefore, a commitment to see first oil by 2025, a journey that started in 2006. It is during this phase that we expect Ugandans to accrue significant benefits and opportunities from the sector through local content,” said Energy minister Ruth Nankabirwa.

In effect, today’s announcement of FID means launching Uganda’s oil project to the next development and construction phases, and subsequently starting of commercial oil production by tentatively 2025, according to government’s schedule. But the best guess, all things considered, oil production will start in late 2026 or early 2027.

It means the oil companies, TotalEnergies will start construction activities in overdrive on its Tilenga oil project to the north and east of Lake Albert in Nwoya and Buliisa districts. In June last year the company awarded the $2b (Shs7trillion) Engineering, Procurement, and Construction (EPC) tender for Tilenga to a consortium of China’s Sinopec International Petroleum Service Corporation and US-based McDermott International.

The Tilenga project comprises six oi fields. It is expected to produce up to 200,000 barrels per day (kbpd) of crude oil out of six oil fields tapped by 31 well pads which will be connected to the proposed Central Processing Facility (CPF), where crude oil is separated from impurities before being fed into the proposed EACOP.

China’s Cnooc will also move in overdrive with EPC tendering and related activities for its Kingfisher oil project, including construction of a separate CPF, south of Lake Albert in Hoima and Kikuube districts. The Kingfisher project is expected to produce over 40,000 bpd.

The two oil companies, along with the Uganda National Oil Company (Unoc) and Tanzania through its national oil company, TPDC, are shareholders in the proposed EACOP, which will transport crude oil from the central point in Hoima to Tanga Port en route to the international market. 

The shareholding in the EACOP holding company is; Unoc with 15 percent, TotalEnergies East Africa Midstream B.V with 62 percent, Cnooc with 8 percent, and TPDC with 15 percent.

The capital expenditure for the 1,443km duct is estimated at $3.55b (Shs13trillion), 70 percent of which will be raised from international lenders.   The Ugandan section of the pipeline is about 296km through 10 districts and affecting at least 4,121 persons.

The announcement of FID, according to the Energy ministry Permanent Secretary Irene Batebe, is a show that Uganda’s nascent oil sector remains profitable, even amidst the challenges related to the volatile crude oil prices and the ongoing COVID-19 pandemic.

“FID, therefore, unlocks the single highest value project in the country,” Ms Batebe said.
The oil project is the most capital intensive venture in post-independence Uganda. It is also expected, according to projections that the development phase— awarding of multi-billion tenders and construction activities—will significantly anchor the country’s next phase of economic growth, including to growing GDP to about $40.1b (Shs139 trillion) by end of the next FY 2022/2023.

According to projections by the Petroleum Authority of Uganda (PAU), of the $15b Capex, Ugandans are expected to rake in $4.2b (Shs13 trillion) through provision of goods and services.

Current statistics by PAU show that the project will create some 14,000 direct jobs, and 45,000 indirect jobs for Ugandans. Of the direct employment, 57 percent are expected to be Ugandans.

Even before announcement of FID, the oil sector regulator revealed early last month that contracts worth $6b (Shs21 trillion) over 40 work packages and contracts for the Tilenga, Kingfisher and EACOP are under review, while another  contracts worth $167m (582b) have been recommended for awarding.

With commercial oil production at peak in the 2030s, World Bank estimates show that Uganda could earn up to $3b (approximately Shs7 trillion) in revenues from exports of up to 60,000 barrels of oil per day. These revenues have the potential to propel the economy between 7-10 per cent forecast, up from the current stagnation of 4 per cent.

Project at a glance
Legal Years taken to reach FID: 15 years
Tilenga operated by French TotalEnergies in Nwoya/Packwach/Bulisa disticts. Kingfisher field in Hoima/Kikuube districts operated China’s Cnooc. The East African Crude Oil Pipeline (EACOP) co-owned by Uganda, TotalEnergies, Cnooc, and Tanzania.

Expected capital expenditure (Capex) for the projects: $10b-$15b (Shs34trillion to Shs41 trillion).
Currently, contracts worth $6b (Shs21trillion) over 40 work packages and contracts for the Tilenga, Kingfisher and EACOP are under review by the oil sector regulator, the Petroleum Authority of Uganda.

Another contracts worth $167m (582b) have been recommended for awarding.

Of the $15b Capex, Ugandans are expected to rake in $4.2b (Shs13trillion) during the next development phase through provision of goods and services. Already, 25 areas, including catering, security, hospitality and leisure, camp management, among others, are ring-fenced for Ugandans.

Employment prospects: 14,000 direct jobs and 45,000 indirect jobs to be created for Ugandans. Of the direct employment, 57 percent are expected to be Ugandans, which is expected to result in an estimated $48.5m (Shs169b) annual payment to Ugandan employees.

The commencement of the development phase is expected to grow Uganda’s GDP to $40.1b (Shs139trillion) next FY 2022/2023.

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