Uganda in 2023: Oil sector to open doors

Other factors kept constant, President Museveni is next month slated to commission the Kingfisher oil rig to start early drilling.

The event had initially been planned for mid-December, but was deferred as China National Offshore Oil Corporation (Cnooc) required third approval and fine-tuning of the assemblage.

READ:  ‘Uganda must add value to oil’

The haulage of the LR8001 from its production plant in China and assembly at the Kingfisher oil field in Kikuube District was one of the major highlights of the year for the sector, adding impetus to ongoing plans to start commercial oil production in the last quarter of 2025.

The rig will be used to drill 33 oil wells at the Kingfisher development area that straddles Hoima and Kikuube districts.

China Oilfield Services (COSL) Uganda Smc Ltd, which is contracted by Cnooc to undertake drilling works of the oil wells, subcontracted local logistics company, RI Distributors Ltd, which contracted a joint venture of local companies to clear the rig through the customs bureaucracy at Mombasa and haulage to Kikuube.

While transport and logistics is one of the industries ring-fenced for Ugandans, the haulage of the rig—which required 250 trucks by local companies—pointed to enough local capacity built.

Three additional rigs for the Tilenga oil project operated by TotalEnergies EP are underway. One rig will be deployed in the Murchison Falls National Park in Nwoya District, and two rigs south of the Nile in Buliisa District.

This momentum was set in motion from February 1, when the joint venture partners, TotalEnergies EP, Cnooc, and Uganda National Oil Company (Unoc) announced the Final Investment Decision (FID) for development of the Kingfisher and Tilenga projects, respectively, and the East African Crude Oil Pipeline (Eacop) that will transport Uganda’s crude oil from mid-western Uganda to Tanzania’s Indian Ocean Tanga port en route to the international market.

The announcement ceremony held at Kololo Independence Grounds, where 16 years earlier President Museveni publicised the discovery of commercial oil deposits, was graced by the chairman of TotalEnergies SE, Mr Patrick Pouyanne, and Tanzania’s Vice President Phillip Mpango, accompanied by a 30-person entourage.

At least $4 billion (Shs14.8 trillion) is for the development of Eacop, $3 billion (Shs11.08 trillion) for Kingfisher, and $4 billion (Shs14.8 trillion) for Tilenga.

Uganda, through its national oil company, Unoc, has a 15 percent participating stake in each of the multi-billion projects.

The Tilenga project is expected to produce 190,000 barrels of oil per day (bpd) during peak production, while the Kingfisher project will pump 40,000 bpd.

FID unlocked the single highest-value project in the country since independence.  Officials expect investments in the ongoing engineering and construction phases to start commercial oil production to climb to $15 billion (Shs55 trillion).

Raining petro-dollars

The multiplier effect will be realised through Ugandans being employed across the board and Ugandan companies participating in the provision of goods and services across the value chain, tax and non-tax revenues, resource management, and technology transfer.

Ugandans and Ugandan companies are expected to rake in $4.2 billion (Shs15.5 trillion) through the provision of goods and services.

The auxiliary industries ring-fenced for Ugandans are security; foods and beverages; hotel accommodation and catering; human resource management; office supplies; fuel supply; clearing and forwarding; construction materials; civil works; environment studies, and impact assessments; communications and information technology services; and—where possible—waste management.

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Amid the ongoing macroeconomic turbulence occasioned by the pandemic and the Russia-Ukraine war, the Secretary to the Treasury—Mr Ramathan Ggoobi—last week said the peaking of spending oil activities is the silver lining for the troubled economy to improve fairly during the 2023/2024 Financial Year.

According to the oil sector regulator, the Petroleum Authority of Uganda (PAU), by 2021 cumulative investments in the sector stood at $4.8 billion (Shs17.7 trillion) as of the end of 2022.

Between 2021 and 2022, more than 163 contracts were awarded for the development and construction phase. Nearly 100,000 people are currently employed across the value chain while more than 1 million people are expected to migrate to the Albertine Graben during the construction phase between 2023 and 2024 in search of greener pastures.

Mid-last year TotalEnergies EP awarded the Engineering, Procurement, Supply, Construction, and Commissioning (EPSCC) tender to a consortium of McDermott/Sinopec for development of the Tilenga oil project—oil fields in Nwoya and Buliisa districts.

Additionally, 10 contracts for the drilling and management of Tilenga oil wells were awarded.

The contractors, include ZPEB Uganda Company Ltd, which was awarded a contract for detailed design and construction of drilling rigs to be used on 426 wells; casting and tubing to Vallourec; mud logging to Exlog; and drill waste management.

ALSO READ: EACOP is on course, to be ready by 2025, says UNOC

EnviroServ China Oilfield Services Ltd was awarded two contracts for electrical logging, and another for drilling fluids, cementing and solids control.

Schlumberger was awarded four contracts that include directional drilling, logging, drilling bits and real time operations; wellheads and Xmas trees; lower completion; upper completion and artificial lift. A separate contract was for civil works, including bush clearing, fencing, and construction of feeder roads and drainage, at the industrial area spanning 700 acres for Tilenga to MotaEngil, which subcontracted work to several companies such as Prand Engineering, Fabrication Systems, Civtec, Gauff Consultants.

The industrial park will host, among others, the Central Processing Facility (CPF), construction camps, and operational bases.

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MotaEngil was also awarded the contract for the construction of 31 well pads, installation of conduit pipes, among others.

A CPF is where oil will be stored for stabilisation and treatment before being fed into either the proposed refinery or pipeline.

A second CPF is planned at Cnooc’s Kingfisher project in Hoima. Civil works and construction of well pads 1, 2 and 3, and construction of feeder access roads at Kingfisher was awarded to Excel Construction Company Ltd.

According to PAU, the value of procurements signed off between 2017 and June 2022 stood at $4 billion (Shs14.4 trillion) of which $1.6 billion (Shs5.7 trillion) went to Ugandan companies.

The start of commercial oil production, according to the World Bank, offers Uganda long-term prospects to diversify the economy and catapult it to upper middle-income status by 2040.

With commercial oil production at its peak in the 2030s, the Bank estimates show that Uganda could earn up to $3 billion (approximately Shs7 trillion) in revenues from exports of up to 60,000 bpd.

These revenues have the potential to propel the economy between seven and 10 percent forecast, up from the current stagnation.

Uganda and TotalEnergies also signed a memorandum of understanding (MoU) for development of clean energies, including geothermal, battery storage (grid stability), wind energy, solar, and hydrogen, which can be produced from a variety of sources such as nuclear and natural gas, and which when developed and consumed as a fuel produces only water.

Uganda currently has an installed electricity generation capacity of 1,300 megawatts largely from hydropower dams. Of these 813 megawatts is from large hydropower dams. Another 119.45megawatts is generated by mini hydro dams on various rivers around the country. Another 101 megawatts are generated from thermal plants—96 megawatts from bagasse and 50.83 megawatts from solar.

EU resolution

A dark cloud hovered in September when European Union (EU) lawmakers voted to delay development of the Eacop for at least one year to study an alternative route with less environmental footprint.

Ironically, the southern route to Tanzania was chosen in early 2016 as least cost due to, among others, least environmental footprint.

The resolution immediately elicited rebuke and outrage from Kampala, with President Museveni terming the MPs as “shallow” while Mr Pouyanne slammed the non-binding motion by EU lawmakers as “adversarial.”

The anti-Eacop resolution alleged human rights abuses, including wrongful imprisonment of and harassment of human rights defenders and the arbitrary suspension of NGOs.

A section of local and international NGOs rode on the Kampala regime’s tainted human rights record to stoke the flames.

Refinery

On the sidelines of the US-Africa summit in Washington DC mid-month, President Museveni met executives of the Albertine Graben Refinery Consortium (AGRC), the joint venture of American and Italian firms, that was awarded the tender to design, finance, and construct Uganda’s Greenfield oil refinery.

During the meeting, AGRC hinted at closing the $4 billion (Shs14.7 trillion) FID for the project next year.

FID is an agreement on capital investments on a long-term project when money for the project is availed and project execution commences.

In 2010, the government hired Foster-Wheeler, a British engineering firm, to study the viability and feasibility of the refinery. The Foster-Wheeler report posited that the refinery is an economically viable investment with a Net Present Value of $3.2 billion at a 10 percent discount rate and an Internal Rate of Return of 33 percent.

President Museveni has since also stood his ground arguing that there is a ready market in Uganda, and a captive market in Rwanda, East Congo, and other neighbouring countries—making Uganda’s refinery viable.

While the refinery’s economics remains not-so convincing, the government in 2017 tapped AGRC for the Greenfield project—including a 211km products pipeline to the planned terminal in Buloba-Wakiso district.

The Front-End Engineering Design (FEED) for the refinery project was completed in August 2021 and approved by the government in July 2022.

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The Environment and Social Impact Assessment for the project was completed and is pending submission to National Environment Management Authority (Nema) by AGRC.

AGRC is undertaking sourcing for project finances, amid negotiations on, among others, agreements such as the crude oil supply, and implementation and shareholders agreements.