Uganda: Drilling for opportunity

This coming week will be historic in the Ugandan oil and gas journey. CNOOC will commence drilling of oil wells in Kikube District in what is known as the Kingfisher Development Area.

Uganda previously drilled over 120 oil exploration wells. The purpose of those wells was to establish if we had oil.

The new drilling of over 400 oil wells will be to get the oil out of the ground. This is a significant step on an important journey of Uganda’s oil to the market.

In order to produce this oil a significant amount of infrastructure has to be developed.

The well pads from the oil fields will be connected together by feeder pipelines which will take the crude oil from the oil wells to a Central Processing Facility (CPF).

Once oil is produced from the oil wells, it leaves the ground and comes to the wellhead with a mix of debris and water. It’s put in the feeder pipelines and taken to the CPF. The main duty of the CPF is to separate the oil, the gas and the water. Thereafter, the crude oil will be put in feeder pipelines and taken to the Kaabale Industrial Park. 60,000 barrels of crude at the Park will be taken by the Uganda Refinery while the balance will be put in the EACOP Pipeline from where it will start the journey to the Tanzanian Port of Tanga.

So this week we see the start of the drilling of the oil wells at the Kingfisher Development Area. We have seen the early works being done on the CPF. We are seeing work on the construction of man camps where people who will work in the oil fields will live.

When we cast our eyes back on the history of the project, it tells a wonderful story of how far we have come. We hope that those who have been at the center of this process will one day find time to tell their stories; in the same vein that Reuben Kashambuzi, a former director of the Petroleum Exploration Development and Production Department (PEPD) has written a book. We know also from various speeches of the President that it was not always the case that investors believed in the prospectivity of the Ugandan fields.

Shell BP had informed President Museveni that the Ugandan oil fields were most likely of no commercial value. The oil blocks were therefore delineated by Ugandan government geologists with very limited funding. People like the current CEO of UNOC; the PS Ministry of Justice, the PS Energy and many others working under the leadership of giants of Uganda’s oil story Reuben Kashambuzi, Kabagambe Kaliisa and Ernest Rubondo. They had to traverse the gamepark to get some semblance of oil blocks, make the basin attractive, find investors and ensure we wake up one day and launch drilling operations to remove that oil from the ground. They had strong support from the President and from the respective ministers under whom they served.

It is to their eternal credit that in 2006 Hardman petroleum drilled the first successful oil well in Uganda. Uganda has made 21 oil and gas discoveries and has a drilling success rate of 88%. Globally the success rate is 25%. That means only one in four wells drilled globally encounter hydrocarbons. Uganda’s exploration represented success after success. Uganda, meanwhile has not even explored 40% of the Albertine Graben.

After the discoveries we had a number of “farm ins” and “farm outs”. The smaller oil players that were here sold their stake to big players until we finally got world class companies like Total Energies and CNOOC. This was not a painless process. The sale of these interests attracted taxes and companies fought the assessments in all fora including international arbitration. Subsequently, and even before producing its first drop of oil Uganda was able to secure almost US$ 1bn in capital gains tax. We have seen the passing of various laws and the establishment of oversight institutions.

There is much work that is still to be done. We must ensure that this oil is produced in most economically efficient and environmentally friendly manner. But as CNOOC starts the extraction of oil we can’t fail to look back and salute the many Ugandans who have made this possible.

The writer is an advocate and partner at Kampala Associated Advocates

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