Oil & Gas: What Uganda can learn from Ghana

Kampala, Uganda | THE INDEPENDENT | A Ghanaian Oil and gas expert says national content in the upstream sector, if handled very well may result in indigenous companies breaking out into international spheres.

Egbert Faibile Jnr, the Chief Executive Officer at Petroleum Commission of Ghana also cautions that Uganda needs to ensure that petroleum revenues are not burdened by costs which may not necessarily be considered as allowable petroleum costs.

“Regulatory oversight and cost control are key to cost management efforts in all business activities. Exploration and Production activities are capital intensive requiring investment of about $4billion before first commercial production and in Uganda’s case probably higher because of the huge CAPEX investments in crude transportation to the shore” he advised.

He said some Ghanaian have expanded or spread their operations to countries around the world thanks to local and national content policies and regulation.

“That is the case in Ghana today where a number of IGCs have expanded or spread their operations to countries around the world” he said.

The development of local companies to take up job in oil and gas sector outside Uganda could be a key lesson for Uganda especially now when the sector is developing its upstream sector ahead of commencement of oil production.

Upstream oil and gas production is conducted by companies that identify, extract, or produce materials. Egbert Faibile Jnr sounded the advice the Petroleum Authority of Uganda at the 5Th Annual National Local Content conference in Kampala.

The conference hosted by the Petroleum Authority of Uganda and the Uganda Chamber of Mines under the theme “Advancing National Content in the Oil and Gas Sector, Three years after FID” The Joint Venture partners TotalEnergies, CNOOC Uganda Ltd and Uganda National Oil Company in February took a Final Investment Decision (FID) committing to invest billions of dollars in the development of the oil field at Kingfisher Development Area and at the Tilenga.

PAU figures further indicate that since 2017, procurements worth $5.3 billion were made in the sector, with $2.1 billion (40%) awarded to Ugandan companies. 15,169 people are directly employed, with 90% being Ugandans, creating 34,889 indirect and 100,115 induced jobs. Local SMEs and community groups are benefitting significantly.

For Ghana, in 2023, out of a total contract sum of about USD967 million, about USD246 million was awarded to Ghanaian businesses representing 25% of the total contracts awarded. The value of services to JVs was USD686 million which also includes significant Ghanaian equity participation.

Ghana achieved a record first oil in 3 years in 2010 after commercial discovery was announced of the Jubilee Field in 2007. Uganda announced its commercial finds in the Albertine Graben in 2006 but it has not yet begun production.

Uganda took a cautious role to ensure that it builds the required institutions, regulatory frameworks and skills ton ensure that its citizens get lasting value from the newly discovered resources.

Egbert Faibile Jnr said it is admirable that Uganda has taken time to put necessary structures including local content regulatory framework prior to the approval of Plan of Development and subsequent Final Investment Decision by Operators.

Job Role Localisation

According to Egbert Faibile Jnr, at the heart of the national content agenda is the development of a skilled and competent workforce who are positioned to perform role being done by expatriates.

“Over the past few of years, the Commission has made giant strides in local content development via the establishment of the Accelerated Oil and Gas Capacity Building (AOGC) Programme” he said.

He added that Accelerated Oil and Gas Capacity Building in Ghana is to – “deliberately and systematically train Ghanaians to international standards to assume responsible roles in the upstream petroleum sector, in furtherance of job role localisation”.

He revealed that Ghana has achieved a localisation ratio of 89% as of the end of 2023 compared to less than 40% at the commencement of the implementation of Local/National Content Regulations 11 years ago.

Uganda equally empathizes local content/ local participation across the various section of the value chain as part the Petroleum (Exploration, Development and Production) (National Content) Regulations 2016) Ghana on the other hand has developed a robust Policy and Regulatory Frameworks that favours the transfer of technology and know-how in the industry.

“It is also important that such legal and regulatory frameworks protect intellectual property rights to encourage international oil and service companies to share their technology,” said Egbert Faibile Jnr.

He said Ghana’s legal framework makes provisions for fiscal incentives for technology transfer to companies which aim to develop technological capacities, skills, and establish factories and production facilities in the industry. From the Ghanaian experience, he said there is need to use the services of the local insurance and banking sectors for the conduct of petroleum operations in the country.

Ghana has developed guidelines to ‘Oil and Insurance Placement for the Upstream Sector’ to address challenges of low in-country insurance placements. He said the guideline mandates that all insurable risk relating to petroleum activities should be placed through indigenous insurance companies.

“From a low in-country oil and gas insurance underwriting of less than 3% eight years, we now have in-country premium retention of over 15%” he revealed.

In Uganda, the Insurance Consortium for Oil and Gas Uganda (ICOGU), a body consisting of local licensed Non-Life Insurance Companies to provide insurance cover to the Oil & Gas sector under a co-insurance arrangement. ICOGU is managed by the national reinsurance company- Uganda Reinsurance Company.

In February 2024, ICOGU said it posted 13 million dollars (about Shs50. Billion) out of the $20 million investment. They have underwritten some of the key projects like the East African Crude Oil Pipeline, Tilenga operated by TotalEnergies and Kingfisher under CNOOC Uganda Ltd.

Expenditure Oversight

Among the key recommendations for Uganda, Egbert Faibile Jnr observed that promoting national content should not be at the expense of high operating costs which will reduce the State Take in petroleum activities. Adding that regulatory oversight and cost control are key to cost management efforts in all business activities.

“Exploration and Production activities are capital intensive requiring investment of about $4billion before first commercial production and in Uganda’s case probably higher because of the huge CAPEX investments in crude transportation to the shore. These costs are required to be recovered from petroleum revenue once production commences” he said

He said Uganda needs to ensure that petroleum revenues are not burdened by costs which may not necessarily be considered as allowable petroleum costs.

“The Petroleum Commission for the past years has ensured effective budgetary and costs control through quarterly reviews of expenditure against approved budget and expenditure” he shared.

The Petroleum of Uganda is also charged with regulating costs by the oil and gas companies. This is intended to ensure these costs are lower because under the Production sharing Agreements, those costs are recovered from petroleum revenues.

“Promoting national content should not be at the expense of high operating costs which will reduce the State Take in petroleum activities. Regulatory oversight and cost control are key to cost management efforts in all business activities” said Egbert Faibile Jnr.

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