Uganda issues first oil production licence to Chinese firm

By Ronald Musoke

Uganda’s slow but steady march towards commercial production of its estimated 3.5 billion barrels of oil has been given new life following the government’s recent issuance of a production licence to the Chinese firm, CNOOC.

Speaking to journalists at the energy ministry offices in Kampala on Sept. 25, Peter Lokeris, the state minister for energy and mineral development said the licence was approved on Sept. 16 following a satisfactory review of the firm’s field development plan CNOOC gave the government last November.

Lokeris said this marks an important milestone in the progress of Uganda’s oil and gas sector.

“The plan and report have been approved and the condition on the grant of this production license lifted thereby marking the entry of Uganda into the development phase of the petroleum value chain,” Lokeris said.

The licence issued is for the Kingfisher discovery, one of the first discoveries made seven years ago in Hoima District, western Uganda.

A conditional production licence for the Kingfisher field was issued to Tullow Uganda Limited—one of the other companies involved in Uganda’s oil industry – early last year, however, Tullow farmed 66.6% of its assets in the same month and CNOOC Uganda Limited, a subsidiary of China National Offshore Oil Corporation (CNOOC) Limited was appointed and approved as the operator of the Kingfisher discovery area.

The government then asked the Chinese firm to submit its own field development plan together with the petroleum reservoir report for Kingfisher which they submitted on Nov.12 last year.

“The condition was for the licensee to submit an amended and restated field development plan and a petroleum reservoir report acceptable to the government, in accordance with Uganda’s petroleum laws and international best practices,” the minister said.

Lokeris said the government and its partners are now planning to construct a 50 km crude oil pipeline from Buhuka, where the Kingfisher is found to Kabaale—the proposed site near Hoima town for a 60,000 barrel refinery.

Lokeris revealed that the government plans to participate in this licence with a 15% interest and this participation will start upon commencement of production.

According to Lokeris, the development of the Kingfisher field is expected to be done over a four year period at an estimated cost of US$ 2 billion.

The minister said there are ongoing negotiations with the licensed oil firms regarding the development of a pipeline to export excess crude oil.

There are 40 wells sunk in the Kingfisher field which according to energy ministry statistics holds an estimated 635 million barrels of which 196 million barrels are estimated to be recoverable.

The field will be developed to produce between 30,000-40,000 barrels of oil per day. However, this rate of production is expected to improve after further studies have been undertaken during further development of the field.

The Kingfisher Development Area is jointly licensed to Tullow Uganda Limited, Total E&P Uganda B.V and CNOOC Uganda Limited with each having equal shareholding.

Lokeris said because the government is still committed to developing the sector in an efficient and effective manner, an environmental and social impact assessment (ESIA) will now be undertaken to look into drilling and production operations, central processing facilities, together with pipeline and power routes.

The ESIA will also assess all the project stages including construction, operation and decommissioning and emergency response planning for the field will be done with its priorities on the safety of people, preservation of the environment and minimization of asset losses.

An oil spill contingency plan for the field will also be prepared for the drilling operations as well as the construction and production phases.

According to the CNOOC Uganda Limited Vice President, Weigen Jin, CNOOC will continue working with all its stakeholders to develop the oil field in an environmentally friendly manner.

In this regard, CNOOC Uganda Limited will endeavour to maximize the utilization of Ugandan companies, personnel and resources in supporting the development and production operations of the Kingfisher oil field.

The Albertine Graben which measures 3058 sq km in size is the most prospective region for petroleum production in Uganda and is currently subdivided into seventeen exploration areas.

Four of these (EAs 1, 1A, 2 and Kingfisher Development Area) are licensed to four oil companies; Tullow Uganda Operations Pty Limited, Tullow Uganda Limited, Total E&P Uganda B.V and CNOOC Uganda Limited.

These companies hold the four licences in joint partnership and have rights to undertake petroleum exploration, development and production in these areas.

According to Ernest Rubondo, the commissioner in the Petroleum Exploration and Production Department (PEPD), by government issuing a production licence to CNOOC, this means the government is now confident that by 2017 Uganda’s oil will finally flow.