Uganda oil agreements

The agreements signed launched major forward movement on three main joint projects by Total, CNOOC, and the governments of Uganda and Tanzania.

The projects include the production of oil from the Tilenga project operated by Total in Buliisa and Nwoya Districts valued at US$4 billion and the Kingfisher project operated by CNOOC in Hoima and Kikuube Districts valued at US$1.5bn. These two are jointly expected to produce 230,000 barrels of crude oil per day at plateau. Upstream ownership is divided between Total (56.67%); CNOOC (28.33%) and UNOC (15%).

The third main project is the construction of the East African Crude Oil Pipeline (EACOP) from Uganda to Tanzania at a cost of about US$3.5 billion. It will be the world’s longest electrically heated pipeline with Total, the Uganda National Oil Company (UNOC), Tanzania Petroleum Development Corporation (TPDC) and CNOOC as shareholders. Uganda’s crude is highly thick, which implies that it needs to be heated to remain liquid enough to flow.

The development of the upstream projects guarantees the supply of feedstock into the refinery, while the pipeline and the refinery provide evacuation options for future oil discoveries in the new exploration areas.

With the agreements now in place, Kitutu said the oil companies and the government will move to the approval and award of contracts for the engineering, procurement and construction (EPC) contractors.

Thousands of Ugandans can look forward to getting jobs in the sector over the coming months, Kitutu said, noting that the government expects employment of about 14,000 people by the companies and indirect employment of about 45,000 people by the contractors, and induced employment of about 105,000 people as a result of utilisation of other services by the oil and gas sector.

Kitutu said that out of the direct employment, 57% are expected to be Ugandans, which is expected to result in an estimated US$ 48.5 million annual payment to Ugandan employees.

In addition, she said, the participation of Ugandan enterprises in the provision of goods and services is expected to rake in at least US$ 4.2bn over the construction phase. That is 28% of the US$ 15bn of the expected investments during the development and construction phase.

“At the moment, contracts worth US$ 167 million out of the US$ 1.362bn ‘recommendations to award’ for the Tilenga and Kingfisher projects that have been presented to the Petroleum Authority of Uganda before FID are to be awarded directly to Ugandan companies,” she said.

This, Kitutu said, only accounts for 19 out of the over 30 work packages to be awarded by the licensees. However, many more subcontracts are to be given to Ugandan companies through subcontracting by the level-1 contractors.

The minister also noted that Ugandan companies and entrepreneurs would “greatly benefit” from the expected partnerships. As witnessed during the exploration phase, she said the government expects Ugandan companies to progressively gain capabilities to provide technical services that have hitherto been a preserve of the more experienced foreign companies.

Uganda has come to the party late

But, while government officials have hailed the latest developments as a “historic milestone,” observers of the industry have told The Independent that Uganda could be “coming to the party a little late.”

“We are like that beautiful girl who kept pushing away potential suitors until they lost interest but now she finds herself desperate in her 30s and she will accept anything,” Binyina told The Independent on April 15.

When Uganda discovered commercially viable oil resources in 2006, the government had high expectations. Besides guaranteeing the country billions of dollars in foreign exchange, Ugandans expected the industry to take off, creating thousands of jobs, as well as securing the country’s fuel supply. In effect, the government hinged its much publicized middle income status dream on the petroleum industry. None of that happened. And so much has since changed.

Binyina told The Independent that several global market dynamics have occurred in the sector over the last decade with the global energy market particularly moving so quickly from fossil fuels to renewable energy.

“Technologies too have evolved with fracking having come into the picture in recent years meaning that there is now a lot of oil on the global market especially in markets where demand for oil is immense.”

“The government officials can celebrate but we have joined the party when the industry has peaked and it can only go down from now. Our expectations are low, largely because we thought the revenues from the oil resource would have a great effect on the macro-economy of our country,” Binyina told The Independent.

But the governments and the oil companies remain unfazed. They intend to begin work on the Pipeline and the Tilenga and Kingfisher projects called the Lake Albert Development Project.

Work in Tilenga includes development of six fields and drilling more than 400 wells from 31 sites. Wells planned include; 200 water injection wells, 196 production wells, two polymer-pilot wells, and 28 reference wells.

Production will be delivered through 160km of buried flow lines to a 190,000 barrels/day treatment plant in Kasenyi, Uganda. All produced water will be re-injected into the fields, according to Total, and the gas will be used to power the treatment plant.

Total anticipates that main engineering, procurement, and construction contracts will be awarded starting with First Oil. EACOP will include six pump stations and a heat tracing system to maintain a minimum internal temperature of 50ᵒC (122ᵒF).

The pipeline will cross ten districts of Hoima, Kikuube, Kakumiro, Kyankwanzi, Gomba, Mubende, Lwengo, Sembabule, Kyotera and Rakai in Uganda (approx. US$3.6bn). This is in addition to what Government is already investing in the required support infrastructure, including Hoima International Airport (over US$500m) and 700 kilometres of oil roads (approx. US$900m).