Uganda Oil Industry still “Very Attractive” despite delays in midstream Infrastructure dev’t—Minister

Uganda Minister of Energy and Mineral Development (MEMD) Irene Muloni said the country’s oil sector is poised for a promising business destiny despite the current delays and setbacks in the midstream preparations.

Speaking to a gathering of key industrial players including; potential investors, International Oil companies (IOCs), local players and officials from different associate institutions in Kampala, Muloni described the budding oil industry as “very attractive”.

“As you are all aware, we have confirmed (earlier) 6.5 billion barrels of oil.  Out of which, we anticipate to recover 1.4-1.6 bbs…and remember this was only 40% of the exploration area…It means the 60% also has to undergo exploration” she said.

Muloni’s remarks come at a time industry analysts have voiced concerns that the output from Ugandan crude deposits currently being developed by Tullow Oil Plc, Total E&P and CNOOC is unlikely to flow according to the nation’s timeline due to infrastructure challenges.

“Everything being done in Uganda is for the first time ever, everything can be a risk,” said Will Hares, an analyst at Bloomberg Intelligence in London. “Timetables are prone to slipping, especially in frontier regions. All stakeholders would suffer from project delays,” Hares added.

However, Muloni told delegates at the Second Uganda International Oil and gas Summit that the nation is moving swiftly to develop the midstream infrastructure including the export pipeline and refinery which will facilitate the first flow of oil according to plan in 2020.

“Our understanding is that we want oil to flow in 2020 in this country,” she emphasized.

The Infrastructure

Uganda granted five oil production licences  to Tullow Uganda Operations Pty Limited (Tullow) which operates Exploration Area 2. The area which measures about 1,527 square kilometers has about 26 wells and is co-owned by partners Total E&P and CNOOC, in which tullow owns a 33% stake.

Three licences were also awarded to Total E&P Uganda BV (Total) for the operator of Exploration Area 1 which covers 3,066 square kilometers in which Total owns a 33% in collaboration with partners. Both companies joined partner CNOOC which had received its licence earlier.

The licences demand that Oil companies invest over $8 billion in infrastructure required for oil production. The lead infrastructure according to a ministerial statement issued in August, 2016 include drilling about 500 wells, construction of processing facilities and feeder pipelines among others.

George Cazenove, a spokesman for Tullow told bloomberg last week that  engineering design of the work on the project has “yet to start”. The Minister said the licensed companies are in preparation stages for production.

The crude would then need to be ferried along a yet-to-be constructed 1,400-kilometer (870-mile) pipeline to the Indian Ocean port of Tanga in neighboring Tanzania. Both countries opened a tender for surveys of the route.

Muloni assured delegates that all projects which guarantees first drop of oil by 2020 are on course and government is fast racking them.

“What we have agreed with our partners; Total, Tullow and CNOOC is that we are going to: add value to (the oil) through a refinery to cater for our energy needs as a nation…and secondly, we want to access the international market through the crude oil export pipeline…So, all those arrangements are under way”

-Refinery Talks-

In July, Uganda halted talks with Rostec State Corp. of Russia to build a $4 billion refinery at the conclusion stage of the of the negotiations.

It is not yet clear why the Russian Defense and Technology Corporation led firm decided to pullout. Energy Ministry officials said company officials selected to negotiate the principal agreements had “failed to negotiate in good faith” and had “failed to execute” a shareholders’ agreement.

With reservations, the minister said the Russians firm was “asking for conditions that were not favorable to us as a country” at the last hour of the negotiations.

Following the blow, Uganda had banked on the second bidder, South Korean SK Engineering  as the alternative but hit another huddle when the company turned down the offer.

Currently, “there are a number of companies that have expressed interest in joining us in the development of this refinery,” she said.

Aded that the country is in talks with the companies and hopes “that by February 2017, we would have found a lead investor”

Uganda hopes to build the  60,000 bpd refinery on a Public Private Partnership which will constitute 60 percent investment and stake for the private investor and 40 for government.

The minister said of the 40%, partners states in the East Africa region particularly  Kenya and Tanzania have intimated to invest 2.5% and 8% respectively.  French giant and field operator Total has expressed interest in 10%.

“And so, that gives us a lot of hope that there are partners ready to join us in the development of the refinery and this should be able to move,” she said.



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