Uganda delays production from 2006 oil find to 2022 until fool-proof systems in place

Sep 16, 2020 News

By Kemol King

Pull Quote: “The question as to whether the journey to commercial oil production in Uganda has been slow is one I will leave for all to judge, but from a technical point of view, there is no short cut for a country whose agenda is sustainable exploitation of natural resources in order to create lasting value for society.” – Senior Petroleum Geologist, Petroleum Authority of Uganda, Felix Bob Ocitti
It has been 14 years since Uganda first discovered commercially viable oil reserves, and it still hasn’t started producing oil. Why is this so? The country saw the need to ensure that all systems are in place before first oil.

Map showing location of Uganda in East Africa

Uganda realized that if it rushed ahead with production with a regulatory framework that left too much to be desired, the result would be significant value leakage for the millions of Ugandans to whom the resource belongs. So it placed a significant amount of effort into bridging gaps and ensuring that negotiations resulted in sound agreements between oil companies and the government.

Felix Bob Ocitti

It expects first oil to come on stream by 2022, according to a Reuters report. The publication also reported that production has been repeatedly delayed by disagreements with oil companies over taxes and development strategies.
At this juncture, only 1.7 billion barrels of Uganda’s oil is recoverable, while Guyana’s recoverable estimate stands well over 8 billion barrels. However, while Guyana boasts more recoverable reserves than Uganda, the African nation’s growing regulatory capacity and negotiating power have put Guyana to shame.
Timeline
Here are some of the major developments the Ugandan government achieved within the past 14 years.
Two years after its 2006 discovery, the Uganda Cabinet approved the National Oil and Gas Policy- the document intended to guide the development of the sector. It was produced after an extensive consultative process, as well as a review process of the policies of other petroleum producing countries.
Pursuant to the objectives of that policy, the Ugandan Ministry of Energy and Mineral Development set out a strategy for its implementation. In 2013, a new Petroleum (Exploration, Development and Production) Act was enacted.
By that time, the country started to receive applications from oil companies for production licenses for the more than 16 discoveries made at the time.
In 2014, A Memorandum of Understanding on Commercialisation was signed between Government and licensed oil companies which underpinned principles governing crude export, refinery and crude for power.
In 2015, the country established a sovereign wealth fund called the Petroleum Investment Fund, under the Bank of Uganda. The Fund was established with advice from Norway, which has been hailed internationally for the excellent stewardship of its own. Uganda’s Sovereign Wealth Fund has been hailed by several global groups interested in transparency and better management of natural resources.
In 2016, Uganda appointed the Board of Directors for the Petroleum Authority of Uganda.
It then had the first competitive licensing round for several oil blocks in the region in which the first commercial discovery was made.
The Petroleum Regulatory Authority states that an Executive Director was appointed in 2016, and several production licenses were issued. In that year, several sets of upstream and midstream regulations were issued as well.
Earlier this year, the Parliament passed Local Content Legislation.
A 2018 document released by the Petroleum Authority of Uganda, the African nation’s Senior Petroleum Geologist Felix Bob Ocitti explained why it is necessary to wait.
“Typically,” Ocitti said, “around the world, the period between when a commercial oil discovery is made, and the start of production ranges from 5-15 years… For sustainability, it is important for developing countries to address four key aspects prior to production.”
The first aspect is the sector’s Institutional Framework. Ocitti said that this framework should clearly define the roles of the public players (government regulators) and private players (oil companies).
“Whereas international oil companies are driven by desire to maximize profit, Government is driven by the need for sustainable exploitation of natural resources, with the benefits lasting longer than the life of the resources.”
In this regard, the scientist said that the framework would have to ensure the roles of public players ensure checks and balances exist for the efficient management of the sector.
The second aspect of the sector which needs to be addressed, according to Ocitti, is the Human Resource Capacity. He noted that the need for skilled Ugandans to fill positions in the industry was great, and that more needed to be done to place them in programmes to adequately prepare them for the jobs that the industry would create.
The same could be said for the capacity of Ugandan businesses and their participation in the sector. He said that it is important for the pace of the industry’s development to match the pace of the development of Uganda’s skill and enterprise. Otherwise, the industry would run away and leave the people of Uganda in its dust.
The third aspect of the industry Ocitti noted is the Legal Framework. While Uganda had laws in place governing the sector before the first discovery, they were in dire need of modernization.
Ocitti said that the legislation, as the “blueprint on which the sector is governed”, should promote good governance and ensure activities that are well regulated.
As for the fourth aspect, Ocitti said that Uganda’s physical infrastructure needed to be prepared for the sector, and that meant investments needed to be made into the country’s roads, ports, etc. In Uganda’s case, it needed to come to agreements for the export of the onshore oil via pipeline.
Ocitti did not worry himself with criticisms that the country was inching too slowly to first oil.
“The question as to whether the journey to commercial oil production in Uganda has been slow is one I will leave for all to judge, but from a technical point of view, there is no short cut for a country whose agenda is sustainable exploitation of natural resources in order to create lasting value for society.”
Uganda is yet another lesson for Guyana, which rushed to produce oil a mere five years after the first discovery.
Guyana did not upgrade a single piece of legislation, except for the introduction of a Natural Resource Fund Act to collect the crumbs Guyana would receive, due to a lopsided Stabroek Block agreement and weak regulation.
For Guyana, there is much more to build and learn.