Sense of urgency as Uganda negotiates new exploration licenses

August 2, 2016 in Business, Companies, Energy, Finance, Hydrocarbons, Investment by Editor

KAMPALA August 1 2016 – As it moves to jump start a stalled economy, Uganda today said it was entering conclusive negotiations for Production Sharing Agreements for its oil with four firms that successfully went through a competitive licensing round in March this year.

Still dominated by Nigerian firms, Armour Energy Limited of Australia is the only non-Nigerian firm on the list of contenders that also Walter Smith Petroman Oil Limited, Oranto Petroleum International and Niger Delta Petroleum Resources Ltd.

Although the announcement comes nearly two months off schedule, the Ministry said negotiations on the different blocks with the four companies would be concluded in a months’ time.

“The negotiations for these PSAs are the final milestone before granting exploration rights over these areas. The key aspects to be discussed during the negotiations will include the respective work programmes, national content and the fiscal aspects like Royalty which were biddable,” said Ernest Rubondo, the Director for Petroleum in Uganda’s Ministry of Energy & Mineral Development.

He added that further due diligence would be undertaken on the successful bidders to ascertain their financial, technical and Health, Safety and Environment management capabilities prior to the issuance of the exploration licenses.

Battling a 1.3pc drop in growth last financial year and a sluggish exporter sector, Uganda needs new movement in its oil sector, bogged down by the slump in global commodity prices and bureaucratic inertia that has delayed issuance of production licences to incumbents Total E&P, Tullow Oil and CNOOC who between them hold rights to 6.5billion barrels of discovered resources, 1.3billion barrels of which is considered recoverable.

Rubondo suggested a sense of urgency revealing that the investments and activities arising out of the exploration work under the new exploration licences were expected to run in tandem with investments and development activities towards commercialisation of the already discovered oil fields such as construction of a refinery and an export pipeline.

Upon successful negotiations, government will issue five exploration licenses for Kanywataba block and two for the shallow and deep plays of the Turaco and Ngassa blocks.

There was no immediate information about likely timelines for issuance of production licences to Tullow and Total although this is expected to come before year end, given that institutional setup is almost complete. Operationalisation of the National Oil Company is expected to gather steam after the Chief executive, Josephine Wapakabulo took office today.

Mr. Rubondo, tapped to move to the Petroleum Authority as Chief Executive next month, is understood to be completing the handover at his present station.

Sources once the two institutions are up and running, the stage will be set for issuing of the long delayed production licences.

The Ugandan economy missed target by 1.3pc, growing 4.6pc in fiscal 2015, amidst a slowdown occasioned by high lending rates that forced businesses to either abandon or differ expansion plans. The central Bank has implemented two back to back rate cuts since April, settling its indicative rate, the CBR at 15pc.