Uganda oil production licenses beckon as movement resumes on pipeline projects

March 3, 2016 in Business, Companies, Energy, Hydrocarbons by Editor

KAMPALA, MARCH 03-Uganda’s oil programme posted two milestones this week that could potentially unlock stalled progress in the upstream sector.

In Arusha, Tanzanian President John Pombe Magufuli announced March 2, an agreement with his Ugandan counterpart on a southern routing for an export pipeline for Uganda’s crude. Back in Uganda, aerial surveys for the route the refined oil products pipeline will follow from Kabale in Hoima to Buloba just outside Kampala will start next week.

These two developments, if actualised would resolve the route to market issue which is understood to have been one of the major obstacles standing between the oil companies that want to export their share of the crude and Uganda which has always been inclined more towards a domestic refinery.

The catch was that to feed the refinery, the upstream operators needed to commit finance in the region of $10 billion in a field development programme. Neither they nor lenders would back such a venture without a defined route to market.

A much hyped deal between Kenyan President Uhuru Kenyatta and President Yoweri Museveni for a northern route through Lamu fell on the stakes claw back clauses in the MoU with Uganda and internal differences between Total, Tullow and CNOOC that jointly hold the Ugandan assets.

While Tullow which has found oil deposits in north-western Kenya was keen on the Kenyan routing, Total was concerned about security in the restive area and possible cost escalations associated with supporting infrastructure.

It is understood that the Arusha announcement took technocrats at the energy ministry by surprise, but it nevertheless points towards possible resolution of the route issue amidst an emerging sense of agency in Kampala which is now targeting a 2020 date for first oil.

Uganda issued its first production licence to Chinese upstream operator CNOOC two years ago but despite similar applications by Total and Tullow, no further licenses had been issued at the time of writing. Matters have since been complicated by retreating prices for crude which appears to have bottomed out at $27 per barrel.

According to sources familiar with the behind the scenes maneuvers, CNOOC was able to get the green light for production at its Kingfisher well because it was the most advanced in terms development. But the Chinese would need their partners in the JV to aggregate volumes and rationalize programme costs.

So far, the oil companies, especially Total and CNOOC, appear determined to forge ahead to full production and an definitive decision on the choice of Tanga as the exit route for Ugandan crude will most likely spur Total into committing to full development.