Saturday, November 22, 2008

Uganda: Is Country's Oil Boom in Danger?

By Ibrahim Kasita, Kampala, New Vision , 19 November 2008

There has been speculation that with the plummeting world oil prices, Uganda's oil exploration efforts may have to be plugged. A barrel of oil is now trading in the low $60s a sharp decline from the July's historic high of $147.

The high oil prices were seen as an incentive for opening up new oil fields around the world, a lower price was expected to have the opposite effect.

But Energy ministry's Reuben Kashambuzi Commissioner for Petroleum Exploration and Production Department dismissed the suggestion.

"When we signed agreements with these oil firms in 2001, barrel oil was at $15 and no one expected it to rise at $140," he said.

"Even at $60 the price is still higher. The oil firms have obligations with Government and they have programmes. They cannot suddenly decide to slow progress because of decline in oil prices."

The commissioner said the firms' activities were not dependent on world oil prices. "They have not informed us that they are going to slow down activities and it is wrong to speculate.

Heritage and Tullow, the firms actively exploring oil and gas in the Albertine Graben were upbeat about Uganda's prospects.

Angus McCoss, the Tullow exploration director said: "We are much more confident now that we are close to achieving basin commerciality... the 400m barrel economic threshold for development at $80 a barrel."

Development of the fields for export would require the construction of a long pipeline to the Kenyan port of Mombasa, some 1,300 kilometres away from Lake Albert.

Heritage Oil estimated that the cost of building the 1,300 kilometre pipeline is between $1.5b and $2b.

Government and Tullow oil have agreed on an early scheme, which will be conducted in Kaiso-Tonya, including the production of 4,000-5,000 barrels of oil per day and a mini-refinery, which will produce diesel, kerosene and heavy-fuel diesel.

It will also include a 50-85MW heavy-fuel oil thermal plant, a transmission line from Mputa to Fort Portal and Nkenda and a distribution power network from Kaiso-Tonya to Hoima.

The commercial viability of oil exploration has caused optimism that the country will save about $1b annually when the oil needs are met from domestic oil supply as well as becoming a net oil exporter.

Demand for oil products is rising at a rate of 7% daily and last year alone, Uganda consumed petroleum products worth $500m. Fuel needs per day stand at 70, 000 cubic metres.

It is estimated that the current oil reserves stand at 400 million barrels compared to Libya at 42 billion barrels, which are the largest in Africa followed by Nigeria with 36 billion barrels.

However Kashambuzi the told Business Vision that there are still appraisal tests and data analyses to establish the actual reserves discovered.

"At the moment we cannot make mistakes by speculating the reserves because this will excite Ugandans for no good reason," he said. "Until appraisal drilling is done, we are yet to provide the quantity of our oil reserves."

The ministry's permanent secretary Fred Kabagambe-Kaliisa said more oil reserves are needed if Uganda is to venture into large scale production.

Four wells that will supply oil for the early production system are Mputa-1, Mputa-3, Mputa-4 and Mputa-5.

Kaliisa said according to flow tests, Waraga-1 has potential to produce 12,050 barrels of oil per day (bpd), Mputa-1 1,035 bpd, Nzizi-1 14 million cubic litres of gas per day and Kingfisher-1 13,893 bpd.

Four companies have been licensed by government to drill and prospect for oil. They are Neptune Petroleum [now Tower Resources, Heritage Oil and Gas Limited, Tullow Oil and Dominion.

Government said that it will take over 80% and the exploration firms will take 20% of the oil revenue.

The Government will get a royalty, then the company will recover their costs up to 50-60% and what is not recovered is carried forward to subsequent years.

The remaining profit from the oil will be shared between government and the oil company. All these sharing ratios and royalties are negotiations and contained in the Production Sharing Agreement between government and the oil company, which has remained secret.

Planned early production of oil has stimulated economic activities in hoima as locals prepare to grab the oil windfalls.

About 200km of two highway roads, which will be tarmacked, have been opened, linking the remote Kaiso-Tonya to the world.

The fresh fish at Lake Albert and other agrarian products, which had limited market, are on high demand now.

Three airstrips including a helicopter landing pad and army barracks have already been constructed on the shores of Lake Albert as the country prepares to join the oil-producing club.

The airstrips, which are capable of handling sizeable aircraft, have been constructed at Mputa and Waraga-1 in Buseruka sub-county, while the helipad is in neighbouring Kyehooro. All the airstrips are connected to the exploration sites by murram roads.

This will reduce transportation costs and lead to timely shipment of supplies. Tullow intends to invest $250m (sh410b), which will bring the total amount invested since exploration activities started two years ago to $500m (sh820b).

Four primary schools have been upgraded and a modern maternity constructed in Kaiso-Tonya. Tullow says 200 jobs will be created.

Copyright © 2008 New Vision. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com).