As it starts developing its 21 commercial discoveries made to date with a view to beginning production in 2020, Uganda is now recognised around the world as a growing oil and gas producer. Head of the national petroleum regulator, Ernest Rubondo, provides an update on progress and how the country is both making itself an attractive destination for investors and preparing to reap the benefits of an impending oil boom for its people
Do you believe you have the winning formula for oil investment in the form of your production sharing agreements?
The production sharing agreements were signed before the companies came here to begin exploration, so they were comfortable with them and they have worked in accordance. Once the resources were found, the country and companies agreed they would be commercialised through three avenues: by refining some to generate petroleum products for the country and the region; by exporting; and by using the remainder to generate power. So I think this is a winning formula. The proof of the pudding is in the eating, and you can see the companies are abiding by them and they are doing very well.
Do you see interest from the UK in the oil and gas sector in Uganda?
The companies that are now taking forward investment in the oil and gas sector in the country are Total from France, China National Offshore Oil Corporation, and Tullow Oil, which is largely from the UK. Recently, Oranto Petroleum from Nigeria and AMA Energy from Australia have also entered. The oil and gas sector is now moving into the development phase, and this requires a lot of services and people. But the UK has been producing oil for a long time, developing a lot of expertise, so there’s no doubt that UK companies will come and participate. We’ve already had delegations from UK companies coming to Uganda to find out which direction the sector is taking, what the opportunities there are, and these have been very successful. There is very good potential for British companies to participate in Uganda’s oil and gas sector.
A total of 21 commercial oil discoveries have now been made in Uganda since 2006, together containing around 1.4 billion barrels of recoverable oil and 500 billion cubic feet of gas. Can you talk a bit about where these finds are, their quantities and how their development is progressing?
The 21 discoveries have been made in the western part of Uganda around Lake Albert – geologically it’s called the Albertine Graben. About 15 of these fields were discovered in the north of Lake Albert, and the others are distributed along the eastern shore. Seventeen are considered commercial. The companies have appraised 14 of these, submitted reports and received production licenses. The other three have completed appraisals and have now submitted applications. The oil in all these fields is estimated at 6.5 billion barrels and out of this we expect to produce about 1.4 to 1.5 billion barrels. That number is a good basis for investment in production. We have agreed with the companies that Uganda will start refining 60,000 barrels of oil a day and the remainder of the oil will be exported through the pipeline, which will go from Hoima in Uganda through Tanzania to the Port of Tanga. The oil is waxy so it has to be a heated pipeline with about 27 heating stations and six pumping stations along the way. The design for the oil field operated by China National Offshore Oil Corporation is complete, so it should be ready to start development shortly. The designs for the fields being operated by Total in the northern part of the Albertine Graben are expected to be completed in April. The design for the export pipeline has also been completed and initial work is beginning. Regarding the refinery, the government is still concluding negotiations with the potential lead investor.
How will the international investors who bring the resources be able to support smaller local companies?
One of the objectives of the National Oil and Gas Policy is to achieve optimal national participation. That means the participation of Ugandan workers, but also the participation of Ugandan enterprises as providers of goods and services. That has been followed up by legislation, which places some requirements on the companies to ensure they employ Ugandans and get goods and services from Ugandan enterprises, as long as the price and quality are right. It’s a very significant opportunity. The total investment expected in the country in the oil fields, pipeline and refinery are in the region of $20 billion. Uganda’s GDP is just below $30 billion, so you’re talking about two-thirds of the country’s GDP being invested in the next three to five years. Where national content becomes important is that if much of that investment can be domiciled in the country – by Ugandan companies and entities participating in this work – this will certainly raise GDP significantly. What the government has also done is to put some innovative mechanisms in place to facilitate this national participation. One of them is the national supply database. All providers of goods and services in the country are required to be on this database, whether they are international or Ugandan. This provides Ugandan companies with visibility so that these international companies we are asking to provide opportunities for Ugandans don’t have to struggle in finding them. The government is also putting in place an enterprise development centre so that enterprises can build capacity in this aspect. Also, a lot of effort is being made to skill Ugandans. This has been done systematically by doing studies, so the training and skills development addresses the gap. Ugandan technicians are being certified at the levels required by the oil companies.
Why should an investor come and invest in the oil sector here as opposed to the many others around the world?
The drilling success rate in Uganda is the highest in the world – about 85 per cent. In the rest of the world it is around 25 per cent. Not so long ago it was 10 per cent. The other aspect is that the area already licensed in Uganda is only 15 per cent of the entire Albertine Graben that has potential for oil production. Not only that, but the cost of the work is not very high. The amount of money that has been spent to find these reserves of 6.5 billion barrels is $3.5 billion. It means the finding cost is less than a dollar per barrel. In other parts of the world, finding costs are between $1 and $20 a barrel.
As the regulator of the sector, what is your message to investors?
We are a very open and transparent institution. But most importantly there is a very good regulatory framework in the country. You have new, modern and investor-friendly laws and regulations in Uganda in the oil and gas sector. When an investor comes here, the institutions’ responsibilities are very clear. There’s the ministry doing the process, we are regulating, and there’s the National Oil Company for the commercial aspects.
What is oil production going to mean for the socio-economic development of the country?
If you are going to have $20 billion invested in an economy with a GDP of $28 billion in a period of four to five years, that is an indication of the bigger picture. But secondly, it means the opportunity for Ugandans to be skilled in those very technical aspects. The opportunity for entrepreneurs to build capacity – to do their work to a level that is satisfactory to the oil industry – means they are going to be very sustainable thereafter. The skills they learn are not going to be restricted to the oil and gas sector – they can be deployed in many other areas. So you are going to have the uplifting of the population through skills and the uplifting of investors through developing their enterprises. And then there’s the infrastructure being built to support the oil and gas sector: 500 kilometres of new roads. The impact of this is also helping other sustainable sectors such as tourism, and so you’re going to have an uplifting of society from that point of view. The country is developing a second international airport, mainly to support the oil and gas industry, but which will be used for many reasons. More importantly, we are looking forward to the revenue that will come from selling oil and gas. And the expectation is that the oil and gas sector is going to bring around 160,000 employment opportunities in total.
How are you going to take care of the environment?
The oil and gas resources in Uganda have been discovered in an environment that is very pristine – there are national parks in that area. But the good thing is that this was focused on from the beginning. One of the objectives of the National Oil and Gas Policy is to ensure that oil and gas activity is undertaken in a manner that does not harm the environment. The environment laws have been strengthened to take oil and gas into consideration. In addition, there have been some frameworks put in place. For example, over 120 wells have been drilled so far in the exploration effort. Many seismic surveys have been undertaken. But the laws require that each of these activities – even setting up a camp – has an environmental impact assessment undertaken and approved. There are also broader frameworks: for instance, a sensitivity atlas for the entire Albertine Graben was undertaken. The objective is to point out the fragility of different parts of that environment. But we also have a strategic environment assessment, which is at an even broader level. It requires that all policies and plans relating to oil take the environment into consideration before they are taken forward. The effort made so far has been commended by a lot of people. The intention now is to ensure that we continue along those lines.
Do you have a final message for our readers?
When the oil and gas sector began, there was both anxiety and expectation. The anxiety was that the oil and gas sector was going to destroy the economy, but this fell by the wayside because of the level of participation people were having and the amount of information available. All of our frameworks, such as the National Oil and Gas Policy, the laws and regulations, have been drawn up in consultation with the public. When it comes to expectations, people expect a lot. They don’t know what oil is going to bring and they know that Saudi Arabia has oil, Dubai has oil and maybe overnight we will look like that. We need to communicate the reality part. There’s no doubt the oil and gas sector is going to improve the country, but we need to ensure people have the right expectations.