Uganda’s oil and gas on track to generate valueJuly 26, 2022
Ernest Rubondo, executive director of the Petroleum Authority of Uganda (PAU), talks to The Energy Year about efforts the government of Uganda is making to ensure the oil and gas sector’s current development plan is met and strategic efforts to foster the growth of local content. The PAU regulates Uganda’s upstream and midstream petroleum sectors.
What key milestones has the Ugandan hydrocarbons sector passed?
The country’s oil and gas sector has made significant achievements since the confirmation of commercial discoveries in 2006. These achievements include putting in place a comprehensive regulatory framework for growth and management of the sector, together with building the capacity to regulate and monitor operations. The latest accomplishments include concluding critical agreements required for the industry to take a final investment decision for Uganda’s oil and gas projects.
What is the PAU’s roadmap for 2022 and what main goals does it hope to achieve?
One of the most important roles of the PAU is to approve annual work programmes and budgets for the oil companies that are licensed to undertake petroleum exploration and production in the country. The work programmes approved for the year 2022 are mainly in relation to building the infrastructure required for production of petroleum.
More than 113 major contracts for the Tilenga, Kingfisher and East African Crude Oil Pipeline (EACOP) projects are expected to be awarded during the year, and 94 of these had been awarded by the end of April 2022. The remaining contracts are expected to be awarded before the end of the year. Following conclusion of the front-end engineering and design (FEED) studies for these three flagship projects in 2017 and 2018, their detailed designs are now being undertaken, before commencement of full-scale construction. The detailed designs will be completed before the end of 2022.
Acquisition of a 786-acre [3.18-square-kilometre] piece of land for the construction of a central processing facility (CPF) and the associated infrastructure for the Tilenga Project by TotalEnergies in the Buliisa district has been completed. Preparatory activities like civil works for the project site, provision of water services and setting up accommodation camps are ongoing in this area. These preparatory activities were 65% at the end of April 2022 and they are expected to be concluded by the end of the year.
The construction site will be handed over to McDermott, the company which was awarded the contract to build the CPF for the Tilenga Project. Facilities for other companies such as Schlumberger, Sinopec and Vallourec Oil and Gas, which were awarded contracts for drilling and other well services, will also be hosted in this area.
Similar preparatory activities for the Kingfisher Project are ongoing, following their launch in February 2022, and are also expected to be completed before the end of the year. Drilling of production wells for both the Tilenga and Kingfisher petroleum production projects is expected to commence before the end of 2022 in preparation for first oil in 2025.
In addition to the upstream activities, the Authority also plans to conclude a review of the FEED for the planned 60,000-bpd refinery before the end of 2022.
Land acquisition is the other ongoing preparatory activity in the country’s oil and gas projects. Up to 1,020 acres [4.13 square kilometres] of land is required for the Kingfisher Project, 2,901 acres [11.7 square kilometres] for the Tilenga Project, and 2,740 acres [11.1 square kilometres] for the Ugandan part of the EACOP.
There are 729 persons to be affected by the Kingfisher Project, 3,581 persons by the Tilenga Project and 3,792 persons by the EACOP project. 99%, 78% and 20% of these persons, respectively, had been compensated and the corresponding land acquired at the end of April 2022. Compensation of the remaining project affected persons (PAPs) and acquisition of the remaining land for the three projects is expected to be concluded before the end of the year.
The implementation of livelihood restoration and improvement programmes for the persons affected by these projects is also underway and is planned to continue for another two years.
What is the country doing to push exploration work to increase available resources?
Over the next 5-10 years, key milestones in the country’s oil and gas sector will include implementing the ongoing projects related to the FID which was announced at the beginning of February 2022, and attracting investment for additional projects. Attracting investment and licensing in Uganda’s oil and gas sector is taken forward by the Ministry of Energy and Mineral Development (MEMD).
MEMD is currently concluding the evaluation of bidders in the second licensing round. The Authority plays an advisory role regarding licensing, and contributes to attracting investments through regulating the sector in a desirable manner.
The ongoing projects for which the FID was announced at the beginning of the year have de-risked investment in all segments of the country’s petroleum value chain, and more specifically in the ongoing oil exploration work in the Kanywataba and Ngassa exploration areas. Completion and commissioning of oilfield infrastructure, the export pipeline and the refinery, together with production of first oil will incentivise new investors.
The studies currently being undertaken by government outside the areas currently licensed for oil exploration, together with work being undertaken by oil companies in the licensed areas, will enable an improved understanding of the country’s petroleum potential.
How do you assess the level of national content in Uganda’s oil and gas sector?
28% of the USD 3.5 billion invested during petroleum exploration and appraisal was retained in the country through the provision of goods and services by Ugandan companies. The plan is for 40% of the USD 15 billion to be invested during the development phase to be retained in the country, through national content. Investment in the country’s oil and gas sector is expected to be approximately USD 3 billion, USD 4 billion and USD 3 billion in 2022, 2023 and 2024, respectively. This will then reduce to between USD 500 million and 1 billion in the subsequent years.
Following the announcement of the FID, work on the oil and gas projects has intensified and to date, 94% of the close to 5,000 employees already engaged in these projects are Ugandans. Additionally, of the USD 6 billion in contracts approved by the Authority for award to the first-tier contractors at the beginning of 2022, commitments of USD 1.5 billion have been made to Ugandan companies. The volume of work and earnings to go Ugandan companies are expected to increase as the first-tier contractors proceed to subcontract Ugandan companies at the lower levels of contracting.
Registrations on the National Supplier Database [NSD] and the National Oil and Gas Talent Register [NOGTR], which were put in place by the PAU to support the participation of Ugandans, in the oil and gas sector, have continued to grow. At the end of April 2022, there were 1,858 entities registered on the NSD. Although this is a drop from the 2,633 entities which were on the register in April 2021, the dip is mainly due to a three-year validity period for most companies that expires in 2022.
These numbers are expected to grow to over 3,000 by the end of December 2022, with many new applicants and re-applications for entities whose validity has expired. The NSD will be upgraded to include a joint qualification system before the end of 2022. This upgrade will enhance transparency in the procurement processes.
There were 6,845 talents and 115 employers registered on the NOGTR at the end of April 2022, up from 3,745 talents and 112 employers at the end of April 2021. The number of talents and employers registered on the NOGTR is expected to grow to more than 10,000 talents and 150 employers by the end of 2022.
The PAU is working with development partners to update the Workforce Skills Development Strategy and Plan (WSDSP) for the country’s oil and gas sector, which was prepared in 2013. The updated WSDSP will better reflect the need for, availability of, and gaps in, the skills required for the country’s oil and gas sector.
The Uganda National Oil Company (UNOC), the entity which undertakes commercial aspects of the oil and gas sector on behalf of the state, is expected to continue growing and maturing as a full player in all segments of the petroleum value chain over the next five years. UNOC’s increased participation in the sector, together with the increasing provision of goods and services by Ugandan enterprises, will enable the country to achieve over 70% national participation in its oil and gas sector in the next 5-10 years.
What hurdles does Uganda face in maximising the potential of national content in the hydrocarbons sector?
A key challenge that Uganda faces in maximising national content is the incorrect presentation of national content as a cost to oil and gas projects. This presentation is contrary to the country’s legal framework which provides for prioritisation of national content only when it is competitive.
Another challenge is the limited capacity of Ugandans in the skills required to take on high-paying jobs in the industry. This is being addressed by the capacity building initiatives that are being implemented by both the government and the private sector. These initiatives include upgrading and establishing training institutions with accredited programmes, such as Uganda Petroleum Institute – Kigumba and Uganda Technical College – Kichwamba, among others.
The other challenge is the limited technical and financial capacity of Ugandan companies. This challenge is further amplified by the very high standards and certification required by the oil and gas industry. This is being addressed through promotion of joint ventures between Ugandan and international companies for knowledge transfer, capacity building of enterprises and discussions with the banking sector to reduce the cost of financing for work undertaken by Ugandan companies.
How much value has been created in the country since its independence 60 years ago?
I have had the opportunity to spend a large part of these 60 years contributing to the growth of the oil and gas sector, and making it an important sector for the country’s economy. My comment on this will therefore be in this regard.
Uganda is well on the road for its oil and gas resources to generate value for the country. The key drivers for the country’s value from these resources are through the participation of its people and its enterprises in the provision of goods and services, enhancing the linkages between oil and gas and other sectors of the economy, and the revenues to be generated when production of oil starts.
The achievements made in the country in general and the oil and gas sector in particular, provide a very good reason to celebrate Uganda’s 60 years of independence. The country’s good leadership, peace and security together with a stable macro environment have and continue to be key factors contributing to these achievements.