Licence Approvals Would Signal Long-Awaited Upstream Advance

BMI View : Uganda is currently reviewing nine production applications from Tullow and Total, with licences likely to be approved within the next six months, according to an official from Uganda's Energy and Minerals Ministry. In addition, progress in moving the Hoima refinery project along - Kampala's priority - increases the likelihood that it would be more agreeable to granting the two firms' production licences. This would finally see the country's long-delayed upstream development make headway. This supports the likelihood that Uganda will become an oil producer from 2017-2018.

Uganda's dormant upstream segment is making headway towards development. According to a statement on the website of Uganda's Petroleum Exploration & Production (E&P) Department on January 6, the country is currently reviewing nine production applications for discoveries in the Albertine Graben region. Total applied for one production licence, while Tullow Oil applied for the remaining eight. China National Offshore Oil Corporation (CNC) had previously obtained the country's first production licence in September 2013.

While the spokeswoman for the Petroleum E&P Department did not provide a date for when the review process is expected to be concluded, an official from Uganda's Energy and Minerals Ministry said that Ugandan regulators are reportedly in the final stages of evaluating proposed field development plans and that most of the licences are likely to be approved within the next six months, as reported by Upstream.

Sitting On Undeveloped Oil Deposits
Oil Blocks In The Albertine Basin

BMI View : Uganda is currently reviewing nine production applications from Tullow and Total, with licences likely to be approved within the next six months, according to an official from Uganda's Energy and Minerals Ministry. In addition, progress in moving the Hoima refinery project along - Kampala's priority - increases the likelihood that it would be more agreeable to granting the two firms' production licences. This would finally see the country's long-delayed upstream development make headway. This supports the likelihood that Uganda will become an oil producer from 2017-2018.

Uganda's dormant upstream segment is making headway towards development. According to a statement on the website of Uganda's Petroleum Exploration & Production (E&P) Department on January 6, the country is currently reviewing nine production applications for discoveries in the Albertine Graben region. Total applied for one production licence, while Tullow Oil applied for the remaining eight. China National Offshore Oil Corporation (CNC) had previously obtained the country's first production licence in September 2013.

Applications Made For Production LicenceLicences In Uganda
Company Production Licence Application Status
CNC Kingfisher Approved (September 2013)
Tullow Mputa Awaiting Approval
Nzizi Awaiting Approval
Kigogole Awaiting Approval
Nsoga Awaiting Approval
Ngara Awaiting Approval
Ngege Awaiting Approval
Kasamene Awaiting Approval
Wahrindi Awaiting Approval
Total Ngiri Awaiting Approval
Source: Uganda Petroleum E&P Department

While the spokeswoman for the Petroleum E&P Department did not provide a date for when the review process is expected to be concluded, an official from Uganda's Energy and Minerals Ministry said that Ugandan regulators are reportedly in the final stages of evaluating proposed field development plans and that most of the licences are likely to be approved within the next six months, as reported by Upstream.

In addition, ongoing appraisals of other discoveries could see more applications for production licences in 2014. As highlighted by Uganda's Petroleum E&P Department, Total's appraisal period for the Jobi and Rii discoveries has been extended to June 2014, while the French major will be allowed to appraise the Jobi-East, Gunya and Mpyo discoveries until December 2014. Tullow is also appraising the Waraga Discovery in Exploration Area 2, which appraisal period expires in April 2014.

Sitting On Undeveloped Oil Deposits
Oil Blocks In The Albertine Basin

Increased Confirmation Of Debate Resolution And Field Development Likelihood

According to the US Energy Information Administration (EIA), Uganda has sub-Saharan Africa's fourth biggest oil reserves, behind Nigeria, Angola and Sudan/South Sudan. In 2006, the country struck commercial hydrocarbon deposits in the Albertine rift basin along its border with the Democratic Republic of Congo.

Large Reserves To Develop
2013 Crude Oil Proved Reserves In Selected Sub-Saharan Countries (bn barrels)

However, the development of these resources was put on hold due to disagreements between the consortium consisting of Tullow, Total and CNC and the government on how best to use the country's upstream resources. The consortium wanted to target the export market, preferring to invest in a crude oil pipeline that would link output from the fields in the Albertine Rift basin to the Kenyan port of Mombasa. However, the government wanted the oil produced to provide feedstock for a massive 200,000 barrels per day (b/d) refinery project in the Hoima district that would provide fuel supplies to the East African region, which it also wanted the consortium to invest in.

The disagreement highlights a common problem faced by companies wanting to develop hydrocarbon resources in countries with newfound resource wealth. During the exploration phase, countries put forward attractive terms to attract foreign investment into exploration and to prove-up reserves. However, resource nationalism often creeps in after discoveries as governments look to direct their oil and gas resources towards domestic consumption. This is generally in opposition to companies which prefer to target the more lucrative export market for their crude oil outputs, where higher prices fetched help to de-risk development in countries where firms have to build the industry from scratch.

After a year of difficult negotiations, Kampala relented in April 2013 and accepted plans for the construction of a smaller 30,000 barrels per day (b/d) refinery, leaving some crude supplies available for export. A first sign that the disagreement seemed to have been resolved came when CNC obtained production rights to the Kingfisher field, the first such production licence in the country, two months after the Chinese national oil company expressed investment interest in the Hoima refinery.

While it is unknown whether CNC will be joined by Tullow or Total in developing Uganda's refinery, progress in moving the refinery project along - Kampala's priority - increases the likelihood that it would be more agreeable to granting the two firms production licences (see 'Bidding Short-Listing A Positive Development For Needed Refinery', December 18 2013). This would finally see the country's long-delayed upstream development make headway, supporting Uganda's prospects of becoming an oil producer in the medium-term.

En Route To Oil Production

The country expects first oil production by end 2016 or early 2017. CNC's Kingfisher field - estimated to contain 196mn barrels of recoverable crude resources - will likely be the first field to be brought online. Should development of the field be completed in 2017 as targeted, it could produce between 30,000 - 40,000 b/d.

Uganda could see significant additions to its planned production from 2018 if Tullow and Total's production applications are approved. Indeed, Tullow is sitting on a significant resource pool: it confirmed the discovery of 1.1bn bbl of oil in the Lake Albert Rift Basin and estimated that peak output if these resources are developed could hit 350,000b/d.

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Sector: Oil & Gas
Geography: Uganda
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