Petroleum Authority of Uganda

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Understanding the Process Towards Achieving Commercial Oil Production in Uganda

 Typically, around the world, the period between when a commercial oil discovery is made, and the start of production ranges from 5-15 years. It may occasionally exceed 15 years especially for frontier basins in landlocked countries. For sustainability, it is important for developing countries to address four key aspects prior to production, namely, the Institutional Framework, Human Resource Capacity, Enabling Legal Framework, and the Infrastructure that will support development and evacuation of produced Oil.

The Institutional Framework should clearly define the roles of the public and private players, in this case the Oil companies and Government.  Whereas International Oil companies are driven by desire to maximize profit, Government is driven by the need for sustainable exploitation of natural resources, with the benefits lasting longer than the life of the resources. Uganda’s institutional framework has evolved with the operationalization of the Uganda National Oil Company (UNOC) and the Petroleum Authority of Uganda (PAU) in 2015/2016. UNOC is taking forward Government’s commercial interest in the sector which currently stands at 15% for fields with production licenses together with representing Government’s interest in the refinery and crude export pipeline, among other projects. PAU regulates and monitors compliance by the licensees while the Ministry of Energy and Mineral Development handles licensing, investment promotion and policy formulation. This separation of roles ensures checks and balances within Government in order to efficiently manage the sector.

The second key pillar is Human Resource Capacity.  Prior to 2006 there was no single academic institution offering relevant specialized courses. Although Government has been building capacity over thirty years, the last ten years saw a deliberate policy to sponsor more Ugandans for specialized courses abroad in addition to encourage the private sector and academic institutions to invest in bridging the technical and vocational skills gap. It is projected that at least 14,000 direct jobs will be created in the development phase, with an additional 42,000 and 105,000 indirect and induced jobs respectively with over 60% of the jobs going to certified technicians. Government, Industry and donors are focusing on in country skilling of technicians, certified to global oil and gas industry standard, with close to 800 Ugandans trained so far.  This is in addition to supporting SMEs to enhance their capacity to provide goods and services.  Our greatest export from the Oil and Gas sector will be skilled human resource. Therefore, it is important that the pace of development of the sector matches that of skills and enterprise development.

Thirdly is the Legal Framework, which is the blue print on which the sector is governed. The sectoral legal framework that existed before 2013 was in place prior to confirmation of commercial petroleum resources and therefore needed to be updated. Furthermore, there was need to put in place regulations to operationalize the Petroleum Acts of 2013.  Seven sets of regulations were gazetted in 2016. This legal framework promotes good governance and ensures that activities are well regulated. In addition, commercial agreements usually follow a systematic negotiation process especially where part of the project crosses into another country with its own legal & fiscal terms like in the case of the East African Crude Oil Pipeline.

The fourth key pillar is the Infrastructure required to produce and commercialise the resources. On this pillar, the article highlighted the different projects being undertaken for Upstream field development – ~US$ 8billion for Central processing facilities, flow lines and feeder pipelines, Midstream Infrastructure - ~US$7 billion for the refinery and EACOP, and that to support the developments (roads, airport, bridges and industrial park). To put this in perspective, Uganda currently has approximately 5,000Km of tarmac roads, and construction of an additional 600kms of roads to support transportation of over 1,000,000 tons of equipment for the projects is underway. The costs for these projects are in billions of dollars and these will be some of the biggest projects (in terms of size and investment) in the country.

Most of the facilities required for oil field development are highly customized, and the projects first go through  Front End Engineering Design (FEED). This is an extensive engineering and project cost evaluation process which can run for up to 18 months, to plan for the required facilities and define the project economics to plus or minus 5%.

During FEED, oil fields also go through uncertainty reduction and optimization which is characterized by various technical studies. These studies are meant to inform and mitigate risks associated with areas in the fields that have less data. Whereas it is impossible to completely eliminate uncertainty, optimization studies give a better understanding and this reduces the risk of producing below expectations, giving at least a 50% chance that the production forecast will be achieved or exceeded.

FEED studies for Upstream facilities and the EACOP were undertaken during 2017 and early 2018. These studies also provide an opportunity for technology transfer given that Ugandans were attached in various study centers around the world. It is therefore expected that the skills acquired through the studies and FEED process will remain an asset for the country. When FEED is concluded, the detailed engineering is usually carried out by an Engineering, Procurement and Construction (EPC) contractor. Getting the engineering and procurement process right will ensure there are minimal delays during construction and that areas for participation of Ugandans are identified.

The question as to whether the journey to commercial oil production in Uganda has been slow is one I will leave for all to judge, but from a technical point of view there is no short cut for a country whose agenda is sustainable exploitation of natural resources in order to create lasting value for society.