On 9 March 2016, the Ministry of Energy and Mineral Development (“MEMD”) of Uganda announced that it had received seven bids for the six oil exploration blocks offered in its first licensing round. This marks the next phase in Uganda’s first competitive licensing process, which commenced in February 2015 following a seven year moratorium on petroleum activities in the East African country.
The MEMD indicated that it plans to complete the licensing round by negotiating with successful bidders and award exploration licenses by the end of June 2016.
The oil and gas industry in Uganda
Interest in Uganda’s oil and gas sector has increased in recent years due to discoveries in six sedimentary basins. The most promising are located in the Albertine Graben, situated along Uganda’s border with the Democratic Republic of Congo (“DRC”) and discovered in 2006. Three companies – Total, CNOOC and Tullow Oil – are currently licenced in the Albertine Graben basin.
According to the MEMD, some 6.5 billion barrels of oil have been discovered to date, of which approximately 1.7 billion barrels are recoverable. However, only 40% of the Albertine Graben has been evaluated. If proven, these could be the largest onshore petroleum discoveries in sub-Saharan Africa in over two decades.
A moratorium on oil licensing was put in place by the Ugandan Government in 2007, intended to allow the country sufficient time to put in place the necessary regulatory framework, which was published in 2008 as the National Oil and Gas Policy for Uganda. This envisages the creation of a national petrochemicals industry to meet domestic demand, based around a new oil refinery, with the remaining crude oil to be transported by pipeline to the Indian Ocean for export.
The landlocked country has been in parallel negotiations with Kenya and Tanzania regarding the building of a new pipeline to evacuate its crude oil to either Lamu or Tanga for export by sea once production starts. The viscous nature of the Ugandan crude oil, which is solid at temperatures below 40°C, means any new pipeline must be heated and utilise pump stations along the route. Last month, Ugandan officials announced that the Uganda-Tanzania pipeline will go ahead, citing the route as both shorter and safer than an alternative route through Kenya, which passes close to its border with Somalia.
The licensing round
On offer are six blocks in the Albertine Graben basin, which cover an area of approximately 3,000 square kilometres. The acreage for licensing comprises areas where previous exploration efforts have been undertaken. According to the MEMD, all of these areas have “good coverage” of seismic data acquired by previous licensees.
The licensing round is guided by the Petroleum (Exploration, Development and Production) Act 2013 (the “Act”) which came into force in April 2013 and repealed the earlier 1985 petroleum law. The Act establishes a legal framework for upstream oil and gas activities in Uganda. A new institutional regime has been established based around three bodies:
- the MEMD Minister, with responsibility for granting licences, issuing regulations, negotiating petroleum agreements and developing policy;
- a Petroleum Authority, with responsibility for regulating and monitoring exploration, development and production; and
- a newly-established, state-owned National Oil Company (“NOC”) to manage the participating interests of the State under petroleum agreements.
Under the Act, the Minister may, in consultation with the Authority and with the approval of the Cabinet, grant petroleum exploration licences. This is done by a competitive bidding process, but may be done by direct application in exceptional circumstances.
The Minister launched the bidding process for the licensing round in February 2015, with an announcement in the Uganda Gazette as well as international newspapers. In order to promote its first licensing round, MEMD held a roadshow in London in June 2015 as well as exhibitions on Uganda’s emerging oil and gas sector at conventions in Canada and the United States.
The country is also intent on courting wider investment in its fledgling oil and gas industry and will host the second Ugandan Mining, Energy and Oil and Gas Conference in Kampala on 20th to 21st May 2016.
MEMD received applications from 17 companies, 16 of which were granted pre-approval to submit bids in August 2015. The final seven bidders comprise two North American, two Australian and three Nigerian companies. The bidders did not include any of the three oil firms already operating in Uganda.
Dr. Kabagambe-Kaliisa, Permanent Secretary of MEMD, said that the attraction of seven bidders is “significant” taking into consideration the current low global oil and gas prices. He said that the “success” of the bidding process can be largely attributed to the fact that s majority of the blocks on offer have proven oil and gas potential.
The next step is for MEMD to negotiate with successful bidders and award exploration licences. The process was initially timetabled to conclude with the award of licenses at the end of 2015 but this has been pushed back to at least June 2016.