Uganda finally took the first baby steps towards oil production with the assigning this week of a production licence to the China National Offshore Oil Company, CNOOC.
Following the agreement announced by the Ministry of Energy on Wednesday, Uganda now expects commercial extraction of its 1.8 billion barrel oil resource to begin in early 2018 from the King Fisher field.
The development is the culmination of 10 months of bare-knuckle negotiations between Uganda and the oil consortium led by Tullow that also includes French oil giant Total and CNOOC, on the field development plan and petroleum reservoir report.
Uganda expects to issue more production licences in the near future for eight oil fields. Already, Tullow Oil has presented its field development plan for two fields — Mputa and Waraga — which the government is scrutinising.
In 2012, the government gave a production licence to Tullow Oil, which farmed down its shares to CNOOC and Total. The conditions to the licence were that the company submit an updated field development plan and petroleum reservoir report that was acceptable to the government.
“The field development plan and the petroleum reservoir report were agreed to and the conditions on the production licence were lifted, thereby marking the entry of Uganda into the development phase of the petroleum value chain,” said Peter Lokeris, junior minister in charge of mineral development.
Although CNOOC operates the King Fisher field, Tullow Oil and Total Exploration and Production Company own equal shares in the field. The partners will invest $2 billion to develop the field in preparation for actual production.
The investment, spread over four years, will develop infrastructure like the roads leading to the well which is partly offshore and partly onshore, drilling 40 development wells, piping and building a central processing plant.
It is a recoverable cost, which means that the companies will recoup it all once production begins in accordance with the Production Sharing Agreement that the companies and the government signed.
The government has also announced it will participate in the King Fisher licence with a 15 per cent share once production begins.
At King Fisher field, the recoverable rate is estimated at 31 per cent, but that could increase with use of technology.
“CNOOC has undertaken to do enhanced oil recovery on this field and depending on the results, it is possible that we could get more than 31 per cent,” said Earnest Rubondo, Commissioner Petroleum Exploration and Production Department.