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China firm's stake in Uganda oil set to rise

Saturday January 19 2019
rig

An oil rig at Jobi in Uganda. China National Offshore Oil Company (CNOOC) has partnered with Uganda National Oil Company (UNOC) to bid for new oil blocks. PHOTO | NMG

By HALIMA ABDALLAH

As Uganda awaits the final investment decision on oil production, China National Offshore Oil Company (CNOOC) has announced that it is partnering with the Uganda National Oil Company (UNOC) to bid for new oil blocks in the Albertine Graben.

CNOOC and UNOC have signed a memorandum of understanding detailing how the partnership will work. The two companies are now working on firming up the agreements for the partnership.

CNOOC operates the Kingfisher fields on behalf of its joint venture partners Total E&P and Tullow Oil. The three partners own equal shares of 33.3 per cent on all current discoveries at Kingfisher and Tilenga oilfields. The partners will spend up to $8 billion in the upstream project.

When it gets the exploration licence, CNOOC will become the biggest player in Uganda’s oil and gas sector: Smaller exploration companies de-risked their investments.

“Oil and gas is a highly risky business with the global average standing at only 20 per cent and 30 wells, but the high success rate in Uganda, which is far above global average, gives us hope that we shall find more oil and continue with the production,” said CNOOC’s vice president Jin Weigen.

Uganda’s drilling success rate is over 85 per cent, according to Energy Minister Irene Muloni. She said the costs of finding oil is also less than $1 per barrel, which makes the country very attractive to prospectors.

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"We are now preparing for a second competitive bidding round to get more investors in 2019. We have a conducive investment climate, so we want to ensure that all the resources are harnessed in the best way that benefits all Ugandans,” Ms Muloni said.

The latest detailed analysis of the oil potential areas shows that only 10 per cent of the Albertine Graben has been explored.

Uganda’s oil in place stands at six billion barrels of oil per day, while recoverable volume is 1.4 billion barrels. With additional exploration, the volume is expected to rise.

Mr Weigen said that the new joint venture partners will not wait for the call to begin their application.

“We are already working on our documents, which we shall submit and wait,” he said.

UNOC is owned by the government and was set up to oversee the country’s business interests. In 2017, UNOC’s shareholders approved top oil and gas projects for investment that could cost close to $800 million.

UNOC is finalising a joint operation agreement with other companies for 40 per cent of shares in the refinery, which will be held under a new company — Uganda Refinery Holding Company. EAC partner states are expected to take up shares in the refinery, expected be completed in 2023.

UNOC is also taking up 15 per cent of the shares in the pipeline. The upstream costs for development will be covered by licensed oil companies, so the government will not fund the legally granted number of shares of the project.

Uganda’s Petroleum Exploration, Development and Production Act grants the government 15 per cent of shares in all upstream activities. Currently, UNOC is concluding a backing–in process to manage its 15 per cent interest in the Kingfisher development area (Hoima) and Tilenga development projects (in Buliisa and Nwoya districts oil fields.)

However, UNOC plans to go into exploration with participating interests above what is prescribed by the law, but permitted under model Production Sharing Agreements (PSAs). According to the PSA model, the government takes up 20 per cent state participation.

“Any participating interest that UNOC will acquire in the new ventures will be over and above the mandatory 15 per cent state participation,” UNOC’s chief legal and corporate affairs officer, Peter Mulisa said in an earlier interview.

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