Investors Shun Uganda’s Second Oil Licensing Despite Bid Extensions
Investors appear to have shied away from the Uganda’s second oil licensing as the second extension of the bids expired at the end of last month without any new expressions of interest received from oil companies to explore five new blocks on offer in the Albertine Graben.
Uganda launched its second licensing round for five blocks in the oil-rich Albertine Graben during the May 8-10 2019 East African Petroleum Conference and Exhibition in Mombasa, Kenya.
The five blocks up for grabs are Block01 (Avivi) covering 1,026 square kilometres; Block02 (Omuka) covering 750 square kilometres, Block03 (Kasuruban) which stretches 1,285 square kilometres, Block04 (Turaco) that covers 637 square kilometres and Block05 (Ngaji) covering 1230 square kilometres.
Ministry officials deemed the low number of bids to prevailing conditions in the global economy, prompting the government to push back the closing date to September 30, to give bidders more time, hoping that conditions would be more favourable for more international companies to apply.
The EastAfrican said last weekend quoted the permanent secretary in the ministry of energy, Robert Kasande, as saying that notwithstanding that the global outlook for upstream activity continues to look gloomy, the ministry is set to proceed with the licensing.
“We got six applications in total; these are the ones we are going to evaluate,” the perm sec said. Uganda has lost six months as the applications to be evaluated are from local and international companies that had expressed interest to vie for five oil blocks on offer before the first deadline of March 30, 2020.
Government officials blame the low interest on the Covid-19 pandemic that has shrunk global economic activity, curtailed air travel and also partly led to the collapse of the crude oil prices.
Now the industry projects the lowest upstream activity globally, with a large count of rig decline.
In July, the Oil and Gas Journal reported the number of drilled wells globally is expected to reach the lowest level this year since the beginning of the century as oil and gas activity, including the drilling market both in terms of wells drilled and related demand for drilling equipment, has been stymied by the Covid-19 pandemic.
Rystad Energy, oil research firm reports that this year alone the number of drilled wells globally will fall from 71,946 wells drilled in 2019 to 55,350.
For Uganda and other countries hoping to start upstream activity, especially exploratory drilling for oil, Rystad Energy’s forecast paints a gloomy picture as the decline in drilling is expected to extend to 2025.
Uganda is keen to see more upstream activity especially exploration in a bid to strike more oil and increase its reserves above the 6.5 billion barrels of oil that it discovered in 2006, of which an estimated 1.4 billion -1.7 billion barrels are recoverable.
Uganda’s first competitive licensing round in 2017 did not attract global oil majors, instead 17 small oil firms put in bids which culminated in only two firms being picked, with Nigeria’s Oranto Petroleum taking the Ngassa oil Block, while Australia’s Armour Energy Ltd was awarded the licence for Kanywataba Block.
In the second round Uganda aims to increase international investment into its oil rich energy sector, with government expecting to sign production sharing agreements and issue exploration licences to successful firms.
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Uganda has awarded nine production licences so far: Kingfisher field to China National Offshore Oil Corporation in 2012; Mputa-Nzizi-Waraga, Kasemene-Wahrindi, Kigogole-Ngara, Ngege fields to Tullow Uganda in 2016 and Ngiri, Jobi-Rii and Gunya fields to Total E&P Uganda in 2016.
The EastAfrican said recent deal between Uganda and Total for the East African Crude Oil Pipeline is expected to unlock investment decisions for upstream and midstream developments, with first oil expected in 2024, Total E&P Uganda general manager Pierre Jessua says.
By Chibisi Ohakah, Abuja