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Interview with Commissioner, PEPD

Uganda participated in the 18th Africa Oil Week which took place in Capetown, South Africa from 31st October to 4th November, 2011.  Mr. Ernest N.T. Rubondo, Commissioner for the Petroleum Exploration and Production Department in the Ministry of Energy and Mineral Development highlights some of the developments, achievements and future prospects of Uganda's emerging Oil and Gas Sector in the interview below;  

1.       When was oil first discovered in Uganda?

The first commercial discovery of oil in Uganda was made in January, 2006 at Mputa-1. Drilling of the Mputa-1 well commenced in December 2005 and oil was encountered between 996.5m and 974.5m in the well. The well was subsequently flow tested and it flowed 1,100 barrels of oil per day (BOPD).
There had been efforts made to find oil in Uganda starting in the colonial days. These efforts had led to the identification of surface seepages of oil and to the drilling of mainly shallow wells around these seepages. One exploration well had also been drilled near Butiaba in 1930 but all these efforts were not successful in establishing commercial deposits of oil in the country.
2.         How much oil has been discovered so far?
Following the discovery of oil at Mputa-1, exploration efforts have continued, a total of 20 oil discoveries have been made in the country and the in place volume of petroleum discovered in the country to date is now estimated to be between 2.5 to 3 billion barrels of oil equivalent. These discoveries are now undergoing appraisal, or further evaluation, to better ascertain the volumes of oil and/or gas in each of them and establish how much of it can be produced. International experience shows that recovery of oil can vary from as low as 5% to as high as 60% of oil in place volumes. The level of recovery depends on the type of oil, complexity of the reservoir, technology applied to produce the oil and the resource management framework in place. The ongoing appraisal work will contribute to establishing the petroleum recovery rates for the respective discoveries made in the country. If one takes the international average rates of recovery which are about 30%, the country could produce between 800 million to one billion barrels of oil equivalent.
 3.        How would you rate the progress of Uganda exploration effort to date?
The country’s exploration effort to date has been extremely successful and is indeed very admirable. Firstly, the effort to promote the country’s petroleum potential which was consistently undertaken over a period of more than 20 years was successful as it led to the attraction of investment in the sector and subsequently discovery of oil. This promotional effort was most often done under quite difficultcircumstances and against a background of uncertainty as to whether or not commercial quantities of oil will ever be found in Uganda.
Going from no oil at the beginning of 2006 to 2.5 billion barrels of oil in place in the country in 2011 represents a tremendous development. Uganda’s drilling success is probably the highest in the world as 58 out of the 64 wells drilled in the country have been successful. This represents a success rate of over 90% against a world average of about 10%.
Investments in the country’s oil and gas sector to date are estimated to be US$1.2 billion. With the discovered resources at 2.5 billion barrelsof oil equivalent, this represents a finding cost of US$ 0.5 per barrel. Cost of finding oil in different parts of the world are usually at US$ 5 per barrel at the low end and are even over US$ 20 per barrel for the more difficult areas or where the process of exploration is not well regulated. These statistics represent a good beginning for the country in its journey to becoming an oil producing nation.
4.         What are some of the opportunities from the sector both now and in the future?
It is now established that petroleum (oil and gas) is one of the natural resources which this country is endowed with. Petroleum has the potential to contribute significantly to the transformation of Uganda starting in the short to medium term and consolidating this contribution in the long term. Specifically petroleum is a valuable resource whose production and salecan generate revenues for the country. Development of the entire petroleum value chain in the country i.e. from exploration through development, production, transportation of commodities, refining and distribution of products, is expected to lead to investments in the country in the range of tens of billions of US dollars. These investments will provide employment, contribute to expanding the country’s tax base and development of infrastructure among many others. The country has started realizing some of these benefits,albeit at a small scale  through training and employment of Ugandans both at professional and blue collar levels together with opportunities for the aviation, real estate, civil works, hospitality, security, environment consultancies, forwarding and clearing sectors among others.   These opportunities are expected to increase especially as the petroleum activities continue to develop in the country.
5.         How prepared is Uganda to avoid the oil curse?
Avoiding the oil curse in Uganda will be best achieved if all stakeholders play their roles adequately especially as the sector develops. Government took the initiative by formulating a comprehensive National Oil and Gas Policy which is currently under implementation. This policy was formulated through a wide consultative process and is acknowledged both within the country and outside as a good basis for Uganda to take forward its oil and gas sector in a manner that will avoid the oil curse.
The policy identifies the issues for the oil and gas sector and describes objectives, strategies and actions to address these issues. The key aspects of the policy which are currently under implementation include putting in place the legislation required for both the petroleum resources and the revenue accruing from them, capacity building through training, putting in place institutions to manage the sector, implementation of a communication strategy for the sector, preparations for the development of a refinery in the country together with preparation of a strategy for the participation of Ugandans in the sector.
 
6.         How is the oil and gas sector in Uganda currently regulated?
The Petroleum (Exploration and Production) Act Cap 150 of 2000 is the law under which oil and gas activities in the country are regulated. This law is supported by the Petroleum Exploration) (Conduct of Exploration Operations) Regulations which were put in place in 1993.
This legislation which covers the exploration, development and production of petroleum is what is being amended to address the reduced exploration risk in the country, bring on board the more recent international improvements in managing the sector and provide for the institutions required to manage the sector.
7.        Government has been credited for insisting on establishing of the oil refinery in the country.When will the construction works kick off?
 
Government’s commitment to the development of a refinery in the country is being taken forward in a systematic manner which has included undertaking a market study for the petroleumproducts in the East African region which was completed in 2007 and subsequently undertaking a fully-fledged feasibility study for the development of a refinery in the country which was completed early this year.
 
The feasibility study confirmed the economic viability of refining in the country. This study also recommended the size, configuration and location of the refinery based on the type of crude oil discovered in the country and the petroleum products demand in the region. The next stages include acquisition of the land for the development, identifying partners in form of investors to work with Government in developing the refinery together with the required financing and subsequently construction of the refinery. The plans are to start with an early refinery of about 20,000 BOPD which could be in place in the next three to four years and expand this up to 60,000 BOPD immediately thereafter. The petroleum resources established in the country to date are sufficient to support this level of refining and it is planned that the refinery is expanded to 120,000 BOPD and later to 180,000 BOPD when more resources are confirmed in the country.
 
Development of a refinery in Uganda is a key project for the country and is one of the five flagship projects in the Country’s National Development Plan. Its implementation will therefore require a lot of effort and a high level of commitment especially if it is to achieve the expected timing. Indications so far are that these are not in short supply.
 
8.        Uganda requires $5.13bn to implement the oil and gas policy. Has your organization received part of the resources for the initial years?
At the time the policy was approved it was estimated that the country would require US$ 5.13bn to implement the policy. This included investment by both the public and private sector. Over 90% of this investment was expected to come from the private sector. Some of the private sector investment represents the investment which the licensed companies have made and continue to make in the development sector. As earlier explained, the in place petroleum resources in the country have increased from 300 million barrels of oil equivalent at the time the policy was formulated to 2.5 billion to date. The increase in petroleum resources established in the country is certainly a very good thing and additional investment will be required to develop, produce and commercialize them. The work of the Petroleum Exploration and Production Department is funded under the provisions made for the Ministry of Energy and Mineral Development in the National Budget. 
9.        Uganda expected a ministry in charge of oil and gas to be created to ease implementation of the policy but this never happened. Have some activities stalled/
           The department does not participate in the formation of ministries as this is done at high level of authority. What we have contributed to is the setting up of the institutional framework as described in the policy. This is the formation of a Directorate of Petroleum in the ministry responsible for oil and gas, a Petroleum Authority of Uganda and a National Oil Company.   Formation of the institutions will facilitate the separation of policy making from regulation of the industry and also from managing the State’s commercial interest in the sector which is expected to be carried out by each of these institutions respectively.
10.      Any priority areas to invest the oil proceeds?
The goal of the National Oil and Gas Policy is to the use the country’s oil and gas resources to contribute to early achievement of poverty eradication and create lasting value to society. The policy direction is to invest oil proceeds in line with this goal by investing in the durable sectors of the economy, infrastructure development increased energy production, among others. The Ministry of Finance, Planning and Economic Development together with the other institutions like the National Planning Authority are responsible for the specific aspects of this investment. 
11.      Uganda spends $400m on importing petroleum products.   Will the country eliminate this expenditure when we start producing our own oil in 2015?
           What will save the country from the high cost of importing petroleum products is not the production of oil but refining of the oil produced. Refining the crude oil produced will enable substitution provision or availability of the imported petroleum products which are consumed by the country.   The current expenditure on importation of petroleum products, which is now well in excess of US$ 1 billion per year will indeed be eliminated or significantly reduced when the refinery is built in Uganda.
12.      How relevant is the 18th Africa Oil week?
           The Africa Oil Week is a Conference which brings together industry executives and government officials to share their understanding of the state of the oil and gas industry in Africa and the investment opportunities therein.   The conference which is held annually in Cape Town, South Africa is one of the fora which this department used to promote Uganda’s petroleum potential before any discoveries of oil were made in the country. The other fora being the Annual Convention of the American Association of Petroleum Geologists (AAPG) and the International Society of Exploration Geophysicists (SEG). Uganda’s efforts to promote its petroleum potential were recognized at the Africa week held in 2007 through the award of the conferences highest honor award of “Distinguished Contribution to the African Industry”.
           This year the Conference is awarding Mr. Reuben Kashambuzi the “2011 Conrad Gerber Award for Intellectual Contribution to the African Industry” in recognition of his book titled “The Story of Petroleum Exploration in Uganda 1984 – 2008: A Matter of Faith” he was previously Commissioner of this department and is now retired.
          The 18th Africa Oil Week is important to Uganda as the country continues to prepare itself to become an oil producing country. The Conference presents a very good opportunity for Uganda to benchmark itself with oil producing countries which have similar opportunities and challenges.

 



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