Oil Companies Spend Ugx 3 Billion Without Authorisation Top story


In short
International Oil Companies spent over 3.6 billion shillings 1Million for exploration data without approval from government as required by the production sharing agreements. The money is a recoverable cost as per the agreement between government and Oil Companies.The 2016 Auditor Generals report says the failure to monitor and track costs may according to Auditor General result into International Oil Companies incurring costs which may not be approved as recoverable, which may lead to arbitration.

The International Oil Companies according to the Auditor General also  defaulted in providing government with information on petroleum data from explorations in the Albertine Graben. 

Companies licensed for oil exploration and development are by law required to provide government with geological and geophysical reports for all exploration areas.

The Auditor General however says Oil Companies have not consistently provided the information yet such data key to building the Government's geological understanding.

Such information according to the Auditor General Strengthens government's negotiating position with potential investors in oil and gas sector. 

The Auditor General's report for the audit year ended 30th June 2016 says failure to properly manage petroleum data would thus negatively impact on Uganda's ability to maximally exploit and benefit from her oil and gas resource potential.

Petroleum (Exploration, Development and Production) Act 2013 requires oil companies  to submit semi-annual reports indicating geological, geochemical and geophysical work carried out.
They are also required to provide a summary of drilling activities, results obtained and annual reports indicating operations in the year.
The Auditor General says  in 2013, none of the four (4) required geological and geophysical reports for exploration Area EA1 & 1A was submitted.

The audit notes that in 2014, out of four (4) reports expected from each of the drilling and geological and geophysical activities, only two (2) of each was submitted.

There were not exploration and drilling activities  2015 and 2016 so International Oil Companies were only required to submit annual and semi-annual operations reports however, none of these reports were submitted according to the Auditor General.

Dr. Earnest Rubondo, the Executive Director of the Petroleum Authority of Uganda could not be reached on his mobile for explanation over the alleged default.

Dr. Rubondo previously headed the Petroleum Exploration and Exploration Department (PEPD) that was tasked with ensuring compliance by the oil companies.

The Petroleum Authority according to the Auditor General says there was inadequate monitoring mechanism put in place by PEDPD to ensure compliance by oil companies .

One hundred and twenty exploration and appraisal wells have been drilled in the country with one hundred and six (106) of these wells encountering oil and / or gas which translates into an unprecedented drilling success rate of over 85%.

Production Sharing Agreements
According to the report, Production Sharing Agreements require the Advisory committee to review and approve the annual work programmes and budgets, or any material amendment thereto.
The Auditor General observed that there unapproved budget overruns of 3.6 billion shillings ($ 1million)  arising from various activities related to data acquisition in exploration Area-2 for the period 2014 and 2015.

The $1 million unapproved budget was attributed to the limited measures put in place by PEDPD to monitor/track costs incurred by international oil companies.

The failure to monitor and track costs  may according to Auditor General result into International Oil Companies  incurring costs which may not be approved as recoverable, which may lead to arbitration.

Verification of Well Data and Reports
The audit noted that there were inadequate quality checks undertaken on data and reports submitted by International Oil Companies.

Out of nineteen files reviewed, thirteen files did not show evidence of quality control and assurance checks.

International Oil Companies (IOCs); Total E&P, China National Offshore Oil Corporation (CNOOC) and Tullow have been involved in exploration and development activities in the Albertine Graben but they did not regularly submit reports over the years.

They were last year granted eight Petroleum Production Licenses for oil fields in Exploration Area 2 (EA2) and Exploration Area 1 (EAI) to Tullow, Total and CNOOC as joint venture partners on marking the start of the production phase.