Oil Development to Cost Uganda UGX 71 Trillion Top story


In short
Petroleum Authority in Uganda Executive Director, Dr. Earnest Rubondo says the money is to be spent in the next three years.

Uganda will spend over seventy one trillion shillings or $20 Billion on oil and gas infrastructure as it gears for first oil by 2020.The planned expenditure is equivalent to three financial year budgets going by the twenty one trillion shillings budget for 2017/2018.
Petroleum Authority in Uganda Executive Director, Dr. Earnest Rubondo says the money is to be spent in the next three years.
He says development of 10 oil fields are likely to cost the country eight to nine billion dollars while construction of the refinery will cost an estimated four billion dollars.
The construction of the pipeline from to Tanga in Tanzania will cost close to 3.6 billion dollars. Rubondo did not put costs to the construction of other supporting infrastructure going on in the Albertine region. There plans to construct the oil roads, an airfield and upgrade of railway line to Pakwach.
Uganda has proven crude oil reserves of 6.5 billion barrels in place. Rubondo estimated that between 1.4 to 1.7 billion barrels of recoverable at an investment less than four billion dollars.
The planned expenditure to be funded mainly by international oil companies , banks and other investors raises concern as to whether Uganda's oil will be profitable once it finally comes out the ground.  Government officials including Dr. Earnest Rubondo say  Uganda's oil will still be profitable after all expenditures have been deducted.
Tullow and some government officials have estimated  Uganda could earn up to $50 billion from its oil reserves in 25 years.
The question on whether Uganda's oil will be profitable has also been subject to local and international studies. One on the recent study on Uganda's oil was conducted by King Abdullah Petroleum studies and Research Center.
The King Abdullah Petroleum Studies and Research Center (KAPSARC) is a non-profit global institution researching  into energy economics, policy, technology and the environment across all types of energy.
Its analysis on Uganda titled "Evaluating Uganda's Oil Sector: Estimation of Upstream Projects" found that Uganda's capital expenditure and operational expenditure combined will cost approximately $18.46 billion, or $17.50/barrel.

The total expenditure of about to produce a barrel of crude oil at about sixty thousand shillings or 17.50/barrel according to the analysis in general terms compares favorably with other producers worldwide.
The analysis suggested that capital expenditure is likely to cost $8.640 billion while operational expenditure will cost the country $9.088 billion and that $0.731 billion will be required for decommissioning. 
Ugandan upstream oil and gas development is focused on three major projects on the shores of Lake Albert with Tullow Oil, Total and China National Offshore Oil Corporation (CNOOC) as partners.
The King Abdullah Petroleum Studies and Research Center (KAPSARC) analysis researchers said those projects are challenging due to their remoteness, complex geology and very waxy crude that is difficult to transport to market.
Researchers also raised concerned about costs reflected tin he field development plans (FDPs) that the oil companies submitted to government in in 2013.
They say the dynamics in dynamics in the industry have changed following fall in international oil from 2014 onwards. The crude oil prices had by December 2016 e fallen by 24 percent.
The King Abdullah analysts said changing environment in the last few years may impact the future implementation of the 2013 Field Development Plans.  Field Development plans remain confidential.
The King Abdullah analysis said some operators like Tullow had by early 2015 announced plans to reduce their Capital expenditures (CAPEX) through design changes. Tullow reportedly specifically targeted up to 20 percent cuts in its CAPEX for Uganda.
Tullow in January this year said it was transferring 21.57% of its 33.33% interests in Exploration Areas in Uganda to Total for a total at $900 million. One of the most notable item on the list in the King Abdullah analysis is the $196 million requirement for tariff charges.
The tariff will be incurred on heating the pipeline to prevent the waxy oil from solidifying while being transported from the refinery to Tanga port in Tanzania.
The analysis says the waxy nature of Uganda's crude suggests that it will not achieve the full market price per barrel, but will be discounted to reflect the costs implicit in its high wax content.
Oil analysts have been spend a lot of time discussing whether crude oil prices will not be much lower than the current $50 per barrel when Uganda begins its production.  The price of oil fell to its lowest level in 11 years in 2015.

Patrick Mweheire, the Chief Executive Officer of Stanbic Uganda is expressed optimism that Uganda will still recoup its investments in the oil and gas sector. Stanbic Bank has been playing a leading role in  mobilising  financing to oil and gas by promoting local participation.