Uganda’s first 120 oil wells ready for production

According to the status report on the oil and gas developments in Uganda, the drilling is still on schedule and the remaining 63 oil wells are expected to be drilled on time.

The report indicates that the Government and its joint venture partners have confirmed that indeed the drilled wells have commercially viable oil resources.

The successful drilling also gives confidence to the country that the oil and gas will bring in the projected revenues.

Of the 120 successfully drilled oil wells, 107 of them are under the Tilenga project while the 13 others are under Kingfisher.

China National Offshore Oil Corporation (CNOOC) is the lead developer for the Kingfisher project whereas TotalEnergies Exploration and Production Uganda (TEPU) is the lead for Tilenga Project.

The report was presented yesterday to the Uganda’s Editor’s Guild by Joint Venture partners led by the Petroleum Authority of Uganda (PAU), at a function held at the Kampala Serena Hotel.

Presenting the report on behalf of PAU, Gloria Sebikari, the manager corporate affairs, said the sector was growing.

She said the number of local companies winning mega contracts under tier one and two was increasing, a sign that many local entities have built capacity.

Ali Ssekatawa, the director legal and corporate affairs at PAU, noted that the ongoing oil development is not just about fossil fuels, but Uganda’s energy security and economic transformation.

“Even before first oil, we have seen the contribution of the oil and gas sector. There are at least 15,000 Ugandans directly employed in the sector. This number is expected to grow to about 40,000 when other projects such as the refinery come on board,” he said.

Kingfisher

Under the Kingfisher, CNOOC has surpassed the target wells needed for first oil by two oil wells.

In addition, the contractors at the Kingfisher project have constructed three of the four well pads under the project.

The report indicates that general works at the Kingfisher project stand at 85%.

“The project work is on schedule. By the end of this year, we will have moved to another step,” Moses Ronald Oteng, the deputy head of administration and joint venture manager at CNOOC, said.

The Kingfisher project, located in Kikuube district, involves the production of 40,000 barrels of crude oil per day from 31 oil wells.

At the moment, installation of the feeder pipeline from the Kingfisher central processing facility to the Kabalega Industrial Park in Hoima is on schedule with approximately 47km of the feeder liner network successfully buried.

The estimated investment cost for the project is $ 2-2.5b (about sh10 trillion).

The report further indicates that the land required for the Kingfisher project is complete and all the 727 project affected persons (PAPs) have been compensated.

Tilenga

The works under the Tilenga project stand at 50%, with 107 of the 170 oil wells needed for first oil successfully drilled and ready for production.

According to the report, several kilometres of the Tilenga feeder pipelines have been buried, especially north of River Nile.

Sebikari explained that the majority of the projects are being done by local companies.

The Tilenga project consists of six onshore oilfields, including one in the Murchison Falls National Park, north of the River Nile, and five others in the South of the Nile (outside the park).

A total of 426 oil wells on 31 well pads, are expected to be drilled in an over-five year period under the Tilenga project.

The crude from these wells will be transported through a network of over 188km pipes (flowlines) to the 190,000 barrels per day central processing facility at Ngwedo sub-county in Buliisa district.

At the central processing facility, the crude will be processed and stabilised and later transported via a 96km feeder pipeline to Kabalega Industrial Park in Hoima, home to the oil refinery and starting point of the East African Crude Oil Pipeline (EACOP).

The report further indicates that all the 4,954 project affected persons under the Tilenga have been compensated.

EACOP

According to the report, over 1,000km of the 1,443km pipes needed for EACOP, have been delivered in Tanzania.

Many of these have since been coated and distribution to different areas of the EACOP project is ongoing.

A total of 71.5km of the EACOP pipeline has been welded. In addition, a total of 3,512 out of 3,660 projectaffected persons (96%) have been compensated in Uganda, while 9,823 out of 9,927 (99%) in Tanzania, have been compensated.

The overall progress of the land acquisition is at 98%.

It should be noted that the EACOP project will cost about $5b (about sh20 trillion).

The shareholders have since revised the funding modalities, by reducing the debt component and increasing equity.

Under the revised plan, the Government and the other shareholders agreed to reduce the debt component of the project from 60% to 48%, and increased equity from 40% to 52%.

This implies that instead of borrowing more to fund the project, the shareholders will increase their cash calls to facilitate the construction of the crude oil pipeline.

With the changes, it implies that $2.9b (about sh11 trillion) will be equity and $2.1b (about sh8 trillion) will be a debt.

Currently, there are four shareholders in the EACOP project and these include the Uganda National Oil Company (UNOC), and the Tanzania Petroleum Development Corporation (TPDC), each with 15% shares representing Uganda and Tanzania respectively.

The other shareholders are TotalEnergies with a 62% stake and CNOOC with 8% shares.

As at September 2024, $2.503 (about sh9 trillion) had been invested in the EACOP and key agreements were being concluded to unlock debt financing from lenders.

According to sources, these key agreements are expected before end of this year.

Refinery works

On the refinery project, Ali Ssekatawa, the director legal and corporate affairs at PAU, revealed that the Government and its partner are in the final stages of concluding the refinery implementation agreement which will stipulate the timelines for the works.

The agreement will also outline what each party will implement.

According to Ssekatawa, the agreement is expected to be concluded by the end of this month.

He noted that the refinery will be operational three to four years after the EACOP commissioning.

“We are moving well on the refinery project. The financing will be 40% covered by the Government and 60% covered by the joint venture partner. This time, we will have the debt financing like it is with EACOP,” the director legal and corporate affairs at PAU said.

According to projects, the refinery civil works are expected to commence this year. The development follows a breakthrough in the negotiation of the key agreements between the government and its partner, Alpha MBM, a Dubai firm, which will be the lead developer.

The Uganda Refinery Holding Company, a subsidiary of UNOC, will hold a participating interest of up to 40% in the Refinery Company on behalf of the Government.

The 60,000 barrels per day refinery is expected to cost $3b (about sh12 trillion) — $4b (about sh15 trillion) with a return of 15-20% depending on the price of crude oil and the petroleum products.

At least 75% of the refinery project affected persons compensated and that the remaining 25% will receive their compensation in the course of the financial year, 2024/2025.

Economic impact

According to government projections, the upstream projects will generate annual average revenues of $1b (about sh3.8 trillion) to $2.5b (about sh11 trillion) for the country, depending on the international oil price achieved.

This seems to rhyme with the projections by the International Monetary Fund (IMF) which in their September 2024 report on Uganda, predicting that the country’s economy will grow by double-digits when oil starts flowing next year.

With oil production expected to commence in the fourth quarter of 2025, the IMF report forecast indicates that Uganda’s Gross Domestic Product (GDP) will receive a significant boost, achieving double-digit growth during the financial year 2025/2026.

In the financial year 2025/2026, the IMF projects that Uganda will export about 70 million barrels of crude oil.

This in return, the report says, will take the country’s GDP growth from the current 6% to 11% in the financial year 2025/2026. Although the GDP growth will likely drop to 9% in the financial year 2026/2027, the IMF indicates that it will still be significant and 3% higher than the current trends.

The IMF projects that Uganda’s domestic revenues will gradually increase when we start oil production from $15b (about sh55 trillion) in 2025/2026 to $19b (about sh70.6 trillion) in 2028/29.

Under the current financial year, 2024/2025, Uganda targets to collect about sh32 trillion in domestic revenues.

This implies that oil production will earn Uganda sh23 trillion more in domestic revenues than the current targets, come 2025/2026.