Armour Energy, the Australian junior firm exploring for oil in the Kanywataba block in Ntoroko district, wants to renegotiate certain terms in its license with the intention of limiting its losses in case it sees a bleak future in Uganda.
The new demands appear to be testing Uganda’s patience with the possibility of having the license cancelled. The company has not done any substantial work at the Kanywataba block since it invoked a force majeure in October 2019 due to the twin effects of heavy rains in the area that made the roads impassable to move its equipment and staff, and the latest pandemic of the coronavirus disease (Covid-19) that has seen Uganda slap a couple of travel bans. The company wants this lost time added to the period of its license.
“On April 9, 2020, the company wrote to the minister of Energy and Mineral Development of the Ugandan Government, advising that as a result of the Covid-19 pandemic, it was unable and is being prevented from undertaking work on the 2D seismic program, based on a Force Majeure event that occurred,” Armour said.
It then added: “The effect of this notice to the Minister means that the period of time during which the event of Force Majeure is operative, will be added to the end of the second exploration period.”
However, Armour’s troubles at Kanywataba, which is 40km northeast of the lucrative Kingfisher field operated by China’s Cnooc, don’t just stem from heavy rains and a virus pandemic.
It has emerged that Armour is locked up in a dispute with the government of Uganda over two critical issues: a performance guarantee that the company has to pay, and a proposal to stop further work in the field if results from its unfinished 2D seismic survey are unfavourable.
On September 14, 2017, while announcing the issuance of a two-year exploration license to Armour, then minister of Energy Irene Muloni said one of the key elements of the Kanywataba license was for the company to pay a performance (bank) guarantee of $990,000, which is 50 per cent of the minimum exploration expenditure for the first exploration period.
Even though government renewed Armour’s license on September 13, 2019 for a second exploration period of another two years, the performance guarantee has not yet been paid. Armour’s license cannot be renewed after September 2021.
Armour insists that “neither the Ugandan Licence, the PSA, nor the Petroleum Act mandate that a Ugandan Licence Performance Guarantee is required for the remainder of this term of the Ugandan Licence.”
The Australian company says it is, nevertheless, negotiating with the Ugandan government over this amount. While negotiations over the performance guarantee will likely be easier, it is Armour’s proposal to not undertake further work if results from the 2D seismic survey are unfavourable.
“Armour Energy has proposed amendments to the PSA (Production Sharing Agreement) such that it will not be required to undertake any further work on the blocks the subject of the Ugandan Licence, should the results of the 2D Seismic Survey be unfavourable,” according to a report