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Oil contracts, jobs bonanza as Uganda nears $3.5bn final investment decision

A number of tenders and jobs are being offered in Uganda’s oil industry as the country moves closer to sealing a final investment decision for a key infrastructure project – the crude oil pipeline to Tanzania – with some speculators saying the decision could come as early as this week.

French oil major Total E&P, the lead developer in Uganda’s oil industry, has been issuing bids for construction services for its Tilenga development project, and also ensuring the project affected persons are well-compensated. The Uganda National Oil Company (UNOC) – the institution in charge of government’s commercial interests in the oil industry – has also been recruiting staff to build its capacity as it prepares to heavily participate in the development of the industry.

UNOC carries a 15 per cent participating interest in some key Uganda oil projects. Total remains guarded over when it will make an announcement for the final investment decision (FID) for the pipeline, whose construction is valued at about $3.5 billion. Patrick Pouyanne, the group chairman of Total, made little reference to Uganda’s oil project while delivering the company’s annual financials for 2020 in Paris last week.

However, there is speculation that the group will this week, internally, approve a resolution to put money on the table for Uganda’s oil pipeline, and by extension the Tilenga development project. A top government minister says a decision could come in early March. A final investment decision would mean that Total has signed up to an obligation to invest money in the crude oil pipeline from Hoima to the Chongoleani peninsula in southern Tanzania.

That kind of decision would mean that Total has to mobilize capital, staff and machinery to execute the project. And according to the Uganda government’s timelines, the country should be able to produce its first barrel of oil 36 months after the signing of FID. Already, there is a contracts bonanza happening in Uganda’s oil industry ahead of FID.

Over the last 10 days, UNOC has issued a call for a number of engineers; Total E&P has published an expression of interest for the supply of replacement houses for the crude oil pipeline project; the same company also needs a service provider for maintenance and management services for the Buliisa camp; on top of asking for camp catering and hospitality services.

The award for the Engineering, Procurement and Construction contract for the pipeline is expected to be the biggest of them all, with sources telling us that a decision has already been made over which company has won the tender. The number of tenders are expected to shoot up as the announcement of FID for the pipeline is set to kick off a nearly $20 billion investment spree for Uganda’s oil industry.

The Petroleum Authority, the regulator of the industry, has been drumming up its call for businesses that wish to tap into this investment bonanza to sign up to Uganda’s National Supplier Database (NSD). The database draws up companies that have met the criteria to participate in Uganda’s oil industry.

Some of the criteria involves being tax-compliant and abiding by social security rules, among others. At the moment, there are 1,967 companies and persons on the NSD, with 1,329 registered in Uganda, and 582 domiciled in 53 countries outside Uganda, according to the Petroleum Authority’s latest figures.

Building and investing in local content remains government’s rallying call to the oil companies. The government appears to have been aggressive in pushing for this in the industry’s legal regime.

ANY IMMEDIATE RISKS?

Like any project of this size, a few legal landmines lurk somewhere, especially when it comes to the legal regime. Ideally, the announcement of FID should come after the enactment of the law governing a project.

One of the resolutions for the negotiations between the governments of Uganda and Tanzania with the investors for the regulatory environment of the pipeline was the need to enact a law for the project.

The signing of the Host Government Agreement between the two governments in September 2020 was a huge step in moving the project forward. But the enacting of a specific law remained the proverbial elephant in the room that investors needed in order to commit money to the industry.

“Total and its partners are continuing their efforts to develop the oil resources of Lake Albert. The work in progress with the Ugandan government aims to draw up a stable and appropriate legal and fiscal framework before taking any investment decisions,” Total announced in its 2019 annual report.

Over the last four months, the Ugandan team, mainly from the Petroleum Authority, has been working tirelessly to tie up the loose ends of a Bill for the crude oil pipeline and that process is nearing an end. Passing the bill into law over the next one month looks unlikely as Uganda prepares for a new house – the 11th – to be sworn in May.

Total is likely to announce the FID before a law is in place, although it is likely it has an idea of the shape, form and spirit of what the new law will look like. Also, it is likely that Total has received extra assurances from government that its investment in the crude oil pipeline will not be affected. Total knows it is racing against time to make key investment decisions.

MOVING FORWARD

Total, the majority shareholder in the pipeline, together with its other partner Cnooc, plan to export about 212,000 barrels of oil through the pipeline. The pipeline, which will be heated and buried underground, will stretch for 1,445km.

The project comes at a time when investment capital for oil projects is drying up globally. The collapse of oil prices to below $20 a barrel last year, coupled with global lockdown measures, where cars and aero flights were grounded, in the fight against the coronavirus, placed a spotlight on the financial stability of the oil industry.

Also, growing criticism from environmentalists against dirty fossil fuels, and calls for the world to further go green, has shaken up some financial institutions that had looked at pouring money in the oil industry. Total has listened and has agreed to spend more money – 20 per cent of its net investments for 2021 - in cleaner energies such as solar.

The financing model for the crude oil pipeline is expected to be a mix of debt and equity. Debt will take a larger share, with experts earlier placing the figure at nearly 75 per cent. On top of the pipeline, Total also has to spend nearly $5 billion on the Tilenga oil development project.

The Tilenga project involves investments in six oil fields – spread over 34 well pads – buried pipelines that will transport the crude to a couple of central processing facilities, a water abstraction system, and the construction of a number of roads. Total saw its 2020 revenues and operating cash flow drop significantly, in line with what the other oil majors faced.

That performance has peeled off some layers from the company’s net investment package for 2021.

“Faced with uncertainties in the environment, net investments are projected at $12 billion in 2021, while preserving the flexibility to mobilize additional investments should the oil and gas environment strengthen,” Pouyanne announced last week.

The net investment for 2021 is lower than the $18 billion that the company had promised to spend in 2020. In light of the tight financial environment, the Uganda government is expected to act swiftly and make some concessions if the project is move ahead.

Having discovered commercial quantities of oil nearly 15 years ago, there is no doubt that Uganda has lost time, and money. Companies, some of which were in the freight and forward business, closed shop after months of waiting for the oil industry to take off.

There is little room for Uganda to dillydally on its oil project especially as cleaner forms of energy continue to gain stronger ground, and the politics around supply gluts and shortages among the major oil exporters continues to play out publicly.

The announcement of FID will be a message to government that there is no more time to waste as work to get Uganda’s oil industry to the production stage gets underway.

jeff@observer.ug

Comments   

0 #1 Wainanchi 2021-02-24 12:56
Finally.!!! Stand up Uganda and full steam ahead.!!
Ugandans future is smiling at you!!!!

Better days are coming and sabotage and blackmails are over and done within.

Thank you president Museveni for working so hard to make this impossible dream to vone through !!

We remember so many stakeholders detailing this strategic investment ,accusing our Father of the nation YKM ,and sabotaging oil exploration first of which TULLOW OIL which put its money and sealed oil rigs while shadowy forces were trying to change Uganda leadership and take our oil for free
Yes Europa you did it ,at least some of you but we shall never forget and forgive you Rotten in hell!!!
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