October 08, 2018

Uganda allows for higher costs recovery in oil search

November 23—The government is encouraging more oil prospecting companies to bid for concessions by allowing a higher amount of costs that these companies can re­cover before profit to 65% from the previous 60%.

The cost recovery rate is here oil companies are allowed to recoup the money they spent before sharing the profit from the sale of oil with government.

The first beneficiaries are Nigeria’s Oranto Petroleum Limited will try and strike oil in the Ngassa concession and Armour Energy of Australia who were given the Kanywataba area.

While some experts interpreted the earlier 60 per cent as high by interna­tional standards, saying companies had been handed a sweet deal, the revelation that Uganda has decided to raise the figure further up means at least two things: the country is deter­mined to attract more companies to its oil industry at a time of depressed oil prices and limited access to capital on the international markets; and that companies have gained strong bar­gaining power over the years.

According to the Ministry of Energy and Minerals Development The exploration and appraisal of the oil and gas discoveries in the Albertine Graben has led to an increase in the country’s petroleum resource base from 300 million barrels of oil equivalent in place when the policy was approved in 2008 to two billion and 3.5 billion barrels in 2010 and 2012 respectively; and to the current estimate of 6.5 billion barrels of oil in place with 500 billion standard cubic feet of gas. Out of these resources, 1.4 billion barrels of oil equivalent are estimated to be recoverable.

However, research firm Deep Earth said that the level of state participation is another major change in relation to commer­cial terms. Earlier Production Sharing Agreements (PSAs) capped state participation at 15%. That has now changed to 20%, accord­ing to the PSAs government signed with Oranto and Armour. This means that Uganda can own up to 20% in the oil blocks

 

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