The prevailing low crude oil price environment had placed Uganda at the risk of missing out on investments from oil companies.
Globally, companies scaled back on expenditure in the oil sector because oil prices had fallen from a high of $110 (Shs371,800) per barrel and gone as low as $27 (Shs91,260) before stabilising around the $46 (Shs155,480) mark.
Uganda has ambitions of being an oil producer – by 2020 according to government officials – and the low crude price environment has been a source of concern.
However, Mr Paul McDade, the chief operating officer of Tullow Oil Plc, said Uganda’s oil production costs are lower than the prevailing crude oil prices.
“There are a lot of the projects around the world, to develop those projects when you look at the costs and the overall cost is more than the current oil price. There is no way those projects in the current environment can progress,” he said at celebrations to mark 30 years of Tullow’s existence in Africa on Tuesday.
“The good thing is that in the Albertine region, the overall cost of development is much lower than the current oil price,” Mr McDade added.
In Africa, estimates indicate that oil companies scaled back on production expenditure on the range of $300m (Shs1 trillion) and about $5b (Shs17 trillion).
Uganda was also beginning to look uncompetitive, especially with the delay in issuance of oil production licences. The licences were eventually issued in August and Daily Monitor understands that the fiscal regime government agreed with oil companies below the $40 (Shs135,200) per barrel mark.
According to Mr McDade, the lower cost of recovering the oil from the ground places Uganda in a good position to attract oil related investments.
There had been several rumblings that at the current level of low crude oil prices, Tullow would be looking to exit Uganda. However, after securing five production licenses from the government, Tullow insists it is here for the long-haul.
“We look forward to the next 30 years in Uganda,” Mr McDade said.
The production licences are for 25 years with a possibility for another five-year extension.
The expectation is to produce about 230,000 barrels per day, with earnings for government estimated at $1.5b (Shs5 trillion) annually. Even in the early stages of exploration, Uganda is believed to have low costs of discovery.
Ms Irene Muloni, the Energy minister, said the cost of finding oil in Uganda is world class at less than $1 per barrel. The global average is about $5 (Shs16,900) to $25 (Shs84,500), which makes Uganda a good location for exploration.