Is UNOC testing the “depth of the water with both feet”?
In the old days of limited road and bridge infrastructure, people always grappled with crossing water bodies. It was a common practice to test the depth using any available means, before crossing the water body.
In the absence of a stick, one would use their foot to determine how deep the water was, hence the adage that, “Only those who wish to drown, test the depth of the water with two feet.” For an innocent bystander looking at the aggressive portfolio expansion of the Uganda National Oil Company (UNOC), one can’t help but wonder if UNOC is not at risk of “drowning in Uganda’s nascent Oil and Gas Industry.
It is important to note that in less than a decade of its existence, UNOC has expanded in stature and portfolio across the entire petroleum value chain, with involvement in upstream, midstream and downstream operations, as well as some aspects of petroleum revenue management and investment.
To this end, the operations of UNOC currently stretch from managing Uganda’s 15 percent stake in each of the three major projects in the oil and gas industry and a majority stake in the proposed Uganda Oil Refinery project and petroleum industrial park, through to downstream activities such as downstream petroleum trading, management of downstream petroleum storage facilities in Kampala and Jinja.
The most recent addition to this portfolio is the active participation in Exploration for oil and gas in new oil blocks, following the signing of a Production Sharing Agreement and award of an exploration license to UNOC, by the Ministry of Energy and Minerals development at the beginning of 2023.
For some observers and industry analysts, UNOC’s recent decision to diversify its operations into exploration for Oil is the proverbial use of both feet to test the depth of water. While the company has put together a very strong team under very able leadership of the Board, CEO and management team, a fair fraction of the employees is drawn from other fields and thus have limited oil and gas experience. That be as it may, UNOC is fairly young in the industry, and with all due respect, also has limited industry experience to be venturing into the very risky arena of oil and gas exploration.
The search for hydrocarbons is a very high risk and expensive/capital intensive venture. According to a Research Guide by the United States Library of Congress on the oil and gas industry, the cost of an unsuccessful exploration, such as one that involves seismic studies and drilling of dry wells, can cost $5 million to $20 million per exploration site, and in some cases, much more. It is because of that level of risk exposure that governments are always reluctant to directly participate in exploration, but rather have participating interest or stake in the operations of private companies through Production Sharing Agreements. The million-dollar question now is, “Is the government of Uganda really ready to start risking tens of millions of dollars in ventures that may ‘end in tears’” considering our poverty levels as a country?
To fully appreciate the magnitude of risk exposure we are referring to, one needs to address their mind to the Public Finance Management (Amendment) Act, 2021. Clause 2 of this Act amended section 57 of the Public Finance management Act to provide for UNOC retaining a portion of the proceeds from the sale of Uganda’s petroleum to meet its financial obligations. The amendment ironically also provides that UNOC shall then deposit the balance of the proceeds retained after expending monies for the above purpose, into the Petroleum Fund. An innocent bystander therefore wonders, if we shall have some balances left for depositing in the Petroleum Fund after venturing in millions of dollars’ worth of exploration for oil.
It is for this reason that; I wish to implore UNOC to adopt an incremental and progressive portfolio expansion approach, as opposed to the aggressive strategy that they are currently deploying; the relevant government ministries, departments and agencies keep a keen eye on the developments at UNOC to ensure checks and balances andthe Uganda Extractives Industries Transparency Initiative secretariat and multi stakeholder group address their mind to this matter.
Ms. Winfred Ngabiirwe is the Executive Director at Global Rights Alert, and a Member of the UGEITI Multi-Stakeholder Group. Article as published in the Daily Monitor on Thur, 23rd February 2023