The history and development of oil and gas in Uganda began in early 1920’s when E.J. Waylan a British geologist documented the presence of hydrocaborns in the Albertine Graben in western Uganda. The sector has intensified exploration work in the Graben. In 2013, Uganda enacted the Petroleum (Exploration, Development and Production) Act, No. 3 of 2013.
THE UPSTREAM SECTOR
This sector is the commencement process. It includes the searching for potential underground or underwater crude oil and natural gas, drilling of exploratory wells, drilling and operating the wells to bring the crude oil and other raw natural gas to the surface. This stage involves exploration and production with oil companies.
THE STRUCTURE OF THE OIL AND GAS SECTOR IN UGANDA.
The petroleum industry or structure includes the process of exploration, extraction, refining, transporting and marketing of the petroleum products. The industry in Uganda is divided into three major components viz; Upstream, Midstream and Downstream. See section 2 of the Act. (Definition of Petroleum Activity).
LEGAL AND INSTITUTIONAL FRAMEWORK
The Uganda National Oil and Gas Policy sets up relevant institutional framework under which the oil and gas sector is to be managed. The Petroleum (Exploration, Development and Production) Act, 2013 is intended to give effect to Article 244 of the Constitution to regulate petroleum exploration, development and production, establish the Petroleum Authority of Uganda, provide for the establishment of the National Oil Company, regulate the licensing and participation of commercial entities in petroleum activities. In accordance with the Constitution, under Article 244, ownership of petroleum in Uganda is vested in the Government on behalf of the people of Uganda. See Section 4 of the Act, 2013. It therefore follows under Section 5 thereof that petroleum activities in Uganda cannot be conducted without an authorization, license, permit or approval. The government may enter into an agreement relating to petroleum activities with any person with respect to the granting and or renewing of a license. See Sections 6 thereof.
Part IV of the Act, thereof provides for authorizations and licensing, which include reconnaissance permits, Petroleum Exploration License, Petroleum Production License, Facility License, permit to operate drilling, production permit and certificate of testing among others. Under Section 8 thereof, the minister is granted powers to grant and revoke licenses.
Exploration is defined under Section 2 the Act, 2013 to mean the undertaking of activities, whether on land or water, for the purpose of discovering petroleum. To undertake this, there are a number of licenses and permits that are required. Section 2 of the Act defines Reconnaissance to mean the undertaking of preliminary petroleum activities for the purpose of acquiring geoscientific data and includes geological, geophysical, geochemical surveys and drilling of shallow boreholes for calibration.
Under Section 48 of the Act, a person intending to carry out reconnaissance surveys shall apply to the minister for a reconnaissance permit/license accompanied by the prescribed fee. The reconnaissance permit/license authorizes activities of a particular type of survey. Section 50(1).
Petroleum Exploration License
Under Section 52, the Minister shall with the approval of Cabinet announce areas open for bidding for a petroleum exploration license. The Petroleum Exploration License shall be made to the Minister in response to the announcement made under Section 52 or 53 which is accompanied by a prescribed fee. Under Section 56(8) the minister may require the applicant for the license to execute a bond or other form of security for the performance and observance of the conditions which the license may be subject, and also may be required to take the necessary insurance policies to protect against liabilities that may arise as a result of the activities done under the license granted.
Under Section 58, after consultation with the Petroleum Authority and with approval of cabinet, the minister may grant a petroleum exploration license. Under Section 61, the license so granted unless cancelled or surrendered by the grantee shall be in force for a period stipulated in the license but not exceeding two years from the date of the grant. But Section 64 provides for the circumstances under which the Petroleum Exploration License can be renewed. The holder thereof can apply for renewal not later than 90 days before the day on which the license is due to expire as per Section 62. Under section 61(b) the license shall not be renewed twice.
SECOND STAGE-DEVELOPMENT AND CONSTRUCTION
In this phase of development, there is planning, placement, construction and installation of facilities needed for production of petroleum. In this phase, the authorization requires a facility license. See Section 2. Under Section 81, the minister may grant a facility license to the applicant on such conditions to be determined by the minister. This type of license is only granted for the construction, placement, operation or use of facility not already subject to a Petroleum Production License.
This phase of oil and gas sector requires two types of licenses/permits, viz; a Drilling permit and Approval to drill a well. The Petroleum Authority of Uganda is the one mandated to grant these.
Section 93(1) of the Act provides that a licensee shall not operate a drilling rig without a valid permit issued by the Authority. Under Section 94 (1), an operator is not authorized to drill a well without the written approval of the Authority.
This is the fourth stage under the upstream of oil and gas sector. Production can be referred to mean all activities relating to recovering oil and gas from a reservoir and preparing it for evacuation from the field area. See Section 2. This stage has two types of licenses/permits, viz; Petroleum production license and Annual Production permit. See Section 69(1) and (4). The application by a Petroleum Exploration License holder is made within two years. An application by a Petroleum Exploration License holder is to be accompanied by a report on the petroleum reservoir, …..Section 71(1)(a). The criteria for granting the Petroleum production license is based on technical competence, capacity, experience and financial strength of the applicant. Section 73(1).
FIFTH STAGE-DECOMISSIONING AND REHABILITATION
Decommissioning is essentially the last stage under the upstream sector when the petroleum has been removed from the reservoirs and has dried up, thus cessation of petroleum activities. This is the general term for a formal process to remove something from active status, to deactivate, shut down, dismantle a processing plant or equipment and withdrawing it from further operation. It involves removal of all plant equipment, decontamination of the environment, restoration and demolition of the structures. This process is supposed to be approved by the relevant authority. The process includes decommissioning plan under Part VI of Act No.3/2013. Under Section 112 thereof, a licensee has to submit a decommissioning plan to the Authority before a petroleum production license or specific license to install and operate facilities expires or is surrendered or before the use of a facility is terminated permanently. Section 113 provides for a decommissioning fund for each development area or other facilities operated in relation to a license or permit granted for purpose of costs related to the implementation of a decommissioning plan.
The Act (Petroleum (Exploration, Development and Production) Act, 2013) provides for different types of licenses depending on which sector and stage. The Act primarily is intended to regulate the exploration, development and production stages. And more so, the Act is to give effect to Article 224 of the Constitution. The Act provides for different types of licenses/permits that a prospective person needs to have should they want to get involved in any of the above stages.
By Dennis Atwijukire
Partner, PACE Advocates