Uganda’s First Oil Drilling Program: A Path to Prosperity or Another Missed Opportunity?

Uganda is set to embark on its first oil drilling program, which has generated a lot of buzz and speculation among the public. The East African country is poised to tap into its oil reserves, which have been estimated to be worth billions of dollars. While many see this as a path to prosperity for Uganda, others are concerned that it may just be another missed opportunity for the country.

As a tribute to the 41st birthday of H.E. Robert Kyagulanyi, commonly known as Bobi Wine, I would like to start this article with one of his famous quotes: “Uganda is rich, but Ugandans are poor.” Since he ventured into politics, I have always admired how he could use simple words to communicate complex ideas to his largely simplistic audience.

On January 24, 2023, Uganda launched its first oil drilling program which the government called a key milestone as the country races to meet the target of its first oil output in 2025. But as Bobi Wine’s quote reminds us, wealth alone is not enough to lift a nation out of poverty.

In a country that has lost more than it has won, the oil program offers a proverbial light at the of the tunnel. Oil has been known as a significant driver for growth and development, with many countries relying on this finite resource as a primary source of revenue. But will this be yet another missed opportunity, as many have been before?

For a resource discovered in the country in 1936, there has never been a time like now, when the oil industry in Uganda is generating so much excitement and optimism. This long-awaited moment has been made possible by technological advances and increased investment, and the potential benefits for the country are significant.

But why now? Why has it taken this long to get here? We now look at the history of oil and petroleum in Uganda.

A Brief History of Oil in Uganda

Oil was first discovered in Uganda in 1936, but commercial production did not start until the early 1960s. In 1925, a government geologist named E.J Wayland documented the petroleum potential of Uganda in his publication “Petroleum in Uganda.” He showed that oil pages existed along the shores of Lake Albert, both in Uganda and the Democratic Republic of Congo.

Between 1936 and 1956, the African European Investment Company drilled the first shallow stratigraphic wells. In 1936, they drilled the first deep well known as Waki B-1. Scientists drilled 20 shallow wells in Kibiro and Kibuku areas for geological correlation, as documented by Harris et al in 1956.

During the 1940s and 1950s, the Geological Surveys and Mines Department established the presence of sedimentary sequences in the Albertine Graben.

The period from 1945 to 1980 saw limited activity due to the Second World War, changes in colonial policies that focused on agriculture in East Africa, and post-independence political uncertainties and instability in the country.

In 1983, consistent and modern drilling efforts began. The government created a petroleum unit under the Department of Geological Survey and Mines in 1984 and enacted the first legislation for petroleum exploration and production in 1985. In the 1990s, they got more geological and geophysical data to use in international forums to promote oil exploration in Uganda.

Between 2002 and 2004, scientists drilled the first deep wells in the Semliki Basin in western Uganda. In 2005, Ugandan scientists interpreted the data and insisted that the next wells should be drilled on land in Kaiso Tonya (Hoima District) instead of the lake, as it would take longer and cost more to drill on the lake.

So, in December 2005, they drilled Mputa-1, and on January 6th, 2006, they struck oil and declared it the first commercial discovery in Uganda. After that, they found Waraga, Kajubilirizi (Kingfisher), Nzizi, Ngassa, Taitai, Karuka, Ngege, Kasamene, Kigogole, Ngiri, Jobi-Rii, Nsoga, Wahrindi, Ngara, Nsoga, Mpyo, Jobi-East, Gunya, and Lyec, for a total of 21 discoveries.

So far, they have done 33 seismic surveys and collected data in two dimensions (7,580.6 km) and three dimensions (1,948.6 square kilometers). They have also drilled 121 exploration and appraisal wells, with 106 wells encountering oil and gas, which is a drilling success rate of over 85%. This includes 39 exploration wells and 82 appraisal wells, with 36 wells flow tested. In addition, they have conducted over 10,000 kilometers of geological mapping and acquired aerial magnetic data, ground magnetic data, and full spectral radiometry data.

Is this enough to lift Ugandans out of poverty?

This is a question that many are asking as Uganda embarks on its first oil drilling program. Other countries in East Africa and across Africa have had experience with oil and petroleum, and looking at their experiences can provide some insight into the potential impact on Uganda’s economy and poverty levels.

Kenya is one of the countries in the region that started exploring oil in the 1970s. However, commercial production only started in 2012 with the discovery of oil in the Lokichar Basin. Tanzania is another country in East Africa that has made significant discoveries of natural gas and oil.

Exploration started in the country in the 1940s, and the first oil discoveries were made in the 1970s. Tanzania is now the third largest oil producer in sub-Saharan Africa, with oil and gas contributing to about 7% of its GDP. However, despite the growth in the industry, poverty still remains a significant challenge in the country, with over 30% of the population living below the poverty line.

South Sudan is one of the largest oil producers in Sub-Saharan Africa, with oil accounting for nearly 98% of its GDP. The country became an oil-producing nation in 1999, but the industry has been marred by conflict and instability, leading to a decline in production and economic growth. South Sudan still faces high levels of poverty, with over 80% of its population living below the poverty line.

Nigeria is the largest oil producer in Africa and a major contributor to the world’s oil supply. Exploration began in Nigeria in the 1950s, and the country has since become a major player in the global oil industry. Even though it has a lot of oil money, Nigeria still has a lot of trouble getting rid of poverty. More than 60% of its people live below the poverty line.

Angola is another major oil producer in Africa, with oil accounting for over 90% of its exports and over 50% of its GDP. Angola has been an oil-producing country since the 1970s, but the industry has been marred by corruption, mismanagement, and a lack of transparency. Over 40% of the population still lives below the poverty line, which is a big problem for the country.

Ghana is a newer player in the oil industry, with commercial production starting in 2010. The oil and gas sector currently contributes about 10% to Ghana’s GDP. However, the country is still grappling with poverty, with over 25% of its population living below the poverty line.

These examples show that having oil and other petroleum resources does not always mean less poverty. It is crucial for Uganda to learn from these experiences and ensure that the benefits from its oil program are properly managed and invested in addressing poverty and promoting economic growth for all Ugandans.

What are the projections for Uganda?

Uganda is poised to see a significant boost to its economy with the recent investments in its oil and gas sector. The Tilenga project in Buliisa and Nwoya districts and the Kingfisher project in Hoima and Kikuuube districts are expected to bring in approximately US$4 billion and US$1.5 billion, respectively.

The East African Crude Oil Pipeline (EACOP) project is also expected to bring in approximately US$3.6 billion to the country’s economy.

In addition to these projects, the government is also investing in important support infrastructure, such as the Hoima International Airport (which will cost over US$500 million) and 700 kilometers of oil roads (which will cost around US$900 million). This infrastructural development is expected to significantly boost Uganda’s Gross Domestic Product (GDP) by close to US$9 billion, which is a 22% increase from the current GDP.

According to the National Development Plans, the key outcomes from the development of the oil and gas sector are infrastructural development and employment generation. The oil pipeline and refinery projects have been prioritized as large-scale investments to drive growth, with Hoima City being developed as a strategic city to support further development of oil infrastructure.

During the building and running phases of these projects, a multiplier effect is expected to lead to more investments in secondary industries like petrochemicals, plastics, and fertilizers, as well as in tertiary industries like manufacturing, transportation, construction, and communication.

The oil and gas industry is also expected to give Ugandans a lot of job opportunities. About 14,000 people will be directly employed by the companies, while approximately 45,000 people will be indirectly employed by contractors. An additional 105,000 people are expected to benefit from the sector. Approximately 57% of those in direct employment are expected to be Ugandans, resulting in an estimated USD 48.5 million in annual payments to Ugandan employees.

The oil and gas resources discovered in Uganda so far are close to 6.5 billion barrels in the Albertine Graben. Out of these resources, 1.4 billion barrels are expected to be recovered, with a peak production rate of about 230,000 barrels per day. The low cost of developing these projects has improved the profitability of Uganda’s oil projects, which in turn has improved expected government revenue. Additionally, with the adoption of the 2020 International Maritime Organization regulations, it is expected that Uganda’s crude will attract a premium price on the international market.

In conclusion, the investments in Uganda’s oil and gas sector are expected to bring significant benefits to the country’s economy, including infrastructural development, job creation, and increased government revenue. However, it is crucial that the government and stakeholders put in place proper policies and regulations to ensure that the benefits are evenly distributed and the environment is protected. Effective management of the oil and gas sector will ensure that Uganda is able to maximize the potential benefits from these resources for the benefit of its citizens.

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