Uganda National Oil Company (Unoc) is any time expected to announce a selected strategic partner for exploration of the Kasuruban oil block at a time when the state-owned firm is reaching a critical period of its licence, which carries huge financial risks considering the low risk appetite among industry’s majors.

As per its licence, Unoc is entering the second exploration phase of operating its own asset, which involves re-processing existing 2D seismic data and drilling at least one exploratory well, the company said in a statement last month.“Selection is out next week,” said Tony Otoa, Unoc’s chief corporate affairs officer, declining to divulge details of the companies pitching for joint exploration and the stake they are taking in the upstream venture.

But The EastAfrican has learnt that oil majors TotalEnergies and China National Offshore Oil Corporation (Cnooc), currently leading upstream operations in Uganda’s oilfields, did not express interest in partnering with Unoc for the exploration and development of the giant oil block.

It is understood that Cnooc did not pitch for a joint venture as the Chinese firm is more interested in another block -- Pelican and Crane, a larger exploration area than Kasuruban -- over which it jostled with Unoc after the government in 2022 awarded it to the state firm.

After its attempt to acquire Pelican and Crane fell through, Cnooc turned to its $2 billion Kingfisher operation, a 40,000-barrels-per-day oilfield, which has drilled 15 out of 31 wells to date and is expected to produce Uganda’s first barrels of oil next year.

Kasuruban is Uganda’s largest oil block by land size, spanning 1,285 square kilometres in three districts of Buliisa, Hoima and Masindi in the Albertine Graben.

Last month, industry advisory and research firm Wood Mackenzie said while oil demand is not going away any time soon, current market volatility does not augur well for the sustained upstream investment required to deliver the supply needed into the 2030s.

Despite successfully bidding for and being awarded the Kasuruban asset from Uganda’s second oil and gas licensing round, Unoc is a novice in upstream operations. Established a decade ago as part of the oil sector reforms, this is the company’s first outing as an independent operator.

After being awarded the block, Unoc signed a Production Sharing Agreement (PSA) with the Ministry of Energy, following Cabinet’s approval to issue the state’s commercial arm in the oil and gas sector with an exploration permit and sign the PSA in 2023.

However, the company’s executives expressed caution in venturing alone into the risky endeavour of finding oil.

They say the agency has the requisite technical capacity, with some of the best trained technical staff in geology, geophysics and geoscience to explore the oil block, but what they lack is the financial muscle and risk appetite.“As Unoc, can we go and sink a $40 million well and hit a dry well? Then what do we do?” said Peter Muliisa, Unoc’s chief legal officer, in a previous interview.“The risk appetite is one we must be very careful about especially now because we are getting money from the Treasury. Getting your taxes and we sink it in a well and find no oil, is a risk appetite we cannot swallow as of now.”The current search for a strategic joint venture partner is to spread that risk, with the state-owned agency taking the technical risk while a deep-pocket international oil major takes more of the financial risk.

With 87 percent success rate in past exploration, leading to the discovery of 6.5 billion barrels of oil in the Albertine Graben from 2006, the risk of hitting a dry well in Uganda has been very low. But industry experts argue it is a dicey affair.

Participating interestUnoc signed a PSA with the government for the Kasuruban Contract Area (KSCA) and was awarded a Petroleum Exploration Licence on February 2, 2023. The company holds a 100 percent participating interest in the PSA for the block.

The exploration licence runs for an initial two years, subject to a maximum of two successive renewals not exceeding two years each, in accordance with the Petroleum Exploration, Development and Production Act, 2013.

The state agency was granted a renewal of the petroleum exploration licence for KSCA for two years and second exploration period from March 3, 2025 to March 2, 2027.

Besides venturing into exploration for oil and gas, Unoc holds a 15 percent participating interest in the Tilenga and Kingfisher oil projects on behalf of the government through back-in clauses in the agreement between the oil companies and the state. It holds a similar stake in Eacop.

The firm is also the sole importer of all fuel products into the country, following an amendment to the law in 2023, which handed it the monopoly to import and manage the stock of petroleum supplies in the country.

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