The withdrawal of Dominion Uganda Ltd from exploration around Lake Edward—an area which, according to independent petroleum geologists, may hold between 90 million and 1.1 billion barrels of oil—leaves a plethora of unanswered questions swirling around an industry that, in Uganda, remains no more transparent than a dollop of waxy crude.
Why did Dominion pull out? What happened to a ‘Letter of Intent’ its parent company, UK-based Ophir Energy, signed in March 2012 with Canadian wildcatter, Octant Energy Corp., giving Octant an 80 percent share in, and operatorship of, Exploration Area 4B? Did the government of Uganda approve these deals? And where does this leave the mysterious Alpha Oil—a Ugandan owned company that, in one of the sector’s best kept secrets, for many years held a 5 percent stake in Exploration Area 4B?
Who is Alpha Oil?
Uganda’s Petroleum Exploration and Production Department has over the past five years published several updates on the status of licensing in the Albertine Graben. These generally show Dominion Uganda, the subsidiary of a small UK-based explorer, as holding exploration rights to Block 4B since July 27, 2007. However, Dominion was in fact awarded only 95 percent of the exploration rights, with the remaining 5 per cent going to Alpha Oil.
Such a small stake in the prospective oil field suggests that Alpha would not itself invest or engage directly in exploration or development. Rather, they would sit back and, if Dominion struck lucky, would be entitled to 5 percent of the profits from any discovery. So who are the lucky Ugandans who stood to gain from this deal?
South African oil industry expert, Duncan Clarke, briefly refers to Alpha Oil as “owned by a former [Ugandan] minister of finance” in his 2008 book, Crude Continent: The Struggle for Africa’s Oil Prize. (p. 496)
Extensive Internet searches, however, show only one result for a Uganda-based Alpha Oil. A corporate directory site names one Mr. Richard Kaijuka as the “contact” for the company, which is said to be based in Kampala and to employ just one person. Mr. Kaijuka has in the past served as Uganda’s Minister for Energy and Minister for Trade.
Back in 2007, before the award of the Lake Edward licence, the Paris-based African Intelligence newsletter reported that:
The Ugandan former Minister of Energy Richard Kaijuka has been nominated director of Dominion (Uganda) Ltd. This company is negotiating with the government in Kampala for an oil exploration permit in the south west of the country, 200 km from the capital in a zone from Lake Albert to Lake Edward passing through the DRC.
A recent article in the same publication reports that:
In its dealings in Uganda, Dominion very quickly made friends with people close to the regime. In negotiating its entry on block 4B, for instance, it was assisted by former energy minister Richard Kaijuka (1998/99) who also briefly became managing director of Dominion’s Uganda subsidiary in 2007.
Mr. Kaijuka thus appears at one and the same time to have directed the company that successfully negotiated a majority stake in Exploration Area 4B, and to have represented a second company that gained a potentially lucrative minority stake in the same Exploration Area.
At present, Mr. Kaijuka serves as Vice Chair of the Uganda Chamber of Mines and Petroleum and also as Executive Chairman of the Mauritius-based East African Gold Ltd. According to a company brochure, East African Gold wholly owns “26 [gold] exploration licences with a total area of 674 square miles (1,746 square kilometres) in the Kaabong, Kotido and Moroto districts of northeast Uganda’s Karamoja region.”
Is Mr. Kaijuka in fact the owner of Alpha Oil? And how did Alpha manage to obtain a tasty bite of the Lake Edward field?
Oil in Uganda did not learn much when it put these questions to Mr. Kaijuka yesterday in a telephone interview. He acknowledged his association with Alpha Oil, but was unwilling to elaborate on that association or to be drawn on the company’s ownership. “I am really in the middle of this equation and I am not in a position to make any conclusive comment,” he said. “These are questions I’d better answer later.”
Alpha “was never an operator,” Mr. Kaijuka emphasised. Their share in the field, he said, was essentially passive.
Dominion swallowed by bigger fish
While Mr. Kaijuka—or the person(s) he represents in his capacity as Alpha “contact”—waited for 5 percent of the ’black gold’ money to roll in, Dominion got on with the hard work of finding the oil.
They found room for encouragement, but no immediate joy.
Encouragement came from a 2008 aero-magnetic survey that, according to company reports, “proved the presence of a substantial thickness of sedimentary rocks capable of generating oil.” This was followed by more accurate—and much more expensive—seismic surveys.
In mid-2010, Dominion drilled the Ngaji-1 well. It found “valuable geological data” that “confirmed the presence of excellent quality reservoir sands,” the company said. But it didn’t find oil.
The UK parent company, Dominion Petroleum, was meanwhile teetering on the verge of bankruptcy. Its shares were trading for just a few pence each on the London Stock Exchange and, according to a Financial Times report, in 2011 Dominion tried but failed to raise US$ 40 million that it needed to continue its exploration work in Uganda, Kenya, Tanzania and DRC.
Rescue came in the form of a ‘friendly take-over’ by a bigger, UK-based company, Ophir Energy, which bought Dominion for GB£118 million in a deal that was finalised in February 2012. In theory, Dominion’s exploration licences would transfer to Ophir.
Ophir Energy is a rising star in East African oil and gas exploration, mirroring the earlier success of Tullow Oil. Both companies started out as small explorers—in much the same league as Dominion and luckless Neptune—but grew rapidly as a result of significant discoveries. Tullow was boosted by finds in Ghana, Uganda and, now, Kenya; Ophir by substantial discoveries of gas in offshore Tanzania. Between January 1 and May 31 2012, Ophir’s shares on the London Stock Exchange doubled in value, ranking the company second among the exchange’s ‘top ten risers’ this year.
Over the last two months Oil in Uganda has made numerous telephone calls to Ophir’s London offices and has emailed enquiries, as suggested by company representatives, to senior staff, but has received no response.
Nevertheless, it seems likely that, in taking over Dominion, Ophir was mainly interested in acquiring the exploration rights in offshore Tanzania, to consolidate its holdings in a highly lucrative field. This interpretation would help to explain the company’s strategy for disposing of the Lake Edward “assets” and several others that were surplus to its immediate requirements.
On March 12, Octant Energy Corp., a Canadian start-up explorer formerly known as Rain Resources, announced that it had signed a ‘Letter of Intent’ with Ophir Energy to acquire the Lake Edward exploration rights, along with those to exploration blocks in Madagascar and Somaliland.
The deal, according to an Octant press release, meant that Octant would pay “100% of geological exploration and drilling costs [in return] for an 80%, operated interest in Block 4B, a 486 km2 block in Uganda.”
In other words, Octant would take over and fund further exploration, and if they happened to discover oil they would keep 80 percent of the profits. Ophir (rather like Alpha before it) would not have to do anything, except pick up 20 percent of the profits from any discovery. For Ophir, therefore, this was a convenient way of retaining a potentially lucrative interest, while freeing the company up to concentrate on less commercially risky operations elsewhere.
The only snag in this plan, however, was that Octant didn’t have any money. The company is registered on Calgary’s TSX Venture Exchange, an online market which is designed for young firms that are trying to raise venture capital, often to invest in resource exploration. Rain Resources had been de-listed from the TSX Exchange because it had not been able to come up with any project funding. Re-branded as Octant, it was now hoping to raise US$ 65 million to enable it to convert the ‘letter of intent’ into action.
Octant’s hopes were largely pinned on “independent evaluations of oil resources prepared by DeGolyer and MacNaughton Canada Ltd,” a petroleum consulting company whose US parent has been in business since 1936.
According to Octant, DeGolyer and MacNaughton’s “low estimate” for the oil to be found in Exploration Area 4B, combined with the adjacent block in the DRC, was 90 million barrels. Its “high estimate” was 1.14 billion barrels, and it’s “best estimate” was 316 million barrels.
If accurate, the “best estimate” suggests that commercially viable quantities of oil are there to be found. However, the sketchiness of the figures—combined with the difficulties of operating two blocks that cross a national border in an area frequently disrupted by armed rebels and military adventurers –helps to explain why such areas attract hopeful minnows rather than bigger fish.
Oil in Uganda has telephoned and emailed Mr. Rick Schmitt, the CEO and President of Octant Energy Corp., to enquire how his fundraising campaign is going, but he has not replied.
More questions than answers
What is the current situation? Did Octant fail to find the money? Did Ophir decide, on purely commercial grounds, to cut its losses and pull out altogether, content with its more appetising prospects in Tanzania and elsewhere? Or did they pull out in part because of difficulties put in their way by the Government of Uganda?
The latter interpretation was hinted at by Elly Karuhanga, the Chairman of Tullow Oil Plc’s Ugandan subsidiary and the head of the Uganda Chamber of Mines and Petroleum, during a public meeting hosted in Kampala last week by ActionAid and Oil in Uganda. In an impromptu intervention, Mr. Karuhanga darkly warned that foreign investors in the oil sector would leave Uganda if the government did not create an enabling environment for them, and cited Dominion Uganda’s departure as a case in point.
According to Ophir Energy’s preliminary results for 2011, published on March 21:
On April 27, 2011, Dominion applied for the renewal of the exploration licence for EA4B for the third two-year period, which expires in July 2013. This continues to be discussed with the Government of Uganda.
It does appear, therefore, that relations between the government and the licensee were not entirely smooth. Why was the licence not renewed? Had the company not fulfilled its agreed work programme, or was the government undecided whether to approve the Ophir take-over of the Dominion licence?
In a brief telephone interview yesterday, Mr. Bukenya Matovu, a senior civil servant in the Ministry of Energy and Mineral Development, clarified that, as far as he knew, “Government has not yet approved anything.” On the current status of Exploration Area 4B he said that “It is too soon to speculate, but my understanding is that the block might revert to government.”
To the oil companies, then, this may seem an instance of government obstruction. Mr. Bukenya and his technocrat colleagues, however, will be painfully aware of the difficulties of dealing with minnow wildcatters who, if they get lucky, grow into sharks that attempt to bully government into offering better deals by threatening to go and bask in other waters. And to the overwhelming majority of Ugandans, this is a mystery play with an obscure plot, whose only upshot seems to be that foreign companies and local elites are chasing piles of money, none of which has yet found its way into the pockets of ordinary citizens.
Report by NY