Uganda entered into agreements in 2012 with two foreign oil entities to exploit its oil resources. TotalEnergies holds 56.67 percent of the joint venture partnership and China National Oil Offshore Company (CNOOC) has 28.33 percent. Through Uganda National Oil Company, the government owns the remaining 15 percent.

Production is due to start in 2025. As part of the production sharing agreement, the production licences are valid for 25 years upon extracting the first oil.

To secure the best possible outcome for Uganda, the government needs to focus on three issues: the production sharing agreement, completion of the development stage, and export timing. My co-authors and I identified these areas of crucial concern in a paper based on my PhD thesis: Four essays on oil price uncertainty, optimal investment strategies, and cost transmission of an oil price shock.

The Context

Uganda joined the list of prospective oil-producing countries in 2006, with six billion barrels of proven oil reserves in the Albertine Graben, part of the western arm of the east African rift valley. Out of this discovery, 1.4 billion barrels are economically viable for extraction. The peak production is projected to be between 200,000 and 250,000 barrels of oil per day, and the extraction is expected to last 25 years.

The cost of extracting oil over this period will amount to about $19 billion in capital expenditures and operating expenses. Before this production stage, the development of infrastructure, operation facilities, and production wells will cost around $12.5 billion to $15 billion.