Chairman Uganda Chamber of Mines & Petroleum
City lawyer Dr. Elly Karuhanga is a man who needs no introduction. The first indigenous president of one of the first oil companies to do exploration in Uganda, Karuhanga, also the chairman Uganda Chamber of Mines and Petroleum, has seen it all. In a wide-ranging interview with Tony Otoa, the head of enterprise development at Stanic Bank, the lawyer cum businessman shares insights of Uganda’s oil journey and the opportunities in waiting for the expectant millions of Ugandans.
In a three-part series Oil in Uganda reproduces excerpts of the SME Connect interview, Oil and Gas, the journey and opportunities ahead.
If you may, just give me an interesting overview of the oil and gas story as you recall it in Uganda having participated and been president of Tullow Oil at the time. There are very many people here who probably do not understand oil and gas, so please try and be as layman as you can, sir.
As a young student at the Uganda College of Commerce (now MUBS) I was doing A’ level and at the same time a diploma in business studies. We were the first lucky people to do two courses at the same time. I had an American professor who convinced a company called Esso (second largest oil company in Uganda at the time) to offer scholarships for two students to learn about oil. I was one of the lucky two chosen to work in an oil company while studying. The MD Mr. James was enthusiastic about developing us into future oil executives so he got me a scholarship to go and study in New York but it took a bit of time to organize the papers and Makerere University invited me to go and study law and I have never regretted this. But I regretted that I had a chance to study oil and gas and missed it.
Low and behold little did I know that someday some guy from Australia would walk into my office and ask me to be a lawyer for a company called Hardman Petroleum Resources which was spending $15m looking for oil in the Albertine Graben. I welcomed him as a client and introduced him to the energy state minister then, Hon. Kamanda Bataringaya.
Two weeks later the man came back with his chairman and asked me if I minded being the president of the company. They took me to Australia twice for training and when I came back, I started speaking oil language. They struck oil when I was the president. I was the second employee of the company. The first was a contractor who was just doing the roads. But I think there was another young lady who was the receptionist.
Since that time, it took about two months and Tullow Oil bought Hardman Resources at about $1billion from a $15m investment because they had discovered very good resources in the graben. Since then I was the only person who had the title of president in Tullow; I became a director in the company in Australia and also they appointed me their senior consultant on oil in Africa so we started moving around the continent looking for Tullow Oil licenses. So that is how I got in the oil sector and what a sector, Tony, what a sector!
Tell me! That’s what I want to hear
The stakes are so high, the risks are so high. 10% of oil CEOs die of heart attacks. The stakes are so high, the fortunes are so high. You can even get heart attack because of fortune because you can strike a fortune and because of too much excitement you may die.
That is true I was in Mozambique a few weeks back and one of the oil executives died of a heart attack in the car park
It is a very unique industry. First of all, oil is traded every second, every hour worldwide. It is a commodity that you trade whether you have the oil out of the ground or not. They are not many people who work in it and they know each other. They hold conferences and give speeches and papers and they present what is happening in their companies, they put the things on the table, yet they hate each other and compete against each other. It is a cut-throat business and yet at the same time you have to watch the barometer on risk.
All these oil companies are controlled by banks and financial institutions that finance them. There are two problems in the oil industry. The underground risk and above ground risk. Above ground risk is more complicated than below ground risk. With underground risk you either strike oil or you do not in which case you count your losses and go away.
But making a mistake of finding oil the above ground risks are so high because you spend most of the time not looking for oil but trying to negotiate with people above ground. The people who live where the oil has been found, the leaders of that society, the cultural aspects, the politicians, and then the big bosses in the city who occupy positions of power who get excited, start counting fortunes and start talking to the population about how great their country is but little do they know it takes years for it to come out of the ground.
Oil prices are also cyclical. You spend a lot of time negotiating a clause or agreement. It is meeting upon meeting, power center upon power center. When you finish with the ministry of energy you go the ministry of justice; when you finish you go to ministry of finance, then you go to environment, then you go to water and then NEMA, then the president, then parliamentarians, then you have NGOs who say you are going to destroy the environment and you fly out. You receive oil and gas delegations and they do not get what they came for and hotels and meetings in different capitals. It is a business that when you go into you are in for the long haul, you must have tenacity.
Recently, Tullow decided to sell or agreed to sell its entire stake in the Albertine development project to Total for $575m. This is a very remarkable step I believe. What are your thoughts on that because we have been talking about FID for a long time. What does this mean in terms of the opportunities or the need for us to prepare?
This deal stands out and will stand out for a long time in the history of oil and gas. How can anybody want to invest in oil and gas at this time when the price of a barrel is minus $36 and trading at zero which has never happened before? I had believed that our oil is now stranded and would never come out from the ground but after that announcement, I clapped for Tullow, Total, CNOOC, the oil industry. I could not believe that they had so much confidence and had voted for Uganda and were capable of announcing such a huge amount of investment at this time. Timing is very important in all businesses. You have to make a decision.
After it (Total) has invested so much money in Mozambique in pursuit of their oil and gas, I thought that was enough and taken all the interests of Anadarko in Ghana I did not think they would have an appetite for Uganda. Low and behold after I had turned all my interest in other businesses and forgotten oil, they made the monumental and incredible announcement that they had bought Tullow.
I want to congratulate Tullow. That company discovered oil in Uganda. It grew oil in Uganda. That company sponsored very many Ugandans to study in top notch universities. They took so many people to work in their different places in Ghana, South America. Tullow taught government how to negotiate oil deals. As you know governments fear oil companies because they think they are too smart. They have very good lawyers, they have big law firms. Government doesn’t have any experience in the past and oil companies in the past have a terrible reputation of reaping off African governments. It has made government officials understand so much about oil.
It is a pity that Tullow has had to face these very big challenges of world economics of oil, share price but their asset value is still very solid and the company can still bounce back. They appointed a new CEO (recently) and trying to manage their debts. Their share price went up in five days after the Uganda sale.
Tullow appointed Ugandans to be in charge and even after I left, they appointed Jimmy Mugerwa as General Manager. During my time we negotiated to bring in CNOOC and Total as partners, those are companies with deep pockets – triple A companies in oil and gas – and now have left us with the best of the best in the industry. Everybody has learnt their lessons now and let us get on with the job.
They already have production sharing agreements, they are going on with oil developments, they are organizing the pipeline, they are organizing the refinery, the central processing facilities, the airport is almost complete in Hoima. The basics: the roads are being done, the water is sorted, NEMA has given licenses, the locals have accepted, NGOs have accepted, and government has understood not to get too excited about oil. I must congratulate Total so much for the vote of confidence in Uganda.
Note: the views expressed in this excerpt for entirely for the interviewee and not the management of this website.
By Robert Mwesigye
Edited by Muhumuza Didas.