Tuesday, November 24, 2009

Black Gold: Who is reaping and who is being ripped off?

For a Ugandan blessed with a piece of land in the Albertine region, the only luck they may ever get in their entire life is to be sitting on a piece of land that has millions of barrels of oil underneath it. Most likely that Ugandan has no knowledge of the law of contract nor are they aware of the rights that may accrue to them as a result of sitting on that precious piece of land. So they have entrusted the government which according to our laws owns all mineral rights to cut a deal which will recognize the interest of the land holder.

I found a very simple version of the process of prospecting for oil in an article entitled: ‘How to Dig for Oil’ on Tru TV. It stated:

1. A geologist decides if the sedimentary rock at the potential drill location possesses good porosity, permeability and possible petroleum accumulation.
2. Prior to any drilling, numerous legal matters must be settled, such as getting a drilling permit, surveying of the drill site and obtaining an oil and gas lease.
3. Financial arrangements are made with the surface owner for access to his property, and he is usually compensated for the use of his acreage while drilling is in progress.
4. If the well does in fact produce oil, the oil company will require access and lease of the land for an extended period of time, possibly several years.
5. Once the site has been selected, a contractor will bring in equipment to prepare the location and set up the large drilling rig.
6. There is no way to estimate the amount of revenue that a well will produce.
7. The costs of the exploration process are high; obtaining the mineral rights and land access, renting drilling rigs, and completing the well through fracture stimulation, among other things, force the companies to spend more than they make during the early drilling process.
8. With oil prices at record highs, companies could be poised to make fortunes. A good well can produce several hundred barrels a day, which at current prices could mean millions of dollars every year and several hundred million over the life of the well. If successful in finding large deposits of oil within a field, small independent oil companies may sell the right to drill the rest of the field to a large oil corporation.

Judging from stories coming out London, it appears that we have already reached step 8 in Uganda but who took care of the surface owners at step 3 and 4?

Now imagine a Ugandan peasant waking up to the news that the company that has had free access to their land and full protection of our military forces—paid by Ugandan tax payer; has struck a deal not in Kampala but far away in Europe. And that their interest in the land that your forefathers tended for generations has just made some Mzungu $80 million dollars.

After the initial shock you start conceding some points: The Mzungu brought equipment that your grandfather could not have imagined and used knowledge that you could not acquire at any school in Buliisa and that is how he found oil on your land. You do not know the market price for the equipment, labor and time of such an investment, nor can you calculate how long the oil will keep coming up so may be indeed the Mzungu does have an interest in your land. But surely if it is worth $80 million for one man who probably has stepped on your land once or twice in his life time, how much do you who sits on the land deserve?

I tried to find out what was happening in other countries and found a compilation of articles from 2007 about oil discovery in Belize. In Belize an American company found the much sought after light sweet stuff not the thick stuff in our Albertine region. Nonetheless, similarities abound about how locals are treated.

One of the Belize articles states that ‘The new Petroleum Law very clearly requires that an oil company must negotiate a contract with the landowner or legal occupier before they can enter private land for oil activities. The purpose of the negotiations are to establish the amount of compensation for landowners for any interference and disturbance of the landowner’s activities, and all actual damages that may occur to crops, structures, roads, fences and the like. The law provides that if the landowner and oil company cannot agree on the compensation, they must go to arbitration and resolve the agreement. Another provision of the Petroleum states that, if a landowner is unreasonable and won’t let the oil company use their land, the Minister can issue an Order forcing the landowner to allow the oil company access. So what has been happening is Cranberg’s companies use very heavy handed tactic by telling the landowners what they are “entitled” to, and if they don’t agree the oil company will just have the Minister claim the landowner is “unreasonable” and order the oil activities to proceed. Period! That is not much of a negotiation. Cranberg has set up his own rules and implies his companies have the Minister in their pocket.’

Okay, so the landlords in Belize were also hustled but at least they had a chance to sit on the ‘negotiating’ table for ‘not much of a negotiation.' I did not hear of the oil explorers in Uganda meeting with anyone outside of State House to negotiate anything for ‘surface owners.’ Now I hear that the government got a raw deal – as usual! Can someone show us some agreements or contracts for evaluation, please!

Anne Mugisha
Secretary, Regional and International Affairs
Forum for Democratic Change.

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