By Gas & Oil Expert
FID-Final Investment Decision is the point in the planning process for capital intensive projects when the decision to make major financial commitments is taken. At the FID point, major contracts are signed and equipment orders are placed.
An oil and gas project undergoes mainly 3 processes:
1. Exploration; here you are trying to find oil.
2. Development; after finding the oil , this phase includes setting up of oil and gas installations/infrastructure to extract the discovered oil from the ground.
3. Production; involves the actual removing or producing the oil from the ground after building of infrastructure mentioned above.
Uganda has now entered the second phase and most expensive phase of the oil industry which is the development, since it explored and discovered 6.5bn barrels of oil (1=159 litres)
Given the capital intensive nature of the development phase (Uganda’s case it will be between $10-15 billion which is about 10 times the biggest project Uganda has ever had. Karuma dam cost about is between $1.2bn-1.7), several processes are undertaken before any investor can commit to investing these huge sums of money.
These processes include;
1. Putting in place the necessary Legal and governing framework (e.g intergovernmental Agreements and Acts passed both in Tanzania and Uganda to handle the trans-boundary pipeline)
2. Enviroment Impact assessments for the project
3. Land Acquisition
4. Engineering and Designs for the big infrastructure/oil installations ( These include Front End Engineering and Designs and detailed Engineering)
5. Geotechnical and Geophysical Surveys
6. Putting in place necessary infrastructure like roads, water electricity (which is the mandate of government)
7. Agreements for shipping and trading of oil
8. selection of the major contractors to build these oil installations/infrastructure
9. Selection of key long lead items suppliers like manufacturers of pipes and those to build oil rigs…etc.
The investor has to make sure all lose ends are tied before he can commit to investing such huge amounts; thereby sanctioning the project (FID)
What Does FID Mean For Ugandans?
Once it’s taken, it means $10bn to 15bn will be invested in the Uganda for the development phase and actual construction works will commence. This presents huge opportunities for Ugandan companies and citizens to supply all kinds of goods and services.
Uganda government will be earning approximately $2bn dollars annually when the oil starts flowing (this is almost equivalent to all the taxes paid by Ugandans ). However, when oil is flowing , all money will be going to government coffers.
Therefore the most important and interesting period for any business man and any person interested in the oil and gas industry is not when oil is flowing but after FID has been taken so that they can earn money directly through supply of goods and services.
For the government, FID brings the final process which is production closer since it’s usually 3 to 5 years of construction before anyone can produce oil.
So FID is the much needed breath of life in Uganda’s oil and gas industry. Uganda is now at the takeoff stage.
