Armour Energy Granted Exploration License in Uganda’s Kanywataba Block

Australian explorer Armour Energy has been granted a two year exploration licence in the the Kanywataba Block in the Albertine graben bordering the Democratic Republic of Congo with the possibility of  an additional two years subject to completing the work program for that period.

The award was cleared by Cabinet and the Ministries of Finance, Planning and Economic Development together with that of Justice and Constitutional Affairs.

The production-sharing agreement with Armour Energy formerly  operated  by Total, CNOOC and Tullow Oil is part of the licences auctioned under the 2015 licensing round and covers 344 sq km.

The first period work program involves undertaking geological and geophysical works, reviewing existing data, reprocessing seismic data, and the acquisition of 100 line kilometres of 2D seismic.  On completion of the work in the first period, the tenement can be renewed for a second 2 year period.

In the event that the tenement is renewed for the second 2 year program, the SPC will be committed to further expenditure on a minimum work program of undertaking geological, geophysical and geochemical studies plus drilling one exploration well.

Highlights of some key provisions of the PSA include;

1. An exploration license with an acreage of 344 sq. Kilometer for four years split into two periods of two years each.
   2. A minimum work programme which includes acquisition of seismic data and drilling of atleast one well.
   3. An Advisory Committee chaired by the Petroleum Authority of Uganda, and consisting of representatives from Government and the Licensee to review and approve all annual exploration work programmes, budgets and production forecasts.
   4. Payment of Royalty based on the Gross Total Daily Production in Barrels of Oil Per Day (BOPD). The rate of royalty ranges from 8.5% to 21%.
   5. State Participation by Government or its Nominee at not more than 20%.
   6. Cost Recovery limit for Petroleum is set at 65%.
   7. Production Sharing.
   8. A Signature Bonus together with Research and Training fees, and Annual Acreage Rental fees for the First Exploration Period amounting to US$ 316,000 have been paid to the Uganda Petroleum Fund.
   9. A Performance (Bank) Guarantee amounting to 50% of the Minimum Exploration Expenditure for the First Exploration Period.
   10. Taxes will be paid in accordance with the Laws of Uganda; and
   11. A requirement to train and employ suitably qualified Ugandan citizens has been provided for in addition to payment of annual training fees to Government

“This is the first Production Sharing Agreement to be signed in line with Section 58 of the Petroleum Exploration, Development and Production Act 2013, the Legal regime under which I announced the First Competitive Licensing Round during February 2015,”Hon. Eng. Irene Muloni, Minister of Energy and Mineral Development said.

Armour Energy will be in partnership with DGR Global Limited after the two companies entered in to an agreement over Armour’s application for the Ugandan Oil Project, ‘Kanywataba Block’.

Under the agreement the Kanywataba Block is to be initially granted to Armour, and subsequently placed into a Specific Project Company (SPC) for the purposes of the agreement, subject to Ugandan Government consent.

, Armour will retain 16.82% while DGR will meet the tenement expenditure and work program commitments for the first two year period and indemnify Armour for these costs.  Until the transfer is completed, Armour shall hold DGR Global’s 83.18% interest in trust beneficially for DGR Global.

Armour and DGR Global will have pro‐rata entitlements to participate in new capital issues in the SPC.

DGR Global has agreed to spend up to:

    US$837,000 for a performance guarantee;

    US$442,000 to complete the grant of the licence; and

 US$1,980,000 exploration commitments over the first two years.

The Kanywataba block is located at the southern end of Lake Albert in the Albertine Graben where approximately 115 wells have been drilled, and 101 wells encountered hydrocarbons delivering an 88% success rate on economic discoveries.

Armour has assessed the prospectivity of the block and estimates low, best and high unrisked prospective oil resource to range from 646 to 969 MMBBLS of oil in place across 7 prospects each with stacked reserves.    Armour considers the main resource risk to be potential loss of hydrocarbon charge, and on that basis considers prospects 2 and 3 to represent the most prospective targets (highlighted below).