Vancouver Sun
Monday, March 05, 2012
In a Somali desert that’s home to
al-Qaeda-linked militia, Africa Oil Corp. drills inside a fortress of
excavated earth dotted with lookout towers and armed guards to satisfy a
world thirstier than ever for crude.
The
Canadian company is poised to complete the nation’s first oil well in at
least 20 years. The prize is the more than 1 billion barrels of oil
resources Africa Oil estimates is in the Dharoor Block in Puntland, a
semi-autonomous northern region where the central government is battling
Islamic extremists.
“Security costs are
significant,” Chief Executive Officer Keith Hill said in an interview.
Still, there aren’t “many places on Earth we can go onshore with
contractors and try to find a possibility for a billion-barrel oil
field.”
Oil prices that almost doubled in the
past three years have spurred exploration in locations once considered
too risky, with Genel Energy Plc, set up by U.K. financier Nathaniel
Rothschild and former BP Plc CEO Tony Hayward, acquiring stakes in the
Kurdistan region of Iraq. Royal Dutch Shell Plc and BP are returning to
Libya after leader Muammar Qaddafi was deposed.
Competitors
including Exxon Mobil Corp., Shell and Eni SpA are venturing into the
deepest waters ever and risking the Arctic’s frozen dangers. Executives
from the three companies are among those gathering in Houston this week
at a conference to discuss challenges in meeting record global oil
demand.
In Somalia, Vancouver-based Africa Oil
and partners Red Emperor Resources NL and Range Resources Ltd. hired
South African security consultant Pathfinder Corp. to help protect their
site. Local patrols are in place, and the regional government is
providing added military strength, Hill said. Defenses include heaping
dirt in a perimeter, or berm, around the site, to keep intruders out.
Islamic Rebels
Africa
Oil, whose shares have gained 32 percent in Canada this year, plans to
invest at least $50 US million drilling two wells in the block, with the
first to be ready this month.
Local threats
may be rising. Islamist rebels in Puntland joined al-Qaeda-linked
Al-Shabaab extremists responsible for suicide bombings in Mogadishu and
plan attacks on the Africa Oil operation, according to a Feb. 27 article
by Somalia Report, a news service set up by U.S. journalist Robert
Young Pelton, author of war zone handbook The World’s Most Dangerous
Places.
Al-Shabaab, which claimed
responsibility for a suicide attack on a Mogadishu hotel that killed at
least 15 last month, rejects the award of oil licenses to Western
companies, Reuters said on Feb. 25, citing the group’s Twitter account.
“Western
companies must be fully aware that all exploration rights and drilling
contracts in N. Eastern Somalia are now permanently nullified,” a
Twitter post claiming to be from Harakat Al-Shabaab Al Mujahideen’s
press office said that day. Africa Oil’s contracts are “non-binding,” it
said.
Bloomberg wasn’t immediately able to confirm that the account is run by the Al-Shabaab group.
Insurance Premiums, Contractors
“We
take all threats seriously and have stepped up security levels,” Hill
said in an e-mailed reply to queries. “Our security advisers assure us
we are well-protected.” Higher insurance payments and premiums to
contractors from Egypt and the Middle East add to the costs, Hill said.
Western
governments are leading efforts to bring stability to Somalia, which
has been wracked by civil war since the ouster of dictator Mohamed Siad
Barre in 1991, while pirates operating in the country plague shipping in
the Indian Ocean.
U.S. Secretary of State
Hillary Clinton, joining a conference hosted by U.K. Prime Minister
David Cameron in London last month, said her government would encourage
the imposition of further sanctions, including travel bans and asset
freezes, on those “who seek to undermine Somalia’s peace and security.”
‘Cynical Oil Grab’
British
officials are in talks with the Puntland regional government over
exploiting oil reserves in the northeast, the Observer newspaper
reported Feb. 25, citing Abdulkadir Abdi Hashi, the local minister for
international cooperation.
The U.K. push for
aid to Somalia looks like a “cynical attempt to grab its oil,” the World
Development Movement, an anti-poverty campaign group, said in an
e-mailed statement last week. U.K. International Development Secretary
Andrew Mitchell, who visited Puntland before the London conference, has
denied there is any commercial imperative in the government’s efforts.
A
well drilled in the area in 1958, before Somalia gained full
independence, showed signs of oil in several zones, Red Emperor said in a
November presentation. The former U.K. colony of Somaliland and former
Italian trust territory of Somalia joined to form the unified
independent state of Somalia in 1960.
Tullow, Total
Oil
exploration costs have been rising around the world as companies search
in harder-to-reach areas. Tullow Oil Plc, Shell and Total SA spent more
than $200 US million drilling off the coast of French Guiana, one of
the industry’s most expensive wells, to open a new frontier in Latin
America. Tullow announced the country’s first find, of light and heavy
oil, in September.
The Dharoor field in Somalia may hold 1.2 billion barrels of oil resources, according to the project operator’s website.
Africa
Oil and its partners are betting on geology similar to Yemen across the
Gulf of Aden, which split from Africa about 17 million years ago,
according to Red Emperor. Yemen holds 2.7 billion barrels of proved oil
reserves and ranks ninth in the Middle East for output of both oil and
natural gas, BP says.
The Shabeel-1 well, the
first being drilled, reached 1,230 meters (4,035 feet), Range Resources
said Feb. 23. The company and Red Emperor announced share sales to raise
funds last month.