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Somalia Plans to Start Producing Oil Offshore in Six Years

By Jillian Ward
Tuesday, October 21, 2014

Somalia plans to begin producing oil and gas offshore for the first time within six years and is in talks with state governments about how revenue will be shared, Petroleum Minister Daud Mohamed Omar said.

The Horn of Africa country, which has been immersed in conflict for more than two decades, is proceeding tentatively on exploration to avoid creating new tensions, Omar said at the Somalia Oil & Gas Summit yesterday in London. Somali President Hassan Sheikh Mohamoud said in August the government expects to complete an assessment of its oil and gas potential this year.

“The Somali government, even though it wishes to move forward quickly in these areas, will also move forward cautiously,” an interpreter for Omar said at the conference. “We do not intend to have the quest for oil and gas to re-ignite divisions and violence.”

Somalia is considering its first bidding round for oil blocks since 2009 as increasing stability begins to attract more foreign investors. African Union-backed government forces have regained control of about 70 percent of the country that had fallen under the control of al-Shabaab, the al-Qaeda-linked militant group seeking to create an Islamic state in Somalia.

The government is in talks with companies including Royal Dutch Shell Plc, Exxon Mobil Corp., BP Plc and Chevron Corp. about reactivating dormant contracts in the country, said J. Jay Park, managing director of Petroleum Regimes Advisory, who provides legal advice to the government. Oil companies haven’t operated in the country since civil war erupted in 1991 and they were forced to declare force majeure.

Yemen Geology

“It is in Somalia’s interest that these companies are given every opportunity to return,” Omar said.

While Somalia has no proven oil reserves, drillers are betting the country has a geology similar to that of Yemen, which lies across the Gulf of Aden and has 2.7 billion barrels of proven oil reserves.

Somalia’s oil deposits may amount to as much as 110 billion barrels, according to a June report published by the Mogadishu-based Heritage Institute for Policy Studies. Saudi Arabia, the world’s biggest oil exporter, has 266 billion barrels of proven reserves, BP data shows.

The results of seismic surveys carried out by Soma Oil & Gas Holdings Ltd., a London-based exploration company funded by Russian billionaire Alexander Djaparidze, are expected to be submitted to the government by the beginning of next year, Chief Executive Officer Robert Sheppard said in an interview at the conference. The survey, completed at a cost of $37 million, was finished without any security issues, he said.

$100 Million

“This Soma activity has demonstrated that seismic can be done in offshore Somalia,” Shell Vice President for Exploration in Sub-Saharan Africa Alastair Milne said at the conference. “But it will take more detailed technical work before we can pinpoint that place to drill, and that will likely require investment well in excess of $100 million.”

An oil and gas revenue-sharing bill has been drafted and is moving through consultations with the emerging federal member states, Omar said. Somali officials at the summit were unable to provide a timeframe for when the law might be passed.

For now, the provisional federal constitution allows the federal government to award blocks and make deals with international oil companies after consultations with the states, Omar said.

A UN monitoring group report on Somalia published last week flagged increased onshore commercial activity as a risk that may trigger conflict, recommending that no contracts with oil and gas companies be signed until “appropriate constitutional, legislative, fiscal and regulatory provisions had been clarified and agreed to by the federal government and its regional authorities.”


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