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Feature: War-torn Somalia looks to rekindle quest for oil

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Feature: War-torn Somalia looks to rekindle quest for oil

London — Somalia's coastline, the longest in mainland Africa, has long been on the list of basins that oil explorers would like to exploit, but the instability and lack of security caused by three decades of civil war in the East African country has proved a deterrent to most.

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The country remains a daunting place to operate for companies, with UN chief Antonio Guterres recently noting that, although it is making progress toward building a functioning state after three decades of civil war, extremist attacks and famine, insecurity, political instability and corruption remain major challenges.

The internationally recognized federal government, which has been in place since 2012, is however renewing efforts to attract oil investment, with a new licensing round and an overhaul of its petroleum law and revenue sharing agreements.

"We are now ready to market and make ready our resources to oil companies," Abdirashid Mohamed Ahmed, the Minister of Petroleum and Mineral Resources of Somalia, said at a private press briefing this week.

"All our legislations are ready for international oil companies. Our production agreements will be attractive to the oil companies. The seismic data we have is also very promising," he added.

The country launched a new oil licensing round in February offering 15 offshore oil blocks, and bids for these concessions are likely to close sometime after November this year.

The ministry will be organizing a roadshow for the round in Houston, Texas in September or October. A roadshow took place in London earlier this year.

Ahmed added that the ministry is still drafting the contract and fiscal terms of the production sharing agreements for these blocks based on feedback from oil companies.

The country has also come to a revenue sharing agreement with the country's various states, the ministry said in a statement. This agreement provides details on how revenue coming from oil and gas activities will be shared among the country's various clans and states. In a country as fragmented as Somalia, revenue sharing has been a very thorny and explosive issue.

"Our Petroleum Revenue Sharing Agreement is globally unique, delivering by far the highest percentage of potential revenues to non-federal institutions of any comparable agreement," Ahmed said. "The member states will play a pivotal role in allocating resources for the benefit of all the Somali people."

LEGACY RIGHTS

Shell and ExxonMobil -- which had a joint venture in the country prior to 1991 when the civil war began after the toppling of dictator Mohamed Siad Barre -- are now looking to claim the legacy rights of their concessions as work was suspended because of the civil war.

Ahmed said Shell and ExxonMobil are working on a roadmap for the two oil majors to return to the country, and this will be presented to the ministry in July. He said the two oil majors have agreed to pay surface rent on the blocks accumulated from 1990 to 2018 totaling $1.7 million.

An agreement between the ministry and the oil majors was signed on June 21 settling issues related to surface rent and other incurred obligations that were previously under force majeure during the civil war.

Politically, the country has seen some progress since an internationally-backed government was installed in 2012. But security remains a huge issue due to an ongoing insurgency by Islamic militants from the Al-Shabab outfit.

Most recently, in mid-June the capital Mogadishu was hit by a double car bomb attack claimed by the Islamist group al-Shabab, which was also responsible for the truck bombing in Mogadishu in October 2017 that killed more than 500 people.

The minister reiterated that it is still unsafe to work on Somalia's onshore blocks due to security, but said the situation offshore is "safe" with no incidents of piracy, in what used to be a hotspot for such attacks, since 2015, according to the ministry.

GEOLOGICAL POTENTIAL

Spurred by large oil finds in Uganda and huge gas discoveries in waters off Tanzania and Mozambique, oil companies have flocked to East Africa in recent years in the hope of opening up a major new oil and gas province. This augurs well for Somalia.

The quest for oil in Somalia has been a long and arduous one, however. Exploration in Somalia actually began in the 1950s, with Shell, ExxonMobil, Eni and Chevron ending up with a handful of blocks.

But the start of civil war began brought upstream activity both offshore and onshore to a standstill.

In 2014, UK-based Soma Oil and Gas conducted a series seismic surveys in Somalia's territorial waters in areas agreed with the government and in certain limited onshore areas. This data, along with seismic shot by Spectrum Geo, was used in the country's current licensing round.

Analysts have said geology in these blocks is similar to that of Mozambique's Rovuma basin and some oil systems in South Sudan.

Convincing oil companies to invest in what was until recently termed a failed state was proven difficult but it seems enthusiasm might return with political stability returning in the country along with growing geological potential.

--Eklavya Gupte, eklavya.gupte@spglobal.com

--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com