SOMALIA'S PETROLEUM SECTOR: OPPORTUNITIES AND CHALLENGES

by Abdullahi Warfa Monday, September 08, 2014 The strategic plan of the Somalia government is based on the six pillars that president Hassan Sheikh committed to as a way to reverse war torn Somalia back to the international community. In his six pillars, economic and development strategy is recognized as one of the factors that could potentially generate stabilization in Somalia, and it is this reason that petroleum and Mineral resources portfolio has been created to contribute to the government’s vision for 2016. Somalia has abundant natural resources that can be sustainably exploited to generate economic growth and transform the country from predominantly being dependent on international community to self-sufficient country. However, the government recognizes that the economy has structural problems that resulted from more than 20 years of civil war and destroyed all infrastructures necessary for the government to function.    In light of this, the Ministry of petroleum and natural resources has taken steps to protect and promote the sector through the formulation of clear petroleum and mineral policy. Petroleum development Somalia is often thought of as a semi-nomadic society with little focus on agricultural activities. Consequently, the petroleum and mineral sector has not been utilized. Lack of technical capacity and inadequate foreign and local investment also contributed to the lack of sector development. There is high potential y for gas and oil discovery in Somalia and other expensive mineral resources such as uranium, heavy minerals, strontianite, phosphates, bauxite,gypsum, vermiculite, limestone, dimension stone silica and coal. Adequate and up to date geological information is very important for attracting investment in this field. Based on data collected about geological frameworks, there is ageneral conviction that full mineral and petroleum capacity of the country is yet unknown. The available data shows high potential for gas and oil and mineral resources in the country but not sufficient enough to specify the exact capacity available for production. Therefore basic geology work is required to determine and confirm the exact potential.  Modern technological advances would be needed to discover potential area and the amount of gas and oil in the country. This was the driving force for the recent agreement the government signed with the company Soma Oil and Gas - to do seismic surveying and establish the full extent of the country’s oil and gas potential.  The ministry of petroleum and Natural minerals took this step to overcome the challenges that has been present in the form of; a) inadequate geological data and information about potential oil and gas in Somalia, b) insufficient financial resources for generation and updating of basic geological data available, and c) lack of analytical laboratory technologies and human resources within the country. The development of the sector also requires capacity building, training and technological development as the country suffers from lack of enough facilities for training centers,and technical capacity and skilled personnel. Local participation and support infrastructure For long time even, before the civil war in Somalia, local participation was hindered by lack of financial and technical capacity and expertise in the sector. The Minister’s policy for this matter is to encourage joint ventures with companies that have the needed resources, with long term aim of empowering local participation. On the other hand, most of the infrastructure has been destroyed during the civil war in Somalia and the government recognizes that the sector is unlikely to develop unless improvements are made with regards to security, transport network, water, and electricity. The Ministry of petroleum is working with other government departments and agencies to put together efforts for developing an infrastructure strategy to overcome these challenges. Investment opportunity and governance of the sector The key to development and sustainable economy depends largely on number of factors including long-term political, security and macro-economic stability. Therefore, the Ministry of Petroleum is committed to creating a favorable climate that is attractive to potential investors. Such strategy includes establishing an integrated and enabling environment consistent with real practice that can provide a confidence to the investors.As matter of fact, security and Macro-economic stability tops government’s priorities in this matter.  Also, the practices and management of the sector is important to investing in the sector. The ministry’s role in this regard is to (1) provide information in relation to geological surveys to the investing companies, (2) Monitor and regulate the sector and (3) creating secure environment or investors.   Institutional arrangements and Legislative and regulatory framework The country does not have enough institutional capacity for managing all government affairs. The minister of Petroleum Hon. Daud Bisinle brought in more than 10 Somali experts in the field and working across all departments of the ministry.  These experts formulate appropriate policies to facilitate and accelerate sustainable development in the sector. They also review and scrutinize all applications for gas and oil rights and report to the ministry their recommendations. In regards to the regulatory framework, several acts have been in place but not activated. Among these acts is the Petroleum law 2008. This defines rights, duties and obligations of the government. The ministry of Petroleum and Natural resources is in process of reviewing the petroleum law and harmonizing it with other legislation. Environmental management and other related issues Petroleum and gas exploration activities cause environmental degradation and sometimes companies do not comply with international standards for occupational health and safety. Also companies often do not comply with environmental management during operations. The government will make sure companies comply and follow international standards put place to safeguard the environment.   Social issues also should be taken into consideration when exploring Gas and Oil,including empowering local people and being socially responsible, for example by avoiding child labor and other social injustices.

SOMALIA DEAL RAISES CONCERNS ABOUT RISKS ON OIL & GAS

Tuesday, August 13, 2013 The signing of the new Somali government’s first oil contract with an untested company linked to a British peer raises concerns about whether the dash for oil wealth will destabilise the east African country. Last week, Michael Howard, a former leader of Britain’s ruling Conservative party and chairman of Soma Oil and Gas Exploration , signed a contract in Somalia with Mogadishu to collect data on onshore and offshore oil . It was the first such contract by any international company. In exchange for collecting data, Soma has the right to apply for up to 12 oil blocks in an area seen by oil majors as one of the final frontiers for the commodity. The company, which has not undertaken a seismic survey before, was incorporated in the UK last month with capital of £0.001. “We have looked [at] the contract from the perspective of what’s good for Somalia,” said Abdirizak Omar Mohamed, Somalia’s natural resources minister. The newly formed government of which he is a member is the first Mogadishu administration to gain international recogntion in decades. “This investment is going to be very good for the country and we’re hoping that other investors come too,” he said. “These are people . . . who have expertise in the area of oil and gas, and people who are well respected in the UK.” The Mogadishu government had said in May that it would not sign any oil deals until contradictions within the legal framework were ironed out. It has yet to do this, but the minister said they intended to do so. “I do not think this deal was done transparently at all,” said Abdillahi Mohamud at the East African Energy Forum, a lobby group consulted by Somali parliamentarians who are considering their reaction to the deal. As the UK, Norway, Turkey, Qatar and others vie to gain influence in Somalia’s oil-rich waters, analysts fear big-power oil politics could put its fragile recovery off course. A UN panel of experts cautioned in a report last month that oil could lead to conflict between rival groups – some of which have previously been allied to al-Qaeda-affiliated jihadists – and threaten peace. “[Oil] companies should cease and desist negotiations with Somali authorities,” the UN panel said in last month’s report to the Security Council. Mr Abdillahi sees the deal in the context of regional politics. “This [the deal] is about . . .[the central government] attempting to gain the upper hand namely on [the regions],” says Mr Abdillahi. He believes there may be “many hidden agendas” and believes the deal is “political in nature”. The deal has unsettled some industry observers who had expected a public licensing round for all the oil blocks. Other more experienced companies had also been queueing up for contracts to undertake surveys. They say it is unusual for Soma, once it has gathered the data, to be able to cherry-pick the best dozen blocks. Some oil majors, including Shell and Total, have put their claims to oil blocks they signed for in the late 1980s on ice until, Shell says, “conditions allow”. Soma says it will not impinge on their areas, nor on territories that do not acknowledge the Mogadishu government, such as Somaliland and Puntland. Soma’s management can draw on an “absolutely unrivalled track record”, Lord Howard said in an interview with the Financial Times, pointing to Soma chief executive Robert Sheppard, an adviser to BP in Russia. The company can also easily raise the money, he said. “I think our agreement is very much in the interests of the people of Somalia,” he said. Asked about the preferential access to the oil blocks in return for the geological databank, Lord Howard said it is “obvious . . . that we should have a quid pro quo”. The deal has prompted some concern from the UK’s diplomatic partners about the UK’s relationship with Somalia. Mark Simmonds, UK Africa minister, hosted a government-sponsored investment event on May 8, in which the Somali president and 16 UK energy companies, including Lord Howard’s, took part. Senior UK civil servants also met Lord Howard on June 7 to discuss Somalia. “The UK is promoting transparent and accountable government [but it] hosted a conference and invited all of us,” said a diplomat who follows Somalia closely. “Then that momentum was used to promote British business interests: that could maybe have been more transparent.” Mr Sheppard, Soma chief executive, said he didn’t know “why they’ve [the government] accepted it now when earlier they might not have”. Both sides had independent legal advice and Lord Howard said that he “went to some lengths to impress on the Somali government that it was very important that they had independent legal advice”. He added that he had checked with the UK government to ensure he was doing nothing against UK policy. “I don’t think I’m there for any political influence, I don’t think I have any political influence any longer,” he said. But the reason the deal went ahead “may well be because of the leading role that the UK government has taken that [the Somali government] were well disposed towards a British company”.

MEMOIRS: - HOPES AND HYPES ON THE NEW FRONTIER:

Looking back 22 Years Articles and Memoirs Petroleum Economist. Vol 58, Issue n10, Oct, 1991, p19(2). Maria Kielmas A UN-funded study points to oil potential in Ethiopia and Somalia. Maria Kielmas talked to emerging rulers in the region about their oil policies. Wars in countries comprising the Horn of Africa put on hold the first real spark of international industry interest in the region's oil prospects. As a variety of political factions wrestle for control in Ethiopia and Somalia, only one group, the Somali National Movement (SNM), which controls the self-proclaimed Republic of Somaliland in northern Somalia, has maintained a positive policy towards foreign oil investment. Aside from the political conflict, oil exploration in the African Horn has generally been neglected because of a widespread perception throughout the industry that the region is gas-prone and both inaccessible and expensive to explore. The countries around the Gulf of Aden and Red Sea are regarded as too poor to afford the necessary infrastructure for gas development. International Study In an attempt to address the balance and provide a more considered view of petroleum potential, the World Bank and United Nations Development Programme (UNDP) devised a regional hydrocarbon study of the countries bordering the Red Sea and Gulf of Aden. Financed by the UNDP, in co-operation with the governments of France, Britain and Canada, and several oil companies, the study began work in 1988. All the countries along this coastline participated from the outset, although Saudi Arabia has since dropped out, claiming it has its own plans for Red Sea exploration. The study managed to collect all relevant technical information from both Ethiopia and Somalia before this year's fighting broke out. Results of analysis to date, which indicate that the region is definitely oil-prone as well as gas-prone, are to be presented at this month's meeting of the American Association of Petroleum Geologists, Eastern Hemisphere group, in London. Somali Movements Regional connoisseurs pick out northern Somalia as particularly prospective. Exploration here dates from the turn of the century and was conducted in the former colony of British Somaliland and was conducted by British and Italian geologists. The area rewarded explorers with numerous oil seeps and gas shows in wells drilled in the 1960s. It is geologically analogous, in parts, to southern Yemen, on the other side of the Gulf of Aden, and almost the entire area was under licence to companies by the time hostilities with the central government broke out in 1988. All of the oil companies operating in the area at the time - Amoco, Chevron, Agip and Conoco - declared force majeure, but the separatist rebel group, the SNM, maintained contact with them. The companies' view, expressed privately, was that if a separate northern Somali state could provide the usual internationally-acceptable contract conditions, then, in principle, they would be prepared to resume work when it was safe. The "Republic of Somaliland" corresponds " to the last mile" to the territory of British Somaliland, SNM spokesmen say. But this boundary cuts through permits held by Agip and Conoco. Currently under the control of the SNM the area is reportedly enjoying a degree of peace unheard of since the beginning of deposed president Siyad Barre's rule more than 20 years ago. The core of the peace is a deal struck between the mainly Isaaq clan of SNM and minority Warsengeli, Dulbahante and Gadabursi clans. Talks with oil firms The SNM also claims it has reached a tentative agreement with oil companies. Espousing pro-market policies, SNM spokesmen say they are committed to a mixed economy and foreign investment. All foreign companies are welcome to explore in the territory on condition that they do not prevent other companies from doing the same. But one of main problems to overcome before any work can begin is the clearing of more than one million land mines planted by the Mogadishu forces. The SNM has received tacit support from Yemen, where it has an office and where it has met up with oil company officials. SNM officials are now in the process of drafting their own petroleum contract terms, but, inexplicably, have no access to existing contract wordings issued by the ousted Barre government. Yet to be recognised Regional analysts believe that attempts to consolidate a separate northern state could be scuppered by Saudi Arabia, a country which has never shown much enthusiasm for oil development in noughbouring states. The Arab League has shown little desire for a new, separate country either. The Republic of Somaliland has yet to be recognised by any other state, but some observers feel this could happen by default, since it at least functions, while no other part of Somalia works at all. Representative from the United Somali Congress (USC), nominally in charge in Mogadishu, have also met with oil company officials, in particular Conoco, both in Somalia and in Rome. However, no news of any agreement has emerged from these meetings. Pectin is the biggest licence holders in Somalia proper, with four offshore blocks along the Indian Ocean shelf, extending approximately from Bander Beyle to south of Mogadishu. Further onshore blocks are held by Amoco and Phillips. Ethiopian contracts Although new petroleum legislation was passed in 1984, it took Ethiopia until 1989 to award the first licences to foreign companies. Last year, the Mengistu government awarded two permits in the Ogaden province to US companies Maxus Energy and Hunt Oil. Maxus acquired a 110 800-square km area close to the northern Somali border, comprising four adjacent blocks, while Hunt signed up for a 44 000-square km area in the southern Ogaden, abutting Kenya and Somalia. Coming back The government reserves for itself an area around the Calub gasfield - discovered by Tenneco in 1974 and where reserves are thought to be about one trillion cubic feet - continuing appraisal work with Soviet help. Vancouver-based International Petroleum acquired the 34 000 square km Danakil Block along the Eritrean coast, farming out 60% and the operatorship to Amoco. Offshore, British Petroleum holds one area of 31 000 square km and was on the point of acquiring another block further north when the fighting escalated. All work halted as the war spread on land and BP declared force majeure last summer, when one of its seismic boats was fired on by rebels from the Eritrean Peoples' Liberation Front (EPLF). The exact legal status of contracts signed with the defunct Mengistu government is unclear. This problem is further exacerbated by an emerging statist policy on the part of the various Ethiopian and Eritrean groups. Most pundits predict that after the Eritrean referendum in two years' time, a loose Ethiopian confederation will emerge, allowing the Addis Ababa government continued access to the Red Sea ports of Asab and Massawa. Squabbles The new rulers in Addis Ababa, the Ethiopian Peoples' Revolutionary Democratic Front (EPRDF), and EPLF in Eritrea, say their first priority is to tackle famine relief and food shortages. But whatever stability exists, it is threatened by continued squabbling between factions divided on ethnic, religious and ideological lines. Notwithstanding public rhetoric about dumping their various Marxist ideologies, the EPRDF and the Tigrayan Peoples' Liberation Front, which has been enjoying a measure of US support, remain dominated by former university students still committed to the notion of a centralised, command economy. In this climate, it is unlikely that there will be any quick decision about oil company contracts, even if the stability holds. And if a decision does materialise, it is unlikely to be very favourable to the foreign companies. However, the most recent reports indicate that some Somali and Oromo groups within Ethiopia, which have embraced the same pro-market policies as the SNM in Somaliland, are emerging as power brokers. They may hold the balance between religious and ethnic divisions in the country.

JACKA RESOURCES FINDS PROMISING STRUCTURES IN SOMALILAND

Wednesday, March 06, 2013 by Bevis Yeo Jacka Resources (ASX: JKA) has confirmed the presence of large rift-basin structures, which typically form structural petroleum prospects, within the Odewayne block in Somaliland. These structures were interpreted from the preliminary gravity map from the 22,000 square kilometre airborne geophysics survey that was completed in February by operator Genel Energy (LON: GENL). Two additional basins have also been identified within the licence area. The presence of numerous verified oil/condensate seeps, potentially attractive structures, and the genetic relationship to the multi-billion barrel basins of Yemen results in a highly prospective play in this emerging petroleum province. Genel, a £2 billion market cap, is funding 100% of the exploration program in the Odewayne block until May 2015. Besides the airborne survey, which covered the entire block, Genel is also funding at least 1,500 kilometres of 2D seismic and an exploration well. Mobilisation for the seismic survey is scheduled for April this year, with acquisition expected to commence in May and to be completed by end October 2013. Genel recently indicated that the block has the potential to contain in excess of 1 billion barrels of prospective resources, on which they place a 15% probability of success at this early stage of exploration.

SOMALIA INKS OIL DEAL WITH BRITISH FORMER-TORY LEADER

Former leader of Britain's Conservative party Baron Howard ________________________________________ Somalia's government signed an oil and gas exploration deal on Tuesday with a British company chaired by a former leader of Britain's Conservative party, ministry and company officials said. Soma Oil and Gas, chaired by Michael Howard, a former home secretary who preceded Britain's Prime Minister David Cameron as Tory party leader, signed the deal to carry out offshore and onshore surveys. Somalia is fought over by multiple warlords, clan militia forces and Islamist insurgents while several autonomous regions do not obey the authority of central government. The Horn of Africa nation is challenging territory for even the most adventurous of oil companies. "It is expected that this will attract further investment and facilitate exploration in an area of immense economic potential for the nation," Somalia's Ministry of National Resources said in a statement. "The company will conduct seismic surveying to assist the development of Somalia's hydrocarbons sector," the statement added. It is the first oil deal signed by the internationally-backed government in Mogadishu, which took power last September, and is propped up by a 17,700-strong African Union force to fight off Al-Qaeda backed insurgents. Several of Somalia's potentially rich oil and gas blocs are claimed by rival companies, because deals were signed by the different authorities who emerged in the long years of war that followed the collapse of central government in 1991. Soma Oil and Gas, which was set up last year with a view to carrying out exploration in Somalia, will "conduct seismic surveying in Somalia's territorial waters in areas agreed with the government and in certain limited onshore areas," the company said in a statement. It will also "collate and reprocess historic seismic data using modern techniques" to prepare "an evaluation of Somalia's petroleum potential", the company added. Howard, now a life peer in the House of Lords, parliament's upper house, said the deal reflected the "close collaboration" between Britain and Somalia. "It is our intention to assist Somalia to develop an active hydrocarbons sector that will attract significant foreign investment to the country," Howard said in a statement. A United Nations Monitoring Group report last month warned that foreign oil exploration could further inflame conflict in the region. Source: AFP

SOMALILAND: GENEL ENERGY TO EXPLORE IN 2013

Genel Energy plans to conduct seismic work in northwestern Somalia early next year and drill its first well in the second quarter of 2014 and another well in 2015, company officials said. The London-listed explorer said in August it had the rights to two blocks, Block 13 and Block 10B, in the country's semi-autonomous Somaliland region. The area shares the same geological structure with oil producer Yemen and could have 1 billion barrels of oil, the company said. It plans to spend about $400 million drilling five wells in Africa overall over the next three years. 'Somaliland provides an exciting geological opportunity, and we look forward to starting work in the region,' said company spokesperson Andrew Benbow, in an email to Reuters on Tuesday. East Africa has recently become a major hub of oil and gas exploration activity, but Somalia has largely missed out due to violent conflicts that have made the Horn of Africa country unstable. In September, Somalia elected a new federal government, its first permanent government since 1991. Somali technocrats have said they now must sort out a tangle of overlapping oil and gas exploration licences issued over the past few decades by the former federal government and the semi-autonomous regions of Puntland and Somaliland. Genel Energy declined to comment about the political situation in Somalia but said it planned to move forward with exploration, despite speculation the new federal government might upend agreements made after 1991. The Somaliland licences are Genel's only exploration acreage in the region, although it has a number of contracts in west and north Africa. Original article link Source: Reuters ________________________________________

SOMALIA: SHELL CLINGS FIRMLY TO ITS PETROLEUM CONCESSIONS

The Indian Ocean Newsletter March 01, 2013 Shell`s permit in Somalia has lain idle for decades because of “force majeure” but the company clearly prizes the acreage. Executives of the Anglo-Dutch firm Shell Exploration & Production aren`t about to let go of a concession covering five blocks that the group acquired in Somalia in November, 1988 but which has remained idle under force majeure ever since. On Feb. 25, Tjalling Wiersma and Ayca Arisoy, who serve respectively as the legal and financial chiefs of Shell EP Somalia BV sent a warning letter to the American firm Liberty Petroleum Corporation (LPC). They claimed Liberty had acquired an oil prospecting license from the regional government of Galmudug which is headed out of the capital, Galkayo, by a former war lord, Abdi Hassan Awale Qeybdiid. In the letter, a copy of which has been obtained by the Indian Ocean Newsletter, Shell warned the American company that its “offshore block covers a part of blocks held by Shell” and on which Shell claims exclusive rights. The letter specified that all activity in the area “would constitute a clear violation of Shell`s exclusive rights.” Based in Phoenix, Arizona, Liberty Petroleum Corporation was founded in 1997 by Trent and Lane Franks. The latter took over the company when his brother Trent won a seat in the House of Representatives on a Conservative Party ticket. In addition to Lane Franks, LPC`s directors are Abdul Al Tawash, Saud Al Tawash, Travis Franks and Jonas Robertson. Another firm is also seeking oil licenses from the Galmudug government, namely Britain`s LGE Monsoon whose representative travelled to Mogadishu at the end of 2012.