Scramble for oil and gas reserves in Somalia: connecting the dots.

[Bootindheere]

6 JULY 2020

 

ANALYSIS

Sizing up Somalia: a new offshore oil frontier in the making

By Heidi Vella

     

Somalia is one of the few remaining frontier oil and gas exploration territories and the Somalian federal government is promoting its advancement by launching its first ever offshore licensing round. We look at the latest developments. 

Siva Prasad, senior analyst at Rystad Energy

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Since the late 60s, civil unrest has prohibited the exploitation of Somalia’s offshore oil and gas resources. Now, however, after several years of relative peace, the government is making a bid to attract foreign investment to develop the country’s oil and gas riches. 

In May, Somalia’s Ministry of Petroleum and Mineral Resources launched its first offshore licensing round, featuring up to seven blocks that can be bid for between August 2020 and March 2021. 

According to seismic data processing company Spectrum, which acquired approximately 20,000 km of long-offset 2D seismic data offshore Somalia in 2015, there are strong indications of widespread distribution of good quality source rocks. Meanwhile, another subsurface data company, TGS, estimates un-risked resources for the Somali Basin could be around 30 billion barrels of oil. TGS has acquired more than 40,000 kilometres of 2D data, which covers the seven blocks on offer, 

Overall, the country, located in the Horn of Africa and bordered by Kenya and Ethiopia and close to Yemen, is a promising new frontier for oil exploration; it is not without its risks and challenges though. 

New activity 

Oil and gas exploration started in Somalia in the 1950/60s, with a total of 70 wells drilled, 80% of which were onshore. Many major companies, including ExxonMobil, BP, Texaco, and Shell, were active in the region at the time. In the 60s, before civil unrest stifled the sector, five discoveries were made but all were considered sub-commercial.  

As such, Somalia, which relies heavily on fossil fuels for its energy supply, does not produce oil. Keen to change this fact,  the government ratified a new Petroleum Law in February, revoking the one passed in 2008. 

The law established the Somali National Oil Company, which will participate in petroleum operations, as well as the Somali Petroleum Authority, which will act as a regulatory body overseeing oil and gas activity.

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Siva Prasad, senior analyst at Rystad Energy, says that the passing of this law resolved a key barrier to exploration offshore Somalia. 

“It created a petroleum authority that can negotiate with international oil companies, which has been a main concern for potential investors,” says Prasad. 

After passing the law, Somalia reached an agreement with a Shell/Exxon joint venture (JV) for an initial roadmap to explore and develop potential offshore oil and gas reserves in march. The agreement enables the conversion of old concessions held by the JV, which were previously put into force majeure, to the new production sharing contract. The JV reportedly agreed to pay the government $1.7m for historic leasing of the blocks. 

Alessandro Piccoli, technical research principal at IHS Markit, says that the ongoing negotiations between the majors and the authority should be seen as positive.

“Exxon and Shell are currently negotiating with the authority for those blocks, maybe it’s a good sign because otherwise they will just relinquish them and leave the country,” says Piccoli. 

He notes there will be an onshore well drilled by Genel Energy in 2021, which he says “will be interesting to follow” because it is said that plays in this basin are similar to a northern Yemeni basin that has proved prolific. 

Disjointed union 

As part of the Petroleum Law, which was passed with the support of the International Monetary Fund, the government has created a new revenue-sharing agreement, which details how future revenues from the development of the industry will be shared between the federal government and the six federal member states. 

However, relations between the federal government and the member states are strained and Piccoli says some perceive the new petroleum law as being “imposed” on them.  

As such, the positive participation of all the regions in the country remains doubtful, adds Prasad.

“The Republic of Somaliland never took part in any of the discussions leading to the ratification of the law. The Puntland and Jubbaland states also rejected the new law and withdrew from the licensing process. All of this raises questions on the stability and the eventual validity of the Petroleum Law,” says Prasad.

There are other challenges facing the development of Somalia’s oil reserves. Prasad says that the spending cuts announced by companies worldwide amid the Covid-19 pandemic is already taking its toll on exploration in Africa and may also affect the interest of the operators in venturing into the frontier waters of ‘an internally troubled state’. 

“Hence it remains to be seen whether the set deadlines will actually hold or get extended, and also if the Petroleum Law gains some stability over the months to come,” he says. 

Somalia’s plans have already been disrupted by the coronavirus outbreak. The first offshore licensing round was planned to be a physical roadshow in Houston with 15 blocks on offer. However, it had to be held virtually and the number of blocks were reduced to seven frontier blocks. 

“The reduced number of blocks on offer may be in reaction to the exploration spending cuts announced by E&P operators globally,” says Prasad.

The country is also seeing an increasing number of Covid-19 cases.

Future challenges for oil exploration offshore Somalia 

Other ongoing issues likely to be monitored closely by operators and potential investors are the postponed election, which was scheduled to take place in March but was delayed due to the coronavirus, and the outcome of an ongoing maritime border dispute between Somalia and neighbouring Kenya. The International Court of Justice will hear the case next year, also postponed due to Covid-19. The main dispute is over three offshore oil and gas blocks currently licensed to Eni and, at present, considered part of Kenya’s territory. 

Somalia also represents a corruption risk; it currently ranks the lowest out of 180 countries on the Transparency Initiative Corruption Index. 

For now, the industry is waiting to see what happens; will there be much interest in the licencing round come August and will activity go ahead next year as planned? These are some of the key questions. 

“We’ll see how people come and go and if they will decide to drill because, for the moment, not much is happening, it’s only planned activity. But Exxon and Shell staying on, that’s quite positive,” concludes Piccoli

[Bootindheere]

Game changer: Will Turkey unlock potential oil bonanza for Somalia?

BY HASSAN YUUSUF WAAL

APR 23, 2020 10:37 AM

In the last decade, Somalia has made remarkable progress on multiple fronts: good governance, security, the economy and the military system. Somalia is opening its waters to exploration as it seeks to become a regional economic hub. Some studies suggest that the seafloor beneath Somalia’s coastal waters may contain up to 100 billion barrels of oil. Thus, foreign investors have shown considerable interest in Somalia’s oil and gas resources.

Turkey, a partner and a close ally of Somalia, could be joining the race to explore the oil deposits along Somalia’s Indian Ocean coast. On Jan. 20, President Recep Tayyip Erdoğan said that Turkey had received an invitation from Somalia to explore for oil in its seas. The news has been greeted with much optimism by many, particularly the Somali people.

Turkey’s humanitarian diplomacy has won the hearts and the minds of Somali people. Since then-Prime Minister Erdoğan’s first visit to Somalia in 2011, Turkey has poured millions of dollars of aid into Somalia, supporting health, education, infrastructure, military rebuilding and peace building.

On the other hand, Turkey-Somalia relations are also based on economic cooperation and trade. Turkey has arguably shifted the donor-recipient paradigm to a win-win development. According to the Turkish Foreign Ministry, the bilateral trade volume between Turkey and Somalia increased from $144 million (TL 1 billion) in 2017 to $187 million in 2018, and $206 million in the first 10 months of 2019. It is worth mentioning that the relationship between Somalia and Turkey dates as far back as the 16th century and is based on mutual interest and shared values.

Oil in Somalia

The history of oil exploration in Somalia dates back to the early 1950s when Agip (now known as Eni) and Sinclair Oil Corporation carried out geological studies. In the late 1980s, companies including Conoco, Chevron and Shell were awarded exploration licenses. However, when Somalia plunged into civil war in 1991, those oil companies which bought oil blocks declared force majeure on their operations.

In recent years, a number of seismic studies concluded that Somalia has oil and gas reserves offshore worth extracting. Spectrum’s findings indicate that there is a high potential for hydrocarbon exploration in offshore Somalia. Neil Hodgson, executive vice president of geoscience at Spectrum said, “Analysis is suggesting offshore Somalia stands as a beacon on the East African margin, offering the potential for the next giant oil discoveries in the future.”

As a result, the last few years have witnessed a growing interest in Somalia’s offshore oil and gas resources. Last June, the Ministry of Petroleum and Mineral Resources of Somalia reached an agreement with the Shell and ExxonMobil joint venture to repay the rental fees of $1.7 million for offshore blocks from 1990 to 2008. While there are high hopes for oil discovery in Somalia, there is an equally long list of challenges.

Current challenges

Somalia’s major challenges include political instability, security issues, limited infrastructure, corruption and foreign interference.

Violent extremism is still a serious threat to peace and stability in Somalia. On Dec. 28, 2019, a suicide car-bombing at a busy junction in Mogadishu killed 79 people, including two Turkish citizens.

There is endemic corruption in Somalia, especially in politics. It is a severe impediment to the economic and social development of the country. According to Transparency International’s 2019 Corruption Perceptions Index (CPI) report, Somalia is the 180th least corrupt nation out of 180 countries.

After the fall of the Somali state in 1991, the country has become a breeding ground for external competing forces whose malign motives have destroyed the country – hazardous waste dumping, weapon trafficking, illegal fishing, the geopolitics of the region, etc. Somalia has endured a prolonged period of commercialized anarchy. But things are gradually changing for the better in Somalia, thanks to the current Federal Government of Somalia (FGS) and its international partners.

Future prospect

Despite the challenges, Somalia is a country full of hope and bright prospects for the future. It offers plenty of opportunities. Somalia boasts the longest coastline in Africa (3,300 km) and untapped natural resources. It is located in a very strategic place, as a gate to the Red Sea and the Gulf of Aden. Moreover, there are more than 2 million Somalis who live in the diaspora. They send around $2 billion of remittances back home annually – an economic lifeline for the conflict-ridden country. They also send back social remittances-skills, expert knowledge, etc.

The big caveat, though, is unless the necessary preconditions for Somalia’s oil discovery – such as stability, regulatory and accountability – are met, success is far from guaranteed, or perhaps it may trigger more violence, corruption (rent-seeking) and continued poverty. So, what has Somalia’s government done to tackle the above-mentioned challenges?

Indeed, the FGS has taken some significant steps that are critical for building effective political and social institutions and more specifically for offshore oil and gas reserves to be exploited most effectively. With the support of international partners, the government has undertaken security sector reforms. Efforts are now underway to transfer security responsibilities from the African Union Mission in Somalia (AMISOM) to the Somali National Army.

In terms of policies and regulatory frameworks, major new laws were passed that include a petroleum law, anti-corruption law and new election law which is based on “one person, one vote,” replacing the controversial clan-based electoral system. On Feb. 8, President Mohamed Abdullahi Farmajo signed the landmark petroleum legislation into law – an important piece of legislation that safeguards the revenue sharing agreement between the federal government and the states as well as the environment. It has removed major barriers to exploration. Additionally, the president signed anti-corruption and new election legislation into law in September 2019 and February 2020, respectively.

Moreover, the FGS has pushed through financial and economic reforms that will pave the way for Somalia’s $5 billion debt cancelations. Following the meetings of the executive boards of the International Monetary Fund (IMF) and World Bank, on Feb. 12 and 13, respectively, Somalia was commended for its strong commitment to reform and rebuilding key economic institutions. "Today’s agreement by the IMF Executive Board that Somalia can be eligible for debt relief under the Enhanced HIPC Initiative marks a historic moment,” said Kristalina Georgieva, managing director and acting chair of the IMF. World Bank Group President David Malpass also said, “Today was an important step toward Somalia resuming financing from international financial institutions.”

So, will Turkey venture into this new territory of offshore drilling in Somalia, and what are the implications? Indeed, Turkey will accept Somalia’s invitation for two reasons: Firstly, Turkey has a no-strings-attached policy and unwavering support for the fellow Muslim country. Turkey is in Somalia to show solidarity with the brothers and sisters of Somalia. Turkey has reiterated many times that this is not just for one day and it will continue to work for its brothers and sisters and will never abandon them. That pledge has been fulfilled. And, arguably, Turkey has succeeded where many other foreign backers and NGOs have failed before. Today, Turkey provides a great deal of infrastructure development and technical assistance to Somalia. Trade and economic cooperation between the two countries is also rapidly growing.

Secondly, as an emerging and industrialized economy, Turkey needs the natural resources of Africa. Hence in 2005, Turkey launched the Open to Africa policy which aims to increase economic and strategic relations with African countries. According to Anadolu Agency (AA), “Turkey’s bilateral trade volume with Africa increased threefold from 2003 to reach $18.8 billion in 2017, as exports totaled $11.6 billion and imports $7.1 billion.”

Is the risk of Somalia’s oil exploration worth the reward? The Somalia stakes are high due to the country’s rich abundance of oil and non-petroleum mineral wealth. The success of Turkey’s engagement with Somalia can be partly attributed to the risk-taking factor. Despite the security challenges, the Turkish government and Turkish nongovernmental organizations and businesses have expanded their aid and business operations to many parts of Somalia. From this perspective, Turkey has a comparative advantage in discovering Somalia’s oil first. Oil discovery in Somalia could help transform Somalia's economy and play a big role in Turkey’s energy security and investment opportunities.

Meanwhile many oil interests, including Western oil companies who have legacy oil contracts signed before the civil war in 1991, have recently turned their sights on Somalia’s potential oil and gas resources. This next great oil frontier will create fierce competition that will bring many benefits to the Somali people. However, as evidently seen in many parts of Africa and developing countries, resource richness can be a curse rather than a blessing. Good governance is the only answer to the challenges of the resource curse.

[Bootindheere]

ENI relieved as Kenyatta continues to sabotage maritime border proceedings

 

Kenyan President Uhuru Kenyatta. ©NJERI MWANGI/Reuters 

The Kenyan president has adopted aggressive delay tactics in recent months to try to prevent the International Court of Justice coming to a decision on Kenya's maritime border dispute with Somalia

https://www.africaintelligence.com/oil--gas_state-strategy/2020/06/03/eni-relieved-as-kenyatta-continues-to-sabotage-maritime-border-proceedings,108408210-eve

[Bootindheere]

Pirate pimps broke their own record of being the most treacherous group in Zoomaaliya.  They have extensive history of being pro colonialism.  Their founding father brought  Ethiopian troops in Somali soil two times.  And the biggest crime of all selling a huge chunk of Somali sea the size of Greece rich in natural resources to Kenya and some multinational companies for peanuts[creation of Jubaland, two airports in the middle of the desert and some other unsuccessful pirate wish lists such as the creation of Galmudug.  We will be uncovering a lot of secrets stay tuned.
 

[Mastermind]

12 hours ago, Bootindheere said:

Pirate pimps broke their own record of being the most treacherous group in Zoomaaliya.  They have extensive history of being pro colonialism.  Their founding father brought  Ethiopian troops in Somali soil two times.  And the biggest crime of all selling a huge chunk of Somali sea the size of Greece rich in natural resources to Kenya and some multinational companies for peanuts[creation of Jubaland, two airports in the middle of the desert and some other unsuccessful pirate wish lists such as the creation of Galmudug.  We will be uncovering a lot of secrets stay tuned.
 

Lol a topic about oil somehow ends up with a rant about pirates and two airports in the desert. This kid is so sick beyond repair.