Somalian PM Hopes to Tempt Oil Majors Back with Oil Law

[me]

Somalian PM Hopes to Tempt Oil Majors Back with Oil Law

by Benoit Faucon

Dow Jones Newswires

Friday, April 13, 2007

 

 

LONDON Apr 13, 2007 Dow Jones Newswires

 

Somalian Prime Minister Ali Mohamed Gedi hopes big oil companies will return to the country and said parliament is set to vote on a petroleum law to encourage this by providing a legal framework.

 

Gedi told Dow Jones Newswires last week: "The parliament will approve the law within two months."

 

Large oil companies were awarded acreage before the country's government collapsed in 1991 but have yet to return owing to years of political instability and violence.

 

To get their contracts confirmed, the companies "will have to comply to the terms of concessions agreements" demanded by the law, Gedi said.

 

He emphasized that the law stipulates contracts will be production-sharing agreements. These require companies to share their production with governments after they recover their costs.

 

Asked whether contract holders had expressed any interest in returning, the prime minister said: "We have the information that they are interested," but declined to give any names.

 

But until the law is passed, "they have to wait and see," he added. The law will come into force as soon as it is approved by the parliament, Gedi said.

 

Royal Dutch Shell PLC (RDSB.LN), Phillips, now part of ConocoPhillips (COP) and Chevron Corp. (CVX) were awarded exploration acreage before 1991. Eni SpA (E) also has licenses in the country, though it's unclear when they were granted.

 

A person close to Shell said the company "is monitoring the situation" and a Chevron spokesman said it didn't intend to return to Somalia. Eni and ConocoPhillips didn't return requests for comment.

 

A spokeswoman for Total SA (TOT) said the company signed a technical agreement with the Somali government in 2001 to conduct seismic work offshore but that the security and political situation has so far prevented the company from implementing the contract.

 

Recent fighting that pitted Somali government troops and their Ethiopian allies against Islamist insurgents killed more than 1,000 civilians and wounded 4,300 in the capital Mogadishu, according to a committee assessing damage from the worst fighting in more than 15 years, released Monday.

 

The insurgents are linked to the Council of Islamic Courts, which was driven from power in December by Somali and Ethiopian soldiers, accompanied by U.S. special forces. The U.S. has accused the Islamic group of having ties to al-Qaida. Washington has also accused neighboring Eritrea of supporting the Islamic Courts.

 

The Courts stockpiled thousands of tons of weapons and ammunition during the six months they controlled Mogadishu. The insurgency will likely last until that stockpile is depleted, or key leaders are killed.

 

The militants have long rejected any secular government and have sworn to fight until Somalia becomes an Islamic emirate.

 

Experts fear the conflict in Somalia could engulf the region.

 

Somalia has been mired in chaos since 1991, when warlords overthrew dictator Mohamed Siad Barre and then turned each other. A national government was established in 2004 but has failed to assert any real control.

 

Copyright © 2007 Dow Jones & Company, Inc.

[N.O.R.F]

Currently dealing with two of the mentioned companies. Who knows i might be ripping off the TFG soon

[Gordon Gekko]

^^ If your the one thats doing the dealing I'm confident the TFG has no worries you'll rip 'em off lol. Besides, most ppl has overestimated the extent of commercial oilfields in Somaliland, Puntland...

[N.O.R.F]

i thinks its more offshore (red sea) than onshore

[Gordon Gekko]

^^ The real million dollar question is if the indian ocean side has greater potential than the Red Sea side.

[ElPunto]

^Actually - for me - it's the estimates of likely reserves. If we're talking about 1 billion barrels of recoverable oil or less - I don't think it will mean much for Somalia as a whole.

[ElPunto]

The search for big oil

 

Joe Castaldo

Canadian Business magazine

 

Two years ago, the Transitional Federal Government of Somalia announced to the world it was essentially open for business. Prime Minister Ali Mohamed Gedi told reporters the country was prepared to offer oil, gas and mineral concessions to foreign companies, although this invitation came with a warning: all firms were to do business only with his government and not some clan jostling for power. "Any violation of this statement will result in negative consequences," he warned, adding that the "culprits will take the responsibilities on their shoulders."

 

 

Issuing a threat along with a call for business may be unorthodox, but this is Somalia, after all, and one should expect unorthodoxies when doing business in a country that has existed without a strong, functioning government for 15 years. Despite the prime minister's ominous warning, and the violence and instability that have ravaged the East African country for years, a few oil and gas firms have dipped their toes into Somalia, while Vancouver-based Canmex Minerals Corp. has plunged headfirst.

 

 

The company signed a partnership with Australian exploration junior Range Resources Ltd. in late January to explore for oil and gas in northern Somalia, marking one of the first extensive exploration efforts since civil war broke out in 1991. Canmex (TSXV: CXM) will spend $50 million on two basins in which it will acquire an 80% operating interest from Range should commercial production begin.

 

 

Somalia has long been thought to contain petroleum reserves (oil exploration dates back to at least the 1950s) and many companies have tried to profit from whatever lies beneath the surface, including ConocoPhillips, Amoco and Total. But conditions have never permitted a successful drilling operation to be implemented.

 

 

"It's a very good place to look for giant oilfields, and there aren't many places like that left in the world," says Canmex CEO Rick Schmitt, who is quick to dismiss the notion the Muslim country's fragile political situation could prevent the company from making any progress. This is despite the fact that some of the worst fighting in years broke out in March, with media reports estimating more than 100 people have been killed so far. "We don't have any concerns. Otherwise we wouldn't be working there," says Schmitt. Canmex acknowledges in its filings, however, that "the risk of war, terrorism…or nullification of existing or future concessions" could derail exploration efforts.

 

 

So why is it worth the risk? According to Schmitt, a preliminary resource report indicates the potential for at least two billion barrels of oil on just one of the Canmex properties. (The other property has yet to undergo a similar assessment.) Canmex hopes to score in Somalia where the major oil companies failed, and it's connected with the successful Lundin family, who are accustomed to operating businesses in some of the world's most dangerous places.

 

 

Swedish brothers Lukas and Ian Lundin oversee a portfolio of mining, oil and gas companies based in Europe and Vancouver, and have delved into Sudan and the Democratic Republic of Congo. The brothers got into the business thanks to their father, Adolf, a petroleum-engineer-turned-entrepreneur who made a number of oil and gas discoveries in Africa and South America. (Adolf died last September at the age of 73.)

 

 

Canmex shares directors with other Lundin firms, and one of the family's private holding companies, Abalone Capital, is the largest shareholder. Canmex was founded in 1993 and languished in the Lundin portfolio for years as a shell company. That changed when Keith Hill, board member of a number of Lundin firms, learned Range Resources was looking to farm out oil exploration in Somalia. Range had signed concessions in 2005 with the state of Puntland, a semi-autonomous region in the northeast that, unlike the rest of the country, has a relatively stable local government. The concessions gave Range a 50.1% interest in all mineral, oil and gas development in Puntland, which is approximately 212,000 square kilometres in size. Hill contacted Schmitt about the project, who was then employed as a consultant to Lundin companies Pearl Exploration and Valkyries Petroleum, and who ultimately negotiated the farm-out deal and joined Canmex as CEO.

 

 

Initially, the deal did not go over well with Prime Minister Gedi in the capital, Mogadishu. He wrote a letter to the Australian Securities Exchange arguing the concessions were not valid because only his government had the power to authorize them. But Gedi later expressed his full support for the venture. How Range was able to negotiate such a deal is a bit of a mystery even to Schmitt. "It's difficult to say how they got in there, but they've made a very successful job of it," he says.

 

 

Somalia has been on the radar of oil companies for quite some time. The country was seen as a promising oil prospect since its geology is similar to that of Yemen, a country with nearly four billion barrels of proven reserves. Yemen's oil structures are thought to extend all the way down into Somalia. In 1991, the World Bank and the United Nations conducted a study of the oil prospects of African countries and identified Somalia as a prospective play.

 

 

The political situation in the country fell apart that same year, however. President Siad Barre, who signed the concessions with western oil firms, fled in January. That led to a vicious power struggle among warlords, followed by U.S. intervention in 1992 on "humanitarian grounds." Troops were pulled out by 1994, after several dozen U.S. soldiers and hundreds of civilians had been killed. Oil companies had long ceased all exploration efforts by then.

 

 

The oil potential of Somalia has largely remained a question mark ever since, while exploration in other African nations has taken off in part due to energy-hungry China. That country has invested more than US$4 billion in Sudan over the past 10 years, and spent US$2.2 billion in 2006 for exploration rights in Nigeria. While most oil exploration is concentrated in western African, the east is now getting more attention. "It's a frontier zone for the most part, but it's fast opening up," says Duncan Clarke, chairman and CEO of Global Pacific & Partners, a London-based oil and gas advisory firm. Clarke stresses that work in Somalia is still in its early stages. Canmex has yet to drill an exploratory well, and until it does, the project's viability is unclear.

[General Duke]

^^^Some good info lads.

[Jacaylbaro]

too early to talk about this ,,,,,,,,,

[Xudeedi]

Oil & Mining Deal: The Offspring of an Affair between Greed and Incompetence (Part I)

 

Oil & Mining Deal: The Offspring of an Affair between Greed and Incompetence (part II)