Somalia May Pay 90% of Oil Revenue to Explorer Under Draft Deal

[ElPunto]

Bloomberg

 

By Ilya Gridneff

Friday, May 29, 2015

 

 

NAIROBI -- Soma Oil & Gas Holdings Ltd., chaired by former U.K. Conservative Party leader Michael Howard, has proposed a deal with the Somali government that may grant it as much as 90% of the country’s prospective oil revenue.

 

A draft production-sharing agreement, obtained by Bloomberg from an official close to the negotiations, sets the state’s share of revenue on the first 25,000 bopd at 10% if found at a depth of greater than 1,000 m and when oil costs less than $70 a barrel. If output exceeds 150,000 bbl, Somalia’s take rises to 30%. Crude for delivery in June fell 0.4 percent to $57.30/bbl at 4:45 p.m. in London on Thursday.

 

Any deal with Somalia will include terms that are “fair and balanced” and reflect those signed in other high-risk, offshore oil and gas jurisdictions, Chief Executive Officer Robert Sheppard said in an e-mailed response to questions on May 27. “The proposals being discussed are in line with current industry standards.”

 

Somalia is trying to attract investors to help rebuild its economy after African Union-backed government forces regained control of parts of its central and southern region seized by al-Shabaab in an insurgency that began in 2006. The Horn of Africa nation is scheduled to hold a general election in 2016, the first since 1967, according to the Heritage Institute, a Mogadishu-based research organization.

 

Oil and gas output may start by 2020 after exploration work showed the potential for “huge” offshore deposits, former Petroleum Minister Da’ud Mohamed Omar said in February.

 

Production Model

 

The government is drafting a production-sharing-agreement model before signing any deals, the Petroleum Ministry said April 20. “Nothing has been signed and there are no developments,” Fatima Mohamed, personal assistant to Petroleum Minister Mohamed Moktar Ibrahim, said by phone on May 25 after being asked to comment on the Soma proposal.

 

The draft agreement calls for the London-based company to be granted a four-year royalty holiday for oil and gas found less than 1,000 m below the sea surface. Deeper finds should carry a six-year moratorium, the document shows. Soma also requested a moratorium on taxes for at least 10 years.

 

Johnny West, founder of Berlin-based OpenOil, the world’s largest public online database of oil contracts, compared the terms of the Soma PSA to nine “early-stage” offshore African contracts, including post-war Liberia, that have potentially high costs, high exploration risk and various degrees of political risk.

 

‘Significant’ Deferment

 

“None of them defer significant revenue streams to the government for as long as Soma,” he said. “The next lowest cap on upside to the government of a mega-find is effectively 60% of profit, half as much again as in the Soma deal,” he said in a phone interview.

 

Soma proposes that if oil prices are at $70 to $150/bbl, the company receives 70% of revenue for the first 25,000 bbl and 50% on production in excess of 150,000 bopd. The company also offers the government 50% for the first 25,000 barrels and 30% for production above 150,000 bbl if oil rises above $150/bbl -- which would be a record high.

 

“Normally, fiscal and commercial terms for petroleum exploration, development and production are carefully crafted by the host government to balance the perceived petroleum prospectivity of a region,” said Michael McWalter, an international oil and gas specialist and former adviser to the Ghanaian government. “If oil and gas are abundant, the government takes a greater percentage of the net value of the petroleum after costs have been recovered, and conversely if not so abundant, the government takes less.”

 

Soma has spent $40 million on seismic surveys of 60,000 sq km off the Somali coast, according to the company’s website. In November, Sheppard said the company would give the government its processed seismic data by “late this year, early next year.”

 

The data will be transferred to the Petroleum Ministry by the end of the second quarter, Sheppard said this week.

 

[ElPunto]

Apparently the worst ever deal if signed. Somehow we manage to do much worse than the worst African countries. Consistently.

[Nin-Yaaban]

Well, where is the OIL? I remember when Puntland said there was oil in their lands and everyone and their HOOYO was clapping and being over the moon and telling everyone how rich they were.

 

ElPunto, these kinda headlines show up once every two or three years sxb. Don't pay any attention to it and get ur hopes up.

 

I honestly don't believe there is OIL anywhere in Somalia. Show me the OIL first.

[Miskiin-Macruuf-Aqiyaar]

Yaabane, Soomaalida shidaal iyo macdanba dhulkeeda iyo baddeedaba waa laga heli karaa. Laakiin xiligaan kuma haboona in lasoo faago, mana jeclaan lahayn. Intee Soomaaliya liidato, oo labadeeda lug ku istaagi karin iyadoo awood leh waligeedba yaanan lasoo saarin macdanta iyo shidaalka dhulkeena iyo baddeena ku hoos duugan. Siiba intee tuugadaan afarjeeblayaasha ah dalka hoggaankooda sheegtaan.

[ElPunto]

NY - this company is not spending 40 million because it thinks that there is nothing there. And as for Puntland - they only dug 2 wells - whereas areas of that size would need hundreds of wells dug to rule out oil. Trust me there is oil in that country - what isn't fully known is the quantities.

 

MMA - folks said the same thing about the TFG created in Nairobi - it was better to wait since that was a corrupt process with a corrupt outcome. But any government is better than chaos. Despite the ineptitude of our current government - having independent resource money is better that waiting for the next handout from the international community.

[Mooge]

Niyoow I am not surprised by what qoslaye can do. money is his life and he is accumulating lots of it. niyoow anything to fatten his pocket is fine in his books. He is the most corrupt president we have ever seen.