Bloomberg News

Somalia’s Federal Government Says Regional Oil Permits Invalid

October 07, 2013

Somalia’s federal government, seeking to reassert control over the war-ravaged country, said oil exploration licenses issued by regional governments in the Somaliland and Puntland regions of country are invalid.

Genel Energy Plc (GENL), Africa Oil Corp. (AOI) and Ophir Energy have won licenses to search in Somalia’s semi-autonomous regions, although work has been slowed down by security concerns as the nation has to fight al-Qaeda-linked Al-Shabaab militia.

“Any contract that was given or awarded by a federal member state is not valid,” National Resources Minister Abdirizak Omar Mohamed said today at a conference in London. Companies holding those licenses “should start negotiations with the federal government.”

Mohamed also urged Royal Dutch Shell Plc (RDSA), Exxon Mobil Corp. (XOM:US) and other companies that stopped work at the start of the civil war in 1991 to return to Somalia. The nation plans to start seismic exploration next year and hold a tender for licenses after the survey is completed.

Although it has no proved reserves, drillers are betting Somalia has geology similar to Yemen across the Gulf of Aden, which split from Africa about 17 million years ago. The Middle East country holds 2.7 billion barrels of proved oil reserves.

Shell “has engaged with the government of Somalia -- these discussions are of a preliminary and exploratory nature,” Julia Dudley, a London-based spokesman at the company, said by e-mail. Shell “expressed interest in appraising opportunities for future projects in Somalia.”

Federal Control

Somalia’s government is working on the new petroleum legislation, including a change to the constitution regarding natural resource ownership, Mohamed said. The nation’s parliament would have to ratify the proposals, which would enforce the federal government’s authority.

“Our legal contracts with” Puntland “were subsequently acknowledged and recognized by the Somalia transitional federal government,” Alex Budden, a vice president at Africa Oil, said in an interview in London.

The Canadian company last year drilled the nation’s first oil well in at least 20 years. It didn’t find oil or gas reserves.

“We are not pushing forward exploration activities,” he said. “We want to see how this situation resolves. We are still able to meet our legal commitments.”

Puntland suspended cooperation with the Somalia federal government, partly because of the central authority’s failure to share resources, it said in August.

Civil War

Eni SpA (ENI), BP Plc (BP/), ConocoPhillips (COP:US), Chevron Corp. and other companies also had interests in Somalia prior to the civil war. All left the nation because of security concerns. Shell is monitoring “the security and operating environment in and surrounding Somalia,” Dudley said.

“We will honour those rights, but we also like to change the terms of their contracts” to production sharing agreements from concessions, Mohamed said. “The country is becoming safer now. We want them to come and explore.”

The history of pirate attacks on key shipping routes near Somalia may require increased security for offshore exploration. Still, there were no “successful pirate attack or hijackings” this year, Mohamed said.

Soma Oil & Gas, a London-based company started this year, plans to invest about $20 million in the seismic research off Somalia, Chief Executive Officer Robert Sheppard said in London. The company is seeking bids from survey contractors and plans to start the work early next year.

“The geologic structure offshore is pretty compelling,” he said. “We are already working with the government and other people to make sure that we have sufficient security for the seismic operations.”

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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