Somalia: Oil Exploration in the frontier market

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Risks and potential await those chasing Somalia’s oil rush
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Political instability, legal uncertainty over the maritime border and piracy all threaten the potential development of the hydrocarbon sector in Somalia as it slowly recovers from over two decades of civil war and anarchy. Substantial above-ground risks need to be confronted, according to a new study by Business Monitor International (BMI).

UK-based Soma Oil and Gas is a newly created independent company set up specifically to pursue Somali oil and gas exploration in what the company itself describes as “the highly prospective East Africa region.”

On August 6th the Somali government announced the signing of an agreement with Soma to conduct seismic surveys in its territorial waters and in limited onshore areas.

On August 21st Soma announced the appointment of Philip Wolfe as CFO (Chief Financial Officer), a post effective from September 16th.  Wolfe has a track record of advising clients with operations in East Africa and his appointment comes ahead of plans to secure additional funding for the agreed work programme.

Soma is headed by chairman Michael Howard, a former Conservative Party leader who has held various cabinet positions in the British government, and CEO Robert Sheppard, an ex-BP executive with over 40 years’ experience in the energy sector. The company is reportedly investing $20m in oil exploration in Somalia.

“The most recent world class oil & gas discoveries in East Africa in Uganda, Kenya, Mozambique and Tanzania, have attracted many investors to this frontier market,” Wolfe commented.

Although several of the country’s self-proclaimed autonomous or quasi-independent regions have inked deals with international oil companies (IOCs) in the past,

BMI pointed out in its analysis of the risks, “this is the first agreement signed by the internationally recognised central government, following more than two decades of civil war.”

“The biggest threat to upstream companies looking to operate in Somalia is the lack of clarity regarding who has the power to grant rights for hydrocarbon development,” PANA quoted from the study.

Under a proposed but not yet adopted petroleum law, only the central government would be able to distribute natural resources but, as the report pointed out, Mogadishu lacks the power to enforce its mandates.

High levels of violence are likely to keep operational risks high as large chunks of the rural south are still under the control of militant Islamist group Al-Shabaab rather than the government.

Concerns have been raised over Soma being picked for such a deal over more experienced oil players, How We Made it In Africa reported. The East African Energy Forum, a lobby group whose avowed aim is to protect the natural resources and sovereignty of Somalia, has accused Soma’s deal of not being transparent.

It has also questioned Soma’s capacity and capability, considering that the company is only a few months old.

An oil and gas summit to “explore the developing Somali oil and gas industry and showcase the resources available for investment” is to be held in London on October 7th.

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