Somalia is opening the door for exploration by international oil companies to revive its war-torn energy sector after the completion of a key seismic survey across offshore acreage by Soma Oil & Gas Exploration.
The London-based explorer has now wrapped up the 20,500-kilometre 2D shoot over the 122,000 square-kilometre Offshore Evaluation Area as part of a commitment under an exploration pact signed with the Somalian government last year.
The 100-day survey was carried out by a pair of vessels, Northern Explorer and Hawk Explorer, chartered from Oslo-listed SeaBird Exploration with $50 million in funding from UK private investment firm Winter Sky.
Processing of the acquiried seismic data is set to be completed by year-end and it will be gifted to the African state’s Ministry of Petroleum & Mineral Resources under the terms of the agreement, with a data room to be opened.
The ministry said in a statement completion of the seismic work on budget and on schedule, and without any security incidents in Somalian waters previously plagued by piracy, “demonstrates that operational conditions exist in Somalia permitting international oil companies to conduct exploration work safely and efficiently”.
“The ministry will be evaluating the results of the seismic acquisition programme and then develop a plan to initiate further exploration work in the evaluation area and elsewhere in Somalia,” it stated.
Somalia is looking to revamp petroleum legislation dating back to 1984 as it prepares for a licensing round to offer fresh acreage to international explorers in an effort to regenerate an oil and gas industry ravaged by two decades of civil war.
Onshore government forces continue to battle with al Qaeda-linked group al Shabaab, while offshore Puntland-based pirate groups have plagued the shipping industry in the Gulf of Aden and wider Indian Ocean for years, also acting as a deterrent to would-be oil and gas explorers.
However, Petroleum & Mineral Resources Minister Daud Mohamed Omar said the realisation of the seismic survey was a “significant milestone” that “demonstrates the federal government’s commitment to re-opening Somalia’s oil and gas industry".
He said it also “confirms that the historic security risks associated with Somalia are continuing to diminish”.
Omar added: “The federal government is looking forward to further developing the hydrocarbons industry and engaging with international oil companies to conduct exploration work in Somalia.”
Soma, launched last year by ex-BP executive Robert Sheppard, aims to be an early mover on underexplored acreage comparatively close to proven hydrocarbon provinces onshore Uganda and Kenya and off Mozambique and Tanzania.
However, Somalia’s recently formed federal government under President Hassan Sheikh Mahmoud needs to provide the necessary political stability, security and infrastructure for large-scale upstream development to secure the benefits from petroleum revenue, according to John Sisa, lead upstream analyst with London-based research and consulting firm GlobalData.
A top priority is establishing its authority over breakaway regional administrations such as Somaliland that have signed oil and gas contracts presently declared illegal by the central government.
Genel Energy holds interests in two production sharing agreements covering five blocks in Somaliland, while Africa Oil holds exploration interests in two PSAs for two blocks in Puntland.
The central government plans to sign at least 30 production sharing contracts by the end of 2014 that will replace these and all other existing contracts, according to the firm.
The Somaliland government also recently granted consent to Sterling Energy to acquire a 40% interest in the PSA covering Block SL6 and part of blocks SL7 and SL10 from Petrosoma and Jacka Resources.
“This transaction’s approval will be a test of the sovereignty of the federal government’s new federal constitution, since it was not consulted over this,” Sisa said.
He added: “A degree of contract sanctity will be viewed positively by the industry with respect to active contract holders, but a working relationship between the federal and regional governments is crucial for this.”
Under Somalia’s draft PSA, the federal government would collect a share of revenues between 55% and 60% if at least 50 million barrels of recoverable oil reserves are discovered, giving it a substantial return, according to the analyst.
“However, Somalia’s governmental authority remains fragile, and existing local clan militias, Al-Shaabab Islamists and pirates could interfere or attempt to assert control over hydrocarbon resources. This would result in increased uncertainty, higher risk and delays to exploration in the region,” he said.