Somalia struggles to tap Western oil investment

LONDON – Western oil majors who quit Somalia at the beginning of its long civil war have no plans to take up a government invitation to return, and their insistence that 1980s deals remain valid threatens Somalia’s hopes of oil riches.

Prime Minister Ali Mohamed Gedi is trying to push a new oil law through parliament that would pave the way for foreign investment in oil and gas exploration. Gedi told Reuters last week he hoped companies that were formerly active in the country – Conoco, now known as ConocoPhillips, Chevron, Amoco, now owned by BP Plc, AGIP, a unit of Italy’s ENI SpA and Royal Dutch Shell Plc – would return and take up new contracts.However, none of the companies previously active in Somalia said they had any plans to resume operations there.Industry sources said concerns over security and the stability of the government, and doubts about the potential rewards, were deterring the oil majors.”There’s not a lot of excitement about it.No one thinks it’s going to yield lots of elephant fields,” a source at one of the firms said.Somalia has no proven reserves, but some geologists believe oil-rich basins across the Gulf of Aden in Yemen could extend into Somalia, and that technology developed since exploration last took place could help unlock significant reserves.Rumours abound among those active in the Somali oil business of internal Conoco files that document individual fields containing hundreds of millions of barrels of oil.Monica Enfield, Africa specialist at industry consultants PFC Energy said that, as with Iraq’s Kurdistan region, Somalia was currently more likely to receive investment from independent oil explorers.”If they’re hoping to attract investment, it’s going to be from companies that have a much higher risk tolerance than traditional international oil companies,” she said.Two little-known companies have already acquired rights in the semi-autonomous Puntland region and the breakaway Somaliland enclave, but the companies lack the resources necessary to develop the fields alone, industry sources said.Somalia needs mid-sized firms prepared to bet hundreds of millions of dollars on exploration and development.However, BP and Shell insist that their exploration contracts from the 1980s are still valid.Conoco, Chevron and ENI declined to comment, but industry sources said they also probably had similar claims.Although the contracts typically spanned only a few years, BP and Shell say the civil war forced them to declare “force majeure”, a term that effectively stops the clock on the contract but keeps it intact.BP and Shell declined to say what steps they might take if the transitional government awarded licences over the blocks they formerly owned to other companies, but Chris Flynn, senior energy associate at international law firm Ashurst, said it was likely they would seek legal redress.”There is a possibility that they could claim, under international law, that the assets have been expropriated,” Flynn said.This threat could cast a shadow over any licensing round.Nampa-ReutersGedi told Reuters last week he hoped companies that were formerly active in the country – Conoco, now known as ConocoPhillips, Chevron, Amoco, now owned by BP Plc, AGIP, a unit of Italy’s ENI SpA and Royal Dutch Shell Plc – would return and take up new contracts.However, none of the companies previously active in Somalia said they had any plans to resume operations there.Industry sources said concerns over security and the stability of the government, and doubts about the potential rewards, were deterring the oil majors.”There’s not a lot of excitement about it.No one thinks it’s going to yield lots of elephant fields,” a source at one of the firms said.Somalia has no proven reserves, but some geologists believe oil-rich basins across the Gulf of Aden in Yemen could extend into Somalia, and that technology developed since exploration last took place could help unlock significant reserves.Rumours abound among those active in the Somali oil business of internal Conoco files that document individual fields containing hundreds of millions of barrels of oil.Monica Enfield, Africa specialist at industry consultants PFC Energy said that, as with Iraq’s Kurdistan region, Somalia was currently more likely to receive investment from independent oil explorers.”If they’re hoping to attract investment, it’s going to be from companies that have a much higher risk tolerance than traditional international oil companies,” she said.Two little-known companies have already acquired rights in the semi-autonomous Puntland region and the breakaway Somaliland enclave, but the companies lack the resources necessary to develop the fields alone, industry sources said.Somalia needs mid-sized firms prepared to bet hundreds of millions of dollars on exploration and development.However, BP and Shell insist that their exploration contracts from the 1980s are still valid.Conoco, Chevron and ENI declined to comment, but industry sources said they also probably had similar claims.Although the contracts typically spanned only a few years, BP and Shell say the civil war forced them to declare “force majeure”, a term that effectively stops the clock on the contract but keeps it intact.BP and Shell declined to say what steps they might take if the transitional government awarded licences over the blocks they formerly owned to other companies, but Chris Flynn, senior energy associate at international law firm Ashurst, said it was likely they would seek legal redress.”There is a possibility that they could claim, under international law, that the assets have been expropriated,” Flynn said.This threat could cast a shadow over any licensing round.Nampa-Reuters