Somalia commissions onshore oil surveys

Story by Bloomberg

Somalia is conducting offshore surveys in hopes of attracting explorers including Royal Dutch Shell Plc two decades after the outbreak of a bloody civil war drove foreign investors away.

The East African country plans to hold a licensing tender next year after Soma Oil and Gas, funded by Russian billionaire Alexander Djaparidze, completes the seismic study, according to Abdullahi Haider, a federal government adviser. Somalia, with no proven reserves, has been in talks with Shell about resuming work suspended at the start of the war in 1991, said Abdirizak Omar Mohamed, an adviser to President Hassan Sheikh Mohamoud.

“Once we settle all the issues between the federal-central government and regional authorities, the petroleum law, the establishment of the regulatory framework, then optimistically there will be full-scale exploration,” Haider said in an interview from Mogadishu. “This time next year we could have the possibility of seeing major oil companies coming in.”

International oil companies are weighing a return to the Horn of Africa nation as the political situation stabilizes and pirate attacks subside. Somalia wants to catch up with Kenya, Tanzania and Mozambique to the south, where recent discoveries promise East Africa’s first oil exports as soon as 2016.

Armed Insurgents

“We have expressed interest in appraising opportunities for future projects in Somalia,” said Julia Dudley, a London-based spokeswoman at Shell. The Anglo-Dutch company holds rights to blocks M3 to M7 where it still has force majeure in place, exempting it from exploration obligations.

Foreign investors continue to face obstacles, from problems transferring funds to the country to security threats from al-Shabaab militants, who have waged an insurgency since 2007 to try to topple the Western-backed government and impose Shariah, or Islamic law.

Djaparidze-led investment company Winter Sky, which holds 30 percent of Soma Oil, provided the explorer with $50 million to start the survey in an area the size of the North Sea, Soma Oil Chief Executive Officer Robert Sheppard said. Soma Oil will have the right to make an application for as many as 12 blocks covering 60,000 square kilometers (23,000 square miles) in “consideration for doing” the seismic study, he said.

‘Risk Exposure’

The company “will be given some blocks, but it’s not going to be their own preferences,” said Mohamed, the government adviser. “We will have an open and transparent bidding process,” said Mohamed, a former national resources minister who signed the survey contract with Soma Oil.

“Somalia seems promising,” Djaparidze’s son Georgy, a non-executive director at London-based Soma Oil and an investor in the company, wrote in an e-mail. It’s his first project in East Africa, and he chose it because he was seeking an opportunity to increase risk exposure, he said by e-mail.

Djaparidze senior is a founder of Eurasia Drilling Co., Russia’s largest oilfield services provider, and has extensive experience in petroleum exploration.

Soma Oil is betting on oil discoveries in Madagascar, where more than a dozen companies including Exxon Mobil Corp. and Total SA are operating. The island split from East Africa about 165 million years ago, and it’s gearing up “to find something very big” in south Somalia’s deep waters, where the only well ever drilled was by Exxon in 1982, Sheppard said in an interview in London.

Somalia “will be able to negotiate and work with them, the big companies, on a more equal basis” equipped with seismic data, he said. “We’ll open the door for the big guys.”