Will Somalia’s above-ground dangers dampen its E&P licensing prospects?

Amid increased world oil costs and a heightened concentrate on new oil and gasoline provide sources to offset dependence on Russia, East African frontier Somalia has a renewed alternative to appeal to international traders to its upstream hydrocarbon sector. However, given restricted exploration success up to now, the acute governance, safety and infrastructure dangers evident within the nation could show to be difficult obstacles to exploration and manufacturing (E&P) improvement. IHS Markit Petroleum Economics and Policy Solutions (PEPS) Oil & Gas Risk just lately mapped Somalia’s graded threat profile in response to its established methodology, inserting Somalia 107th out of 119 nations and territories lined by their Oil & Gas Risk rating.

Signs of political will and legislative progress…

Hydrocarbon sector exercise in Somalia has been restricted after an preliminary wave of exploration exercise within the Fifties and 60s resulted in 5 non-commercial onshore hydrocarbon discoveries. A small variety of offshore shelf and deepwater exploration wells within the Nineteen Seventies and 80s yielded no outcomes, and all exploration exercise ceased after the beginning of the Somali civil battle in 1991. Despite the institution of an internationally supported federal authorities in 2012, establishments stay divided and weak.

However, latest developments level to growing political will to appeal to upstream traders, most prominently by way of the passage of the 2020 Petroleum Act, which included the institution of a brand new regulator, the Somali Petroleum Authority (SPA), as nicely because the creation of Somalia . National Oil Company (SONOC).

Following the passage of the Petroleum Law, the federal government launched the nation’s first bidding spherical in August 2020. The deadline for the spherical has been repeatedly pushed again, and as of July 2022, there are nonetheless seven offshore ultra-deep blocks on supply. With the conclusion of the delayed presidential election in May 2022, selling the bidding spherical is possible to be a short-term precedence for brand spanking new President Hassan Sheikh Mohamud, given the nation’s restricted financial improvement.

Meanwhile, the federal authorities has held discussions with worldwide oil corporations (IOCs) Shell and ExxonMobil to transform current concessions – underneath pressure majeure for the reason that begin of the civil battle – into manufacturing sharing agreements (PSAs) underneath the 2020 Petroleum Law. In 2019, Shell-ExxonMobil paid $1.7 million in retrospective charges for the licensed blocks, adopted by an settlement in early 2020 between the federal government and Shell-ExxonMobil on a roadmap to transform the concessions. As of July 2022, nevertheless, there have been no updates on whether or not the IOCs intend to finalize the roadmap.

… however excessive safety dangers, lack of infrastructure and governance points stay obstacles

Although Somalia has made progress in creating its authorized and institutional framework for the hydrocarbon sector, main challenges stay for international traders, and most instantly for the continuing bidding spherical. Somalia’s political instability and pervasive insecurity imply the nation stays one in every of the least engaging rising frontiers globally.

The most distinguished threat for international upstream traders in Somalia is lack of safety. The jihadist group Harakat al-Shabaab al-Mujahideen (al-Shabaab) controls massive elements of southern and central Somalia and carries out frequent assaults on navy, worldwide and authorities property and personnel. While AMISOM/ATMIS (African Union Mission to Somalia/African Union Transition Mission in Somalia) has assisted the federal government in containing al-Shabaab, the deliberate drawdown of ATMIS over the subsequent few years and the dearth of capability of the nationwide forces will possible result in elevated al-Shabaab presence and continued assaults, together with in opposition to worldwide personnel and services.

Furthermore, tensions between the federal authorities and the states create extra instability as nicely as a degree of regulatory unpredictability. One of the blocks in the continuing bidding spherical is positioned off the federal state of Jubaland, which has a long-standing contentious relationship with the federal authorities – together with over the 2020 oil regulation. This will complicate any settlement on licensing phrases, significantly in relation to income sharing and native content material. In addition, the state of Somaliland has declared itself impartial and established separate governance constructions, together with for hydrocarbon actions.

Geological research have indicated the potential for vital hydrocarbon deposits within the offshore blocks at the moment on supply. Investors could also be attracted by hopes of a serious liquid discovery in geological constructions just like the resource-rich, albeit gas-prone Rovuma Basin off Mozambique. However, Somalia’s insecurity, political instability and competing federal and regional pursuits imply that the nation is possible to face challenges in attracting traders with the vital experience and capability to discover and develop the deepwater acreage on supply. The ultra-deepwater nature of the out there blocks would require vital funding, and potential traders can even possible need to decide to contributing to the improvement of at the moment non-existent onshore hydrocarbon infrastructure.

Still, growing regulatory maturity and ongoing engagement with Shell and ExxonMobil are encouraging indicators of additional E&P exercise. Sustained authorities efforts to enhance upstream funding dangers will likely be essential to maintaining Somalia’s geological potential engaging to explorers with a excessive threat urge for food each beneath and above floor in the present transitional context.

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