Somalia’s oil and gas industry lies dormant amid persistent speculation
Somalia’s Oil Gamble: Promise, Pitfalls and a Narrowing Window
In a region where new oil and gas frontiers can redraw maps and fortunes, Somalia has long carried a paradox: abundant potential beneath the ground, and little to show above it. Today, with fresh licenses signed and seismic boats in the water, the country stands at another inflection point. The question is not whether hydrocarbons lie under Somali soil and sea—the geological hints are there—but whether the politics, contracts and institutions can finally bring them to surface.
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A promise deferred
Somalia’s oil story stretches back a century, with real momentum in the 1950s and 1960s as companies like Sinclair Oil surveyed basins and drilled exploratory wells. Major firms—Conoco, Chevron, Amoco, Shell—followed in the 1980s, energized by discoveries across the Gulf of Aden in Yemen. Then war threw down a hard stop. What remains today are legacy blocks, hopes sketched on seismic maps, and a hard statistic: only two wells drilled in the last 35 years.
That scarcity of drill bits is not for lack of licensing. Seven companies now hold 31 blocks across Somalia and North Western State of Somalia, onshore and offshore, including big names tied to earlier eras (Shell and ExxonMobil) and newer entrants (Coastline Exploration, Liberty Petroleum, and Turkey’s TPAO). TPAO has completed 3D seismic over roughly 4,500 square kilometers offshore and received additional onshore acreage in April 2025. The map, on paper, looks active. The rigs, so far, do not.
The neighborhood is moving
Across East Africa, hydrocarbon milestones are arriving with regularity. Uganda’s Lake Albert basin is estimated at over 6.5 billion barrels, and the $10 billion EACOP project is marching toward first oil—despite headwinds from financiers and activists. Kenya’s Turkana discoveries are modest but real. Offshore Tanzania and Mozambique, the Rovuma basin’s vast gas—up to 250 trillion cubic feet—has drawn global heavyweights, and Mozambique’s LNG projects are moving again after a hard reset on security. Ethiopia’s Ogaden has proven gas watchers.
Somalia belongs in this conversation. Its basins—onshore and offshore—show working petroleum systems, hydrocarbon seeps and technical discoveries. Add a strategic coastline that sits on international shipping lanes and, on paper, the ingredients are there for investment.
Licenses without drills
Why the disconnect between paper and practice? The short answer: too many contracts, too little capability, and not enough enforcement.
Somalia’s Production Sharing Agreements (PSAs) set minimum work programs and timelines, but in too many cases those commitments aren’t being met. Some license holders struggle to finance or execute the work; others seem to be speculating, sitting on acreage in the hope of flipping it. Deadlines slide, obligations flex, and activity stalls.
This is not a uniquely Somali problem. Frontier markets often attract small, risk-tolerant firms willing to enter early. Sometimes they unlock value. Sometimes they hold ground but don’t progress, particularly if governments don’t enforce “use-it-or-lose-it” provisions, performance bonds or acreage relinquishment after each exploration phase. In Somalia, where electricity costs are among the world’s highest and domestic industry craves cheaper power, this kind of drift carries a high opportunity cost.
Federal friction and public trust
In a federal system still finding its feet, oil governance is a team sport that too often looks like a tug of war. The 2020 Petroleum Act and the 2018 Baidoa Agreement call for joint management of resources between the federal government and member states, with revenue sharing and oversight structures on paper. Yet in practice, states often lack access to basic information about who holds what, under which terms, and on what schedule.
That opacity—illustrated by recently awarded onshore blocks not publicly disclosed—undercuts accountability. It also slows permitting, security coordination and community engagement, which are essential for exploration to proceed. In a sector that can make or break social contracts, secrecy is combustible. Publish the blocks. Publish the contracts. If that sounds bold, it’s now standard in many African producers under the Extractive Industries Transparency Initiative (EITI).
The energy transition clock
Even as Somalia looks to oil and gas to fund development, the ground under the global energy market is shifting. Investors are choosier. Project financing is tougher for greenfield fossil projects. Climate risk is priced in, and activists have shaped boardroom decisions. EACOP’s long march through the court of public opinion is a regional cautionary tale.
Yet there’s nuance. For a country with some of the highest power tariffs anywhere, domestic gas-to-power could be transformative—cutting costs, displacing imported diesel, improving health outcomes, and stimulating local industry. Hydrocarbon revenue, if structured smartly, can seed large-scale renewables. Somalia has exceptional solar and wind potential, but it needs upfront capital to realize it. The question is whether oil and gas can be the bridge to cleaner, cheaper energy—or a detour.
What it would take
Somalia’s oil era won’t be decided by geology alone. It will be won or lost in rooms where contracts are drafted, licenses awarded and deadlines enforced. Here’s what a credible reset could look like:
- Transparency by default: Publish available blocks before licensing rounds. Publish signed PSAs or, at minimum, disclose fiscal terms and work commitments to parliament and the public.
- Stronger gatekeeping: Require proven technical capacity, audited financials and track records in similar basins. Use pre-qualification criteria rigorously.
- Hardwired performance: Tie work programs to performance bonds, enforce “use-it-or-lose-it,” and mandate phased acreage relinquishment.
- Federal partnership: Involve member states from bid to drill—on security, environment, social impact and revenue flows—to reduce friction and build consent.
- Revenue realism: Front-load oversight for signature bonuses, rentals, training and community funds. Set clear rules on capital gains when interests are transferred.
- Local value: Link exploration to skills transfer, services and infrastructure that outlast the wells.
Somalia’s leaders like to remind visitors that this is a nation of traders—resilient, adaptable, alert to opportunity. That spirit is a strength, but in oil and gas it must be matched with discipline. How will Somalia ensure that five years from now we’re not writing another story about seismic lines gone quiet and rigs that never came? Where will the first gas molecule go: into a power plant that lowers tariffs, or onto a tanker for export? And who will get to see the contract?
In East Africa, the window is open—but not forever. The region’s peers are already moving, and the energy transition is reshaping the lanes. Somalia’s geology has always tempted outsiders. The next chapter will hinge on whether its institutions can earn the same confidence.
By Ali Musa
Axadle Times international–Monitoring.
1. Somalia and the pressing need for hydrocarbon resource development
Somalia is endowed with a variety of natural resources, coupled with a resilient and entrepreneurial population. If these abundant resources are developed and managed in an economically and environmentally sustainable manner, Somalia could become one of the wealthiest nations globally.
Among these resources, hydrocarbons stand out as particularly vital. The exploitation of oil and gas is essential to generate substantial revenue capable of rapid socio-economic development and catalysing growth in other, more sustainable sectors. Somalia possesses a broad spectrum of valuable resources with significant economic potential. However, the absence of investment and value-added processing hinders their full development.
Somalia also possesses vast renewable energy potential, including some of the highest levels of solar radiation and wind energy in Africa. Realistically, a substantial capital investment is required to harness these renewable resources and revenue from hydrocarbon exploitation could play a crucial role in financing large-scale renewable energy initiatives.
In addition to its potential revenue benefits, the oil and gas sector could help address Somalia’s extremely high electricity costs, among the highest globally, which impede industrial development and domestic manufacturing. The commencement of hydrocarbon production, particularly natural gas, could significantly lower energy costs and foster broader economic development.
Over the past two years, there has been considerable speculation, mainly on social media platforms, regarding Somalia’s oil and gas potential. This was further amplified by the recent agreement between the Somali government and the Turkish Petroleum Corporation (TPAO).
Somalia’s interest in oil and gas exploration, however, dates back nearly a century. Despite the widely acknowledged resource potential, Somalia has yet to achieve any significant commercial hydrocarbon discoveries. Although numerous exploration licenses have been awarded over the past two decades, in most cases progress has been minimal. The fact that only two wells have been drilled within the last thirty five years provides a clear reflection of the current state of Somalia’s oil and gas sector.
2. Historical outlook: Exploration prior to the collapse of central government in 1990
Interest in Somalia’s hydrocarbon potential dates back to the early 20th century. This interest gained traction in the 1950s and 1960s, with companies like Sinclair Oil Corporation conducting widespread geological studies and drilling campaigns. While many of these wells were exploratory and focused on stratigraphic data collection, some displayed oil shows and technical discoveries, confirming working petroleum systems.
During the 1980s, driven by oil discoveries in neighbouring Yemen, Somalia experienced a surge in exploration activities. Major international companies including Conoco, Chevron, Amoco, and Shell acquired concessions and began extensive exploration and drilling, both onshore and offshore.
The onset of civil war in 1989 halted the exploration efforts and all the companies declared force majeure and suspended operations. The activities of that era generated great public optimism and hope for national prosperity. Fast forward 36 years to 2025, the vision of hydrocarbon development in Somalia not only remains unfulfilled but in fact seems more distant than at that time.
3. East Africa’s significant oil and gas discoveries
In recent years, East Africa has emerged as a key frontier for oil and gas, with significant discoveries in Uganda, Kenya, Tanzania, Mozambique, and Ethiopia. These developments have positioned the region as an increasingly important player in the global oil market.
Uganda has confirmed over 6.5 billion barrels of reserves in the Lake Albert Basin. TotalEnergies has already invested over $10 billion in Uganda’s upstream operations and the East African Crude Oil Pipeline (EACOP), expected to export 200,000 barrels per day. Kenya discovered commercial oil in 2012 in Turkana County, which lead to further exploration and a significant gas discoveries in the offshore Lamu Basin. The Lokichar sub-basin holds an estimated 3 billion barrels. Kenya has exported over 324,000 barrels, generating $14 million.
Tanzania and Mozambique have identified massive offshore natural gas reserves. The Rovuma Delta, shared by Mozambique and Tanzania is believed to contain up to 250 trillion cubic feet of gas and 14.5 billion barrels of oil. TotalEnergies is investing $20 billion in the Mozambique LNG project. Ethiopia has discovered approximately 21.3 billion cubic meters of natural gas in the Ogaden Basin.
With major international players such as TotalEnergies, CNOOC, Shell, ExxonMobil, and Tullow Oil active in the region, East Africa is becoming a focal point for hydrocarbon investment.
Somalia, likewise has similar or even greater oil and gas potential than its regional neighbours and with its strategic location, is well-positioned to join this regional transformation. Somalia possesses a number of highly prospective petroleum basins, both onshore and offshore. These basins feature proven petroleum systems, established by the presence of natural hydrocarbon seeps and drilling results encountering oil and gas shows and technical discoveries of both gas and good quality oil.
4 Post 1991 activities and current licences
The landscape of oil and gas activities in Somalia following 1991 has distinctly differed from the pre 1991 era, during which concessions were held by major international companies. Security challenges and the absence of key enabling conditions required for such large-scale investments have discouraged the participation of major firms, which typically maintain a risk-averse approach. Consequently, only smaller companies have engaged in the sector, obtaining licenses for various blocks across different states.
In Puntland State, Africa Oil Corp completed 780 km of 2D seismic surveying in the Dharoor Basin (onshore) before drilling two wells, Shabeel-1 and Shabeel North in 2012 (figure 1). Oil shows were encountered at multiple depths, confirming active petroleum generation and justifying further exploration to assess charge pathways and the timing of trap formation. No further oil and gas activities have taken place since that program. The 2019 offshore speculative 2D seismic survey by Spectrum along the Indian Ocean excluded Puntland State’s territorial waters due to political disputes between the Federal Government and Puntland State. Similarly, proposed seismic work by TPOA in Puntland State waters did not proceed for the same reason.
Figure 1. Shabel 1 and Shabel north wells – structural closures map and seismic section
In North Western State of Somalia, various companies have been involved in the oil and gas sector over the past two decades, including Ophir Energy, Jacka Resources, Asante Oil, DNO ASA, ANSAN WIKFS, Sterling Energy, Genel Energy, and RakGas. Most of these companies eventually surrendered their exploration and production sharing agreements or transferred their interests without undertaking substantial exploration work. Currently, only Genel Energy and RakGas hold licenses over five onshore blocks. Exploration activities to date have comprised geological and geochemical studies, as well as the acquisition of gravity/magnetic and 2D seismic data totalling 4,300 km between the two companies. However, these efforts have yet to progress to the drilling stage.
Offshore North Western State of Somalia, TGS-NOPEC Geophysical Company acquired 5,300 km of speculative 2D seismic data in 2009, but no further developments have occurred since.
In the Northeast State (formerly SSC-Khatumo), two onshore blocks located within the Nugal Basin were recently awarded to a company called GulfSom Energy. The agreement was signed in September 2024, in conjunction with two additional agreements covering three onshore blocks situated in Southwest and Jubbaland States.
In central and southern Somalia, licensing and exploration activities have been primarily offshore. Between 2014 and 2015, Soma Oil & Gas acquired and processed approximately 20,500 kilometres of offshore 2D seismic data. The results revealed substantial geological structures indicative of potential hydrocarbon traps with significant reserve potential. Subsequently, in 2016, under an agreement with the Federal Government of Somalia, Spectrum (now TGS) conducted a multi-client 2D seismic survey covering approximately 28,500 kilometres offshore Somalia. This followed an earlier long-offset 2D seismic survey of approximately 20,000 kilometres conducted by Spectrum in 2015.
In 2022, Coastline Exploration entered into seven Production Sharing Agreements (PSAs) with the Federal Government of Somalia for seven deep-water offshore blocks. The company got access to the seismic data acquired during the 2014–2015 campaign. More recently, in 2024, Liberty Petroleum entered into agreements for three deep-water offshore blocks, while the Turkish Petroleum Corporation (TPAO) was awarded three offshore blocks the same year. TPAO subsequently completed approximately 4,500 square kilometres of 3D seismic surveys and, in April 2025, was granted an additional three onshore blocks.
At present, seven oil companies hold licences in Somalia, namely Shell and ExxonMobil, Coastline Exploration, Liberty Petroleum, GulfSom Energy, TPOA, Rak Gas, and Genel Energy. Collectively, these companies are licensed to 31 blocks, comprising 18 offshore and 13 onshore areas (Figure 2). Some of the companies have been in the country for more than 15 years, while others are relatively recent entrants.
4 Figure 2. Current licensed oil and gas blocks
Company name
Block
Offshore/onshore
Size of the block
License location
Shell and ExxonMobil
M3
Offshore
13,400km2
Puntland State
Shell and ExxonMobil
M4
Offshore
14,000km2
Puntland State/Galmudug
Shell and ExxonMobil
M5
Offshore
16,000km2
Galmudug/Hirshabeele
Shell and ExxonMobil
M6
Offshore
10,000km2
Hirshabeele/Southwest
Shell and ExxonMobil
M7
Offshore
7,000km2
Southwest
Coastline Exploration
129/130 Offshore 5,000km2 Galmudug
Coastline Exploration
141 Offshore 5,000km2 Galmudug
Coastline Exploration
143 Offshore 5,000km2 Galmudug
Coastline Exploration
191 Offshore 5,000km2 Southwest
Coastline Exploration
192 Offshore 5,000km2 Southwest
Coastline Exploration
205 Offshore 5,000km2Jubbaland
Coastline Exploration
221 Offshore 5,000km2Jubbaland
Liberty Petroleum
131
Offshore
5,000km2
Galmudug
Liberty Petroleum
190
Offshore
5,000km2
Southwest
Liberty Petroleum
206
Offshore
4,978km2
Jubbaland
Genel Energy
SL6 Onshore 12,000km2 North Western State of Somalia
Genel Energy
SL10 Onshore 12,000km2 North Western State of Somalia
Genel Energy
SL13 Onshore 12,000km2 North Western State of Somalia
TPOA
142
Offshore
15,000km2in total
Galmudug
TPOA
152
Offshore
15,000km2in total
Galmudug
TPOA
153
Offshore
15,000km2in total
Galmudug
TPOA
Undisclosed
Onshore
16,000km2in total
Undisclosed
TPOA
Undisclosed
Onshore
16,000km2in total
Undisclosed
TPOA
Undisclosed
Onshore
16,000km2in total
Undisclosed
Rak Gas
SL9 Onshore 12,000km2 North Western State of Somalia
Rak Gas
SL12 Onshore 12,000km2 North Western State of Somalia
GulfSom Energy
S48
Onshore
2,500km2
Jubbaland
GulfSom Energy
S55
Onshore
2,500km2
Southwest
GulfSom Energy
S56
Onshore
2,300km2
Hirshabeele/Southwest
GulfSom Energy
S217
Onshore
2,500km2
Northeast
GulfSom Energy
S218
Onshore
2,500km2
Northeast
Given the number of companies involved and the considerable number of blocks licensed over such long period, it is reasonable to question why the sector’s development has made little progress. The primary reason lies either the incompetence of the companies the licences awarded to or their lack of commitment in fulfilling their contractual obligations.
The Production Sharing Agreements (PSA) specify the roles and responsibilities of the parties, defining rights and obligations in precise terms. The Somali PSA model, (a pre-prepared template that forms the bases for contract) sets out technical and financial obligations for the contractor. The exploration period which is 6 to 7 years is divided it into specific phases, assigning minimum exploration work requirements for each phase.
The stagnation that surrounds the sector development is fundamentally attributable to contractors’ reluctance to honour their contractual commitments. In some situation it may be the case that the contractors are simply incapable of discharging their obligations and also the contact terms offer too much leeway to the contractor. These challenge are compounded by the limited capacity and lack of resolve within the relevant regulatory institutions to enforce compliance beyond the initial signing of the agreement.
5 Broad oil and gas sector objectives
The oil and gas industry is capital-intensive, front-loaded, and long-term in nature, characteristics that render it a high-risk endeavour. Despite its long-term investment nature, hydrocarbon revenue is inherently finite as well as being subject to price and production volatility, making it unreliable over the long term. Given these characteristics, the sector development demands a carefully planned approach guided by clear objectives, a robust legal framework, and effective institutional structures. The overarching goal for any institution responsible for the sector is to maximize economic returns for the state from its resource, while ensuring environmental sustainability.
Key objectives of the oil and gas sector include:
a) Attracting credible and capable companies through effective resource marketing. b) Maximizing government revenue through a well-designed fiscal regime.
c) Enhancing transparency and accountability to build public trust.
d) Increasing public awareness of the sector and managing public expectations. e) Supporting human capacity development to enable national participation in oil and gas operations.
f) Promoting local content and economic linkages through infrastructure and services. g) Facilitating the involvement of state-owned enterprises in resource development. h) Establishing legal and regulatory frameworks that prioritize environmental protection in all sector activities.
6. Licensing process, contractors’ compliance and the lack of progress in sector development
Two principal approaches are commonly employed for the marketing and licensing of oil and gas blocks: (a) Bidding/licensing round: An open and competitive process in which companies submit bids for a number of oil and gas blocks made available for development. (b) Direct bilateral negotiation: A process in which a specific company and the host country negotiate contractual terms for the development of one or more oil and gas blocks.
From the perspective of host countries, the former approach is generally more advantageous in terms of transparency and securing favourable contractual terms. The current agreements were concluded through direct bilateral negotiations, many of which lacked the necessary level of transparency. Regardless of the approach, the primary selection criteria should focus on attracting companies with both the financial capacity and the technical competence to satisfy contractual requirements.
The fundamental provisions of an oil and gas contract define the rights and obligations of the parties. The contractor’s obligations, both technical and financial, are explicitly set out in the agreement and must be discharged in a timely manner.
In the Production Sharing Agreements (PSA) model, during exploration period the contractor is required to carry out agreed and budgeted exploration activities, such as seismic data acquisition and the drilling well/ss. Financial obligations during this early stage is usually limited to the signature bonus and annual contractual payments such as surface rental fees, contributions to training and community development funds, and any applicable taxes related to exploration activities (such as withholding tax) or capital gains in the event of a transfer of interest.
The contractual obligation also include relinquishment of a percentage of licensed acreage after each exploration phase. This needs to be enforced to prevent contractors holding large area without carrying out any activities in that area.
Given these considerations, the licensing and selection of a qualified company to develop oil and gas resources represent the most critical stage in the oil and gas decision-making chain. Awarding licenses to companies lacking the technical and financial capability to meet their contractual obligations, an issue observed in Somalia on multiple occasions, results in stagnation, with no progress beyond the signing of the agreement. Ideally, execution of the agreement should initiate a clearly defined timeline and the commencement of activities in accordance with contractual terms. Contractual timelines typically require contractors to submit a detailed exploration work programme and budget for the first year within approximately one month of signing. Exploration activities are expected to commence within months, provided that the host government creates the necessary enabling environment for the planned programme.
7 Somali federal system and the involvement of member states in sector management
The Federal Government of Somalia is composed of federal member states (Figure 3), each with its own constitution, parliament, and executive institutions. These include executive bodies (ministries or agencies) responsible for oil and gas, as well as parliamentary sub-committees for natural resource affairs.
Figure 3. Somali federal member states
Pursuant to both the Somali Petroleum Act of 2020 and the Baidoa Agreement of 2018 (Somali Natural Resources Ownership, Management, and Revenue Sharing Agreement), petroleum resources are to be jointly managed by the Federal Government and the federal member states. The Petroleum Act further established the Natural Resources Council, the highest authority for natural resource governance, comprising the heads of executive bodies at both the federal and state levels.
The involvement of federal member states in sector management is essential not only for the effective functioning of the federal system but also for the successful implementation of oil and gas operations. Their participation is particularly important in ensuring regulatory compliance, security management, environmental protection, social responsibility, transparency, and accountability.
Institutions of the Member States should be engaged throughout the entire oil and gas project lifetime, from marketing campaigns and contract negotiations to licence awarding, resource management, and revenue administration.
Somalia is still in the process of adapting to the federal system, and the relationship between the Federal Government and the Member States could at times be fragile. In the extractive sector, while the ultimate responsibility lies with the Federal Government, in reality, the actual ownership of resources and thus the motivation to commercialize them rests with the member state in which the resources are located. Therefore, greater engagement of member states in sector management will facilitate the licensing process and enhance accountability and efficiency.
At present, member states are not often involved in the decisions concerning licences awarded within their territories. They frequently lack access to crucial information regarding the nature and capacity of the companies involved, the terms of contracts, the financial and technical obligations of the operators, as well as the timelines of activities.
Likewise, given the principles of good governance, the public constitutional rights to information should be endorsed. Oil and gas blocks are awarded through licensing round, making all available blocks public prior to bidding, or direct bilateral negotiations arrangements. Subsequently, the awarding of licences should be disclosed to the public. Not disclosing the location of already licensed blocks, as has occurred with the recent awarding of three onshore blocks to TPOA is unfitting to the industry. Such opacity undermines the sector’s credibility, hampers accountability, and erodes public trust.
The framework for sub-national revenue sharing is articulated in the Baidoa Agreement of 2018. While the agreement does not encompass all fiscal instruments and does not therefore fully reflect the entirety of petroleum revenues, it nevertheless establishes what appears to be a fair allocation of revenues between the federal government and the relevant member state. The timely receipt and allocation of contractual payments, particularly early-stage payments such as signature bonuses, surface rentals, community development contributions, and training funds is essential in ensuring the smooth commencement of exploration and related groundwork operations.
It is also important to emphasize that the ongoing political deadlock between the Federal Government and certain member states is hindering sectoral development within those regions. A political resolution is therefore essential to ensure nationwide progress in sector development.
8. Conclusion and Recommendations
8.1 Conclusions
Somalia’s oil and gas sector possesses significant untapped potential. Current speculation surrounding the industry is primarily driven by the country’s promising subsurface prospectivity. However, in most cases the development of the sector has largely stagnated beyond the mere signing of contracts. The fact that only two exploration wells have been drilled in the last thirty-five years reflects the dormant state of the industry. Notably, none of the seven companies currently holding licenses have drilled a single well over the past ten years, with some yet to even commence their exploration programs. This inactivity highlights either the incompetence of certain license holders or a lack of commitment in fulfilling their contractual obligations.
A number of licensed companies also lack the financial resources and technical expertise required to discharge their obligations. This points to serious deficiencies in the selection and awarding process. In some cases, it is possible that influential national figures may have influenced the granting of licenses to unqualified contractors.
The principal criterion for awarding such licenses should always be the financial capacity and technical competence of the applicants to meet contractual requirements. While it is understandable that frontier markets often attract smaller, risk-tolerant companies, such entities must, at a minimum, demonstrate the capacity and willingness to meet their initial exploration obligations.
Frontier market conditions also influence contract negotiations, particularly with respect to fiscal terms. Several recently signed contracts are highly favourable to contractors. While such terms may be justified as an incentive to attract initial investment, in practice many companies are merely holding licenses with the intent of selling their interests for profit. This practice of contract hoarding restricts fair competition, delays exploration activities, and hinders sectoral development – delays that Somalia cannot afford, considering the substantial revenue required for rapid socio-economic development and diversification of the economy, by catalysing growth in various sustainable sectors.
8.2 Recommendations
Prior to the Licensing Process
∙ Establish a national oil and gas data bank and encourage speculative data acquisition to reduce information asymmetry, one of the principal challenges facing frontier markets.
∙ Identify and prepare potential blocks for development, ensuring enabling conditions such as a clear legal framework, security, and cooperation with local communities.
∙ Ensure that the Production Sharing Agreement (PSA) model is prepared with input from relevant cross-cutting ministries (Finance, Investment, Environment, etc.) to make it align with national legislation.
∙ The Somali Petroleum Authority (SPA) should establish a professional, multidisciplinary negotiation team.
During the Licensing Process
∙ Allocate contracts through transparent bidding rounds to the greatest extent possible. ∙Publicly disclose bidding information to deter corruption.
∙ Under the bilateral approach, companies must demonstrate adequate financial capacity, proven technical competence, and a sound track record within the sector.
∙ Establish strong pre-qualification criteria for bidders.
∙ Standardize contract terms to minimize negotiation challenges, ensure consistency in project implementation, and strengthen monitoring and enforcement mechanisms.
∙ Define reasonable exploration periods with clear minimum work obligations for each phase.
∙ Include provisions for bank guarantees or performance bonds tied to the fulfilment of minimum work commitments.
∙ Enforce robust conflict-of-interest prevention measures.
Post-Licensing
∙ Publish contracts, or at minimum, make them accessible to the relevant parliamentary committees.
∙ Enforce timely fulfilment of financial obligations and adherence to agreed exploration schedules.
∙ Implement strict “use-it-or-lose-it” policies to terminate contracts where license holders fail to perform.
∙ Impose regular and frequent reporting obligations covering technical, financial, and operational matters.
∙ Establish or strengthen an independent petroleum regulatory body to oversee licensing and ensure compliance.
∙ Conduct regular government audits and inspections to verify progress.
∙ Apply substantial fees for any extensions of the exploitation phase, ensuring such extensions are justifiable.
∙ Mandate the relinquishment of a percentage of licensed acreage after each exploration phase to prevent speculative accumulation of excessive holdings.
∙ Require government approval for any transfer of interests, subject to the payment of applicable capital gains tax.
∙ The relevant member states should be engaged throughout the entire oil and gas project lifetime, from marketing campaigns and contract negotiations to licence awarding, resource management, and revenue administration.
