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Troubled Somalia hustles Big Oil to resume exploration

Oct. 16, 2013 at 12:58 PM   |   Comments

MOGADISHU, Somalia, Oct. 16 (UPI) -- Somalia's Western-backed government is talking to major international oil companies like Exxon Mobil, Royal Dutch Shell and BP about resuming exploration programs abandoned when the East African state collapsed into anarchy in 1991.

On the face of it, that could be an extraordinarily hard sell since Somalia remains highly volatile despite recent military setbacks for the Islamist insurgents of al-Shabaab who are linked to al-Qaida.

What makes it tougher is that Somalia's neighbors, Kenya in particular, have their eyes on potentially large oil and gas reserves in disputed waters in the Indian Ocean.

Al-Shabaab still controls large areas of the Somali countryside and any oil company that ventures into the country risks getting caught up in sharp political rivalries between the fragile central government in Mogadishu and semiautonomous regions like Puntland and the self-declared state of Somaliland in the north. Both have deals with Western oil juniors.

A high-profile Sept. 21 attack by al-Shabaab on an upscale shopping mall in downtown Nairobi, capital of neighboring Kenya, in which at least 67 people were killed points to al-Shabaab widening its terror campaign across East Africa.

On top of this, the Kenyans, who provided troops for an African Union military force that drove al-Shabaab out of Mogadishu and other Somali cities in 2011-12, are trying to set up a buffer zone in a Somali border region known as Jubaland, the better to stake a claim on the disputed waters in the Indian Ocean.

"The world's leading oil companies are increasingly accepting that their quest for new reserves will take them into challenging new territory," analyst Katrina Manson observed.

"In regions such as the Arctic, the problems are technical. Around the Horn of Africa, companies must calculate whether political and security risks will put too heavy a burden on their production costs," she wrote in The Financial Times.

"This is hazardous territory in which to operate. A chunk of Somalia is still under the control of al-Shabaab. Its waters are the hunting ground of pirates, who since 2005 have earned close to $400 million by ransoming 149 vessels."

Despite all this, Abdullah Haidar of Somalia's Ministry of Natural Resources reported recently that discussions in London with the major oil companies, including Conoco Phillips, Chevron Corp. and Eni of Italy, "are going well."

These companies, along with BP and Shell, acquired onshore and offshore exploration blocks in the 1980s during the military dictatorship of Gen. Mohamed Siad Barre.

But when Somali warlords deposed him in 1991, exploration ceased as the country was torn apart by clan warfare. They declared force majeure.

Now several, such as Shell and Eni, want their blocks restored and to enter into production-sharing agreements with the 8-month-old, donor-dependent government of President Hassan Sheik Mohamed that wants to use oil to rebuild the impoverished country's ravaged economy.

The companies are largely tight-lipped about their dealings with Mogadishu, but ENI said its chief executive met with Mohamed in September. Shell said talks are currently "of a preliminary and exploratory nature."

But there is clearly interest because these and other majors have made big strikes across East Africa, particularly with oil around Uganda's Lake Albert and gas off Mozambique and Tanzania.

The only Western company to sign up with Mogadishu so far is the British company Soma Oil & Gas, established in 2012 and headed by Lord Michel Howard, a former Conservative Party leader who's held several cabinet posts.

It signed an agreement Aug. 6 and will conduct seismic surveys in designated areas on land and offshore, and update historic seismic data for the government, in return for nominating exploration and drilling rights for up to 12 blocks.

Somalia's U.N. Monitoring Group warned in a report to the Security Council in July oil exploration across the shattered state risks "exacerbating clan divisions and therefore threatens peace and security. ... Oil companies should cease and desist negotiations with Somali authorities."

Some oil has been found in Somaliland and Puntland, which have largely escaped the violence. But the dozen or so oil companies drilling there have to be protected by militias or private forces.

"It is alarming that regional security forces and armed groups may clash to protect and further Western-backed oil companies' interests," the U.N. warned.

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