Somalia hopes to use revenue from potential oil reserves to improve social programs such as education

Oil and gas resources are not the first images that come to mind when one thinks of the waters along Somalia’s coastline. More notoriously known for marauding pirates, the Indian Ocean around the Horn of Africa and its potentially vast fossil fuel deposits may be the savior of this embattled nation. The Somali Government is now focusing on attracting foreign investors, including China, to help facilitate its economic revival.

Mohamed Abdi Gaandi, Somalia’s Minister for Energy and Mining, said that the country’s security situation has improved and the country is now open for business. He added that China is helping Somalia with alternative ways to build much needed infrastructure.

Fueling success

Abdulkadir Abiikar, a Somali engineer based in the UK, told ChinAfrica that Somalia recognizes its need for a modern economy and sees oil and gas discovery and production as a revenue lifeline. The potential revenue is needed to improve social programs such as education, sanitation, health and infrastructure.

With recent oil and gas discoveries in Kenya, Tanzania and Mozambique, all nations sharing the Indian Ocean shoreline with Somalia, the Somali Government is keen to plunge into hydro-carbon resource exploration. The history of pirate attacks on key shipping routes near Somalia may require increased security for offshore exploration.

Somalia has seen such investors as BG Group of the UK, Shell and the Italian oil and gas company Eni rush to its southern neighbors for exploration. BG Group entered Kenya in 2011, acquiring an interest in two offshore exploration blocks: L10A and L10B to the south of the Lamu Embayment.

In Mozambique, U.S.-based Anadarko Petroleum and Eni both recently announced significant gas discoveries in the Ruvuma Delta.

Tanzania’s Petroleum Development Corp. also announced discovery of offshore gas along the Ruvuma Delta, soon after Mozambique. This was closely followed by another announcement by Statoil, a Norwegian multinational oil and gas company, that it had made a third offshore gas discovery near Tanzania.

However, the Somali Government is aware that the bulk of the Indian Ocean marine-line lies within its borders. Gaandi said that whatever discoveries are made by any of its neighbors along the Indian Ocean only raises Somalia’s hopes for greater things.

Attracting investors

Abdillahi Mohamud, a lead borehole engineer for Weatherford, a Canadian oil and gas company, and director of the East African Energy Forum, estimates future possible oil reserves in Somalia in the 110 billion barrels range. But while geologists appraise Somalia’s reserves, onshore and offshore, the government has started looking into laws that would guide and govern exploration and development.

The 2008 Somali Petroleum Law, developed by the previous Transitional Federal Government, is viewed by some as too lax and open to different interpretations by oil firms and regional governments.

Mohammed Diire, an economist based in Nairobi, Kenya, said that if Somalia capitalizes on its geographical position close to the well-established oil industry of the Middle East, investors may find it more attractive to drill for oil in Somalia rather than in neighboring countries.

In August 2013, the government appeared to have scored big when UK-based Soma Oil and Gas signed a seismic survey and petroleum data gathering deal.

Reporting on his company’s website, Bob Sheppard, CEO of Soma Oil and Gas, said his company will concentrate on Somalia’s waters of the Indian Ocean, in addition to exploring 12 blocks in the interior. Sheppard also said that Soma Oil and Gas will develop a data center for the government that will store all obtainable evidence of oil and gas potential in the country.

This, said Sheppard, will help the company get the right to suggest and acquire exploration and drilling rights under production sharing agreements in any prospective areas in the country.

This will give the firm some advantage to secure attractive high-prospective acreage up to 60,000 square km, which equates to a dozen 5,000 square km blocks as per the 2008 Petroleum Law.

Prior to 1991, Somalia granted many international oil firms E&P (exploration and production) licenses. There were 12 international oil companies with licenses in Somalia including Chevron, ENI, Conoco Phillips and Shell. But the firms are yet to recommence operations.

To make things easier for attracting investors, Gaandi assured those eyeing its oil and gas potential that the government will honor all licenses and rights acquired before the collapse of the Siad Barre government in 1991. But this, he adds, will depend on the production and sharing agreements.

However, the spanner in the works, according to regional economic analysts like Saad Abdi Shill, is the different licenses being issued by the many splinter states like the Puntland and the Republic of Somaliland.

Gaandi said his government, which considers itself as the custodian of interests of all Somalis that are spread across Kenya, Ethiopia, Djibouti, Somaliland, Puntland and other regions, will have to approve licenses issued by other federated states.

China welcome

Interest in what Somalia has to offer to Chinese investors is on the rise. After returning from a visit to China in August last year, Fawzia Yusuf, Somalia’s Deputy Foreign Minister, said all indications show growing and strengthened bilateral ties between the two nations.

Somalia’s State Minister for Foreign Affairs, Mohamed Nur Gaal, told Xinhua News Agency after the same visit that the Somali Government invites the Chinese companies to invest in the country.

“Now that the country is stabilizing, the development needs particularly in institution building and in infrastructure and social services gain great prominence and these are the areas where China can play a greater role,” said Gaal.

“We also welcome investments from China as we make the regulatory preparation to pave the way for foreign investment in Somalia,” he added.

The state-owned China National Offshore Oil Corp. had previously signed a pact in 2007 with the regional government in Puntland for oil and gas exploration, particularly in the Mudug region.

Hussein Dadoo, a Nairobi-based Somali economist, said China-Somalia relations began on December 14, 1960, and the two nations signed their first trade agreement in June 1963. Early drilling activities in the country that began in 1945 by Sinclair Oil Corp. was followed by many explorers in the 1980s, including risk takers from China. However, all these activities were put on hold following the outbreak of civil war in the late 1980s, said Dadoo.

Dadoo said that although most Chinese nationals left the country when hostilities escalated in 1991, the two countries still maintained some level of trading connection.

Former Chinese Ambassador to Kenya, Liu 
Guangyuan said in September last year that China committed to rebuilding three main facilities in Somalia including a mother and child health hospital, Mogadishu Stadium, the National Theater as well as the road between Galkayo and Burao in the north of Somalia.