Somaliland: Oil First, Recognition Later

Via The Financial Times, a report on oil exploration in Somaliland:

It’s not a country recognised by anyone other than its own government, but that doesn’t seem to phase three oil companies scaling up exploration in Somaliland.

UK-listed Genel Energy and Ophir Energy, and Australia-listed Jacka Resources, are starting to explore for oil in earnest in the breakaway state, which declared independence from Somalia in 1991.

“We are embarking on the largest and most significant exploration this country has seen since it became independent 21 years ago,” oil minister Hussein Abdi Dualeh told beyondbrics from an oil conference in South Africa, hopeful the first drilling will start in 2014 following seismic surveys this year. “They are starting in a major way – it’s going to be a massive year.”

The three explorers cover seven blocks between them and Dualeh insists they have nothing to fear from old claims on some of the blocks issued under the former Mogadishu administration before it collapsed.

“The old companies from way back when Somalia was together have long gone. These contracts don’t last forever, they are long expired. I’m not worried they’ll have problems – I have no idea who had what,” says Dualeh. “We have had full control of the territory for 21 years. We have stability and access to the port – we have what any investor would like to have.”

Under the former Somalia regime, oil blocks were previously concessioned to Chevron, BP and Conoco before they declared force majeure more than 20 years ago when the state collapsed. A new donor-backed government in Mogadishu faces pressing concerns such as fighting al-Shabaab Islamist militants, holding off piracy and establishing a nationwide administration in the failed state.

The new explorers are no strangers to disputed and semi-autonomous states. UK’s FTSE-listed Ophir Energy, which owns 75 per cent of two Somaliland blocks, also has assets in western Sahara, while Turkey-based, London-listed Genel, which has 75 per cent of another two blocks, is developing assets in the Kurdistan region of Iraq and will start exploration in Somaliland in December.

Dualeh says about a third of 24 blocks – which cover the entire country – have so far been given out but that the prospects look good. Yemen, just across an expanse of water, has 9.8bn barrels and Kenya to the south has recently discovered likely commercial quantities of oil.

The self-declared state of Somaliland, internationally recognised as a semi-autonomous region, is agreeing individual contracts as it has yet to release its own petroleum code. The only existing code dates back to the days of unity.

“The geology is just very very exciting; the whole of east Africa has woken up and Somaliland is right at the spearhead of that,” says Mohammed Yusef, chairman and CEO of Petrosoma, whose 50/50 joint venture with Australia’s Jacka Resources will start the first aeromagnetic survey of their southern Odewayne blocks on Thursday. He says exploration is likely to run to $45-50m in the next two years. Yusef acquired the blocks in 2005 and spent years searching for co-investors to develop the acreage before agreeing a 50 per cent deal with Jacka Resources in March this year.

“What’s changed is that the investor sentiment is more positive. It’s not an accident that it’s an Australian company,” says Yusef “They went into Uganda against conventional wisdom and found the biggest monster in Lake Albert and that kicked off the whole east Africa oil revolution,” says Yusef of Jacka’s management team, who spearheaded exploration into Uganda’s oil potential, which has so far yielded reserves running to 3.5bn barrels.

“In Australia and Canada and to some extent in South Africa where they’re used to investing in natural resource investing in anything that makes sense and is viable, they can find money and they are quick to understand risk in places like Somaliland.”

Unlike other blocks, there are no former claimants on the 22,000 sq km of the Odewayne area licensed to Petrosoma and Jacka, which covers parts of three blocks.

“It’s like discovering an undervalued share. We’re not a fragile state any more after 21 years; we’re undeveloped but we’re a very, very resilient state. When the oil is discovered Berbera [the port] will be shipping oil rather than camels,” he adds.

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