Somalia deal raises concerns about oil risks

The signing of the new Somali government’s first oil contract with an untested company linked to a British peer raises concerns about whether the dash for oil wealth will destabilise the east African country, the Financial Times reports.

As previously reported on theoilandgasworld¸ Michael Howard, the chairman of Soma Oil and Gas Exploration and a former leader of Britain’s Conservative Party, signed a contract with the Somalian government to collect data on onshore and offshore oil in Somalia. In exchange for collecting data, Soma has the right to apply for up to 12 oil blocks in an area seen by oil majors as one of the last untouched regions for the commodity.

The deal has attracted some attention as Soma, which has not undertaken a seismic survey before, was incorporated in the UK last month with a capital of £0.001.

Although Somalia’s natural resources minister, Abdirizak Omar Mohamed, has maintained that the investment is going to be very good for Somalia, there have been worries over the legitimacy of the deal. Abdillahi Mohamud of the East African Energy Forum, a lobby group consulted by Somali parliamentarians who are considering their reaction to the deal, said, “I do not think this deal was done transparently at all.”

A UN panel of experts have also questioned the effects of the deal: “Oil companies should cease and desist negotiations with Somali authorities,” the UN panel cautioned in a report last month, arguing that the oil could lead to conflict between rival groups – some of which have previously been allied to jihadists – and threaten peace. The greatest fear is that big-power oil politics could put Somalia’s fragile recovery off course.

Abdillahi sees the deal in the context of regional politics: “This [the deal] is about . . .[the central government] attempting to gain the upper hand namely on [the regions].” He believes there may be “many hidden agendas” and believes the deal is “political in nature”.

The deal has unsettled some industry observers who had expected a public licensing round for all the oil blocks. Other more experienced companies had also been queuing up for contracts to undertake surveys. They say it is unusual for Soma, once it has gathered the data, to be able to cherry-pick the best dozen blocks. Some oil majors, including Shell and Total, have put their claims to oil blocks they signed for in the late 1980s on ice until, Shell says, “conditions allow”, the Financial Times reports.

Please read the complete article at: http://www.ft.com/cms/s/0/b9fd1418-034d-11e3-b871-00144feab7de.html#axzz2br34ab5p

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