FEATURE: Offshore Technology Focus – Extracting Somali oil: is the risk worth the reward?

New research by seismic services company Spectrum Geo has confirmed significant hydrocarbon potential in the seas off the Somali coast, especially oil, which is easier to extract than natural gas. The government is keen to exploit the reserves, but is the threat of piracy and geopolitical instability too high to nurture an offshore industry?

In 2015 Spectrum Geo set out to conduct the most advanced seismic testing to date in the little explored waters offshore Somalia. The company later announced the potential presence of hydrocarbons at a depth where crude is usually found.

“Analysis is suggesting offshore Somalia stands as a beacon on the East African margin, offering the potential for the next giant oil discoveries in the future,” says Dr Neil Hodgson, executive vice president of geoscience at Spectrum.

Spectrum’s analysis came as a surprise to the industry because the area further south along the coastline, by Tanzania and Mozambique, holds abundant gas reserves but little confirmed oil. Oil is more sought after than gas as it is easier and cheaper to extract, compared to the billions that would need to be secured to set up liquefied gas production for export.

This newly discovered natural resource wealth could benefit Somalia greatly. Some 73% of the population in the state live below the poverty line, which is unsurprising after over two decades of political unrest and war.

But since 2012 the country has experienced increased levels of stability under a new internationally backed government, which has attracted some Western investors, including Soma Oil and Gas chaired by former UK political party leader Lord Howard. In 2013 the company became the first western firm to sign a contract to collect data offshore Somalia in exchange for the right to apply for up to twelve oil blocks.

But it wasn’t all good news. At the time a UN panel of experts voiced concerns that oil production could lead to conflict between rival groups and threaten the peace in a country struggling to rebuild itself.

Subsequently Soma Oil and Gas faced corruption allegations by the United Nations’ Somalia and Eritrea Monitoring Group. An investigation by  the UK’s Serious Fraud Office and later dropped due to a lack of convictable evidence.

Repeated delays of an anticipated presidential election in Somalia – which, at the time of writing, is underway several months late – have sparked concerns of under-hand tactics and vote buying as voiced by Michael Keating, the United Nations’ special representative for Somalia.

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Corruption capital

Given that Somalia ranks last out of 176 countries on the 2016 Transparency International Corruption Perception Index, to suggest corruption is a risk factor for oil and gas companies operating in the region is an understatement.

In addition, attacks from both armed piracy groups and Islamist-terrorist organisation Al Shabaab make Somalia one of the most challenging states to invest in.

Regardless, Somalia’s government has confirmed it is keen to push ahead with exploration plans after announcing its first offshore hydrocarbon licensing round in November 2016, with detailed plans, documents and data sets to be made available by March 2017.

The blocks on offer will include areas off central and southern Somalia but will exclude shallow water block concessions signed in 1988 with Shell and Exxon Mobil before the government collapsed.

 Read the full feature here