BY Nzivo Mutune
The business of hydrocarbon touches on every aspect our lives. Just as oil is black, so is the industry. One needs to take a deep dive to understand and make sense out of its murkiness. The minister of Petroleum and Mineral Resources, H.E. Mohamed Mukhtar Ibrahim had a chat with The Somali Investor to shade light on matters oil.
Give us a brief background of Oil exploration in Somalia?
Prior to oil exploration, the geology of Somalia fascinated geologists due to the existence of thick sedimentary cover. In the late forties and early fifties, an intense geophysical prospecting was carried out followed by seismic surveys on onshore Somalia.
In the mid-fifties, Sinclair Corporation executed drilling many exploratory oil wells in onshore Southern Somalia. The drilled wells were either dry or manifested gas or oil shows. There ware no discoveries with commercial viability.
Agip Mineraria drilled few: Gara’ad Mare, Cotton and Darin. In late fifties and sixties, Somalia led in exploration intensity in Africa. Amerada surveyed and drilled few wells in North Somalia. However, as a result of Somalia adopting socialism and joining the Soviet Block, western companies stopped operating in Somalia in the seventies and came back again to do business in the 1980s and that is when Somalia started opening up its market.
Is there any reason for the Somalia people to be optimistic this time round?
Yes, the Somali people are optimistic this time due to the fact that things are moving in the right direction: The government considers a shared vision towards petroleum sector development as a top priority. The ministry is working on the necessary legal and regulatory frameworks that will place the oil and gas industry in their right position.
The current constitutional review is expected to address the contested authority over the petroleum sector. The government is also addressing the revenue sharing arrangement. The production sharing agreement model of Somalia will be an attractive that serves the interest of the Somali people and takes care of the international oil/gas companies. It will strike the right balance between these two often-opposing parties. The recently acquired data is modern and technologically advanced with a high resolution it may reveal the hidden structures that contain oil and gas.
What is this government doing differently that previous governments did not do in as far as oil and gas exploration is concerned?
Let me first tell you the nature of this government compared to previous governments. This is the first permanent national government Somalia has since 1991. Before 2012 Somalia had Transitional Federal Governments. As far as the oil is concerned, we are creating necessary institutions such as Somali national oil company and Somali petroleum authority function.
Due to challenges owing to our twotier system of governance, initiatives are in place aimed at enabling the Federal Government and regional governments to collaborate in reviewing the Provisional Constitution with respect to ownership, management and revenue sharing of oil and gas. We are holding consultations with stakeholders and building partnerships with international
and local communities. Of note is Somalia is joining Extractive Industries Transparency Initiative to be more accountable, transparent and pragmatic about the way forward in developing the resources of Somalia. Our government is also partnering with well-respected institutions such as African Development Bank, World Bank, Deloitte and others to ensure that Somalia receives the necessary support to develop the petroleum sector.
Insofar as the work already done in the ongoing oil and gas exploration, how much has been discovered?
The work that is done so far is related to seismic surveys and these activities will be followed by the start of exploration. Discoveries will occur only after exploratory drilling and meaningful drilling can only take place once deposits are considered proven or probable.
What is the time frame before oil dollars start flooding in?
It normally takes the following time frame in order to move the life cycle of a petroleum field up to production: Surveys that involve carrying out seismic studies take 2 years. Three to five years goes into carrying out exploration and drilling.
Once discovery happens then appraisal is required to evaluate the size of the field. More wells need to be drilled in order to delimit the field. Appraisal is capital intensive, time consuming and may require additional seismic investigation. An additional two to three year might be needed in this case. The next stage is moving to production, which needs planning, putting in place production wells and deciding the best route to export.
Which are the oil blocks that have been certified as oil rich with commercially viable deposits?
Oil is not yet discovered in Somalia. As it stands now, we can only talk about potentials and good leads but no oil.
What is the quality and quantity of the oil deposits and for how long are they estimated to last with active exploitation?
Once oil is discovered in Somalia, then that is the right time to talk about its quality and quantity.
Has gas exploration been intense as oil exploration, if so, what are the possibilities?
There is no exploration that is intended for gas. There is no exploration specific for gas. The target of petroleum exploration is for both oil and gas. Though the industry prefers oil, if the discovery turns to be gas, then the oil gas company has to live with that reality and appraise the field and develop it. Gas production requires additional facilities – LNG (liquefied natural gas) facility which goes into the billion of dollars.
What attitude have the Somali people taken with the news of oil discovery?
Certainly oil discovery is good news and would trigger a positive attitude but oil or gas is yet to be discovered in Somalia.
What are the areas that the companies doing exploration have taken interest in to give back to the society and are there any marked changes within the communities/clans owing to this?
Currently, no company is doing exploration in Somalia so we are yet to experience that.
From the rents already accrued from the exploration, has the government already started ploughing back the income for the welfare of the people?
There is only one company that has expressed interest to resume its exploration after 25 years of force majeure. That company intends to pay the rents accrued over the years and that revenue will go to the treasury to be spent on the priorities of the government.
In terms of skilled labour for oil exploration and exploitation, has the government taken the initiative to sponsor university students to the relevant degree courses?
The Ministry with the support of its international partners is giving Somali workers new oil-related skills.
Currently are there Somali technocrats with expertise of the oil industry?
There are some Somali technocrats with relevant experience but in order to recruit more from the diaspora, capital will be required to recruit and retain them.
There are many Somalis in the diaspora. Has the news of oil industry imminent growth started pulling them back home: if so, how do you intend to work with them so as to tap into their experiences so as to develop the oil as well as other industries?
The momentum of oil industry development is in its early stage but it will certainly attract many to come into Somalia and chas opportunities.
Given this oil wealth, is there a time frame within which to expect Somalia to modernize and industralise, can we expect to see rapid modernization as in the likes of gulf countries?
Our Petroleum Law 2008 is based several principles. One of them states that Somalia should adopt principles of transparency in the conduct of petroleum operations to minimize the risks of the “resource curse”. That is exactly what we intend to do so Somalia can use its resources to modernize and industrialize. We can talk about time frame when oil is discovered.
Which companies are already on contract and on the ground?
Shell/Exxon Mobil and Soma Oil and Gas (Seismic Option Agreement in 2013). In addition Spectrum will start to execute seismic studies and data management for Somalia.
Is the government taking loans against its oil wealth; if so, where are the monies being invested in?
The government has not taken loans to this effect.
Oil prices have been tumbling for some time now. Is the government cautious in the way it is signing oil contracts?
No oil contract has been signed up to now. The Shell contract comes from 1988. Spectrum is a seismic service company, not oil exploration and production company (E & P Company). We are forming Somali Petroleum Authority to apply regulatory principles of equality, openness, accountability, transparency and non-discrimination.
What lessons does the government intend to borrow (or has already borrowed) from the gulf countries that have done so well to improve and diversify their economies as well as invest in the welfare of the people?
The first lesson to learn from the Gulf States is the need for political stability, continuity of governance, consistent vision and commitment to achieve it, patience over the years of development and keeping the public expectations managed. We are starting the oil industry of Somalia in a time when everything about oil is in place and we can benefit from that wealth of experience.
To recoup fast but in a sustainable way from time lost since 1991, what plans has the government put in place?
Somalia has put in place a number of measures to this effect. At the forefront is the constitution that makes clear the development agenda of the extractive industry. A general policy of developing oil and gas upstream industry is in place while others such as mining are under drafting. Somalia is also working in partnership with international institutions so as to align with and domesticate world best practices as far as the extractive industry is concerned. The African Development Bank, the World Bank and Extractive Industries Transparency Initiative (EITI) are some of the institutions.
Are there plans to put up an oil refinery within the country so as to benefit from technology related to the industry as well as maximizing profits?
Yes, there are plans to put up a refinery in Somalia.