Page 5 - AfrOil Week 06 2020

AfrOil COMMENTARY AfrOil
 The law also makes provisions for the creation of Somali National Oil Co. (SONOC), a state-con- trolled entity that will represent the govern- ment’s interests in oil and gas projects.
The ministry went on to say that Somalia’s government intended to invest future oil and gas revenues in projects that strengthen the country’s economic and social well-being. These investments will be focused on “education, secu- rity and healthcare, to ensure the long-term prosperity of the Somali people,” it said.
In the statement, the ministry said the new legislation would “confirm the sovereign rights of Somalia to explore, develop, produce, utilise and manage its petroleum resources, located onshore and offshore.” It also said that the country would make an effort to “determine the extent of the petroleum resources [that] may exist in Somalia by creating a regulatory, contractual and financial regime that allows the reconnaissance and exploration of hydro- carbons and [the] development, production and marketing of any resources which are discovered.”
Prospects
Somalia is not currently an oil and gas producer, but it has identified a number of prospective onshore and offshore blocks.
ExxonMobil and Royal Dutch Shell secured access to five of those blocks – M3, M4, M5, M6 and M7 – in 1990. So far, though, they have yet to begin work there. They did make $1.7mn in retrospective lease payments to the federal government for their offshore licence areas last October, but Shell indicated earlier this year that it was still not ready to move forward. (It will probably remain reluctant for the time being, even though the new Petroleum Law aims spe- cifically to protect its rights as a legacy licence holder.)
Meanwhile, federal authorities appear to be particularly keen on opening up the offshore sector beyond these five blocks. They will face obstacles, though, as Somalia is still working to resolve a disagreement with Kenya over where to draw boundary lines in the Indian Ocean. The dispute derailed Somalia’s efforts to conduct a licensing round in 2019, as Kenya laid claim to some of the 15 blocks slated for auction and IOCs stayed away, saying that they would prefer
to wait until Somalia firmed up its legal regime. As of press time, the two neighbouring states are still waiting for the International Court of Justice (ICJ) to arbitrate the matter. They took the matter to court after several failed rounds of
diplomatic negotiations.
The ICJ is scheduled to begin considering
the case, which will determine the fate of a 100,000-square km section of the Indian Ocean, in June of this year. Kenya has indicated that it wants to keep the existing boundary, which follows a straight line, in place. Somalia, by contrast, is arguing in favour of a diagonal line, Business Daily Africa reported on January 11.
Politics
Beyond diplomatic disputes, Somalia will also have to scale hurdles associated with local poli- tics. These could be steep, since the federal gov- ernment has not yet said exactly how it will split revenues and responsibilities with each of the republic’s components.
In other words, Mogadishu will probably have to decide how to handle regional opposi- tion to its authority. Puntland is likely to bristle at the prospect of federal oversight, especially since it has already awarded a number of contracts on its own within the last five years. Additionally, local officials complained earlier this year that the central government had not consulted Punt- land when drawing up the Petroleum Law.
The challenges are likely to be even more intense in Somaliland. This region still contends that it is a sovereign state, independent of central control, with the right to issue its own oil and gas licences. It does not enjoy wide international recognition, but it has signed agreements with several foreign operators, including RAK Gas (UAE) and Genel Energy UK).
Even so, federal authorities do appear to be hopeful that they can avoid quarrels with the regions. Their strategy appears to involve a focus on remote sections of the offshore zone that do not lie within the areas disputed with Kenya, Energy Voice commented in January. This strategy has yet to be tested, though, as Soma- lia has not yet said whether it intends to attempt another licensing round this year. Indeed, the central government may wait to see the results of federal elections in early 2021 before it makes another foray in this direction. ™
“ in Mogadishu
Federal officials
will have to decide how to handle regional opposition to their authority
The boundary dispute with Kenya could complicate efforts to attract investment (Image: African Executive)
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