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Somalia reboots terms of licensing round debut

The petroleum ministry is poised to publish a new timetable and hold a Houston roadshow

Somalia’s first ever offshore licensing round has suffered months of delays, but the government is gearing up for another push. It has equipped itself with a revamped production sharing agreement (PSA) template and says the enactment of its delayed petroleum law is imminent. The 15-block licensing round, covering 20,000km2, is also now backed by seismic data from Spectrum Geo (part of Norwegian-based TGS). 

The round was formally launched in February complete with a detailed timetable, featuring a closing bid deadline of 7 November 2019. However, while presentations have been made in London, and at conferences in New Delhi and Cape Town since then, the process has stalled while the country’s new petroleum law awaited ratification and further discussions over terms took place with interested international oil companies (IOCs).   

“We thought it was very important that we have the law in place first,” Ibrahim Hussein, an advisor and spokesman for Somalia’s Ministry of Petroleum and Mineral Resources told Petroleum Economist

The new law was passed by Somalia’s lower house of parliament in May. It included a framework for how future oil revenues would be shared between Somalia’s six constituent states. This element is critical for domestic stability, in a country that has achieved relative calm after decades of civil war. 

Passage of law 

The law now awaits approval by the country’s upper house. This is likely to happen in November once lawmakers have returned from a recess, according to Hussein.  

Both a stable political backdrop and a solid regulatory framework are essential. Somalia faces intense competition for investment, as the majors divest non-core assets and focus on the most promising offshore plays. The country also faces the challenge of luring IOCs to acreage in a country with little track record of exploration and no significant discoveries. 

The ministry has been in talks with IOCs over improving the terms of its PSA, the template of which it made public earlier this year. The revised version is due to be published in November and will include revisions to account for the cost of deepwater drilling and the geological risk involved in tackling a frontier play. “The PSA is now more investor friendly,” Hussein says, although no further details were available. 

“[The RSA is] an equitable and stable basis on which to develop the industry, commanding the broadest possible support across the country” Ahmed, minister of petroleum & mineral resources

A delayed roadshow in Houston is now set to take place in November, though the timing is yet to be confirmed. Likewise, a revised timetable for the round is expected shortly. 

Interest in the licensing round and the number of viewings at the round’s UK data room have been high, says Hussein. He also notes a good investor response to a presentation at the India Energy Forum, held in New Delhi in mid-October.    

RSA road tested 

Earlier this year, Somalia reached an accord with Shell and ExxonMobil over rental and other fees owed to the government relating to offshore blocks placed under force majeure during the civil war. The amounts are small—c.£1.7mn covering the period 1991-2018—but Somalia’s minister of petroleum & mineral resources Abdirashid Mohamed Ahmed has been eager to highlight the distribution of the first instalment as evidence that the revenue sharing agreement (RSA) with the states was being implemented successfully. 

“[The RSA] has now been ‘road-tested’ with our first, albeit small, revenues represented by rental payments from Exxon and Shell, which are in the process of being shared between the federal government, six member states and their local communities,” he said in a speech in Cape Town in October. 

Ahmed said the RSA would deliver a higher percentage of future oil revenues to non-federal institutions than any comparable agreement elsewhere in the world, adding that it provided “an equitable and stable basis on which to develop the industry, commanding the broadest possible support across the country”. 

Meanwhile, a maritime border dispute between Somalia and Kenya is due to be ruled on by the International Court of Justice in November. The Somali government said in September it would accept the court’s ruling. The row had intensified when Somalia’s initial licensing round map included Somali blocks in the disputed area. All acreage in the disputed area has been removed from the round.

Source: Petroleum Economist


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