- Exploration began in 1948 when Sinchair Oil, connoco and Agin (now ENI) discovered eight petroleum basins: daban; Migiurtinia; Mudugh; Mogadishu; El-Wak Mandera; Ogaden; and Chismajo and Lamu Basin – with columns of five-six kilometres in several area, and ranging in age from Jurassic or Triassic to Tertiary (several million years ago).
- Followed petroleum exploration commenced in 1950s as the country was believed to be a potential extension of the large Arabian oil province
- In 1950-1990, Somalia encouraged investments, and international oil companies including ExxonMobil, ConocoPhillips, BP, Shell, Chevron, and ENI all held large concession agreements in the country
- Only Royal Dutch and ExxonMobil remain in concessions holders with a 60,000 km2 of offshore Somalia. Shell and ExxonMobil continue paying the surface rental.
- The force majeure is going to die when Somalia signs the PSA.
- Starting from 15th of February when Ministry of Petroleum signed Coastline PSA, no more force majeure is in place.
- Somalia is going to benefit offshore blocks when PSAs Agreement with Coastline is in place and exploration and development Starting.
1960 - 1988
- Promising test wells, seismic and gravimetric surveys, actual oil seeps, and the geological resemblance to oil-rich Yemen strongly indicate the presence of oil in commercial quantities within the Somalia
- The more recent discoveries of commercially recoverable petroleum offshore Eastern Africa, such as Mozambique, Tanzania and neighbouring Kenya, has increased interest in offshore Somalia, especially as the country has the longest shoreline in East Africa
- Throughout the 1980s, a number of IOCs acquired petroleum onshore and offshore blocks and started exploration programmes
- In the 1980s, the process to explore for petroleum got a boost from the “Petroleum Promotion Project” funded by the World Bank
- In 1991, when the civil war started in Somalia, all the oil majors halted exploration activities, declaring “force majeure” until the country became stable again
- In 2019, Shell and Exxon agreed to resume petroleum exploration in Somalia. In 2020, they made a legacy payment of $1.7m, which was for the first time distributed in accordance with the new Revenue Sharing Agreement
- Prior to 2008, petroleum operations were managed by concessions granted by central Government.
- This status came to an end on 7 August 2008 as a result of the Petroleum Law passed by the Somali interim parliament and signed by His Excellency Abdullahi Yusuf Ahmed, The President of Transitional Federal Government of Somalia. The Petroleum Law stated that the Ministry of Petroleum and Mineral Resources became the custodian of petroleum resources in Somalia and any petroleum operations and contracts would be managed under a Production Sharing Contract approach, as is common in many parts of the world.
- In 2012, Somalia created the federal government and then gradually set up the legal framework to sign exploration and production agreements with international oil companies, including Revenue Sharing Agreement, setting proportion of petroleum revenue distribution between the Federal Government of Somalia, the 5 Federal Member States plus Banaadir region and their local communities
- SPA to add / provide first draft
- In 2015 Spectrum acquired approximately 20,000 km of long-offset 2D seismic data offshore Somalia (Figure 1), which has been used to de-risk source rock presence, distribution, and maturity. There are strong indications of widespread distribution of good quality source rocks that modelling has shown to be in the petroleum window, potentially charging significant traps
- Disputes between the Federal Government and Federal Member States over petroleum resources ownership have been causing uncertainties for investors about whom they should agree with
- In 2018, the Government and Regional Member States signed the Petroleum Ownership Management and Revenue Sharing Agreement. It states that natural resources are owned by the Somali people and that future revenues from petroleum development should divided between the Federal Government, Federal Member State and local authorities in a certain proportion
- issue Reconnaissance Authorizations – permits for companies to conduct geological surveys for petroleum in a certain area
- conclude Production Sharing Agreements with companies for a specified area
- grant Surface Access Authorization – permits for companies to work in specified area under Reconnaissance (geological exploration) or Production Sharing Agreements
- invite qualified companies to participate in petroleum exploration and production in Somalia
- monitor that companies involved in petroleum exploration and production comply with the terms of their agreements and assess penalties
The 2020 Petroleum Law will establish the Somali National Petroleum Company (SONOC), a commercial company controlled by the federal government, which is entitled to have up to 20% ownership of petroleum projects under Productions Sharing Agreements
- Regional petroleum companies, controlled by Regional Member States may achieve as much as 10% ownership in a petroleum project under Production Sharing Agreements
- Somalia’s Ministry of Petroleum and Natural Resources makes strategic decisions on developing the country’s
- The National Resources Council is the highest council to analyze petroleum issues and resolve disputed matters
- In comparison to other countries implementing Production Sharing Agreements, Somalia will be allocating a relatively higher share of petroleum revenue to regional government and local communities
- International oil companies operating in Somalia will be also required to hire and train local personnel and use Somalian suppliers where appropriate
- Petroleum is the national asset that belongs to all the people of Somalia
- Petroleum income should be shared between the Federal Government and Regional Member States in accordance with the Agreement on Ownership, Management and Sharing of Natural Resources
- All petroleum agreements signed by Somalia’s regional governments between December 1990 and September 2012 – during the period of the civil war when Somalia didn’t have a Federal Government – are considered null and void
- Petroleum agreements signed between foreign companies and the Federal Government of Somalia prior to 1990 are considered valid and should be given fair consideration
- Foreign companied, local companies and joint ventures involved in exploration and drilling for petroleum should make agreements with the Federal Government
- Somali Petroleum Authority (SPA) was established in 2020 in accordance with the Petroleum Law ratified by the country’s President earlier that year. The SPA’s objective is review exploration and production agreements with international petroleum companies to ensure they are internationally competitive and also serve the best interest of the Somali people
- SPA includes representatives from the Federal Government, seven Regional Member States and the Benadir region. Each member was selected for their knowledge, professionalism, competence and integrity. It also oversees revenue from petroleum production and ensures it’s being distributed between federal, regional and local governments, in strict compliance with the Revenue Sharing Agreement
- The February 2020, Somalia passed the Petroleum Law that established legal framework for its oil and gas industry, including the use of Production Sharing Agreements (PSA)
- In the development of this law, Somalia later in 2020 drafted the Model Production Sharing Agreement, a template to be used for PSAs in the country
- The Model Production Sharing Agreement states that a petroleum company (Contractor) gets a right explore a specified area for 3 years, with a possibility to extend exploration period
- If the Contractor makes oil and gas discovery, it should inform the Somali Petroleum Authority and submit a Development Program for exploration to start. The production period would be typically 25 years with the possibility of extension for 10 years. It should also prepare Production Work Program and budget annually
- Once production commences, the Contractor is allowed to recover developments and production costs from the petroleum revenue after having paid royalties
- For this purpose, all lifted oil and gas is divided into “cost petroleum” (proceeds from its sales are used to repay the Contractor’s costs) and “profit petroleum” (the proceeds from its sales are shared with Somalia)
- Somalia’s share in petroleum production gradually increases after the Contractor recovers the incurred capital expenditures
- The model Production Sharing Agreement implies that 55% of petroleum revenue will go to the federal budget, 25% to the regional budget, 10% to the local of budget of the area where production takes place and 10% to non-petroleum producing states.
- The model Production Sharing Agreement also sets up revenue split between federal, regional and local budgets for all taxes associated with petroleum production, including signing bonus, royalty, license fee, income tax, export tax, etc.