31 October 2012

Somalia: Somaliland Set to Drill for Oil by 2014

The unrecognised nation of Somaliland starts major oil exploration by next year, minister says

Three oil companies are set to begin exploration in Somaliland, making it possible that the break-away state will drill its first well as early as 2014, oil minister Hussein Abdi Dualeh says.

Australia-based Jacka Resources, London-listed Ophir Energy, and Genel Energy, which is headed by former BP chief executive Tony Hayward, will all start extensive exploration activities by early next year.

"There was very low activity for years and now three groups are starting a major exploration programme all at once. 2013 is going to be a big year for us, ushering in the biggest exploration programme that this country has seen in the past 21 years," Mr Dualeh told This is Africa in a telephone interview. "By 2014 we are hoping to drill our first exploratory well," he added.

Somaliland, which declared independence from Somalia in 1991 when the central government collapsed, is not internationally recognised as a country, despite operating its own political system, government institutions, and currency. However, investors have been attracted by the country's geology and a string of hydrocarbon discoveries across East Africa.

"The geology is very similar to that of Yemen, and Yemen has proven reserves of between 7bn and 9bn barrels, depending on who you listen to," Mr Dualeh explains. "We have early indications that there are working petroleum systems present in Somaliland, it's just a matter of finding commercial quality."

The three oil groups operate seven blocks between them through the country's central and south-western regions. This is the first foray into Africa for Anglo-Turkish Genel Energy, which announced in August that it had the rights to two blocks in Somaliland, amongst others in Morocco and Côte d'Ivoire. "This is their first entrance into the African continent and they are starting big. They are investing almost $30m dollars [in Somaliland] next year," Mr Dualeh says, adding that the group's delegation, headed by the former BP boss Tony Hayward, will be visiting the country on November 6.

A spokesperson for Genel declined to comment on capital expenditure in Somaliland, but said that it will invest $400m in its African activity over three years.

Somaliland is looking to give out its remaining onshore and offshore blocks and is in negotiation with unnamed groups, while still courting new investors. "We have not yet closed any deals, but we are in talks with some," Mr Dualeh says. "We are looking for viable oil and gas companies that have a proven track record and the technical and financial capacity to deliver."

In the mining sector, unnamed private equity firms backed by Chinese, Korean and Indian investors are also developing coal, manganese and iron ore projects, he says: "We have several licenses that have been issued there are good prospects to start mining iron ore in the coming year."

Firms operating in unrecognised states encounter difficulties in the insurance sector. However, investors do not see a lot of above ground risk, Mr Dualeh argues. "We fully control the territory and have a working government. We've been a planning, governing country for 21 years, and we have gone through four democratically elected governments. We have very good access to markets, and a very conducive environment for investment."

East Africa is experiencing a resource bonanza. In March this year, Tullow Oil hit oil in the north-western Turkana region of Kenya, while global oil and gas producer BG Group announced a huge gas find inTanzania. Hydrocarbon fields have been discovered across Uganda and Mozambique. Somaliland's semi-autonomous neighbour Puntland has also been accelerating oil exploration. The Canadian firm Africa Oil began drilling two wells in January - Somalia's first in 21 years.

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