Horn of Africa oil: deals start flowing despite legal mess

By Adam Green of This is Africa

This week, a new company – Soma Oil and Gas – signed an exploration deal with the Mogadishu-based federal government of Somalia. The agreement came as a surprise. The government had previously abstained from signing such deals, fearing they would inflame ongoing territorial tensions (which the UN also warned about).

But it could also ratchet up tensions between the federal government and the two semi-autonomous northern provinces, Somaliland and Puntland, as well as between major oil companies, which have licenses dating back to the early 1990s, and new ones who are signing their own, often in overlapping territories. All told, the Horn of Africa is quickly becoming a spaghetti soup of deals.

Soma, which has former UK Conservative party leader Michael Howard as a non-executive chairman, will conduct resource surveys in a region blessed with similar geological features to Yemen and Saudi Arabia.

The problems start with the inconsistency between the Somali constitution – which allows regional governments some autonomy to enter resource agreements – and the current Somali petroleum bill, yet to be adopted but frequently invoked by the Mogadishu-based federal government, which says the central government alone has the “privilege to distribute natural resources”.

Abdullahi Haider, an adviser to the Somali government, has argued that oil licenses awarded by regional governments are illegal, and that prior license holders (mostly the majors) will be considered privileged partners. The federal government has already challenged agreements made between Turkish-British company Genel and the Somaliland government.

That has angered Issa Farah, head of Puntland’s petroleum and minerals agency, who complains that both the federal and Somaliland governments are crossing its borders and breaking the rules. “They cannot go around saying companies operating in Puntland are illegal, and sign contracts left and right when the constitution of the country clearly states they have no right to do so,” he says.

And oil companies are starting to step on each others toes as they begin signing licenses on plots previously licensed to others. BP, Chevron and ConocoPhillips have stakes dating to before the civil war in 1991, but smaller energy companies are moving in. Liberty Oil signed a license on an area formerly given to Shell. Norwegian company DNO’s contract clashes with a prior license held by ConocoPhillips, and DNO also appear to have an overlapping license with Canadian company, Africa Oil.

Farah says the government in Mogadishu should tread carefully and not exceed its powers.

“The federal government of Somalia only has four powers – defence, foreign affairs, immigration and citizenship, and monetary,” he said. They can do what they want within the four powers within a limited framework, but they are not currently entitled to do more than that including introduce new legislation outside those areas”.

Puntland’s own constitution does not compel it to be part of the federal system if it does not work in the people’s favour, Farah added. “There will not be a unified country if the federal government continues in this way”.

Farah is equally critical of neighbouring Somaliland, which in April signed a production-sharing agreement with DNO, and Genel, headed by former BP chief Tony Hayward. Farah says DLO’s block and Genel’s both infringe Puntland’s territory.

Both Genel and DNO are on familiar ground when it comes to uncertain territorial claims, given their interests in Iraqi Kurdistan. Perhaps they feel they can only get to the front of the pack in the most hazy of exploration zones. But they are building sandcastles awfully close to the waves.

A version of this article appeared on This is Africa, an FT publication.