Is it too soon for the war-torn country of Somalia -- which only recently instated a president and parliament after two decades of division and bloodshed -- to enter into major deals with foreign oil companies? One newly incorporated British company doesn't think so.
Soma Oil & Gas Exploration Ltd. was founded in the United Kingdom just this year; it's chairman is Michael Howard, a former leader of the Conservative Party. CEO Robert Sheppard has experience an adviser for the U.K. oil company BP PLC (LON:BP) in Russia.
Soma has become the first company to forge an agreement with Somalia's young government, according to an Aug. 6 statement from the company.
"Under the terms of the agreement, Soma Oil & Gas will conduct seismic surveying in Somalia’s territorial waters in areas agreed with the government and in certain limited onshore areas. The company will also collate and reprocess historic seismic data using modern techniques, and prepare an evaluation of Somalia’s petroleum potential."
In exchange for providing seismic mapping data to the Somali government, Soma will be granted the right to apply for up to 12 offshore oil blocks of its choice.
That's too bad for other major oil companies, including France's Total SA (EPA:FP) and Royal Dutch Shell PLC (LON:RDSA), which chose their own blocks for exploration before 1991 but have since been forced by circumstance to leave them alone. Soma promises not to horn in on their space, the Financial Times reports. But that doesn't ease the concerns of some development experts who worry that prospecting for oil in a still-unstable country will only complicate things for everyone involved.
Since 1991, when former President Mohamed Siad Barre was ousted in a coup, Somalia has been one of the world's most unstable countries. Warring clans were constantly at odds over land and resources. Poverty and famine made life miserable for millions of people. Pirates patrolled the water and militant groups -- most notably al-Shabab, which is linked to al Qaeda -- staked their claims on land.
Many attempts to form a national government came and went during those two decades, but in September 2012 a formal parliament was selected and a president -- the academic Hassan Sheikh Mohamud -- was appointed to lead the country. The problems that have plagued Somalia for so long are far from over, but the implementation of an internationally recognized federal administration has been hailed as a milestone for the country.
For Soma, that's reason enough to dive right into what may be one of the world's most lucrative underexplored areas. "According to oil industry experts, [Somalia] has some of the largest prospective resources within East Africa, an area of already great industry interest," the company said in a statement.
Somalia, however, has yet to work out the political and logistical details of its involvement with foreign companies. Currently, there are disputes as to how much control regional governments such as the semiautonomous zones of Puntland and Somaliland wield over their own territorial resources.
Furthermore, experts -- including a UN panel this year -- worry that at this early stage in Somalia's development, international interference in the oil industry will only inflame tensions between the country's myriad different clans, communities or militias. Considering the fragile state of Somalia's nascent government, those concerns shouldn't be taken lightly.
Then again, Somalia is desperate for revenues and may continue to pursue oil deals -- with Soma and other oil companies -- despite the risks involved. The state-owned Somalia Petroleum Corp. hopes to sign more than two dozen contracts for oil and gas production by the end of this year, Bloomberg reports.
Soma is certainly a pioneer in this arena, though the effects of its presence remain to be seen. Sheppard, for one, is optimistic.
“We formed Soma Oil & Gas having identified an opportunity to conduct exploration in Somalia as it emerges from a lengthy period of civil conflict," he said. "Despite large recent discoveries in East Africa, Somalia remains a significantly underexplored region. We believe that this agreement to assist the government and the work that is due to be carried out over the next 12-18 months will provide significant momentum for the oil and gas sector in Somalia.”