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Oil Hopes Hinge on North Somalia
Petroleum Economist. Vol 58, Issue n10, Oct, 1991, p19(2).
A UN-funded study points to oil potential in Ethiopia and Somalia. Maria Kielmas talked to emerging rulers in the region about their oil policies.
Wars in countries comprising the Horn of Africa put on hold the first real spark of international industry interest in the region's oil prospects. As a variety of political factions wrestle for control in Ethiopia and Somalia, only one group, the Somali National Movement (SNM), which controls the self-proclaimed Republic of Somaliland in northern Somalia, has maintained a positive policy towards foreign oil investment.
Aside from the political conflict, oil exploration in the African Horn has generally been neglected because of a widespread perception throughout the industry that the region is gas-prone and both inaccessible and expensive to explore. The countries around the Gulf of Aden and Red Sea are regarded as too poor to afford the necessary infrastructure for gas development.
In an attempt to address the balance and provide a more considered view of petroleum potential, the World Bank and United Nations Development Programme (UNDP) devised a regional hydrocarbon study of the countries bordering the Red Sea and Gulf of Aden. Financed by the UNDP, in co-operation with the governments of France, Britain and Canada, and several oil companies, the study began work in 1988. All the countries along this coastline participated from the outset, although Saudi Arabia has since dropped out, claiming it has its own plans for Red Sea exploration.
The study managed to collect all relevant technical information from both Ethiopia and Somalia before this year's fighting broke out. Results of analysis to date, which indicate that the region is definitely oil-prone as well as gas-prone, are to be presented at this month's meeting of the American Association of Petroleum Geologists, Eastern Hemisphere group, in London.
Regional connoisseurs pick out northern Somalia as particularly prospective. Exploration here dates from the turn of the century and was conducted in the former colony of British Somaliland and was conducted by British and Italian geologists. The area rewarded explorers with numerous oil seeps and gas shows in wells drilled in the 1960s. It is geologically analogous, in parts, to southern Yemen, on the other side of the Gulf of Aden, and almost the entire area was under licence to companies by the time hostilities with the central government broke out in 1988.
All of the oil companies operating in the area at the time - Amoco, Chevron, Agip and Conoco - declared force majeure, but the separatist rebel group, the SNM, maintained contact with them. The companies' view, expressed privately, was that if a separate northern Somali state could provide the usual internationally-acceptable contract conditions, then, in principle, they would be prepared to resume work when it was safe.
The " Republic of Somaliland" corresponds” to the last mile" to the territory of British Somaliland, SNM spokesmen say. But this boundary cuts through permits held by Agip and Conoco. Currently under the control of the SNM the area is reportedly enjoying a degree of peace unheard of since the beginning of deposed president Siyad Barre's rule more than 20 years ago. The core of the peace is a deal struck between the mainly Isaaq clan of SNM and minority Warsengeli, Dulbahante and Gadabursi clans.
Talks with oil firms
The SNM also claims it has reached a tentative agreement with oil companies. Espousing pro-market policies, SNM spokesmen say they are committed to a mixed economy and foreign investment. All foreign companies are welcome to explore in the territory on condition that they do not prevent other companies from doing the same. But one of main problems to overcome before any work can begin is the clearing of more than one million land mines planted by the Mogadishu forces.
The SNM has received tacit support from Yemen, where it has an office and where it has met up with oil company officials. SNM officials are now in the process of drafting their own petroleum contract terms, but, inexplicably, have no access to existing contract wordings issued by the ousted Barre government.
Yet to be recognised
Regional analysts believe that attempts to consolidate a separate northern state could be scuppered by Saudi Arabia, a country which has never shown much enthusiasm for oil development in neighbouring states. The Arab League has shown little desire for a new, separate country either. The Republic of Somaliland has yet to be recognised by any other state, but some observers feel this could happen by default, since it at least functions, while no other part of Somalia works at all.
Representative from the United Somali Congress (USC), nominally in charge in Mogadishu, have also met with oil company officials, in particular Conoco, both in Somalia and in Rome. However, no news of any agreement has emerged from these meetings. Pectin is the biggest licence holders in Somalia proper, with four offshore blocks along the Indian Ocean shelf, extending approximately from Bander Beyle to south of Mogadishu. Further onshore blocks are held by Amoco and Phillips.
Although new petroleum legislation was passed in 1984, it took Ethiopia until 1989 to award the first licences to foreign companies. Last year, the Mengistu government awarded two permits in the Ogaden province to US companies Maxus Energy and Hunt Oil. Maxus acquired a 110 800-square km area close to the northern Somali border, comprising four adjacent blocks, while Hunt signed up for a 44 000-square km area in the southern Ogaden, abutting Kenya and Somalia.
The government reserves for itself an area around the Calub gasfield - discovered by Tenneco in 1974 and where reserves are thought to be about one trillion cubic feet - continuing appraisal work with Soviet help. Vancouver-based International Petroleum acquired the 34 000 square km Danakil Block along the Eritrean coast, farming out 60% and the operatorship to Amoco. Offshore, British Petroleum holds one area of 31 000 square km and was on the point of acquiring another block further north when the fighting escalated. All work halted as the war spread on land and BP declared force majeure last summer, when one of its seismic boats was fired on by rebels from the Eritrean Peoples' Liberation Front (EPLF).
The exact legal status of contracts signed with the defunct Mengistu government is unclear. This problem is further exacerbated by an emerging statist policy on the part of the various Ethiopian and Eritrean groups. Most pundits predict that after the Eritrean referendum in two years' time, a loose Ethiopian confederation will emerge, allowing the Addis Ababa government continued access to the Red Sea ports of Asab and Massawa.
The new rulers in Addis Ababa, the Ethiopian Peoples' Revolutionary Democratic Front (EPRDF), and EPLF in Eritrea, say their first priority is to tackle famine relief and food shortages. But whatever stability exists, it is threatened by continued squabbling between factions divided on ethnic, religious and ideological lines. Notwithstanding public rhetoric about dumping their various Marxist ideologies, the EPRDF and the Tigrayan Peoples' Liberation Front, which has been enjoying a measure of US support, remain dominated by former university students still committed to the notion of a centralised, command economy.
In this climate, it is unlikely that there will be any quick decision about Oil Company contracts, even if the stability holds. And if a decision does materialise, it is unlikely to be very favourable to the foreign companies. However, the most recent reports indicate that some Somali and Oromo groups within Ethiopia, which have embraced the same pro-market policies as the SNM in Somaliland, are emerging as power brokers. They may hold the balance between religious and ethnic divisions in the country.
Source: Petroleum Economist Ltd. ( UK) 1991.