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UpstreamOnline: Somalia offers players second chance

By Upstream staff

Foreign players who declared force majeure and quit Somalia 16 years ago when the country descended into civil war will be given the chance to resume their activities under the country’s proposed hydrocarbons law, it emerged today.

According to a parliamentary bill obtained by Reuters, companies that held concessions before 30 December 1990 would be given the right to return to those areas under new production sharing agreements.

The new production deals will set out different financial terms, exploration periods and obligations as well as new block sizes.

“A prior grant in the form of a concession entitling the prior contractor to conduct exclusive petroleum operations shall be convertible into a production sharing agreement,” the news agency quoted the draft law as saying.

Several Western players – Shell, BP, ConocoPhillips, Chevron and Eni held Somali exploration concessions in the 1980s before leaving in 1991 when warlords toppled dictator Mohamed Siad Barre and the country descended into lawlessness.

The 41-page draft law, which is awaiting parliamentary debate, – gives previous concession holders a year from the time the law comes into effect to sign up for a PSA.

It was not immediately clear whether any Western companies would consider returning to a country which has become a byword for violence.

The bill also nullifies any exploration deals struck after 1990 – a clause that is likely to meet opposition from Somalia’s northern regions of Somaliland and Puntland which have both signed separate agreements in the past five years.

It may also affect a PSA signed by President Abdullahi Yusuf and China National Offshore Oil Corporation Ltd, which was reported by the Financial Times last month.

“Any right to conduct petroleum operations in Somalia granted after 30 December 1990 shall terminate and cease to be a binding obligation on the government,” reuters quoted the draft law as saying.

Somalia’s interim government, formed in late 2004, is keen to attract foreign partners to develop its nascent petroleum sector.

Although the US Energy Administration said Somalia has no proven oil reserves, geologists hope to find an extension of the crude-bearing deposits that hold nearly 4 billion barrels across the Gulf of Aden under Yemen.

Analysts said the bill’s recognition of previous concession holders is a deliberate move to encourage the return of well-established players and to dispel any doubts over the legal status of prior deals in the country.

Reuters said a PSA template stipulates the government would receive 8% of revenues in cash on the first 25,000 barrels of oil per day if the price was $55 or more a barrel.

For output of more than 100,000 bpd, it would receive 14% of revenues.

Officials expect the draft law, approved by a council of ministers in February, to be debated in parliament shortly.

If the legislation is enacted, it would give the go-ahead for the creation of a state-owned Somalia Petroleum Corporation, which will be 49%-owned by Indonesia’s PT Medco Energi Internasional and Kuwait Energy Company.

The foreign players would fund the corporation’s operations and pay all of its approved exploration and development costs.

Somalia’s state oil company would then have the power to exercise the government’s right to take part in in activities under PSAs for up to 30%, once commercial discovery has occurred.

The draft law also gives a similar right to the government of each regional state in Somalia with an upstream sector, with a participation right of up to 10%.

13 August 2007 14:08 GMT  | last updated: 13 August 2007 14:37 GMT

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