Development and Production of Somali oil


There has been a lot of interest and activity regarding the recent collection of 20,500 km of 2D seismic data in offshore Somalia by Soma oil and gas. Considering the work being the first of its kind in Somalia, the reaction was not surprising at all. This data acquisition was completed over a period of 4 months starting from February 2014, and costing over $37 million. The area rivals the size of the entire North Sea. It was completed with no security incidents and has as such reignited and renewed the interest in Somali oil.

But how important is this data in the wider aspect of Somalia’s oil and gas development? To answer this, this article will provide an overview of the typical stages during the development of Hydro Carbons and how the state of affairs in Somalia will eventually progress with respect to exploration, appraisal, development and production.


 

Exploration

It is no surprise to find out that Somalia is in the early stages of its resource development. In the late 1980s there was a huge drive for exploration activity in Somalia with multinational companies betting on huge oil finds, including Conoco-Phillips, Shell, Chevron Texaco, Eni, Talisman, Murphy, Canadian Natural Resources and Neste (reference 1). However, with the overthrow of the Siad Barre regime in 1991, these companies declared force majeure claiming it was unsafe to continue oil and gas activities within Somalia which led to all ongoing operations to be put on hold.

After decades of civil war, it is only recently that Somalia has begun to stabilise its political affairs, having formed a federal government with 9 recognised state regions within the last 3 years. Therefore, given that the vast majority of fighting within Somalia has seized, companies that previously declared force majeure can no longer hold on to that position. The Somali federal government have publicly announced that they will honour the licences that were previously given to companies.

They have been given a 12 month time limit to accept previously awarded licences (reference 2). The multinational companies previously operating in Somalia are therefore now eager to get back in and make the finds. Exxon, BP, Shell, Chevron, amongst others are currently reactivating plans for exploration in Somalia.

A lot of this activity will be carried out in the onshore regions of Somalia, which have previously been explored with 200 wells drilled and 100,000 kms of seismic data acquired with limited success (reference 1). However, Somalia is still one of the least explored areas in the world (KPMG estimate 15,000 wells drilled in West Africa (reference 3) so it is challenging to estimate the oil and gas potential of the country. The heritage institute has nonetheless estimated that Somalia holds resources totalling 110 billion barrels of oil (!), which would make it top 10 in the entire world (reference4). Even if these estimates are optimistic, the multinationals are clearly expecting huge finds and given that the Somali shores occupy a large portion of the Indian ocean, it could prove to be a realistic assumption.

Also given the recent huge oil and gas discoveries in the neighbouring countries Kenya, Uganda, Tanzania, Mozambique, this has only lead to an increased rush for Somali oil.

Aside from the onshore regions of Somalia, Soma oil and gas have in June 2014 completed the acquisition of 20,500km of 2D seismic covering the entire eastern offshore area of Somalia which approximately covers the area equivalent to the entire North Sea. Seismic basically means shooting sound waves and observing the reflections to understand the structure of the reservoir and to determine the high probability areas containing potential hydrocarbons. Somalia has paid the price for this acquisition giving approximately 1/3rd of the areas licences to Soma oil and gas for their acquisition. They will however be able to sell the remaining 2/3rd with an expected licensing round in the near future.

Appraisal

The appraisal stage only comes after there is a discovery within Somalia. It is a stage where additional wells are drilled, possibly more seismic data acquired and additional information obtained from the subsurface in order to assess how commercial the resources are and what type of infrastructure will be required.

If this stage is successful and a company decides that they will develop the resources, the final stages are in the development and production of the area.



Development and production

This would be the most promising conclusion for Somalia.

To have a nation that is actively producing oil and gas, that is substantially contributing to the world market share, and most importantly, generating a much needed stable internal source of revenue that is redistributed efficiently and pumped back into the economy. This stage is however not so simple. In addition to drilling several wells for the production of oil, an oil and gas company will need to think about building the relevant infrastructure to transport, process or refine, and eventually sell the oil. All of this will be heavily dependent on the quantity and quality of the oil that will be found in Somalia. Which strategy Somalia will adopt must be thoroughly scrutinised and reviewed once the important discoveries have been made. Considering that Somalia has undergone decades of civil war, there is no real infrastructure to manage the capacity of huge oil finds, and certainly no refining capabilities.

If we take Uganda as a case study, commercial volumes were found in 2006, and within 5 years of findings in 2011, 5 out of 20 commercial finds were put in production (reference 5). Making the comparison with Somalia, we therefore shouldn’t be holding our breaths but look forward to the time in the future, perhaps in 2025, where Somalia will add to the new era of East Africa oil, being self sustaining and providing oil to the nearby regions.

Anwar Sufi - Reservoir Engineer


References:

  1. Somalia Oil and Gas summit 20 October 2014 – Jay Park

  2. http://www.rangeresources.co.uk/framework/documents/displaydocument.asp?doc=988

  3. https://www.kpmg.com/Africa/en/IssuesAndInsights/Articles-Publications/Documents/Oil%20and%20Gas%20in%20Africa.pdf

  4. http://www.heritageinstitute.org/wp-content/uploads/2014/06/HIPS-Oil_in_Somalia-ENGLISH.pdf 5. http://www.petroleum.go.ug/page.php?k=curnews&id=12

 

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