The Speech given by His Excellency Abdirashid Mohamed Ahmed, The Minister of Petroleum & Mineral Resources of The Federal Republic of Somalia at Africa Oil and Power Conference on 11 October 2019.
It is a great honour to be invited to address such a distinguished audience gathered here today at the Africa Oil & Power Conference, which is recognised as Africa’s premier platform for energy investment and policy. We all share the common objective of facilitating the crucial investments that will power Africa’s economies, build communities and shape societies to bring greater prosperity and opportunity across the Continent. Nowhere is the contribution that the energy industry can make to civil society and economic development greater than in Somalia. At the end of last month our President Mohamed Abdullahi Mohamed addressed the United Nations General Assembly in New York. He said that our country is “the perfect example of the success of the multinational system” in bringing greatly enhanced stability and economic development. The energy sector represented here today will play a huge role in building on this progress, by ensuring long term sustainable development and
poverty reduction as well as the continued development of stable state and civil institutions.
The key aims of my Ministry are to develop Somalia’s energy sector for the benefit of all its people and to ensure that the regulatory and fiscal framework we are establishing is highly attractive to international investors.
The opportunity is huge – Somalia is a nation rich in hydrocarbons. Geological structures indicate that the potential is at least as significant as neighbouring basins located in Seychelles, Madagascar, Kenya, Tanzania and Mozambique. As a result, Somalia could become one of the most significant oil plays in offshore East Africa, which is why we are already attracting very significant interest from the oil and gas majors.
The Petroleum Law passed in May of this year was a key landmark in enabling us to progress the exploration and development of this potentially enormous resource. My Ministry worked successfully with the six federal member states to develop an equitable and transparent framework for development, focussed on the greater good of Somalia and all its people, whilst ensuring that we are highly competitive internationally to attract investment by delivering returns that are consistent with the risks and rewards of developing our off-shore industry.
Our central objective is to be wholly transparent with all our international partners and the Somali people as we embark on this journey. The Revenue Sharing Agreement enshrined in The Petroleum Law mandates how future revenues from the development of the industry will be shared between The Federal Government, the Country’s six constituent Members States and their local communities. It is for each Member State, through their elected representatives, to decide on how their share of revenues are to be invested.
Overall the Revenue Sharing Agreement delivers a significantly higher percentage of potential revenues to non-Federal institutions than any comparable national petroleum revenue sharing agreement around the world. This provides an equitable and stable basis on which to develop the industry, commanding the broadest possible support across the country.
And this agreement has now been ‘road-tested’ with our first, albeit small, revenues represented by rental payments from Exxon and Shell, which are in the process of being shared between the federal government, six member states and their local communities – in line with the stipulations of the Agreement.
These take account of the social and environmental issues that development and production can involve whilst recognising the crucial role that revenues could play in the revitalisation of the economy by providing the resources to further re-build security, institutions and infrastructure.
In order to ensure the production stage is reached, the Ministry is now embarking on roadshows, where potential investors will have the opportunity to look at the exploration and development opportunities available in Somalia. This includes seismic data recently shot by Spectrum covering 20,185 km. The current licensing round is in respect of up to 15 blocks, covering a total area of approximately 7500 square miles. The bid round will follow shortly after to ensure that the world knows: Somalia is open for business.
The Product sharing agreement (PSA) which applies to the offshore oil exploration and development provides a highly attractive regulatory and fiscal framework that is both competitive and equitable for both the people of Somalia and International Oil Companies. By equitably linking of royalties and share of revenue closely to the price of oil, the Somalia PSA ensures that IOCs can recover their up-front development costs and earn a fair share profit even if oil prices fall, whilst maximising the profit going to the Somalian people.
Based on today’s oil prices, Brent is at $61 for example, Somalia would benefit from a 4% royalty, which can vary between 0.5% if prices dip below $40 per barrel and 5% at over $70 per barrel. The PSA is designed to maximise fees and bonuses to give the burgeoning state the financial resources needed to rebuild the country sooner rather than later. We believe that the PSA is amongst the most attractive to investors in frontier exploration basins.
In looking at all we’ve achieved so far, we understand that we have a lot ahead of us still to do. But Somalia will prosper despite the many setbacks, successes and challenges we may face. Our goal is to proceed in the best interests of the Somali people – which will only happen if we ensure an attractive regulatory and fiscal environment for our international partners. We will commit to being transparent and open about our dealings.
Next month I will be in Houston showcasing our new model Product Sharing Agreement as we prepare to invite applications for exploration licences. It is a co-incidence that Somalia’s land mass is the same as Texas, but we are in no doubt that the energy industry’s impact on the development of our country could be every bit as great as it was in Texas a century ago. At that time the burgeoning industry delivered excellent returns to its shareholders whilst financing investment in everything from world class infrastructure to high skilled jobs and education. This is a pattern we believe will be repeated in my country over the coming years and decades.
This is a new chapter in Somalia’s history. Somalia is open for business.