Kuwait eyes Somali oil firm

Kuwait Energy Company and Indonesia's Medco could take a 49% stake in planned state petroleum firm.
Kuwait eyes Somali oil firm
By Reuters
Wed 08 Aug 2007 12:03 AM

Somalia is considering creating a state petroleum firm with a 49 % stake for Indonesia's PT Medco Energi Internasional Tbk and Kuwait Energy Company, according to documents obtained by Reuters.

The government documents, titled "Somalia Petroleum Policy", indicate that the two firms would acquire their stake in Somalia Petroleum Corporation on August 31.

That, however, would be dependent on the passing of a national oil law awaiting parliamentary debate, analysts say.

Prime Minister Ali Mohamed Gedi is believed to be keen to see the draft law governing oil and gas exploration in the fractured Horn of Africa country enacted quickly. The bill was approved by his council of ministers in February.

The documents seen by Reuters also state that Somalia's petroleum minister would approve three out of seven directors to the new firm - two from Medco and one from Kuwait Energy.

There are seven officials from those firms listed in the documents as advisers to the government, including Medco President Hilmi Panigoro and Kuwait Energy Chief Executive Officer Sara Akbar.

Under a sliding scale production-sharing agreement, the government and state firms would earn $1.2 billion or 69 % of revenues if 50 million barrels were extracted at $50 a barrel.

If output rose to 350 million barrels, the state would pocket $9.1 billion or 72.8 %, according to a spreadsheet in the documents showing revenues minus total cost.

The documents set out acreage-based rental payments of $100 per sq km.

Government officials were not immediately available for comment.

POWER STRUGGLE

Oil has become increasingly controversial in Somalia where experts say a power struggle has emerged between President Abdullahi Yusuf and Prime Minister Gedi over exploration rights.

Last month, the Financial Times said Yusuf had signed a production-sharing deal with China's largest offshore oil and gas producer CNOOC Ltd.

Reportedly signed last year, the agreement gives CNOOC and its partner China International Oil and Gas the right to 49 % of profits from any oil they discover.

The FT also said Gedi was not aware of the deal.

"The oil law is now being adjusted and has to go through parliament. When that's done, that's when deals can be signed," Somalia's envoy to Kenya Mohamed Ali Nur told Reuters at the end of July.

Somalia remains a speculative bet for oil exploration with no proven oil reserves, according to the U.S. Energy Information Administration, and only 200 billion cubic feet of proven natural gas reserves.

However, in the 1980s Western oil majors including ConocoPhilips, Chevron and Total held exploration concessions in Somalia, leaving when the nation descended into chaos in 1991 with the ouster of a dictator.

The documents obtained by Reuters also stated the petroleum minister would send a letter on September 15 to selected "prior concessionaires" but gave no details on the contents.
The documents say at least 100 to 200 wells would have to be drilled to determine whether there is petroleum to be found on the territory that lies across the Gulf of Aden.

"The government could undertake this", the documents said, were it not for the expense - with wells costing between $4 million-$30 million each - the risk involved when nine out of 10 exploratory wells are dry; and lack of specialised knowledge.

"The Somali Republic currently lacks the financial and technical resources to explore for oil by itself," the papers said. "There are foreign enterprises who are qualified financially and technically to do so, and are prepared to take the explorations risks involved."

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