Somalia signs major oil exploration agreement with Coastline

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Somali government finalized a controversial oil production sharing deal with Coastline Exploration on Thursday.

The government said it signed the deal after five amendments were made to the original agreement that was reached in Istanbul in February.

“We reviewed the agreements signed in February 2022 to correct the agreements’ process and provisions. The Attorney General and international lawyers specifically proposed changes to certain articles in accordance with the laws of Somalia. There were five amendments made to the agreements, which are annexed to the agreements (deed of amendment of the PSAs).” Abdirizak Mohamed, the Minister of Petroleum and Minerals said.

Coastline Exploration, an upstream oil and gas company, confirmed that it signed seven PSAs with the Federal Government of Somalia. It estimates that approximately 100,000 barrels of oil a day will flow from each discovered field.

“Somalia is open for business. President Mohamud and the Federal Government of Somalia have approved Coastline Exploration’s Production Sharing Agreements and support our planned oil exploration programme,” the company said in a tweet.

Coastline added that it had paid a $7m signing bonus – one for each PSA – directly to Somalia’s Central Bank.

“Assuming our wells are successful, we expect to pay many millions more dollars to Somalia by way of royalty payments, profit splits and income tax.”

The Houston-based firm’s CEO, William Richard Anderson, said they expect to begin soon exploring deep-water blocks off the coast of Somalia.

“Receiving the clearance authorisation means that we are now able to start our exploration programme. Revenues from the discovery of commercial quantities of oil will be transformative for Somalia from which the government could finance investments in education, infrastructure, healthcare and other vital services, which will benefit all of the people of Somalia, delivering continued economic growth and improving the standard of living.”

The PSAs (production-sharing agreements) was signed by the Minister of Petroleum & Mineral Resources, Abdirisak Omar Mohamed, and the CEO of Coastline Exploration.

President Hassan Sheikh Mohamud, The Minister of Foreign Affairs and International Cooperation, the State Minister of the Ministry of Petroleum and Minerals, the Special Envoy of the President for International Trade Affairs, officials from the Somali Petroleum Agency (SPA) and representatives from Coastline Exploration were present at the signing and completion of the agreements on Somalia and Coastline Exploration Company management.

President Hassan Sheikh Mohamud welcomed the agreement, saying it is necessary for economic independence.

“”This agreement highlights that Somalia is open for business and international investment after the conflict that has blighted the country for so many years. I would like to thank Coastline for its commitment to Somalia, as it has fulfilled its promise of investing here, unlike so many other companies. Coastline clearly sees significant opportunity in Somalia and we share its vision. The Federal Government will do all it can to support this project and we want the first exploration well to start as soon as possible. Today marks a major step forward for Somalia as we look to develop our energy industry which should deliver material benefits for all Somalis. Energy independence, new tax revenues and further foreign investment in Somalia now beckons.”

Abdirizak Mohamed, the Minister of Petroleum and Mineral Resources, said: “Having seen how transformational new domestic energy sources have been for other countries in Africa, we are very excited by the potential of these offshore oil fields. Today’s announcement really kick starts the energy industry in Somalia and is a turning point for the development of what is a critical revenue-generating area for the country.

The Coastline Exploration agreement created a political firestorm in February when it was denounced as illegal by the previous Somali President and Prime Minister.

Shortly after the deal was announced, Villa Somalia declared the agreement null and void, citing the August presidential decree that barred government agencies from entering into international contracts during the election period.

The federal government instructed Attorney General Suleiman Mohamed Mohamud to investigate the contract and take appropriate legal measures.

Somalia’s then Petroleum Minister Abdirashid Mohamed Ahmed said President Farmajo was aware of the ministry’s deal, although Villa Somalia vehemently denied the claim.

The CEO of Coastline Exploration, Richard Anderson, disputed the government’s claim of illegality and insisted that the PSAs are “legally valid and that they’re in full effect.”

In an interview with VOA, Anderson said that Coastline Exploration did not directly communicate with the president or the prime minister but was assured by the minister of petroleum and SPA members that both leaders “were aware of the process and they were fine with the signing.”

According to Anderson, the original contract terms are a  50-50 profit split, and Coastline pays a 30% income tax on whatever profits it makes. There is also a 5% royalty for the government. All the terms of the PSAs, including the profit-sharing percentage, are fixed for their 30-year term and will not change during the contract’s life.

Thursday’s deal is the culimation of multiple attempts at securing a PSA with Somalia’s federal government.

Coastline Exploration, founded in 2018, has contractual possession of Soma Oil & Gas, a company with a chequered history in Somalia. Chaired by former U.K. Conservative Party leader Michael Howard and backed by the Russian billionaire Alexander Djaparidze, Soma was investigated by the United Kingdom’s Serious Fraud Office for paying kickbacks but later cleared due to lack of evidence.

Soma Oil, which once employed former Somali Prime Minister Hassan Ali Khaire as a director, was also criticized for a proposed draft production-sharing agreement that could have granted it as much as 90 percent of Somalia’s prospective oil revenue.

Coastline Exploration is co-founded by Alex Djaparidze, who sold Eurasia Drilling Co. (EDC), a Russian offshore-onshore oil driller that operates almost exclusively in Russia, to Schlumberger.

Djaparidze sits on the board of Coastline as a non-executive director. Furthermore, Coastline CEO Anderson was a Soma Oil and Gas board member. Simon Ayat, the former executive vice president and chief financial officer of Schlumberger, also sits on the board of Coastline Exploration as a non-executive director.

Mogadishu-Somalia