Somalia Signs the First Oil Deal with US Company

PHOTO CREDIT: SONNA

After making changes to the previous agreement, the Somali government says it has reached an oil deal with Coastline exploration.

Abdirizak Mohamed, the Somali minister for petroleum and mineral resources, noted that the ministry reviewed and revised five clauses in the previous agreement before signing a production-sharing agreement with the Coastline exploration company.

President Hassan Sheikh Mohamud welcomed the agreement and gave ownership of seven blocks to the company.

“For us to overcome the financial challenges that have engulfed our country, we need to explore our resources to help us develop the economy and the country’s Growth Domestic Product (GDP),” Mohamud said.

Coastline Exploration, the US-based company, said Friday it looks forward to working and developing Somalia’s energy industry for the benefit of its people.

“We have today paid a $7 million signature bonus directly to the Central Bank of Somalia. Assuming our wells are successful, we expect to pay many millions more dollars to Somalia by way of royalty payment, profit splits and income tax,” said Coastline Exploration. 

Former President Mohamed Abdullahi Farmaajo and Prime Minister Mohamed Hussein Roble both rejected a previous agreement signed in February between former Petroleum Minister Abdirashid Mohamed Ahmed and Coastline oil exploration company. They claimed that the caretaker government was unable to enter into an agreement with a foreign company.

Last year, the Financial Governance Committee, a group of experts composed of the Somali finance minister, lawmakers, and World Bank members, advised the government against entering into oil deals because the country lacked a legal framework to protect the country’s financial interests in such transactions.

The IMF expects Somalia to improve its procurement, non-financial asset management, and petroleum sector legal framework before it can grant Somalia full debt relief next year. Any transaction that violates the legal framework or involves corruption may jeopardize debt relief prospects.

Soma Oil & Gas, a private UK exploration firm looking for oil in Somalia, gathered seismic data off the country’s coast. Soma Oil & Gas received five blocks.

Coastline Exploration was established in 2018 and has a contractual ownership of Soma Oil & Gas.