Oil exploration in Puntland

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[edit] Key players

[edit] Conoco and Phillips petroleum operations

In the early 1990s, Conoco and Phillips Petroleum (before they merged) had concessions in the Nogal valley. They drilled two unsuccessful wells before abandoning their concessions and evacuated their personnel upon the collapse of the Said Barre government.

[edit] Consort Private gets rights in Puntland

Dharoor and Nogal Blocks
Dharoor and Nogal Blocks

Consort Private Ltd., a holding company operated by two Australian dealbrokers Terry Donnelly and Anthony Black, travelled to Puntland in April of 2005 to tour the country and meet with Puntland leaders.

On June 10th, 2005 Puntland president Mohamud Muse Hersi, planning and international cooperation minister Dr. Abdirahman Farole and Terry Donelly travel to Dubai, UAE to begin negotiations on a deal. Later during the trip, the Puntland delegation lands in Nairobi, Kenya to take part of Somali transitional federal government’s (TFG) relocation to Somalia. In Nairobi, it was reported that TFG President Abdullahi Yusuf (the previous and founding President of Puntland) and Puntland President Hersi became "angry" at each other because the TFG leadership refused to honor any agreement signed between a regional government (i.e. Puntland) and a foreign company.[1]

The Puntland delegation went ahead anyways, returned to Dubai and signed an agreement on August 30th, 2005 at the Hilton Dubai with Consort Private for exclusive rights to explore and drill for oil in the Nogal and Dharoor blocks. Two days prior to this, the Somali Prime Minister sent a warning to non-Somali companies that any oil deals would have to go through the federal government, not any state government (this despite the fact that Puntland was and is independent of the federal government in all but name).[2]

While the details of the deal are known only to the four men who signed it, what is known is that following the deal, a number of Puntland ministers were added to the board of directors, and the government of Puntland by extension must have a sizeable (perhaps even controlling) share in Consort Private.

Not to be put off so easily, Somali TFG President Abdullahi Yusuf, in an interview with the BBC on September 9, 2005, says that legally "natural resources belonging to the nation is the responsibility of the federal government". A few weeks later on September 29, 2005 a delegation from Puntland composed of ministers and businessmen travelled to the TFG's interim capital at Jowhar to led by finance minister Mohamed Yusuf "Gaagaab" to unsuccessfully negotiate again for Yusuf's signature on the deal.

[edit] Range Resources purchases exploration rights

Range Resources purchased 50.1% of Consort Private's exclusive rights to the Dharoor and Nogal blocks on October 5th, 2005 in exchange for $2,500,000 USD in cash, 17 monthly payments of $200,000 USD, 85,000,000 shares of Range Resources stock and a further 85,000,000 stock options.[3] In June 2006 the remaining 49.9% was purchased from Consort Private with the key assistance of Sir Sam Jonah, who became the non-executive chairman of Range[4]

The deal had several terms, which hinged on certain conditions:

  1. 6 month exclusive option to acquire Consort’s interest on the terms set out below with an option fee of 100,000,000 listed Range shares (RRS) and 50,000,000 stock options (RRSO) payable subject to any necessary shareholder approvals;
  2. 750,000,000 Range ordinary fully paid shares, 375,000,000 stock options (unlisted, $0.05 USD, expiring October 1st, 2010) and $10,000,000 USD conditional on shareholder approval and the completion of a minimum $25,000,000 USD capital raising;
  3. A further payment of 750,000,000 Range ordinary fully paid shares, 375,000,000 stock options (unlisted, $0.05 USD, expiring October 1st, 2010) and $20,000,000 USD conditional on shareholder approval and upon completion of the first hydrocarbon well drilled in Puntland;
  4. 2.5% net royalty on the Puntland Projects;

Range Resources issued a press release the same day stating that the TFG had signed off on the deal. The Prime Minister of the TFG, Ali Mohamed Gedi, fired back less than a week later on October 16th 2005 refuting this claim in a letter to the Australian Stock Exchange, where Range Resources is traded.

On November 2nd, 2005, Ali Mohamed Gedi finally accepted an "amendment of contract" between Puntland and Range, removing the last legal hurdle between Range and exploration.

Range Resources LTD has issued misleading information [5] to its shareholders that the company can actually operate in eastern Sanaag and Cayn regions as shown in the Range map.

Range Resources does not have agreement from the traditional leaders and the civil society organizations of the SSC regions--where the most of oil prospecting is taking place.[citation needed]

[edit] Criticism

The manner in which Puntland and their partners (Range Resources LTD, Canmex/African Oil Corp and other linked parties) have explored for minerals, oil and gas in the Dharoor and Nugaal valley has drawn criticism both within Puntland, Somalia and in the diaspora. Somalia is a patchwork of overlapping administrations, clans and traditional authorities, which in Puntland includes the Transitional Government, the Puntland Government, various traditional Harti clan leaders, and individual loyalties to a particular warlord or business leader. The President of Puntland has chosen to place himself above all these other authorities within Puntland, and critics claim the oil, mineral and gas exploration in Puntland has become an engine empowering conflict and war in northern Somalia. Since exploration began, this has spawned Puntland's war with Somaliland, Maakhir's break with Puntland, Somaliland's war with Maakhir, gun-battles outside of the Puntland State legislature, and a great deal of political uncertainty.[citation needed]

The Northern Somali Unionist Movement (NSUM), a grass roots Somali organization of unclear size or influence, claiming members and supporters from Sool, Sanaag and Cayn regions in the Northern regions of Somalia, which is thought to contain some of Somalia's most promising geology oil wise, has issued a warning[6] to mineral and oil companies that they do not view their agreements with the Puntland and Transitional governments to be illegitimate and non-binding.

[edit] Exploration problems and political instability

On February 26, 2006 the Puntland Parliament faced a confidence vote on President Hersi's Council of Ministers. Heated argument and disputes in the parliament turned ugly, and by the next day at least three people were reported dead near Garowe's Parliament House.[citation needed] The Puntland minister of planning and international cooperation, a key player in the negotiations with Consort Private and chief opponent of Range Resources/Africa Oil Corp. deal, Dr. Abdirahman Farole, is "relieved" of his duty by Puntland president Hersi.

The same day, Range deployed two exploration teams in Somalia. An initial report on results was published a week and a half later on March 9th 2006.

The Warsangeli clan, one of the Harti clans that make up the Puntland state, decided to take exception to the fact that Puntland was going to explore for oil in their territory without their permission, and began preventing Range exploration in Sanaag and western Bari. Puntland was determined that Range teams would have access to Sanaag and western Bari (over half of the Dharoor block is in Warsangeli territory), and attempted to muscle their way into Sanaag and western Bari on March 19th 2006. The Warsangeli fought them off, and Warsangeli parliamentarians in Baidoa, then the capital of the TFG, complained in the parliament two days later about President Hersi's aggressive tactics. At the same time Puntland consistently denied that anything had occurred.[citation needed]

A week later on March 29th, 2006, Puntland tried again and was once more prevented from entering Sanaag and western Bari by the Warsangeli militia. This happened again on April 3rd, 9th and 13th. As the fighting began to creep into western media, Range Resources insisted no one had been killed, despite evidence to the contrary.[citation needed] Range ultimately chose not to explore in Sanaag.

Following this, the Warsangeli declared independence from Puntland and the creation of their own state, Maakhir, which has not been recognized by any other governing body.

[edit] Canmex/Africa Oil Corp. gets involved

A Memorandum Of Understanding (MOU) signed on October 10th 2006 between Canmex Minerals, Range and Puntland granted Canmex an 80% interest in the "licenses and operatorship" of the Dharoor and Nogal blocks, contingent upon:

  1. Canmex to pay to Range a signing bonus in the aggregate amount of $5,000,000 USD within 10 days of signing the agreement[7]
  2. The financial commitment over an initial four year period of $50,000,000 USD in exploration expenditures; and
  3. The payment to Range of an additional $3,500,000 USD upon commencement of commercial production

With the signing bonus paid, and with approval of the Puntland parliament, Range, Puntland and Canmex hammered out a Production Sharing Agreement on January 23, 2007, that confirmed the terms of the MOU signed in October.[8]

In order to meet their financial obligations, Canmex sold 4,000,000 common shares in a non-brokered private placement in order to raise $20,000,000 USD.[9]

Canmex officially renamed itself Africa Oil Corp. (AOI.V) on August 20th, 2007.

[edit] PM Gedi and the TFP battle President Yusuf

In November 2006, while the TFG was besieged by Islamist armies in Baidoa and Ethiopia was preparing to invade the Union of Islamic Courts, President Yusuf traveled to the headquarters of the PRC's state-owned China National Offshore Oil Corporation (CNOOC) as well as the smaller China International Oil and Gas (CIOG) Group to ratify a deal with the oil group's chairman and chief executive officer, Fu Chengyu.

Seven months later, in Nairobi, TFG Energy Minister Abdullahi Yusuf Mohamad met with Chen Zhuobiao, head of CNOOC operations in Africa, and Judah Jay, managing director of CIOG, to create the final agreement, which was signed by President Abdullahi Yusuf on July 18th 2007. The agreement gave CNOOC exclusive rights to the large offshore blocks off the coast of Mudug, for an undisclosed sum of money and unknown terms.[10]

Prime Minister Gedi decided to get in on all this action himself, and backtracked on his previous, lukewarm endorsement of Puntland's oil exploration agreement and instead proposed a draft law in the Transitional Federal Parliament in August 2007 that would nullify all agreements made after 1991 (when the last functional national government collapsed and the oil companies with existing concessions declared Force Majeure) thus giving the TFG free rein to resell all the exploration rights in the country. The exploration rights for all of Somalia would be sold to Indonesia’s PT Medco Energi Internasional Tbk and the Kuwait Energy Company, and a National Oil Company of Somalia would be created, controlled by Gedi and parliament.

This directly confronted President Yusuf's deal with CNOOC, and so the two went to political war with each other, leading to Gedi's forced resignation after more than two months of backroom warfare, on October 29th 2007.[citation needed]

[edit] Uncertainty as exploration begins

Range and Africa Oil completed their initial survey of the Dharoor and Nogal basins in September of 2007, as well as a full seismic survey of Nogal. Mobilization for drilling in Nogal and a seismic analysis of Dharoor began immediately during the winter of 2007.[11]

On December 12, 2007 the Puntland Minister of Fisheries and Ports Said Mohamed Rage resigned from parliament after a long dispute with President Hersi. Central to the feud was President Hersi's micromanagement of Bosaso port, which was supposed to be his domain, but also the resource agreement with Range and Africa Oil, which he opposed. A month earlier on November 22nd 2007, a Range team left the village of Buru after Said Mohamed Rage's clan asked for payment for it to remain there and the Hersi's government discouraged such payment.

President Hersi reshuffled his cabinet on December 16th 2007 and created a new ministry of Oil and Resources, placing Hassan "Alore" Osman in charge of the ministry.[12]

TFG President Abdullahi Yusuf was hospitalized in London, England shortly thereafter, and there the issue rested until the president checked out of his London hospital room on February 3rd 2008[13]. Before flying to Baidoa, President Yusuf landed in Addis Ababa on February 5th 2008 to meet with the Ethiopian government and also with Puntland President Hersi regarding the TFG's stance on the Puntland-Range-Africa Oil deal. President Hersi was also in Addis Ababa to meet with the Ethiopian government regarding the perceived relaxed attitude of Puntland towards Somali rebel groups using Bosaso port[14].

[edit] Resistance in Maakhir

With oil in both Somaliland and Puntland open to exploration for Lundin Petroleum and Africa Oil respectively, a remaining obstacle to exploration in the north was opposition from the Warsangeli clan in Maakhir, upon which a large part of the Dharoor block is located. On February 25th and 26th, Somaliland laid siege to both Hadaftimo and Badhan (the capital of the unrecognized Maakhir state) before being forced to withdraw.[citation needed]

[edit] Drilling Rig Construction Contracted Out to Southeast Asia, China

Africa Oil Corp. signed a contract on February 19th, 2008 with Energi Tata Persada Pte Ltd (ETP), a Singaporean registered company, for construction of the first drilling rig. ETP is a wholly owned subsidiary of Catur Khita Persada of Indonesia. Construction commenced on ETP rig No.3 at the Shengli fabrication plant in Dongying, China commenced shortly after the contract was signed.

According to the press release:

The ETP rig is scheduled for delivery in mid May, 2008 and will immediately mobilize to Jebel Ali, Dubai. The mobilization into Somalia will be via chartered vessel and the current plan is to spud the first well during July.

The ETP No 3 is a 1,500 HP unit, equipped with the latest drilling technology, including a top drive and three 1,600 HP pumps. The camp facility will house up to 150 persons and will also be brand new. ETP will also provide the trucking and hoisting equipment as part of their contractual obligations.[15]

[edit] Private Militias Established

With the delivery of the first drilling rig due to arrive in early June 2008, Range Resources and African Oil established a private Somali militia force, complete with technicals, to act as the enterprise's private army. [16]

The private militia was created just after reports emerged of TFG President Abdullahi Yusuf supporting a 1-year term extension of Adde Musa's Puntland administration, creating a tense atmosphere in Puntland.[17]

[edit] References

  1. ^ "Puntland Agreement" controversy: Chronology of events (UPDATE!)
  2. ^ Somaliland Times issue 196
  3. ^ Puntland Oil Exploration part 1
  4. ^ ASX Announcement, Puntland Update
  5. ^ Garowe Online - Home
  6. ^ ::Xargaga Online::
  7. ^ Range Resources
  8. ^ Canmex Announces Formal Signing of Production Sharing Agreement
  9. ^ Canmex Announces Cdn $20 Million Private Placement.
  10. ^ China's Play for Somalia's Oil
  11. ^ Africa Oil Corp. Q3 2007 Financial Statement
  12. ^ Puntland minister resigns, accuses president of 'power abuse'
  13. ^ President Leaves London Hospital
  14. ^ Puntland leader seeks Somali president's approval for oil contract
  15. ^ Africa Oil Corp. Operations Update
  16. ^ Somalia: Oil firms recruit private militia for Puntland exploration
  17. ^ Somalia: Puntland Leader Returns Home As Elders Issue Warning