The Global Hunt For Oil: Canadian Firm Drills First Exploration Well in Somalia

Energy companies are renowned for taking risks as they scour the globe for new opportunities.

That said however, Canada's Vancouver, BC-based Horn Petroleum Corporation, a unit of Africa Oil Inc., is in a class by itself, having begun drilling operations in Somalia's semi-autonomous northern Puntland state.

Somalia?

Which has not had an effective government since 1991?

Land of "Black Hawk Down," pirates, battling militias, al Shabaab militants and U.S. drone strikes against the extremist group?

Yep.

On 17 January the company said in a press release that it is "pleased to announce the spudding (drilling) of the Shabeel-1 well on the Dharoor Block in Puntland, Somalia... operations have also commenced on the Shabeel North-1 well."

Horn Petroleum Corporation's decision to take the gamble has clearly enthralled Puntland's politicians - Puntland President Abdirahman Mohamed Farole opened the ceremony to commence drilling the Shabeel 1 well in the Dharoor block in northern Puntland and gushed that the well drilling was "a big day for the people of Puntland and Somalia in general. We will be no longer be begging people for resources after the drilling of the oil wells. Our young educated men and women will not suffer unemployment, everyone including ordinary labourers will have their opportunity. If the operation is successful in finding oil, it is an opportunity for the Puntland economy to grow helping create jobs for many people that are unemployed."

Not surprisingly, Puntland officials provided tight security at the site, with hundreds of heavily armed troops deployed to protect the petroleum operations. The United Nations says Somalia is the world's worst humanitarian crisis, while regional armies and the Western-backed government battle al Qaida al Shabaab linked insurgents in the center and south of the country.

Horn Petroleum Corporation President and CEO David Grellman stated, "The commencement of drilling in the Dharoor Valley block is a major milestone in the evaluation of the oil potential of Northern Somalia. We have had very strong support from the Puntland regional government and the local communities who are all keen to see development resume in the region after prolonged periods of internal strife. These wells are the first to be drilled into the deep areas of the rift basins and will be key to unlocking the hydrocarbon potential of this unexplored prospective trend."

Horn Petroleum Corporation's optimism knows no bounds, as drilling operations have also begun at a second well, Shabeel North-1, in Puntland's Nugal region. The pair of wells are being drilled to a total planned maximum depth of 2.3 miles.

Why Horn Petroleum Corporation's interest in Africa's most prominent contender for the title of "failed nation state?"

Oil potential, lots of it.

Puntland Petroleum and Minerals Agency head Issa Farah estimates that the region where the wells are being drilled may have reserves of up to four billion barrels of recoverable oil, adding, that Puntland would not allow this "historic project" to become a curse, as oil has proved in some other African countries remarking, "Before any barrel of oil comes out will have a policy that will benefit our own people and will not be detrimental to us. We want this to be something that can improve our lives, not take us back into the dark ages."

Horn Petroleum Corporation is more modest in its assessments of the areas' potential reserves, reporting, "Both prospects are very large fault block prospects with internal most likely estimates of potential oil volumes of over 300 million barrels of recoverable oil."

Horn Petroleum Corporation holds a 60 percent interest in the Dharoor and Nugaal blocks, which it describes as "encompassing a Jurassic Rift Basin on trend and analogous to the large oil fields in Yemen."

Horn Petroleum Corporation's other foolish - err, bold, partners in the Dharoor concession bloc are Australian firms Range Resources Ltd. and Red Emperor Resources NL, each with a 20 percent interest.

Perhaps emboldening Horn Petroleum Corporation's gamble, last September the U.S. State Department's Bureau of African Affairs Assistant Secretary Johnnie Carson announced, "We will work to engage more actively with the governments of Puntland and Somaliland. We hope to be able to have more American diplomats and aid workers going into those countries on an ad hoc basis," referring to both Somaliland and Puntland as "countries." Carson added, "Both of these parts of Somalia have been zones of relative political and civil stability, and we think they will, in fact, be a bulwark against extremism and radicalism that might emerge from the south."

Oh, except for the fact that most of the pirates harassing Indian Ocean shipping are based there.

Never mind the fact that a number of young U.S. Muslims are taking high-visibility propaganda and operational roles inside al Shabaab and that a recent report from the House Homeland Security Committee noted that more than 40 people have traveled from the U.S. to Somalia to join al Shabaab since 2007 and 15 of them have died. Federal investigations into al Shabaab recruitment in the U.S. have centered on Minnesota, which has more than 32,000 Somalis.

We'll leave the last word to Puntland Petroleum and Minerals Agency head Farah, who said, "I think in 10 years' time - if oil is found, we will see a better country, a stronger country that lives in peace and prosperity with its own neighbours and hopefully that produces what we have been all looking for - peace, prosperity,  development and progress."

Gentlemen, place your bets.

By. Dr. John C.K. Daly of Oilprice.com