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Two High Risk Venues, With Big Potential Payouts: Somaliland and Lebanon

Somaliland: Somali’s ‘Other’ Country

Somaliland enjoys a certain amount of strategic advantage. It has a long coastline and deep sea ports, and could eventually serve as a major energy hub for East Africa. Foreign oil companies are already on to this and exploration is beginning in earnest.

Chevron was drilling in Somaliland in the late 1980s, and Conoco was laying airstrips, but these licenses were granted by the Somali government, which was taken over by militias in 1991 - a development that saw Somaliland declare independence that same year. So now we’re starting from scratch. There is the little matter that Somaliland is not an internationally recognized country, but foreign investors do not seem to be bothered by this technical inconvenience.

So far, three independent oil companies have signed up for exploration. The most notable is Turkey’s Genel Energy, which has taken the sector by storm in Northern Iraq. Genel will begin surveying in March and expects to drill its first well in early 2014. Somaliland officials are hoping Genel will have the same success it has had in Iraqi Kurdistan. UK-listed Ophir Energy and Australia-listed Jacka Resources are also in the first exploration. Together, the three companies have seven blocks. Genel owns 75% of two blocks,  Ophir also owns 75% of two blocks. There are a total of 24 blocks up for grabs and they cover one-third of the country’s territory.

Somaliland Oil

No one really knows how much oil and gas Somaliland is sitting on because exploration has never been anything more than dabbled in, but most think we’re talking about reserves in the billions of barrels. Geography, as always, is important here and massive quantities of oil in nearby Kenya and Yemen make Somaliland look very promising. 

Positives:

•    Strategically, this is a shipping paradise: it’s on the Red Sea coast in the Gulf of Aden right across from one of the busiest maritime transit corridors connecting the Suez Canal and Asian shipping routes

•    It could really be a great game for refiners with the right infrastructure in place - it could refine some of those East African oil discoveries of late

•    There are big plans to expand the port of Berbera, which is currently a three-berth harbor; but its destiny is to be a major international deepwater shipping hub

•    Plans are also being drawn up for a road and railway connecting Somaliland with Ethiopia, as well as a pipeline to Ethiopia (which is only in the talks phase)

•    The UAE is tempted to help develop the port of Berbera and talks are underway

Negatives:

•    Infrastructure - such as pipelines, LNG trains, shipping terminals, refineries - are non-existent, so the authorities will be looking for major players who can help foot the bill for this massive investment

•    The regulatory environment and the structure of the oil and gas sector is still embryonic: the Somaliland oil minister, Hussein Abdi Dualeh, says he’s planting the seeds for a national oil company

•    There’s a major problem with piracy in the Gulf of Aden

•    Old claims on concessions issued by the Somali government (to Chevron, BP and Conoco) may present some tricky legal hurdles, but Somaliland officials insist this won’t be a problem

LEBANON: The Levant Basin

Lebanon is moving to make the natural gas and petroleum resources in its maritime Exclusive Economic Zone commercially extractable.

We’re talking about the Levant Basin, which stretches from the north of Egypt to the north of Lebanon and south of Cyprus—an area estimated to hold about 122 trillion cubic feet of undiscovered, technically recoverable natural gas and 1.7 billion barrels of undiscovered, technically recoverable oil.

Bidding was opened on 1 February for pre-qualifying for natural gas and oil exploration drilling.  On 6 February, the Lebanese government approved the conditions for companies bidding in the first offshore oil and gas exploration license. The list of pre-qualifiers should be released by 31 March and those on the list will be able to place bids over a six-month period beginning on 2 May. Expressions of interest have come from Royal Dutch Shell, Cairn Energy and Cove Energy, among others. Natural gas extraction is slated to begin in 2014 and oil extraction in 2017.

Levantine Basin

Positives:

•    Norway-based Spectrum Company, which recently carried out 3D seismic tests, says Lebanon may be sitting on natural gas deposits greater than those found in nearby Cyprus; Spectrum’s survey’s estimated 25 trillion cubic feet of natural gas in the 3,000-square-kilometer zone—or, more than Syria and Cyprus combined

•    The Lebanese parliament has passed legislation paving the way for issuing exploration licenses; it has also appointed a six-member Petroleum Committee to oversee the bidding process

•    Geographically, this is promising: In nearby waters, Israel has discovered some 16-25 trillion cubic feet of natural gas and an estimated 600 million barrels of oil in the Leviathan field in the Eastern Mediterranean; overall, the Eastern Mediterranean is estimated to have as much as 200 trillion cubic feet of natural gas and 3.7 billion barrels of oil (it’s hard to get at though—6,000-20,000 feet deep)

Negatives:

•    Lebanon’s infrastructure is woeful at best: It will need everything from liquefied natural gas (LNG) plants to pipelines in order to get these resources to market

•    Lebanon’s military cannot offer any significant protection for offshore energy infrastructure, and there should be concern that these offshore venues overlap with sea-based weapons’ smuggling routes for Libyan weapons flowing to Syrian rebels; however, Lebanon’s Navy is working to push a strategy that would give it a clear mandate for protecting the country’s offshore energy resources—but we’re not there yet

•    Lebanon’s port of Tripoli is currently a flashpoint in the Syrian conflict

•    Lebanon and Israel still need to delineate their maritime border where these energy resources have been discovered; a draft boundary agreement has been drawn up and is being mediated by the US and the UN

•    Sectarian rivalry and government polarization make the regulatory environment tricky, and this will be further aggravated by the conflict in Syria—even more so in the aftermath of an Israeli airstrike on Syrian territory, near the border with Lebanon

•    Parliamentary elections in June will be held against a backdrop of rising uncertainty and the political horse-jockeying may bode ill for the energy sector




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