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SOMALIA: This New Frontier Isn’t Ready for Oil

Bottom Line: Somalia plans to sign 30 PSCs this year with foreign oil companies and auction off over 300 new oil blocks, but oil rights here are not solidified and this will be another bloody mess.

Analysis: Late last year, Somalia announced it would auction off 308 oil blocks, newly delineated. This has caused a bit of rush on Somalia, from the juniors to the supermajors, like Royal Dutch Shell and ConocoPhillips.

This pending rush on Somalia is premature. The country’s new government is transitional and dysfunctional at best, and by no means does it control the country—the militant al-Shabaab has been weakened, but certainly not driven out and still controls some key areas. Somalia’s coast is also a major piracy venue. It will be impossible to determine the power brokers here to land contracts, especially for the juniors. A multitude of influential tribes and militias are trying to gain control over oil prospects and dealing with the new government is only a small part of the equation. The power brokers are shifting and the dynamism is impossible to keep up with. It is difficult for a government to delineate new oil blocks on territory it does not fully control. The arrival of foreign oil companies will speed up territorial conflict over oil.

Somalia’s premature oil ambitions will also see it butt heads with Kenya over disputed offshore blocks. Kenya has the upper hand here, and it’s already licensed blocks in this…

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