China wins permit to look for oil in Somalia

Financial Times FT.com

China wins permit to look for oil in Somalia

By Barney Jopson in Nairobi

Published: July 14 2007 03:00 | Last updated: July 14 2007 03:00

The Chinese state oil giant, CNOOC, has won permission to search for oil in part of Somalia, underlining China's willingness to brave Africa's most volatile regions in its hunt for natural resources.

Somalia has been a no-go area for US oil companies since it descended into anarchy in the early 1990s. This year the capital, Mogadishu, has seen its worst violence in 16 years as insurgents seek to topple a fragile interim government.

But CNOOC has not been deterred and last month met Somali government officials in a Nairobi hotel to hammer out the details of its planned survey work, which is due to begin in September.

Chinese state-owned companies have become a heavyweight presence in Africa as the country seeks to secure resources for its booming economy as well as market access for its own goods and services.

CNOOC, China's largest offshore oil and gas producer, has been at the vanguard of the drive: it constructed oil pipelines in southern Sudan in the late 1990s even as a civil war raged between separatist rebels and the Islamist regime in Khartoum.

The Chinese company's deal with Somalia's transitional federal government gives it exploration rights in the north Mudug region, some 500km north-east of the capital.

CNOOC and a smaller group, China International Oil and Gas (CIOG), signed a production-sharing contract with the interim government in May 2006. The contract, which gives the government 51 per cent of oil revenues, was endorsed at last November's China-Africa summit in Beijing.

At a meeting in Nairobi on June 24 - a record of which has been seen by the Financial Times - parts of the agreement were clarified by Abdullahi Yusuf Mohamad, the Somali energy minister, Chen Zhuobiao, managing director of CNOOC Africa, and Judah Jay, managing director of CIOG.

According to the US Energy Information Administration, Somalia has no proved oil reserves and only 200bn cubic feet of proved natural gas reserves, which have not been tapped.

In the late 1980s exploration concessions were held by companies including Conoco and Phillips, which have since merged; Amoco, now part of BP; and Chevron. They fled the country after dictator Mohamed Siad Barre was overthrown during civil war in 1991.

The data collected by oil companies has formed the basis of interest in Somalia today. Range Resources, an oil group listed in Sydney, estimates that the Puntland province - which includes the Mudug region - has the potential to yield 5bn-10bn barrels of oil.

Puntland is semi-autonomous and relatively stable compared with Mogadishu, where insurgents are launching near-daily assaults on the government and its Ethiopian military backers.

A reconciliation conference due to open tomorrow is expected to attract still more attacks.

The government is preparing a new national oil law even though its authority across the country is limited. Its decision to grant CNOOC exploration rights in Puntland could spark a dispute with the local authorities, which have given Range Resources exploration rights elsewhere in the province.

A western diplomat who follows Somalia from Nairobi cautioned that he had seen copies of three similar deals signed by the interim government in the past two years. "If there is ever enough peace and stability to allow oil to be extracted, there'll be a huge [argument over the agreements] down the line," he said.

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