Coastline Exploration leads new charge on Somalia oil and gas

There has been renewed interest in exploration plays in Somalia, one of the final frontiers for global oil and gas development, with energy security back on the political agenda in the East African country following years of conflict and instability.

International oil companies including Chevron, Eni, ExxonMobil and Shell began exploring in Somalia in the 1950s but bolted when the country erupted in civil war in 1991.

Today, though, Houston-based Coastline Exploration is leading a renewed charge, having acquired seven offshore blocks from Somalia's federal government in 2022.

The US minnow is entertaining farm-in proposals for its wildcat plays in the country, but is not dependent on future partners, CEO Richard Anderson told S&P Global Commodity Insights.

"I think the potential is there for multiple tens of billions of barrels, recoverable, or even more over time," Anderson said. "Just the areas we are looking at would be in that range, in the upside case, and that is just in our blocks."

Coastline, which paid $7 million for the blocks, will begin 3D seismic in November, Anderson said, with a view to drilling in mid-2025.

Meanwhile ExxonMobil and Shell were said to be considering a return to Somalia, which sits on a vital international shipping chokepoint. In March 2020, the petroleum ministry agreed an initial road map with the two companies.

According to 2D seismic conducted by TGS in 2014, there could be 30 billion barrels of crude across 15 blocks initially offered by Somalia's government.

The Russian invasion of Ukraine has prompted discussions of energy security in Africa, where electricity access is low. Meanwhile major oil and gas discoveries in Mozambique, Tanzania and Uganda have whet investors' appetites for East African hydrocarbons.

"Today marks a major step forward for Somalia as we look to develop our energy industry which should deliver material benefits for all Somalis," President Hassan Sheikh Mohamud said following the Coastline deal in October.

"Energy independence, new tax revenues and further foreign investment in Somalia now beckons."

Still, analysts say both a burgeoning oil sector and new ports could be targets for Al Shabab militants who control large tracts of land.

Unmissable opportunity

Coastline first announced in February it had signed PSAs for seven blocks covering 35,000 square km, almost two years after Somalia launched its first offshore round, but Mohamud's predecessor, Mohamed Abdullahi Mohamed annulled the deal.

After taking office in May, Mohamud approved the deal and signed an agreement with Somalia's disparate states, which commentators say will prevent internal discord.

Anderson said Coastline's projects will progress in November. "The next phase is shooting a 3D seismic survey between November and March. We will then process it over three to four months," he said. "We hope to be drilling by the second or third quarter of 2025."

Crude discoveries, Anderson said, would "change the geopolitical balance" in the region. Given the potential size of Somalia's reserves, "it is an opportunity that the Somali people should not miss."

Breakaway region

Operating in the region can nevertheless be challenging. In the northern breakaway region of Somaliland, London-listed Genel Energy has drawn the ire of Somalia's federal government by acquiring blocks from the local government, potentially containing 5 billion barrels of oil.

Somaliland declared independence from Somalia in 1991 but has seen its bid for international recognition stall. The breakaway state sees deals with international companies as key to its independence mission.

After Genel announced it had completed a geotechnical survey in Somaliland in December, Mogadishu said it "categorically rejects Genel Energy plc's claim to petroleum rights in Somalia's northern regions," and demanded the UK company "cease its illegal claim", prompting a furious response from Somaliland's administration.

Drilling is due to begin in Somaliland in late 2023 or early 2024, according to Genel.