Drill for oil in Somalia? Why not, says Australian firm

Australia-based Jacka Resources plans to start oil exploration in Somaliland, a region of Somalia that declared itself independent in 1991. Nice work if you can get it.

Imagine a particularly challenging country in which to do business.

Let's say it’s a country that is not recognized by any other country, so all business has to be conducted either in off-shore accounts or in cash. On land, militant groups fight against the government and take the occasional foreign aid worker hostage. At sea, pirates attack and capture freighters, tankers, and even pleasure boats. Most food in the local economy comes from foreign donations, because the region is prone to conflict and famine.  

Would you invest in such a country?

Australia’s Jacka Resources gas and oil exploration company would. And if you guessed that the country is Somalia, you’re very close. The country is Somaliland, which declared itself independent from Somalia in 1991, and has remained a functioning, but unrecognized, independent republic ever since. Much safer and more stable than its eastern and southern neighbor, Somaliland also sits in a geological zone where oil is likely to occur, and it recently awarded its first oil concessions to foreign oil prospecting companies.

Jacka Resources – which has also successfully explored oil in Uganda’s Lake Albert – will begin seismic tests, gravity tests, and exploratory drilling soon in the 22,000 square kilometer Habra Garhajis block in southwestern Somaliland, where oil has been found to seep to the surface in at least nine separate locations.

Jacka chairman Scott Spencer said that his company looked forward to working together with Petrosoma, a Somali affiliate of Prime Resources Limited, on exploring the Habra Garhajis block, which he says has “enormous potential.”

Jacka is not alone. The Somaliland government has also signed exploration agreements with London-listed company Ophir Energy, Asante Oil, and Prime Resources, which owns Petrosoma.

Whether this newfound economic activity is a good thing or not probably depends on one’s outlook. For many Somalilanders, any form of investment is a good thing, creating the possibility of new local jobs both with the oil prospectors and with the transportation, housing, restaurants, and other service-industry business that would potentially do business with Jacka Resources.

Mohammed Yusuf Ali, chairman and chief executive officer of both Prime Resources and Petrosoma, said, “this is a great day for all Somalilanders,” adding, “all Somalilanders will benefit if we discover oil in this block.”

But oil is not always a blessing for a poor country emerging from conflict.

In Nigeria, oil revenues are one of the biggest sources of corruption for government officials. It's one of the major sources of tension between citizens and their government, and between regions that have oil and those that don’t. Oil discovered along poorly demarcated international borders is especially problematic, as the current fighting between Sudan and South Sudan shows.

The shaky transitional government of Somalia has already complained about Kenya’s discovery of offshore oil in waters claimed by Somalia, a matter that Somalian Foreign Affairs Minister Abdullahi Haji called “a territorial argument that came after oil and gas companies became interested in the region,” in an interview with Reuters.

The notion that oil is a curse is a bit overdone, of course.

Some countries with strong legal systems, such as Britain, Norway, and Ghana, manage to squeeze a bit of benefit out of the oil trade with little negative effect. Other countries, such as Angola, Nigeria, Guinea, Guinea-Bissau, Sudan, and South Sudan are not so fortunate.

But for Somaliland, simply having a conversation about the possible downsides of an oil-based economy is a discussion – and even a curse – worth having.