The Force Majeure Dilemma, and Way forward for Somali Oil and Gas

The Force Majeure Dilemma, and Way forward for Somali Oil and Gas

The Federal Government of Somalia (FGS) has a monumental task of building sustainable peace, improving

security, building national infrastructure, and increasing access to quality health services and education for

the people of Somalia. One of the greatest pillars that the government and the people of Somalia peg their

hopes of achieving the socio-economic development that has eluded them over the last two decades is the

wealth of hydrocarbons that the country sits on, both onshore and offshore – on the Indian Ocean floor.

Acknowledging the significant transformational power that petroleum and gas discoveries could have on

the Somali economy, the FGS has been on record declaring that it will honour previous agreements that

had been entered into between the previous government and multi-national investors in the sector.

Prior to the civil war in 1991, there had been a rush by trans-national oil companies to explore the

hydrocarbons in Somalia. Notable players in the game included Texaco,Conoco-Phillips, Amoco, Total, Shell

(Pectin), and Eni, all who ditched their Somalia operations after declaring a “Force Majeure,” and hoping to

return after the civil war.

Some of Major Oil Exploration Deals signed with the old Somali Democratic Republic (SDR).

Company Block Size Year Deal Signed

Chevron

International

CONOCO Nogal, Sool and Togher

AMOCO Somalia

Petroleum Co.

North West Coast of

Somalia, both on-shore

and off-shore

regions

North & Southwest

Mogadishu

Block 6

Block 9

Block 12

Total

40,509Km2 or 10,009,744 acres 1986

98,700Km2 or 1986

12,347Km2 or 3.05 million acres

9,515Km2 or 2.35 million acres

13,229Km2 or 3.27 million acres

8.67 acres

1987

The Controversy

However, the circumstances of their coming back raise more questions than answers. To start with, is the

problem of whether declaring a Force Majeure automatically stops a lease from expiring? Every oil and gas

lease contains a force majeure clause, commonly referred to the “Act of God”. This clause outlines specific

events that can trigger the Force Majeure. Since every contract is unique, what happens to any contract

that was due for expiry and did not possibly include the events of 1991 as a sufficient condition for

suspending operations? Will the government still honour such?

Second is the question of the current state of Somalia Vs. the old. The 20 years-old civil war completely

destroyed the old state of Somalia, including the institutions responsible for entering into, and enforcing

legal contracts on behalf of the people of Somalia. It has thus been argued that the state of Somalia with

which the oil companies entered into contracts for mining operations no longer exists. What we have now

is a completely new state being founded from the ground-up, with new institutions, a new Petroleum law,

and with everything completely detached from the old state, saves for the soil on which the old state stood.

In such a case, is the FGS obliged to honour contracts that it never entered into?

Third, there is the question of the legitimacy of the mining agreements, given that they had been entered

into with an autocratic regime. It is no secret that the former government of Siyyad Barre presided and

authoritarian government that was not representative of the common will of the people of Somalia. A

government that lacks popular support lacks legitimacy, and so does its engagements. The size of

exploration blocks awarded to some oil companies that evoked the Force Majeure has been termed

ridiculously large, The question then becomes to what extent the new state of Somalia would be obliged to

honour such deals, which are evidently skewed in favour of the trans-national interests at the expense of

Somalia’s national interest.

Finally, Somalia is now a federal state with a national government and regional governments. There are

semi-autonomous states of Puntland and Somaliland, with their own governments and legal structures too.

How then would the FGS honour Force Majeure agreements with companies, which had operations in

areas including these two semi-autonomous states, given that the two have previously entered into oil

exploration agreements with foreigners without consulting the FGS? What say would regional governments

under FGS have over the continuation of the exploration and exploitation works by foreigners within the

regions?

These are some of the issues that the FGS and Ministry of Petroleum and Natural Resources have to

grapple with, in the current quest to bring back investors into the country’s oil and gas sector.

Way Forward

The issues raised above notwithstanding, Somalia need foreign investors to help the country realize the full

potential of its hydrocarbon endowments. Large multi-nationals no doubt have the kind of muscle and

market networks the country needs to fast-track development of its oil and gas sector. Honouring the Force

Majeure clause in old contracts with such companies would be a good way of demonstrating commitment

to the continuity of business with such corporations. However, in the new state, national interest should

precede any other interest in such contracts.

For this reason, the Ministry of Petroleum needs to set up a task force to evaluate the terms of the old

contracts on a case-by-case basis, as opposed to blanket acceptance of all the conditions set in the old

engagements. In some cases, it would perhaps serve the trans-nationals better had they sought new

licenses than proceeding with the Force Majeure agreements. The trans-national oil corporations, on their

part, should genuinely engage the FGS through the Minister of Petroleum & Mineral Resources to explore

ways of creating a favourable environment for the growth of Somalia’s oil and gas sector. This is the only

way to achieve a win-win situation for the corporations and the people of Somalia.

There is urgent need to review the current Petroleum law to enable it handle the growing level of

sophistication in the sector. The new law should be clear on a number of issues, which include production

sharing, revenue sharing, taxation, environmental management, and corporate social responsibility among

others, as they affect the oil and gas sector.

As the sector grows, there should be deliberate policies to grow local and regional companies to become

significant players in Somalia’s oil and gas sector. There are many Somali-owned energy companies

operating within East Africa and beyond, which should be encouraged to return home and take their right

positions in Somalia’s economic development.

Finally, there is need for the FGS to dialogue with the people. First, there is need for clarity of FGS’ rights to

enter into, or to execute agreements on behalf of the semi-autonomous states of Puntland and Somaliland.

This will help to avoid resource-based conflicts between the FGS and the two units. Second, as a way to

forestall possible fallouts between FGS and regional governments, there is need for wider consultations

with the regional governments over the return of old trans-nationals oil corporations, as well as the entry

of new investors into the regions. This is the surest way of ensuring that the investors have the “social

license “to operate in the various parts of the country.

The foregoing notwithstanding, Somalia stands at the verge of massive economic transformation, but only

if the country can handle with sobriety the sensitive issue of exploration and production, which has been

the curse of many resource rich states of the world.

About the Author

Mohamed Ahmed (Minjir) is the founder of Geological Society of Somalia, a professional association that

seeks to promote awareness of the country’s natural resources (Minerals Oil and Gas).

Contact Emial: [email protected]

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