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Issue 528/ 10th - 16th Mar 2012
Vancouver-Based Africa Oil Defies Al-Qaeda In Billion-Barrel Somali Well Drill
Mogadishu, Somalia, March 10, 2012 – In a Somali desert that’s home to al-Qaeda-linked militia, Africa Oil Corp. drills inside a fortress of excavated earth dotted with lookout towers and armed guards to satisfy a world thirstier than ever for crude.
The Canadian company is poised to complete the nation’s first oil well in at least 20 years. The prize is the more than 1 billion barrels of oil resources Africa Oil estimates is in the Dharoor Block in Puntland, a semi-autonomous northern region where the central government is battling Islamic extremists.
“Security costs are significant,” Chief Executive Officer Keith Hill said in an interview. Still, there aren’t “many places on Earth we can go onshore with contractors and try to find a possibility for a billion-barrel oil field.”
Oil prices that almost doubled in the past three years have spurred exploration in locations once considered too risky, with Genel Energy Plc, set up by U.K. financier Nathaniel Rothschild and former BP Plc CEO Tony Hayward, acquiring stakes in the Kurdistan region of Iraq. Royal Dutch Shell Plc and BP are returning to Libya after leader Muammar Qaddafi was deposed.
Competitors including Exxon Mobil Corp., Shell and Eni SpA are venturing into the deepest waters ever and risking the Arctic’s frozen dangers. Executives from the three companies are among those gathering in Houston this week at a conference to discuss challenges in meeting record global oil demand.
In Somalia, Vancouver-based Africa Oil and partners Red Emperor Resources NL and Range Resources Ltd. hired South African security consultant Pathfinder Corp. to help protect their site. Local patrols are in place, and the regional government is providing added military strength, Hill said. Defenses include heaping dirt in a perimeter, or berm, around the site, to keep intruders out.
Africa Oil, whose shares have gained 32 percent in Canada this year, plans to invest at least $50 US million drilling two wells in the block, with the first to be ready this month.
Local threats may be rising. Islamist rebels in Puntland joined al-Qaeda-linked Al-Shabaab extremists responsible for suicide bombings in Mogadishu and plan attacks on the Africa Oil operation, according to a Feb. 27 article by Somalia Report, a news service set up by U.S. journalist Robert Young Pelton, author of war zone handbook The World’s Most Dangerous Places.
Al-Shabaab, which claimed responsibility for a suicide attack on a Mogadishu hotel that killed at least 15 last month, rejects the award of oil licenses to Western companies, Reuters said on Feb. 25, citing the group’s Twitter account.
“Western companies must be fully aware that all exploration rights and drilling contracts in N. Eastern Somalia are now permanently nullified,” a Twitter post claiming to be from Harakat Al-Shabaab Al Mujahideen’s press office said that day. Africa Oil’s contracts are “non-binding,” it said.
Bloomberg wasn’t immediately able to confirm that the account is run by the Al-Shabaab group.
Insurance Premiums, Contractors
“We take all threats seriously and have stepped up security levels,” Hill said in an e-mailed reply to queries. “Our security advisers assure us we are well-protected.” Higher insurance payments and premiums to contractors from Egypt and the Middle East add to the costs, Hill said.
Western governments are leading efforts to bring stability to Somalia, which has been wracked by civil war since the ouster of dictator Mohamed Siad Barre in 1991, while pirates operating in the country plague shipping in the Indian Ocean.
U.S. Secretary of State Hillary Clinton, joining a conference hosted by U.K. Prime Minister David Cameron in London last month, said her government would encourage the imposition of further sanctions, including travel bans and asset freezes, on those “who seek to undermine Somalia’s peace and security.”
‘Cynical Oil Grab’
British officials are in talks with the Puntland regional government over exploiting oil reserves in the northeast, the Observer newspaper reported Feb. 25, citing Abdulkadir Abdi Hashi, the local minister for international cooperation.
The U.K. push for aid to Somalia looks like a “cynical attempt to grab its oil,” the World Development Movement, an anti-poverty campaign group, said in an e-mailed statement last week. U.K. International Development Secretary Andrew Mitchell, who visited Puntland before the London conference, has denied there is any commercial imperative in the government’s efforts.
A well drilled in the area in 1958, before Somalia gained full independence, showed signs of oil in several zones, Red Emperor said in a November presentation. The former U.K. colony of Somaliland and former Italian trust territory of Somalia joined to form the unified independent state of Somalia in 1960.
Oil exploration costs have been rising around the world as companies search in harder-to-reach areas. Tullow Oil Plc, Shell and Total SA spent more than $200 US million drilling off the coast of French Guiana, one of the industry’s most expensive wells, to open a new frontier in Latin America. Tullow announced the country’s first find, of light and heavy oil, in September.
The Dharoor field in Somalia may hold 1.2 billion barrels of oil resources, according to the project operator’s website.
Africa Oil and its partners are betting on geology similar to Yemen across the Gulf of Aden, which split from Africa about 17 million years ago, according to Red Emperor. Yemen holds 2.7 billion barrels of proved oil reserves and ranks ninth in the Middle East for output of both oil and natural gas, BP says.
The Shabeel-1 well, the first being drilled, reached 1,230 meters (4,035 feet), Range Resources said Feb. 23. The company and Red Emperor announced share sales to raise funds last month.
Source: The Vancouver Sun