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Insiders say the plan was to spud the first well in July, but the deadline was pushed back.
“The Puntland government and Africa Oil have reached a comprehensive agreement to start oil extraction activity soon,” a source close to the president, who requested anonymity, told Somalia Report. “The terms of the contract imply work will likely start in September or October.”
He said that oil workers from the company were awaiting the delivery of the final batch of equipment that would allow drilling to commence.
According to Africa Oil's website, the company – along with its partners Range Resources and Red Emperor Resources - holds two blocks in Puntland: the Nugaal Block and the Dharoor Block. In a statement on September 6, the company revealed that a resource report prepared by Petrotech Engineering Limited indicated a gross best estimate of recoverable oil in the Dharoor Valley and Nugaal Valley blocks in excess of 5.2 billion barrels of oil. For the full details of the resource report click here.
The company earlier said the two basins are expected to deliver similar yields to the Marib-Shabwa and Sayun-asila Basins in Yemen, as they were contiguous before the Gulf of Aden opened up. Oil production in Yemen, which comes largely from the two basins, has declined to around 260,000 barrels per day since it began production in the mid-1980s, making it a small oil producer. Africa’s largest producers Nigeria, Tunisia and Angola pump around or over two million barrels per day.
Africa Oil Corp is in the process of transferring its Puntland operations (through its subsidiary Canmex, which holds a 60% participating interest in each of the blocks) to Denovo Capital Corp. through a share exchange agreement. Denovo will be renamed Horn Petroleum Corporation, and just short of 28 million shares in the new company will be transferred to Africa Oil Corp. as part of the deal.
Red Emperor Resources and Range Resources hold a 20% interest each in the two blocks, and they say that drilling is to take place in the first prospect - Shabeel-1, which is estimated to have over 300 million barrel of recoverable oil - in the fourth quarter.
Sakson Drilling and Oil Services are supplying a 1,500 horse power, top-drive drilling rig to drill two exploration wells.
Africa Oil, in its company profile, laid out the problems it had faced and would face in actually extracting the oil – including issues over security, rights and border disputes.
One possible immediate concern is that of security threats in Puntland, which has become increasingly restive this year. There have been clashes with militia purported to be linked to al-Shabaab, battles with and between clan militias, and a campaign of assassinations. In July this year, a convoy carrying Africa Oil Corp. executives came under fire from a militia allegedly angry they were not being consulted on the oil exploration, and concerned they would not get a fair deal.
This has been a concern in several African oil-producing countries, particularly in Nigeria, where the Movement for the Emancipation of the Niger Delta conducted years of deadly sabotage, cutting the West African nation’s oil output by over a quarter at one point.
Local sources say Inna Aloore, a former Puntland Intelligence Services officer, was behind the stirring up of the clan militia in Dharoor Valley, while the threat of al-Shabaab could grow given the group’s financial and military problems in southern and central Somalia. An established oil operation run by Western companies would be a juicy target for an Islamist group – opposed to all things Western – that is making inroads into Puntland.
Despite the concerns, the high-ranking official said steps were being taken to ensure there were no problems with drilling, and that the money Puntland rakes in (it has yet to be revealed how much the government will make from oil production) will be re-invested in communities to ward off community discontent.
"We have been talking to clan elders, intellectuals and religious leaders; there were grassroots-based discussions, so people are pleased about the activity and the Dharoor valley community will cooperate with their government,” he said. “They are ready to take advantage this long-awaited lucrative oil extraction mission: there will be a lot of projects to be started soon, including building schools, hospitals and roads.”
Puntland residents polled by Somalia Report are looking forward to becoming an oil-producing nation, yet they are concerned about a lack of transparency given allegations of corruption that are often aired about President Farole’s regime.
“I am pleased about oil extraction, but first anti-corruption laws and committees need to be established, and there should be transparency over the oil revenue,” Hidig Gabayre vice chairman of SIDDO Youth Organization, told Somalia Report.
Analysts say that the potential for armed conflict exists, and also highlight the government has a lot to do to prove it can use the money responsibly.
“We are a clan-based society, the oil extraction may cause armed conflict, so there should be disarmament of clan militia, while the government has to strengthen its credibility and create good governance, as well as viable economic policies," independent political analyst Abshir Ahmed told Somalia Report. “The government should change its laws and the oil revenue should be evenly distributed through development projects.