Kenya just in the recent couple of days has expressed its displeasure on Somalia’s action to include an area of dispute with Kenya as part of its own during the licensing round that took place in London on the 7th of February 2019. In the period between 2014-2015, offshore seismic data was acquired covering both shallow and deep water of the Southern Ocean of Somalia by Somalia Oil and Gas. The latest inspection was conducted by Spectrum UK. The company has been conducting a multi-client survey in the Southern Indian Ocean Offshore in Somalia.
Offshore Somalia is divided into three basins, mainly the Obbia basin in the north, Cariole basin and the Juba-Lamu basin. These areas in offshore Somalia indicate a huge exploration prospect with huge hydrocarbon potential. Spectrum Oil Company took part in the organization of the licensing round in London, where 50 blocks covering a total area of 173,000km square were unveiled. The area in dispute with Somalia is about 100,000km2, warranting Kenya to send official diplomatic protest letters to the government of Somalia.
The offshore is considered most prospective areas in deep to ultra-deep water areas. Technology has made the deep and ultra-deep water areas technologically feasible for exploration and production and the Federal Government of Somalia has divided up the entire country onshore and offshore. The licensing round was to help Somalia with the exploration activity.
What Happens During the Licensing Rounds?
Licensing gives the exclusive right to oil companies to search and drill for, and obtain petroleum in the area covered by the licence. However, also the licence does not mean any form of approval for activities to take place in the Blocks, and does offer any exemption from other legal or regulatory requirements. Licensing can run for three successive periods or terms and each licence expires automatically at the end of each term, unless the licence has made much progress to earn the chance to move into the next term.
The initial term or the first round of licensing usually lasts about four years if the agreed licensee has made enough progress to earn the chance to move into the next term. Most definitely if they have hit 50% of exploration of the acreage they have been licensed for. After this, the licensee can now be given a third term of 18 years after submitting a development plan that has been approved. Even though the Federal Ministry of Petroleum still has the power to determine different term lengths if there is need to.
During Licensing Rounds, Oil companies usually submit their work plans with details of work programmes they propose in the first term to further the understanding or the exploration of the blocks in question.
Licensing Rounds do happen all around the world and it is best practice that when they do this; a public register is kept of all petroleum licenses, agreements, authorizations and permits to be shared with the public for the purposes of transparency.
The Fiscal terms that were being offered by Somalia during the licensing round are the royalty, production sharing and corporate income tax. According to the Fiscal terms that were shared earlier before the first licensing round, Somalia intended to collect a signature bonus of $ 2million on each of the Oil blocks. The Oil companies would also support in social contribution and administration fees to assist the Federal Government of Somalia in Financing the Federals government of Somalia Ministry of Petroleum.
Article 16 of the Federal Government of Somalia Draft 2017 Petroleum Bill includes a provision allowing for public access to information. In a fact finding mission of whether the Federal Ministry of Petroleum had provided any information about the first licensing process before hand, it was clear that such information did not exist. In preparation for the first licensing process, the Federal Government of Somalia needed to have disclosed important Information that would be important to investors and the public.
Move by Kenya Warranted?
The fact that the area in dispute is significantly a large area and contains potential Hydro-carbon resources, and is also matter before the International Court of Justice, Somalia should not have gone ahead with the licensing rounds. Also taking into account it is Somalia that took Kenya to the ICJ, even after Kenya proposed an out of court settlement.
It is a complex circumstance between Kenya and Somalia, Hydro-carbon exploration licenses can be affected, bearing in mind that some of the oil blocks could possibly have covered one or more maritime areas-territorial sea or waters within 50 nautical miles off the Coast. At this stage no one has the monopoly to enforce their own laws be it law enforcement, anti-piracy patrols and enforcement of fisheries regulations.
Kenya has the right of protest over this matter by sticking to its preferred border demarcation that it has recognized for many years until a decision by the court is made. A compromise could have been possible but since the area is lucrative of Hydro-carbons, either side doesn’t want to let go. Whatever the court shall decide will be binding to both parties but meanwhile Somalia need to halt the licensing rounds which is expected to come to a close by July of 2019.
Albert Mbaka is a Research Associate at the Centre for International and Security Affairs (CISA).
