How U.S. ‘Risk-Takers’ Took a Gamble on Somalia’s Oil — Then Vanished

A few days into the New Year, armed Somali intelligence officials were seen escorting guests into three bullet-proof cars at Mogadishu’s Aden Adde International airport. An unusual quiet stretched through the capital’s normally busy main streets as the convoy snaked through cordoned-off roads towards Somalia’s presidential palace.

Local and international media reported that two foreign companies were arriving in Mogadishu to sign a “secret” historic oil deal with the Federal Government of Somalia (FGS), the first agreement of this kind since civil war erupted in the country in 1991. Opposition politicians wrote a letter to the president that warned against the “dangerous agreement” which they said raised concerns over transparency just a month ahead of the country’s first “one person, one vote” election since 1969.

The deal was all but signed. A huge banner hung ceremoniously behind a table in a room lined with chairs, entitled “Signing Of Production Sharing Agreement,” referring to the crucial legislation that would start the resource sharing process. Just weeks before Joe Biden entered the White House, earning his place in part on a platform of dedicated climate action, a banner with the names of two U.S. companies — Liberty Petroleum and Coastline Exploration — and the date, January 4, were emblazoned next to  a map of oil concessions.

And then — silence. Unconfirmed reports detailed a day-long postponement, followed by a last-minute cancellation. The two companies vanished from Mogadishu. Days later, a government minister confirmed no deal took place, but gave no further explanation about what happened.

After decades of political unrest, a relative emerging peace had emboldened the government to put its oil up for sale. This “final frontier” for the world’s fossil fuel industry — with Somalia’s offshore oil estimated to be as much as 110 million barrels — was finally within reach, and these little-known exploration companies were the first to want a piece of the pie.

Opposition politicians reacted to the deal falling through with relief, as well as concern. Any internal disputes over resource sharing could spell disaster in Somalia, a politically fractured country recovering from decades of war. The burning of fossil fuels extracted off its coast could further exacerbate the impacts of climate change already devastating the region, through intensifying drought and uneven rainfall that puts millions of lives at risk.

For now, the foreign companies wanting to sign this highly contested deal have gone back into the shadows. But those looking to cash in on Somalia’s resources may simply be waiting until any issues are ironed out — from the regulatory framework to political outcry — biding their time until they can return.

‘Final Frontier’

The secrecy around the deal is perhaps best understood in the context of the Horn of Africa nation’s politics, which have been shaped by decades of conflict and ongoing clan-based division. A bitter civil war, triggered by the toppling of dictator Mohamed Siad Barre in 1991, raged in the country for more than 20 years, while Islamic militant insurgent group Al Shabab continues to carry out regular bombings throughout the country.

Somalia experienced its first oil rush from the 1960s, with licenses awarded to oil majors such as Eni, Total, Chevron, and Shell in the 1980s. However, a “force majeure” was imposed in 1991 after Barre was toppled, a state which effectively freezes resource extraction in conflict-stricken areas. Only after the formation of a central federal government in 2012 has oil sharing even become a possibility.

Launching the country’s first ever oil licensing round for seven offshore oil blocks in August last year, Abdirashid Mohamed Ahmed, Minister of Petroleum & Mineral Resources, spoke about its “vision” for attracting foreign investors and how the “opportunities for the international exploration and development majors are enormous”.

But 40 years on from Somalia’s first oil rush, those companies at the front of the line may not be what the country expected. While international oil majors continue to harbour dormant interests in Somalia, Liberty and Coastline, two fairly unknown U.S. private exploration companies with limited revenue and little experience, are first to test these waters.

The financial benefits for all parties under such a deal were clear. The proposed Petroleum Sharing Agreement would reportedly have given Liberty and Coastline access to all seven offshore oil blocks — the first set ever to be granted to a foreign company. Meanwhile, the government would have taken a “signature bonus” of $20 million from the deal, just ahead of a planned federal election.

These two companies hoping to exploit this latest oil and gas frontier, however, have had a long, and sometimes troubled history in the region. And both have connections to high profile politicians at home and in Somalia.

Coastline

Coastline, in its former incarnation as UK-registered Soma Oil and Gas, signed a seismic option agreement (SOA) with Somalia’s federal government in 2013, giving them exploration rights and first dibs on up to 12 oil and gas blocks. Soma successfully completed this exploration in 2015, but progress stalled when it was investigated by the UK’s Serious Fraud Office over allegations of bribery and corruption in Somalia. The 17-month investigation closed in December 2016 due to lack of evidence, despite finding “reasonable grounds” to suspect wrongdoing.

The allegations made waves far beyond the oil industry, in part due to the company’s links to both the British and Somali political elites. Lord Michael Howard, the former Conservative leader, chaired the company since it was founded in 2013. However, the Serious Fraud Office concluded he had committed no wrongdoing, and he remained at the company until stepping down in June 2018.

Also on the board was Hassan Ali Khaire, who served as Soma’s Africa executive director until February 23, 2017, when he was sworn in as Somalia’s prime minister. Since then, Khaire has reportedly relinquished his stake in the company, reported to be more than two million shares. In 2020, he was ousted from office for his failure to move towards fully democratic elections.

Somali government documents indicate Soma rebranded to Coastline Exploration in 2018, in the process becoming a U.S. company domiciled in the Cayman Islands. Its website makes no reference to Soma, simply claiming it was founded in 2018 “to help develop the hydrocarbon industry within East Africa”.

According to the company’s website, Coastline has between 11-50 employees and is based in Houston, Texas. A profile from global data analysts Dun & Bradsheet reports the company has an annual revenue of $810,000.

Liberty Petroleum

The second company vying for access to Somalia’s oil, Liberty, also has links to some high-profile politicians, and has been criticised by Somali opposition leaders.

According to its website, Liberty Petroleum was founded in 1997 as a U.S.-based company “with an international focus”. Although it’s based in Arizona, Liberty lists exploration activities only around the Australian coast, with four onshore and four offshore active projects. The site mentions no activity elsewhere, including in East Africa, though its international partners ExxonMobil and ConocoPhillips both list exploration and development programmes in Africa (although they don’t specify which region).

Liberty has attracted critical media attention in recent years. In 2017, the company’s co-founder Trent Franks, a former Republican congressman from Arizona’s 8th district, resigned in the first year of his eighth term after two of his former aides accused him of sexually harassing them by pushing them to serve as surrogate mothers for his wife. According to the company’s website, Franks, along with his two brothers Lane and Travis, continue to work at Liberty.

Though not referenced on its website, Liberty already has some ties to oil exploration in Somalia. In 2013, an affiliate of Liberty named PetroQuest Africa signed a deal for a Production Sharing Agreement with the regional government of Galmudug, a semi-autonomous region in central Somalia. A report from Horn of Africa news site SomTribune alleged that money from this deal contributed towards the 2015 election campaign of state presidential candidate Abdi Awale Qeybdid, though he ultimately lost.

Ahead of January’s secret deal, opposition politicians raised concern over Liberty’s current involvement in Somalia in a strongly-worded letter to Lane Franks. The letter, dated January 2, warned the company of the threat posed by foreign oil interests to political peace so close to the country’s already twice-postponed election.

“The lack of due process poses exceptionally high reputational risk to your company and can have a devastating impact on the financial interest of our poor nation,” read the letter, seen by DeSmog. “There is a significant risk for corruption [if] funds from petroleum contracts can be used to finance the upcoming elections, which can potentially tarnish the credibility of your company.”

Yet, despite the warnings in this letter, Liberty was seen arriving in the country two days later, seemingly ready to sign the deal.

‘A Gamble’

Both companies are “risk-takers”, describes political analyst Joakim Gundel, who has researched Somali politics for 20 years — meaning they are able to buy-up access to resources but lack the capital to produce oil and gas further down the line.

“Risk-takers mainly operate in the more risky contexts which the oil majors do not want to engage in directly,” he told DeSmog.

“Farm-out” agreements are common among smaller oil and gas producers who own or have rights to oil fields, onshore or offshore, that are too expensive or difficult to develop themselves.

Such farm-out companies, Gundel said, often lay the groundwork by scoping out and exploring oil resources in a region, hoping they can later cut a deal with oil majors to buy production rights off them at a later date.

“Companies like Liberty and Soma don’t have the kind of cash required [for production], they don’t have that kind of experience,” he told DeSmog. “You need oil majors to make this kind of deal happen. You need Shell, ExxonMobil, Total, big Malaysian companies, companies which have the investment to do this.”

“They’re going to sit on these licenses until some major is ready to front the cash,” he continued. “So it’s a gamble. They’re risk-takers.”

DeSmog contacted Liberty Petroleum and Coastline Exploration for comment but neither company responded in time for publication.

Flawed Deal

So what happened to the companies’ gamble in Somalia? The deal wasn’t only kept secret from the public — it was also closely guarded from those working within Somalia’s oil ministry.

Speaking on condition of anonymity, a government official spoke of the uncertainty around the signing. “We got a notification from the minister that officials from Liberty Petroleum were coming into the country,” they said. “We were not prepared. We did not know the exact nature of the deal to be signed.”

The official referred to the “legal challenges” presented by the deal, suggesting that the regulatory framework was rushed and wasn’t a good deal for Somalia.

This was supported by a report by Somalia’s Financial Governance Committee (FGC), written the week after the failed deal, which concludes that the Production Sharing Agreement (PSA) on the table would have put Somalia on a shaky footing, both legally and financially.

The report notes that the deal represented “poor value for money” for Somalia over the next 40 years or more. It also said that, if the deal had gone ahead, the federal government could face legal action in the future as the deal had not fully complied with regulations.

The government should “not prioritise short-term revenue” such as the $20 million signing bonus, the report stated, at the expense of making a longer-term profit from a better regulated agreement that would be more in Somalia’s interests.

In one of its key recommendations, the report notes that the $50 million threshold to qualify as a minimum bidder was “relatively low” and would not necessarily be enough to support “the type of operations anticipated under the PSA”. To put this into context, a single offshore oil rig from a Houston retailer, for example, can sell for around $175 million.

If this PSA threshold was increased, it could mean that small farm-out companies such as Soma and Liberty would likely be priced out and better-known companies might be more likely to make a bid.

Had the deal gone forward without addressing these issues, the fallout may not only have exploited Somalia’s oil resources without fair financial return, but could also have stoked corruption within the country as it continues to face chaos from a power vacuum left by its recently departed administration.

Critics feared the deal might also breach conditions of the country’s bailout agreement with the International Monetary Fund (IMF). Somalia has been left outside of the international financial market for 30 years, and relief for its $5 billion debt was granted under strict conditions to comply with IMF rules. One of these rules is that any PSA should comply with the Extractives Industries Income Tax Bill (EIIT) — which had not yet been prepared.

Opposition candidates had warned of this danger in the letter to Liberty’s Lane Franks. “The[se] legal frameworks are intended to protect both the investor and the interests of the Somali people in awarding petroleum contracts,” they wrote.

“The lack of due process,” the letter said, “poses exceptionally high reputational risk to your company and can have a devastating impact on the financial interests of our poor nation.”

The proposed deal also put the support of the international community at jeopardy, the anonymous government official told DeSmog.

“The IMF has opposed this deal since the beginning,” they said. “The World Bank also opposed it. There was a real risk that Somalia would spoil the ongoing debt relief efforts with the international community if we had insisted on this deal.”

In their view, they said, “that was why the signature was called off at the last minute”.

In a statement to DeSmog, a spokesperson for the IMF said it “welcomes the ongoing commitment of the Somali authorities — made within the context of their Extended Credit Facility-supported arrangement — to ensure that all the key pillars of their petroleum management framework are in place and internally consistent before any oil exploration licenses are issued.”

“Work to achieve this goal is ongoing,” they added.

The agreement was also further challenged by Somalia’s former Minister of Petroleum and Mineral Resources, Mohamed Mukhtar Ibrahim, who claimed to have turned down the deal with Liberty Petroleum several times during his time in office from 2015-2017.

“Liberty has long been pursuing an oil exploration agreement with the Somali government,” he told DeSmog. “This company is very small with no track record of oil production.”

“At this time Somalia can not afford the consequences of such dubious oil deals,” he continued. “The infrastructure is not yet ready: the natural resources law has not yet been passed by the parliament, the Somali Petroleum Law is not operational, the National Resources Council isn’t established. A lot of things remain unresolved.”

“These foreign companies are looking at their sole interest, but we Somalis need to be vigilant,” he continued. “Our country is fragile and needs a lot of things before any oil company arrives.”

Oil Majors

Foreign “farm-out” companies like Liberty and Coastline may not be the only ones gambling for Somalia’s untapped resources — a number of oil majors appear to still have skin in the game too.

In June 2019, a joint venture between Shell and ExxonMobil paid Somalia’s federal government $1.7 million to hold onto their pre-1991 concessions for another 30 years: five oil blocks which could produce a total of ten million barrels. When Somalia opened its oil and gas auction last August, a Shell spokesperson said the company enjoyed “an ongoing and constructive dialogue with the Somali authorities about a roadmap potentially to convert the existing concession to a production sharing agreement”.

Since then, COVID-19 has caused oil prices to plummet, and public pressure for climate action is pushing Shell and Exxon to consider their environmental impact, including pledging to rapidly divest from fossil fuels. However, when approached by DeSmog a Shell spokesperson said its position regarding Somalia “had not changed”, suggesting future involvement was still a possibility.

Other oil majors appeared more reticent in their quest for Somalia’s oil. ConocoPhillips told DeSmog it had relinquished concessions in 2016. Chevron and Eni did not elaborate on their positions, saying they did not wish to comment. And BP said it had “no intention of pursuing any hydrocarbon exploration activity or interests in Somalia”.

Crisis

More than two months on from the failed signing, Somalia’s political landscape is now more fragile than ever. Former President Mohamed Abdullahi Mohamed’s term ended on February 8 without an election taking place, leaving a dangerous power vacuum as the country faces the multiple threats of an Islamist insurgency, food shortages, and a locust invasion.

Against this backdrop, any rush to sign such a deal would seem risky. Weeks after the failed signing, on January 21, Petroleum Minister Abdirashid Mohamed Ahmed issued a decree removing Ibrahim Ali Hussein as chairman and chief executive of the Somalia Petroleum Authority (SPA).

The Somalia government’s Committee on Natural Resources and Environment Committee, which investigated the dismissal, said they had learned of “a very strong conflict” between the SPA and the petroleum ministry. In a letter to the Prime Minister Hussein Roble and Ahmed, the petroleum minister, seen by DeSmog, the committee says Roble was removed after he claimed the parent ministry had “conducted negotiations with oil companies knowing that the Somali Petroleum Authority is in charge”. The board claims there was no legal basis for his removal, and has called for an overturning of the decision. Roble and Ahmed have not publicly responded to those demands.

The report also claims that nearly a third (28 percent) of the members’ allowances allocated by the ministry had apparently gone missing, stating there is a “need to clarify the missing amount”.

It concludes: “The Resources Committee advises the Prime Minister of the FGS not to allow oil deals to be entered into and to carefully prevent the Ministry from entering into international agreements that are not in public interest and could jeopardise the exploitation of the country’s resources.”

Despite major concerns over governance, it’s since been reported that the U.S. government remains in active discussions with Somali officials regarding offshore oil.

In early March, Somali news site Jowhar reported that Petroleum Minister Abdirashid Mohamed Ahmed traveled to the United States to resume talks with the two companies about reviving the deal; he was accompanied by a representative of Coastline in Somalia.

Ahmed confirmed to DeSmog that he did travel to the U.S. in March to meet with the U.S. State Department’s Bureau of Energy Resources, but said that no oil companies were present.

He said the meeting had focused on “how they [U.S. officials] can assist us in our capacity building and to encourage American investors and oil companies to invest in offshore Somalia”.

A spokesperson for the Bureau of Energy Resources confirmed that department officials had “met with counterparts from the Federal Republic of Somalia, including Somalia Minister of Petroleum and Mineral Resources Abdirashid Mohamed Ahmed, on March 3, 2021”.

Climate Fears

While the risk of increased political instability from the deal is perhaps the most pressing concern for the country, Mohamed Moalim, a university lecturer and environmentalist in Mogadishu, says Somalis would also suffer from any rise in carbon emissions related to the oil that the companies would extract, in particular the 54 percent of the population who live in rural areas.

“You can see how Somalis have been affected by climate change: droughts, lack of enough water and lack of grazing land for their animals,” he told DeSmog. “Bringing unregulated oil and gas exploration would make the lives of the vast majority of the Somali people even harder.”

Somalis’ vulnerability to climate change stands in direct contrast to their minuscule contribution to global warming. According to the latest data, the average Somali has a per capita carbon footprint of just 0.04 tonnes a year, around 400 times less than the 16.16 tonnes emitted by the average American each year.

In the months since his inauguration, U.S. President Joe Biden has already made some bold strides on climate legislation, having rejoined the Paris Agreement and imposed a moratorium on all oil, gas, and coal leasing across 700 million acres of federal land. But it is not yet clear if similarly proactive climate action will extend beyond the United States’ borders, and prevent any U.S. companies from profiting from resource extraction in other countries.

As the spokesperson for the Bureau of Energy Resources told DeSmog when asked about the recent March meeting between the two countries: “The State Department shared its perspective on energy security and the energy transition. The State Department noted the Biden Administration’s decarbonization priorities and encouraged good energy governance.”

Whatever happens next, the actions of companies trying to profit from conflict-struck regions raise serious concerns, particularly at a time of political crisis, says Abdirahman Hassan Omar, a natural resources lawyer based in Mogadishu.

“The Somali people are divided into clans, and there is still no real agreement for resource sharing among the clans and the local states,” he told DeSmog.

“Any rush into signing an oil deal with foreign companies will risk the country being plunged into more conflict and will escalate the competition over resource control,” he continued. “Somalia would do best to establish its laws and strengthen its governance system before rushing to these doubtful oil deals.”