Overview

Geo-seismic studies have shown that Somalia may have at least 30 billion barrels of oil and gas reserves, but these resources will take time to develop, as detailed exploration generally takes three to five years, and production can only begin afterward.  Prior to the conflict and collapse of the government in 1991, international oil and gas majors had exploration agreements in Somalia, but they withdrew from the country because of the civil war.  Energy firms like Royal Dutch Shell and ExxonMobil operated in Somalia before the government collapsed in 1991.

In 2020, the government passed a petroleum law under which the Somali Petroleum Authority was established to regulate the industry and guide deals with international contractors.  Licensing rounds have the potential to generate much greater revenue for Somalia and its regions.  U.S. investors are encouraged to familiarize themselves with the new regulations and watch for future rounds of licensing.

In 2022, Somalia passed regulations related to the offshore licensing of oil and gas, legislation on an oil and gas revenue sharing framework between companies and the Somalia government, and legislation on revenue sharing between Federal Government of Somalia and Federal Member States.  Also in 2022, the first profit-sharing agreement was issued for oil and gas exploration.  Additional licensing for other multinational companies is expected in the coming years.  

Exploration and production agreements are structured with the intention that the agreements benefit Somalia even before the commercial discovery of petroleum is made.  In advance of exploration activities, an international investor may pay an initial agreed amount as a bonus payment.  There may also be a royalty, license fee, surface rent, and other taxes.  All proceeds are shared in agreed proportions between the Federal government and the regional states.  Once the international investors recoup their expenses, the investors share the petroleum revenue under the Revenue Sharing Agreement.

The sector may provide significant opportunities for U.S. companies in energy and electricity generation, transmission, and distribution, such as procurement of equipment and technologies.  Investment is also sought in hybrid energy solutions for wind and solar systems such as diesel generators paired with renewable solutions.  Other areas for consideration by international investors include operational and maintenance contracting, consulting services in electricity, oil and gas exploration drilling, and equity and debt financing.