UPDATE: On 21 August 2013, Soma’s website stated that it had hired Philip Wolfe as the new Chief Financial Officer (CFO) “with effect from16 [sic] September 2013” and lists a part of his bio in the press release:
Philip has over 20 years’ experience in corporate finance advising oil & gas companies with a particular focus on the E&P sector. Philip joins from UBS Investment Bank where he was Managing Director, Head of Oil & Gas, EMEA. Prior to this he was Global Head of Oil & Gas at HSBC and previously worked within the Oil & Gas teams at both Deutsche Bank and Merrill Lynch.
The press release goes on to state, “The appointment comes ahead of plans to secure additional funding for the agreed work programme.”
In other words, Soma has yet to acquire the necessary capital to actually implement the program it signed on to develop. The fact that the company is now only hiring a CFO (who does not even take the position for weeks) and the growing evidence that Soma lacks any significant capital are worrying signs that the company is not a good fit for the project.
This sentiment has not gone unnoticed by Somali engineers as part of the East Africa Energy Forum who have spoken out against Soma’s ability to garner broad rights and privileges when its credibility and capacity is under scrutiny.
On 6 August 2013, the Somali federal government (SFG) signed an agreement with UK-based Soma Oil and Gas for offshore and onshore exploration deal involving and investment “north of $20 million.” Other details about the contract have not been released publicly, but a Soma press release stipulates the following:
Under the terms of the agreement, Soma Oil & Gas will conduct seismic surveying in Somalia’s territorial waters in areas agreed with the Government and in certain limited onshore areas. The Company will also collate and reprocess historic seismic data using modern techniques, and prepare an evaluation of Somalia’s petroleum potential. Soma Oil & Gas will create a data room for the Somali Government, into which all available data will be placed.
While it appears the group is largely responsible for the research side of exploration, it also maintains the “right to nominate and obtain exploration and drilling rights” and the right to apply for up to 12 blocks after submitting its data–which are powerful and lucrative benefits for the company.
Though Soma is relatively new, it did not come out of nowhere and likely leveraged the prominence among some of its British members to get its foot in the door with the help of UK leaders.
Africa Confidential reported that Soma was one of a few select companies that met with top Somali government officials during the Somalia conference hosted by the UK in mid-May 2013. This could have been a key point when Soma moved closer to striking a deal with the SFG.
Performance and Credibility Questions
While its founders may have a long record in the field, Soma has no proven track record with how it can perform as a company.
Interestingly, Soma was incorporated in the UK on as recently as 22 July 2013–meaning negotiations likely took place before its existence. (Note: its holding company was registered on 26 April 2013.)
Its website–registered only in March 2013–contains few details about its exploration plans, company infrastructure, local partners (e.g., disclosure of any government officials/family members/investors, etc.), and other key details such as who will provide security for the company’s in-country assets. (Update: Financial Times reported that armed guards will be used on the company’s ships “to ward off Somali pirates.”)
Soma is also weary of being seen as inadequately prepared to confront any systems of patronage and bribery. Therefore, its website is keen–perhaps naively or absurdly so–to point out its “zero tolerance” approach to corruption and bribery.
However, the company’s Executive Director and Founder Basil Shiblaq has a controversial past (in addition to running a string of failed resource ventures) that at least partially tarnishes its ethical bona fides.
In a court case stemming from 1999, Basil and his son Iyad were listed among several defendants who allegedly “assisted [broker-dealer firm] Baron in [fraud] by, among other things, providing financing and engaging in parking transactions to create the appearance of an active trading market.” The criminal actions in the case were linked to other fraudulent activity on behalf of the infamous Bear Stearns investment bank.
The case was dismissed in a 7 May 2013 court ruling by the United States Court of Appeals for the Second Circuit not for lack of fraudulent action among a littany of defendants but on the very technical grounds from which the plaintiff could claim damages.
Other court cases more recently and further back that link the elder Shiblaq with fraudulent activity draw into question whether he has the required credibility to lead a successful and ethical venture in Somalia’s complicated environment.
There are not a lot of details on the broader bidding process or specificities of Soma’s contract, including if any money has officially exchanged hands.
But there is enough information to legitimately debate whether Soma has the requisite capacity to fulfill the mandate of its contract. (Note: similar concerns have been expressed about the Dutch company recently contracted to build Somalia’s Coast Guard.)
The first signing out of an expected 30 production-sharing contracts will represent another weighty responsibility for the SFG and comes at a time in which it still has key issues to resolve related to security, the constitution, institutions, and the economy. If Soma and the SFG are successful along the 12-18 month timeline proposed, it could bring much needed optimism and credibility to the SFG in kickstarting economic development.
However, failure is likely more risky to the SFG’s reputation, especially regarding its ability to sign contracts with reputable companies. In addition, the potential for success of Soma’s venture–aside from the company’s capacity–is directly related the SFG’s ability to resolve other key issues–including how to share power and resources in the country.
For example, it is possible that tensions may arise out of incompatibilities between already ambiguous articles related to natural resources in the provisional constitution and the country’s existing petroleum law from 2008–which could present further problems.
Nevertheless, optimists are left to remain patient to see if the government can work successfully with companies like Soma to bring prosperity to the country from an unlikely source.