In these uncertain and turbulent times, there is always the talk about the end of the usage of hydrocarbons in the near future. This, is far from the reality, at least for the foreseeable future. Hydrocarbons are used for a very wide range of applications from the medical field to fuels and lubricants, to rubber, fibres, solvents, explosives and many other industrial uses. It will be a long time before replacements are found for hydrocarbon applications of today and perhaps those of tomorrow as well.

The bigger danger is the possibility of not finding enough hydrocarbons to meet the demand for these materials and there is where the constant need for exploring for more of them comes in. Hydrocarbons are, indeed, a central factor in world politics and will continue to be so, for a long time to come. Hydrocarbons are part and parcel of the global economy and a major consideration in the calculus of power and how people live.

It is why Somalia is once again coming to the limelight, not as a terribly inflicted and conflicted country but as a major hydrocarbon producer. It is expected to become a major producer of oil and gas and other energy sources, which would cover the demand of many nations for these materials.

No wonder, the works of so many years and months past, were published recently to indicate that there is, indeed, a sizeable source for hydrocarbons in Somalia, both offshore and onshore, and that Somalia is finally able to understand the need to balance between the protection of its own patrimonies and the demand of others for hydrocarbons.

The publication came in the form of the Production Sharing Agreement (PSA) between Türkiye and Somalia, which has stirred many controversies, some out of ignorance and others out of anger to deny Somalia the possibility of the country becoming a hydrocarbon producer.

It is clear, however, that hardly a day will pass in the future without the talk of Somali oil and gas in the Somali politics of the coming years. They will raise many questions about the changes it will cause, the corrupt politicians who will be stirred to make fast bucks at the expense of the people, the regional political risks it will entail, and questions related to Türkiye and its relations with Somalia.

But at present, we need to address the Production Sharing Agreement that was signed between the Federal Republic of Somalia and the Republic of Türkiye, apparently last year (March 7th, 2024), but was disclosed only this week. It was submitted to the Turkish parliament on April 22nd, 2025, for ratification. This is an issue which stirred many passions and comments both positive and negative.

Somalia is reported to contain some 6 billion cubic meters of natural gas and more than 30 billion barrels of oil both offshore. How much it has onshore, no one knows or at least have not been disclosed. There are reports that put the total oil and gas reserves of Somalia both offshore and onshore at some 110 billion barrels, which would put it with the top league of oil and gas resource bases of the world.

The Production Sharing agreement is good for both Türkiye and Somalia where Türkiye, a growing regional power needs a geostrategic supplier of hydrocarbons and Somalia needs a trustworthy partner to help them exploit the country’s resource. It helps both countries and their interests with respect to secure economic growth.

A key criticism of the Agreement includes absence from the agreement a clause dealing with Türkiye being required to pay upfront costs or signature, development or production bonuses. It does not also require Türkiye or any of its entities to pay surface or administrative fees. The Agreement has several drawbacks but these seem to be in response to the riskier proposition with respect to the Somalia environment. They include:

Discretion Given to Türkiye in Assigning its Rights under the Agreement (Article 4.3)
The Turkish Petroleum Corporation (TPAO) or for that matter any other designated Turkish entity is allowed under this article to assign its rights to third parties without any obligation to establish a local company or permanent office in Somalia. This, therefore, provides flexibility to Türkiye to form partnerships or bringing in subcontractors without bureaucratic obstacles and hurdles.

Non-payment of Upfront fees (Article 4.5)
The weakness is related to the non-payment by Türkiye of any upfront fees related to signature, production and/or other bonuses like administration fees generally required of international oil companies to host governments as initial payments for explorations rights. This is a deviation from industry practices, but it is perhaps due to Somalia enticing Türkiye to the project as an incentive.

Cost Recovery Arrangements (Article 4.7)
The cost recovery arrangement is favorable to Turkey and amounts to 90% of the petroleum it produces on an annual basis while Somalia’s royalty fees is only 5%, which can be collected either in cash or in kind and this is not applicable to any petroleum re-injected into the reservoir or consumed during on-site operations. Cost petroleum is a mechanism usually applied to allow an operator to recover the initial exploration and production expenses before profits are shared. This is again an incentive given to Türkiye under the difficult Somalia circumstances.

Operational Freedom (Article 4.8)
The agreement provides unrestricted rights to Türkiye and entities to export its share of the petroleum at international prices. The Turkish entities may also retain all the revenues earned from the petroleum of Somalia or domestic transactions. This removes Somalia out of any interference on the financial flows of Türkiye’s share. It is another incentive for Türkiye to proceed with the investment in Somalia.

Supplementary Security Measures (Article 6)
The Türkiye security measures are expected to support counterterrorism and anti-piracy operations in the region and hence contribute to the protection of Somalia’s natural resources, regional security and stability. This warranted as the security services of Somalia still remain weak and do not have the ability to protect the huge investments being made in the country.

Investment protections (Article 9)
Disputes that may arise as a result of interpretation of the implementation of this agreement. This addressed under this clause, which confirms that the protection of Türkiye investments under 1966 Convention on the Settlement of Investment Disputes (ICSID), where such disputes will be brought before an international arbitration panel seated in Istanbul. This ensures that Türkiye can settle such disputes or conflicts on its own legal processes with guarantees rooted in international law. Somalia’s politics is marked by violence, disputes and clan infrastructures. It is only normal for a country like Türkiye to take maximum protections as is possible. It is part of the incentives given to Türkiye. Both parties will benefit in the long run.

Somalia Risks
The above may look completely in favor of Türkiye but on the other hand, one should look at the Somalia environment which is marked by the following:

It is an extremely risky environment for any investment from abroad. Such risks include terrorism, a corrupt political class, piracy in its seas, lack of a trustworthy international standard legal system, low human development, poor roads, ports and other infrastructures, involvement of other countries in the determination of the nation’s destiny including the governments of Ethiopia, the UAE, Kenya, Djibouti, Egypt, Eritrea and even Türkiye, one of the parties of the agreement.

That Türkiye has accepted and launched the exploration for the petroleum of Somalia and its determination to have it see the light for the first time in its history is a positive move and Somalis should swallow the fake and false Somali pride, and the crocodile tears they are shedding. The Agreement is in favor of Somalia, and Türkiye has to cover as much as is possible the possible losses it is exposed to.

Nature of PSA agreements between Host countries and International Oil Companies
It is an international practice for all international oil companies (IOCs) and host countries to sign such an agreement where an IOC invests upfront at its own cost in all the activities of exploration, drilling, related infrastructures, and production. It recovers these costs which is called ‘Cost recovery” in international parlance, from the production of the expected petroleum. After the Costs are recovered the remaining profits are shared between the international oil company and the host government/country, in this case between Türkiye and Somalia or their entities. Somalia is earning royalties, in this case 5%, and taxes from day one even during the recovery period. How Somalia and Türkiye share the profit is not in this production agreement and is perhaps to be noted in supplementary agreements but there are reports that this may be at 70/30 with Somalia at 70% and Türkiye at 30%.

In most international agreements, the production sharing between an IOC and a host government is in the range of 85%/15% in the recovery of the investment costs. Once costs are recovered, the balance shifts to favor the host country/government.

In the case of Somalia, depending on the price of oil and gas, it may take three to four years, when the revenue for Somalia will rise to seventy percent (70%), which should allow Somalia to rebuild itself with a firm financial footing.

Benefitting from its Petroleum Resources
Somalia will need to operate with transparency and through strong institutions, if it has to benefit from this new wealth that is being brought from under the sea through the efforts of a friendly country, Türkiye. Petroleum can become a new source upon which to rebuild Somalia and give it a new lease of life.

Under the current circumstances where normal life systems have been broken and civil conflicts mostly engineered from outside the country appears to have taken root, it is easy for misinformation to spread to create confusion among Somalis, a once proud people.

The misinformation that is being spread and propagated by the enemies of the nation are designed to undermine the country’s international relations and partnerships and especially the Türkiye one. Others only repeat out of ignorance the misinformation generated by enemies of the nation, using some of its own sons and daughters through a fistful of dollars in the form of coins and not paper.

Somalis should know that it is only Türkiye which has dared to venture into Somalia and invested heavily in the country. All the other countries have been seeing Somalia suffer but did not raise a finger. Somalia and Somalis need to be vigilant under these critical moments of its history and should look into the long-term benefits of petroleum production for the development of both the country and people.