VZCZCXRO8674
RR RUEHROV
DE RUEHDS #0512/01 0581419
ZNR UUUUU ZZH
R 271419Z FEB 08
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 9729
INFO RUCNIAD/IGAD COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0450
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 02 ADDIS ABABA 000512 
 
SIPDIS 
 
SIPDIS 
DEPT FOR EEB, AF/E WYSHAM 
 
 
E.O. 12958: N/A 
TAGS: EINV ETRD ECON ENRG ET
SUBJECT: BLACK GOLD: PETROLEUM RESOURCES IN ETHIOPIA 
 
¶1. SUMMARY: The Government of Ethiopia (GoE), through the Ministry 
of Mines and Energy, is actively seeking investment and exploration 
in the oil and gas sector. While to date there are no proven 
reserves of oil or gas, exploration is taking place in several areas 
of the country with promising geology.  If petroleum resources are 
located, the GoE can reap financial benefits from exports.  END 
SUMMARY. 
 
¶2. Ethiopia does not have proven oil resources.  There are 
indications that there may be some oil and possibly significant 
natural gas resources in five sedimentary basins throughout the 
country: Mekele (Tigray); Ogaden (Somali State); Abay (northern 
Oromo and southern Amhara); Metema (Amhara); Gambella; and the South 
Rift Valley. 
The greatest concentrations of petroleum resources are thought to be 
in the Ogaden basin. 
 
HISTORY 
------- 
 
¶3. Dr. Ketsela Tadesse, Petroleum Operations Department, Ministry of 
Mines and Energy told emboffs that petroleum exploration in Ethiopia 
dates to the 1950's.  Exploration has been sporadic, delayed and 
hampered by global fluctuations in prices and changes in 
government/instability in Ethiopia.  Also, the geology in Ethiopia 
is complex, making it more difficult to locate and extract any 
resources that are eventually found.  Current high prices are 
driving companies to less-than-perfect places with potential for 
exploration. 
 
¶4. In the 1970's, US company Tenneco performed geologic survey and 
drilling work.  Tenneco made two discoveries of gas in the Ogaden, 
but the discoveries were not particularly attractive.  Tenneco left 
Ethiopia after the Communist revolution.  Following the rise of the 
Communist Dergue regime, the Soviet Petroleum Exploration Expedition 
(SPEE) entered the Ogaden and focused mainly on Tenneco's two 
discoveries.  SPEE drilled several wells, especially in the Calub 
and Hilala fields and reported good indicators for oil in Hilala. 
SPEE departed Ethiopia when the Dergue fell in 1991. 
 
¶5. Following the end of communist rule, Ethiopia decided to market 
its oil and gas potential globally.  Initially, the GoE reserved 
blocks with the most potential for government ownership and rented 
them to exploration companies.  In the early 1990's, two US 
companies, Hunt Oil and Maxis Energy entered the Ogaden.  Maxis 
departed after two years.  Hunt stayed for about 8 years and drilled 
one unproductive well before abandoning operations. 
 
¶6. In 1998, the GoE developed a new promotional document and 
re-examined the way they partner with oil and gas companies. 
Instead of retaining ownership and renting the blocks, the GoE and 
the exploration companies enter into production sharing agreements. 
Companies pay a signing bonus to the GoE (White Nile reportedly paid 
$1 million upon signature) and community development benefits such 
as schools, clinics and water projects.  The GoE also utilizes joint 
study agreements.  Under these agreements, the exploration companies 
collaborate with GoE to conduct initial exploration.  To compensate 
for the cost of the studies, the exploration company gets 
preferential access to blocks. 
 
AREAS OF EXPLORATION 
-------------------- 
 
7.There are currently 7 foreign companies with exploration blocks 
assigned to them in Ethiopia: White Nile (UK); Inter Global (US); 
Lundin (Swedish); Petronas (Malaysian); Pexco (Malaysian); South 
West Energy (Hong Kong registered, owned by an Ethiopian-American); 
and Afar Explorer (US).  Currently in the Ogaden, there are the 8 
Petronas blocks, 3 granted to South West Energy, 3 to Pexco and 4 to 
Lundin.  4 are open.  There are no Chinese companies engaged in 
exploration. 
 
¶8. A joint study agreement from 2000/2001 between GoE and Malaysian 
firm Petronas led to Petronas being granted the Gambella block in 
south eastern Ethiopia.  Petronas has drilled one well in Gambella, 
which was unproductive.  Petronas and GoE also collaborated on 
studies in the Ogaden, and Petronas has been granted 8 blocks, 
including the Calub and Hilala discoveries. 
 
¶9. Exploration is also occurring in other parts of the country. 
Afar Exploration and Trans Global have been granted blocks in the 
Afar region.  There are applications for 2 or 3 of the 9 blocks in 
the unexplored Abay Basin in Amhara region in the north-central area 
of the country.  White Nile has been granted blocks in the extreme 
southwest.  A joint study project with an undisclosed company is 
underway around Jimma. 
 
 
ADDIS ABAB 00000512  002 OF 002 
 
 
PROSPECTS FOR THE FUTURE 
------------------------ 
 
¶10. If oil or natural gas is extracted it would be for export only, 
according to Dr. Ketsela.  Ethiopia is not a large consumer of 
petroleum due to its highly rural population. Few people in rural 
areas have cars, nor do they use motorized farm machinery.  Ongoing 
projects in geothermal and hydroelectric energy are intended to 
reduce the country's dependence on diesel fuel for power generation, 
thus freeing any oil or gas for export and foreign exchange earning. 
 Additionally, the GoE is undertaking several biofuel projects which 
may further reduce Ethiopia's need for petroleum. 
 
 
Instability Still a Concern 
--------------------------- 
 
¶11. Ketsela was reluctant to comment on the April 2007 attacks in 
the Ogaden in which 74 workers were killed by the insurgent Ogaden 
National Liberation Front (ONLF).  He did say that it has had a 
dampening effect on new entrants into exploration, but companies are 
still interested. Furthermore, he said that the Chinese company 
Zhoungyan Petroleum Exploration Bureau (ZPEB), which lost seven 
workers in the ONLF attack, worked in similarly unstable and 
dangerous conditions in other countries and questioned why they 
would not return to the Ogaden.  He stated that the security 
conditions in the Ogaden are much improved since the attack.  He 
also doubts recent press reports that an Iranian company, Oil 
Exploration Operation Company, (OEOC) would actually take over the 
work ZPEB had been performing for Petronas. 
 
¶12. A US petroleum expert, Dr. Stephen Sears of Louisiana State 
University, informed econoff that the geology of Ethiopia has 
neither the big sedimentary basins that generate hydrocarbons in the 
Tertiary period, as found in West Africa, nor the carbonates 
deposited in the Cretaceous period, as found in the Middle East. 
Sears stated that he expects that some oil will be found in Ethiopia 
eventually, but the find will be small-scale resembling the size of 
finds in Pennsylvania or Michigan in the US. 
 
¶13. COMMENT: Despite many years of exploration without any concrete 
results, Ethiopia remains convinced that petroleum resources will 
eventually be proven in its territory.  The country's geology does 
not appear to lend itself to the large-scale production of West 
Africa or the Middle East.  However, with global petroleum prices at 
record levels, the potential of Ethiopian oil and gas is attracting 
smaller companies to seek out any possible find.  Ethiopia's 
petroleum reserves lie, for the most part, in one of the least 
stable or secure regions, the Ogaden, and maintaining security is a 
key to future revenues for the GoE.  Any oil or gas exports would 
have a positive impact on Ethiopia's economy, which is desperate for 
foreign exchange revenues.  Even licensing and exploration are 
having a positive monetary impact through signing bonuses and other 
fees.  Ethiopia is unlikely to become a petroleum powerhouse, but 
any proven discovery in the future will provide revenue to the GoE 
that may be used to spur overall economic development.  END COMMENT 
 
YAMAMOTO