According to Ethiopia’s Ministry of Mines and Energy it has signed an exploration deal with a Hong Kong registered company. The company, South West, will be exploring in eastern Ethiopia in the Ogaden Basin. The Ogaden basin is one of the most promising areas for petroleum development in the region and has a sedimentary basin covering an area of 350,000 square kilometers.

According to the agreement, South West Energy will have an exclusive right that allows it to explore and develop petroleum reserves in the exploration area. The agreement is valid for the next 25 years and the initial exploration period will be four years. South West will spend a minimum of $3.5 million for the exploration studies to be undertaken in the next four years.

The company presented a financial guarantee worth $2 million to the government as the Ministry usually asks a company that intends to sign petroleum exploration and development agreement for a $5 million financial guarantee. The company will also pay a bonus of $250,000, which the Ministry will use to collect geological data, to upgrade the existing data, and to enhance its capacity in monitoring petroleum exploration activities.

The Chairman of South West, Tewodros Ashenafi, told reporters that the company was established last year with an initial capital of $5 million. "Previously we invested on oil and gas stock markets. Since we wanted to engage in oil and gas exploration and development, we established our new company in 2004,” Tewodros said.

Alemayehu Tegenu, Minister of Mining and Energy, said that the fact that the chairman of the company was an Ethiopian by birth made the signing ceremony unique. Alemayehu praised Tewodros for his effort to bring foreign investment to Ethiopia.

The Minster also said that the Ogaden basin was a prospective area for petroleum discovery. "The mining sector could play an important role in alleviating poverty. We believe that South West will properly undertake the exploration activities," Alemayehu said. "Signing an agreement is not an end by itself. The company should implement the exploration project and bring a fruitful result that will benefit the Ethiopian people," he said. He noted that the Ministry will supervise the company’s exploration activity. "We will check out whether or not the company would discharge its responsibility," he added.

Tewodros said the company would bring the expertise required for the exploration activity and according to him, the company could bring a contractor that will undertake the geophysical survey. "We have two options. The first option is to hire petroleum experts. The second option is to contract a petroleum company that will undertake the seismic survey in our concession," he added. The company anticipates that it will be operational within five months.

More than one company in recent years has shown an interest in Ethiopia. In August, Malaysian company Petronas took three concessions in the Ogaden basin; Wal-Wal and Warder, Kelafo, and Genale. The company, which made a $3 million signature bonus payment, allocated $15 million for the exploration activity to be undertaken in the three areas. This was the company’s second deal in Ethiopia; in 2003 Petronas took the Gambella concession in West Ethiopia.

Pexco Exploration, a company registered in the Netherlands and based in Malaysia, last October also took a concession in the Ogaden basin. The exploration areas cover an 29,865 square kilometers in Ferfer and Abred. Both companies, Petronas and Pexco, hope to commence work on the exploration projects by next year.