Report Raises Questions Over Somali Dealings of Firm Headed by U.K.’s Michael Howard

Somalia Review Follows U.N. Report Examining Soma Payments to Somali Government and Adviser

LONDON—A company headed by a prominent British politician won highly favorable terms in a 2013 oil-exploration deal with Somalia, according to a government-commissioned review of the contract, raising questions about payments the firm made to the Somali government and one of its advisers.

The confidential February report, commissioned by the Somali government and viewed by The Wall Street Journal, is the first indication that terms of a deal with U.K.-based Soma Oil & Gas have raised concerns within the Somali government.

The deal was also the subject of a separate United Nations report leaked to reporters this month, which questioned the propriety of payments to Somali officials by Soma, a privately owned oil explorer whose chairman is Michael Howard. Mr. Howard is a member of the House of Lords, Britain’s upper parliamentary chamber, and was the leader of the Conservative Party from 2003 to 2005, when it was in opposition.

The U.N. report has triggered a media frenzy in Britain because of Mr. Howard’s involvement with the company. The U.K.’s Serious Fraud Office said in recent weeks that it opened a criminal investigation into Soma in relation to allegations of corruption in Somalia. The Journal reported last year on Mr. Howard’s involvement with Soma and his discussions about the company’s activities with senior British officials. Mr. Howard said at the time that he sought assurances from U.K. officials that Soma’s activities were consistent with U.K. government policies toward Somalia.

Mr. Howard declined requests for comment on the Somali report, but he and Soma have said that payments the company made to Somali government officials were proper and that the company is cooperating with the SFO investigation.

In a letter to the U.N. last week, Mr. Howard said U.N. investigators “fundamentally misunderstood the nature, purpose and destination of payments” made under the terms of a “capacity-building” agreement to help hire ministry staff with oil expertise. The letter said Soma is preparing a “detailed rebuttal” to the recent report and has requested a meeting with U.N. officials to respond to the allegations.

Soma was founded by London investors who later hired Mr. Howard in 2013. That year, it signed a deal with the Somali government allowing it to explore for oil in the poor, conflict-racked east African country.

The U.N. report, written by the U.N.’s monitoring group for Somalia and Eritrea, says payments by Soma to a Somali government oil-policy adviser makes it unclear whether that adviser was working for Soma or the government at the time the oil contract was drafted.

The report detailed approximately $500,000 in payments made by Soma to Canadian lawyer Jay Park, a longtime adviser to the Somali government on energy policy. The U.N. called them an “apparent conflict of interest” since Mr. Park was advising the Somali government in its dealings with Soma.

The U.N. report also said the Somali oil ministry misused funds paid by Soma to government officials to help hire oil-ministry staff as part of a possible “quid-pro-quo” agreement between the company and officials.

The separate Somali government assessment—written by Abdulhaliim Abdurahman, a legal adviser to the Somali oil ministry—raises some of the same issues with the payments.

“Soma has paid some funds towards the ministry’s staff salaries, and they have also paid the legal bills for attorney Jay Park,” Mr. Abdurahman wrote. That “may indicate a conflict of interest” for Mr. Park, he wrote.

Since Mr. Park worked for the Somali government but was being paid by Soma, Mr. Abdurahman wrote, “it is not clear” whether Mr. Park was advising the Somali government or Soma.

Mr. Park said in an email that his company gave legal advice to the Somali government “in connection with the negotiation” of the 2013 oil deal. The government, he said, directed Soma to pay his legal fees, which it did.

“We do not act for, advise or have any interest in Soma,” said Mr. Park, who practices law in Canada. He says he “confirmed with the Law Society of Alberta that the payment of a lawyer’s fees by a party adverse in interest does not establish a conflict of interest.” A spokeswoman for the Law Society of Alberta said she couldn’t comment on specific cases, and said that whether such a payment arrangement creates a conflict of interest “depends on the case.”

Soma said that it hadn’t received advice from Mr. Park but that it paid Mr. Park for advice he gave to the Somali government. The company said “no conflict of interest arises” and said its activities were “entirely proper and lawful.”

In addition, the Somali-government report concluded that petroleum production-sharing terms that Soma and the government negotiated were “so poorly written and one-sided that Somalia would receive only a fraction of the oil revenue it could have received via an average modern oil contract.” Mr. Park declined to comment on the specifics of the deal.

Mr. Abdurahman’s review of the contract was conducted as Soma and Somalia were renegotiating the production-sharing terms of the deal. That renegotiation wasn’t completed, the company said.

The complex production-sharing agreement attached to the contract would give the parties a varying portion of oil depending on production and oil price. For example, for the first 25,000 barrels a day, the government would get 50% of “profit oil” that remains after the company recovers its costs, according to a Soma presentation and a copy of the contract reviewed by the Journal.

A Soma spokeswoman said that the production-sharing terms were never agreed upon and that “any statement in a previous presentation that implied otherwise was a simplification.” A Soma presentation that the Journal reviewed last year said the production “terms have been agreed.”

Abdullahi Haider, a longtime official in Somalia’s government working on oil issues, said in an interview last year that the two sides struck an agreement on the terms, though they would have only gone into effect if Soma were to move ahead with oil production.

A representative of the Somali government didn’t return email requests for comment. But in a written response to the U.N. report, Somalia’s ministry of petroleum and mineral resources said the U.N. group’s characterization of payments to ministry officials “is simply inaccurate and misleading.”

The Journal last year reported that when Soma wanted to use armed security while exploring in Somalia—where a U.N. embargo restricts guns—its chief executive mentioned Mr. Howard in written communication with the U.K.’s then-business minister.

The business minister wrote a letter to Soma saying its boats could carry weapons despite the U.N. embargo, documents reviewed by the Journal show. A spokesman for the former business minister, Michael Fallon, now defense minister, said last year that Soma misinterpreted his advice.