In mid-January a regional oil journal, Africa Oil and Gas, reported that the authorities in Puntland had extended their oil-drilling agreement with three exploration companies by a year. The extension, until January 17th 2012, was granted on the understanding that the joint-venture partners-two Canadian-based firms, Africa Oil and Lion Energy, and Australian-based Range Resources-drill one exploration well by July 27th and a second by September 27th. The extension applies to two production-sharing agreements (PSAs) that cover the Dharoor Valley Exploration Area and the Nugaal Valley Exploration Area. A proposal to sell a 20% interest in each PSA to Red Emperor, another Australian company, has also been approved by the Puntland government. Africa Oil's president, Keith Hill, stated that Puntland could hold similar oil reserves to the geologically related basins in Yemen, which contain more than 6bn barrels of discovered reserves.

However, the potential existence of significant reserves may not be sufficient grounds for optimism regarding oil prospecting in Puntland. First, although the breakaway province has been spared the worst of the country's civil conflict, this could change quickly. Indeed, the Islamist insurgents are reportedly planning to target the area. In such circumstances development of the onshore blocks in question is highly vulnerable to event risk. Second, the authority of Puntland officials to sign deals is questionable. Although the provincial government has unilaterally announced that it does not recognise the TFG's authority, a future national government could rescind any contracts that Puntland officials sign with foreign companies.