The country currently does not produce any oil but production could transform the economy as seismic data has shown there could be significant oil reserves offshore.
The new law will establish revenue sharing between the central government and states and will provide a legal framework for an industry the country hopes will bring jobs after decades of conflict.
“This is a major step forward for Somalia and its people as the petroleum law is approved by the upper house and moves closer to completing its legislative process,” Abdirashid Mohamed Ahmed, the minister of petroleum and mineral resources, said in a statement on Monday.
The legislation still needs to be signed by the president before it can come into effect.
In November, Ahmed told Reuters Somalia, which has been marred by violence since clan warlords overthrew a dictator in 1991, was planning to announce its first ever oil and gas licensing round off the country’s coastline in December.
Government hopes the petroleum law will help to entice big oil companies like ExxonMobil and Shell to return to the country where they held legacy blocks from the 1990s.
Last October, the two companies paid $1.7 million owed to Somalia for leasing these offshore blocks, although operations there remain suspended.
Follow us on twitter