The majors are starting to take strategic offshore positions
A lack of commercial discoveries and 2014's oil price crash collapse meant that Namibia's elevation to an African frontier hotspot, following promising drilling results, was short-lived. But the country's upstream is finally gaining attention again from the majors and new drilling is planned for later this year.
ExxonMobil is the latest heavy hitter to expand its position in Namibia. At the end of January, Portugal's Galp announced that it was in the process of farming-down its Petroleum Exploration Licence (PEL) 82 in Namibia's Walvis basin to the supermajor, subject to regulatory approvals. The deal would leave both companies with a 40% stake in the licence, with Galp retaining operatorship. The National Petroleum Corporation of Namibia (Namcor) and Custos, a local Namibian company, each retain a 10% stake. The licence covers an area of 11,444 sq km in water depths of 300-2,000 metres.
That move follows hot on the heels of Total's agreement in October 2017 to take a majority stake in a Namibian block, and one in South Africa, from UK-based independent Impact Oil and Gas. The blocks lie on either side of the maritime boundary between the countries in the Orange Basin. In Namibia, Total took a 70% stake in Impact's Block 2913B and became operator, leaving Impact with 20% and Namcor with 10%. The block is a deep-water cretaceous fan prospect covering some 8,215 sq km with water depths of 2,500-3,250 metres. Impact has been assessing 3D seismic data from the acreage, acquired in early 2017.
'This year will be the tipping point for Namibia'—Selma Usiku
Meanwhile, late last year, India's state-owned ONGC Videsh Limited (OVL) acquired minority stakes from Tullow Oil in blocks in the Walvis Basin. One, located in PEL 30, is operated by Canadian-registered Eco Atlantic, while the other, in PEL 37 is operated by Tullow itself.
With Shell also having acquired acreage in Orange basin licence PEL39 back in 2014, there's no shortage of majors with deep enough pockets to launch exploration programmes, now oil company finances are recovering. But farming into exploration acreage, probably fairly cheaply, is no guarantee that they'll start ploughing money into the country.
Namibian exploration has a chequered past. That various operators have failed to reach agreement with Namibian authorities over the development of the Kudu offshore gasfield since it was discovered 170km offshore in the Orange Basin by Chevron in 1974 is hardly auspicious. Shell and Tullow, among others, have tried to commercialise Kudu, the country's only commercial-scale hydrocarbons find, but failed, mainly for lack of an outlet for the gas.
Meanwhile, optimism over drilling by Brazil's HRT and others in the Walvis Basin in 2013 turned to disappointment when no commercial discoveries were made—though the results did show the existence of a working petroleum system.
However, conditions today look as positive as they've done for some time, given that international oil companies are returning to promising African frontier acreage—and having success, as in Senegal and Mauritania.
"If you are going to invest $2bn to develop an oilfield, you need stability and you need fiscal terms that are going to be reliable in the long term," Mike Doherty, chairman of Impact Oil and Gas, said at the International Petroleum Week conference in London in February. "This is a key factor and I think some African countries—Namibia and Ghana—have got it right, and I'm afraid some haven't."
Terms currently offered by the government for production-sharing agreements include a 5% royalty and petroleum income tax of around 32%, with at least a 45% share of profits going to the contractor, according to Selma Usiku, exploration geologist at AziNam, a private equity-backed explorer with Namibian acreage. The resulting government take of around 55% compares to roughly 75-80% in Angola and Nigeria and around 65% in Ghana, she said.
Namibia has a population of only around 2.5m, relatively well developed onshore infrastructure and an offshore oil province that could potentially be on the scale of the North Sea or Gulf of Mexico. That puts the country in a better position to be generous in its terms than most sub-Saharan countries, Usiku told IP Week. Political stability and a developed financial and banking system also help make Namibia a relatively benign market for foreign investors. There's also no shortage of investment-hungry independents eager to point out the varied and promising geology of Namibia's offshore, as they seek to bring in partners.
AziNam's Usiku said a "technical unlocking" of Namibian potential had happened over the past five years, via an increase in 3D seismic acquisition. This, she said, was reducing exploration risk and showed sections of Namibian acreage to be liquid, rather than gas, plays—and therefore more likely to bring in investment.
Technology has also moved on, making ultra-deep plays such as ones Total has farmed into, more attractive prospects for drillers. Oil is the real prize, but even gas finds wouldn't necessarily cause the sort of headaches posed in the past by Kudu—which has proven reserves of around 1.3 trillion barrels.
Until recently, the only obvious market for that scale of gas find was the relatively low-paying local market-the power sector in Namibia or onwards to South Africa. The latest company to try its hand with Kudu is BW Offshore, which acquired operatorship in 2017. With a new power station sanctioned, the company hopes to take a final investment decision on production to supply the local power market in the first half of 2018.
However, if further gas reserves were found, Namibia might yet have the option of joining the burgeoning ranks of liquefied natural gas exporters, as floating LNG promises to make relatively small finds economically viable.
So, the foundations for the creation of a new oil and gas province are in place. Now, there's just the small matter of persuading companies to part with investors' money and drill.
The first steps towards proving all this to be more than hype are scheduled for the coming months. First to put drill bit into rock could be UK independent Chariot Oil and Gas, which plans to drill so-called Prospect S on its Block 2312 and 2412A acreage on PEL 71 off central Namibia in the second half of this year. That was made more likely by successful fundraising by Chariot, which said in February it had raised $15m in equity funding towards the cost of drilling. Its partners in the project are AziNam (20%), Namcor (10%) and local partner Ignitus Oil & Gas (5%). If the first well is a success, another is lined up for 2019.
Meanwhile, Tullow plans to drill the Cormorant prospect on the PEL37 licence, in the second half of 2018. The well will target light oil and Tullow says there are a number of similarly-sized follow-up prospects nearby. Tullow is operator with 35%, with partners OVL (30%), Pancontinental Namibia (30%) and Paragon Oil & Gas 5%. Pancontinental Namibia is 66.67%—owned by Pancontinental Oil & Gas and 33.33% by Africa Energy. Eco Atlantic also hopes to drill in the Walvis Basin and others could well follow, given the growing involvement of the majors.
The smaller players that were effectively marooned in Namibia during the sector's downturn without well-resourced partners certainly hope their time has come. "Independents like us and Impact Oil and Gas have been working really hard over the years," says AziNam's Usiku. "Right now, with the support of government and investors both old and new, we believe that this year will be the tipping point."
Source: Petroleum Economist