Will Namibia become a major deepwater oil producer?

Ian Thom - Recent deepwater oil discoveries off the coast of Namibia are generating huge excitement in the industry. The projected scale and quality of these reserves give them the potential to generate huge cash flows and make the country a core region for several major international oil companies (IOCs).Exploration off the coast of Namibia dates back to the 1970s, when Chevron discovered the Kudu gas field in shallow water off the country’s southern coast. This was never developed, and for several decades there was little interest from IOCs in exploring the country’s oil and gas potential. This changed as success in places like Brazil deepwater spurred interest in the wider Atlantic Margin concept. In parallel, deepwater developments ventured into deeper and deeper waters as capability and technology improved. Namibia became feasible and attractive for deepwater exploration.BreakthroughThe breakthrough happened in February 2022, with major discoveries by Shell and TotalEnergies in the Graff and Venus blocks. Venus in particular is potentially the biggest ever oil discovery in Sub-Saharan Africa, and among the top 10 globally since the turn of the century.Overall, Namibia has 230 000 km² of licenced acreage; by way of comparison, Norway has less than 100 000. Currently, the area is hugely under-explored, with fewer than 20 deepwater wells, compared to thousands of wells offshore in places like the North Sea or the Gulf of Mexico. And with so few wells drilled in Namibia, we can expect further exploration success and resource upgrades. So far, Namibia is in on trend with results achieved from other frontier deepwater hotspots like Guyana, Suriname and Senegal.ExploitabilityThere are still many unknowns but these are being addressed at pace. The basin is at an early stage of exploration with more wells required to better understand the subsurface conditions. Reservoir characteristics and fluid properties will influence well flow-rates and expected recovery per well. In turn these will determine number of wells required.At a water depth greater than 2 000 metres and reservoir depth of 6 000 metres, exploiting these fields will push the boundaries of industry capabilities.Issues at the extreme depth include water currents, low temperatures and temperature gradients. Placing and maintaining subsea equipment, maintaining pressure in umbilicals and flow assurance will all be big challenges. As a result, innovative solutions and high-specification equipment will be needed, adding to development costs.There is still much uncertainty around how fields could be developed in terms of design concept, timing, phases, production levels, and how gas is handled or monetised. However, our modelling suggests that at US$60 per barrel project economics should be quite robust. In our base case analysis, net present value (NPV) remains positive at prices as low as US$40 per barrel.Investment environmentNamibia is more than twice the size of Germany but only has a population of 2.5 million people. It borders Angola to the north and South Africa to the south, from which it gained independence in 1990. The country is classed as a middle income market economy, with GDP per capita among the top 10 countries in Africa.Existing diamond and uranium mining means oil and gas won’t be Namibia’s first experience of an extractive industry. What’s more, the country’s tax terms are both very favourable and progressive. Namibia operates a tax/royalty system with a 35% petroleum income tax rate and a low 5% royalty rate. State oil company Namcor also takes a 10% stake in all projects, and there is a tax on excess profits. Overall fiscal terms are reflective of a frontier area – high risk/high return. Namibia benchmarks well against frontier deepwater peers and it ranks best against the more established West African countries.Fiscal stability is always a concern for operators making long-term investments. Perhaps counter-intuitively, the presence of an excess profit tax should offer some reassurance to investors. The state will increasingly benefit from high oil prices and high project returns, so there is less incentive for a windfall tax as the excess profit tax already provides the state with a cash windfall. OutlookIf the forthcoming appraisal and well flow tests meet expectations, we believe oil production in Namibia could surpass 500 000 barrels per day within a decade and continue to grow after that. Given the likely size of the opportunity, the scale of upstream investment will be unprecedented for the country, reaching up to US$4 billion per year in the first half of the next decade.Monetisation of gas will be more complicated. The ultra-deepwater location, seabed topography, offshore conditions, gas quality and limited local market and infrastructure mean reinjection may be preferable initially to benefit from higher oil returns.Operators will adopt a multi-phase development concept to exploit the opportunity. Initially, floating production storage and offloading (FPSO) installations will be used. Later over 100 subsea wells, comprising producers and water and gas injectors, could be drilled on the fields.Overall, we see Namibia as an emerging core region for the majors, with expected NPV for projects giving them the potential to become crown jewel assets for several big operators – read the full report for more on which players stand to benefit.

Will Namibia become a major deepwater oil producer?

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Republikein 2025-01-15

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Will Namibia become a major deepwater oil producer?

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