Namibia to Pocket Oil Billions After 2030

Oil and gas exploration in Namibia are the talk of the global town, following significant discoveries in the offshore Orange Basin last year, which is creating expectations of massive future government oil revenue.

But a leading Namibian wealth management outfit said Namibia will only reap the rewards of these discoveries in a few years.

Oil majors have in the meantime stepped up their exploration activities in Namibian waters.

This past weekend, Upstream, a reputed news source, reported that "Shell looks to have a third significant oil discovery on its hands in Namibia's red-hot Orange basin play, and could make an announcement within hours or days".Early last year, the supermajor hit oil with its Graff-1 probe in Block 2913A, just ahead of TotalEnergies striking hydrocarbons at its huge Venus prospect in adjacent block 2913B, and before Shell went on to have success with its follow-up La Rona-1 well, close to Graff.

In late January, Upstream reported that early signs from Shell's Jonker-1 exploration probe -- also in Block 2913B -- were promising, with Northern Ocean's semi-submersible rig Deepsea Bollsta understood to have hit hydrocarbons in a secondary target en route to the main reservoir objective.

TotalEnergies will mobilise almost 50% of its global exploration budget to Namibia this year, as it hopes to confirm a multi-billion barrels' discovery on block 2913b within the Orange Basin. CEO Patrick Pouyanné made the announcement during the company's 2022 Results and 2023 Objectives' presentation last week.

The French major will spend US$300m on appraising its Venus discovery in the Orange Basin, with the mobilisation of two drilling rigs and the drilling of several wells.

Last week, it was announced that the Australian oil and gas firm Woodside had an option to acquire a stake in a block offshore Namibia, too.

Furthermore, the African Energy Chamber (AEC) announced that it will open an office in Namibia to focus on promoting local content and capacity-building across the energy value chain.

With Namibia's energy sector on the precipice of rapid transformation on the back of recent oil and gas discoveries, the AEC will establish an office in the country dedicated to promoting local content development efforts. The AEC will engage with various stakeholders across the Namibian energy industry, including national and international oil companies, the government, and service companies, utilising a multi-tiered approach to scaling up local talent and capabilities.

However, Namibia is set to receive massive oil revenues only after 2030 when oil giants would have recovered their exploration and development cost, and the National Petroleum Corporation of Namibia (Namcor) had repaid its share of the costs.

"Given that the first production of crude oil is only likely from 2028, potential government oil revenues will be relatively limited before 2031, but could rise markedly thereafter if the oil price remains strong," reads a PSG Namibia report titled 'Namibia Economic Focus February 2023'.

Government confirmed the discovery of light oil in the Venus well of the joint venture between TotalEnergies (40%), QatarEnergy (30%), Impact Oil and Gas (20%) and the National Petroleum Corporation of Namibia (10%).

Oil companies still have to confirm the technical and financial viability of the discoveries. Despite this, some analysts made some bold predictions that the Namibian economy will double by 2040, and that government could earn more than US$3.5 billion (approximately N$53.5 billion) annually in royalties and taxes at peak production from oil finds.

PSG Namibia added that royalties are set to be the main source of government oil revenue in the first three years of production.

"Despite the increasing demand for green energy and renewable energy technologies, we forecast that the benchmark Brent crude spot price will stay above US$79 per barrel until 2030, amid a slow but steady increase in the global demand for refined oil during this period. At these prices, Namibia's offshore projects would generate handsome profits," added the report.

It noted further that Namibia is one of the most attractive mining investment destinations in the region in terms of political stability, regulatory environment and infrastructure. "We do not expect Namibia to give in to market-unfriendly policy demands because the country desperately needs to attract foreign direct investment (FDI) to reinvigorate the economy."

Expected revenue streams from the sector are royalties, petroleum income tax, additional profit tax, withholding tax and licence fees. In total, the percentage of revenue that the government will receive from taxes and royalties, Namcor's share, could be as high as 65%, stated PSG Namibia.

The discoveries will add to government coffers significantly, especially seeing that Namibia expects steady Southern African Customs Union (SACU) inflows as regional trade normalises. For the 2023/24 FY, Namibia expects a significant boost to revenues from receipts from the SACU pool to N$24.3 billion.

This sentiment was shared by finance minister Iipumbu Shiimi last month.

On the domestic front, recovery in economic activities, supported by gains from improved tax compliance in line with tax administration reforms, resulted in upward revisions of expected collections on VAT and personal income tax.

Commenting on the estimates, energy economist David Jarrett said these are predicted around oil price futures.

"Royalties will accrue to government, and so the real volume will depend only on oil price and volumes lifted annually once pumping commences. I do also believe oil prices will hover around the US$80 mark on average into 2025," he noted.

Local economist Omu Kakujaha-Matundu said the greatest risk to the expected oil revenue for Namibia is the accelerated adoption of cleaner technology replacing fossil fuels. The commitment by industrial nations to reduce fossil fuels used for transport by about 50%, switching to EVs, and the use of other cleaner technologies for other uses could negatively impact oil prices.

"Predicting with some certainty the price level in the next seven years is not a sure thing. Thus, one would think that Namibia should not bet on expected oil revenues. Namibia should aggressively pursue its current diversification and value-addition strategy so as to expand its revenue base," argued Kakujaha-Matundu.

This article originally appeared on New Era

Photo: New Era