Here’s what the industry says about Shell’s oil discovery in Namibia

As the energy transition looms large over the global oil and gas market, Africa’s Namibia is hoping to make energy poverty history following an oil discovery made in its waters by oil major Shell.

News of Shell’s oil discovery off Namibia has been circling the media for weeks before its partner, state-owned NAMCOR, as well as Shell, confirmed it last Friday.

The Graff-1 well where the discovery was made is located in Block 2913A in the Orange Basin. The well was drilled to a total depth of 5,376 meters in water depths of approximately 2,000 meters in the PEL-39 license area, which covers a total area of 12,299 km2.

While Shell was cautious with predictions and did not have much to say about the size of the discovery other that “the results are encouraging” and that it would “continue evaluating the data and conduct further exploration activity”, it is clear that the oil and gas sector, as well as the government of Namibia, are excited about the potential of the discovery and what its development could mean for the future of the country.

To remind, NAMCOR’S Managing Director, Immanuel Mulunga, emphasised that the discovery “puts to rest doubts about the hydrocarbon potential of Namibia and opens a new dawn in the country’s future prosperity.”

Shell’s other partner in the block, QatarEnergy, confirmed the encouraging results, adding that they enhance the potential of the company’s exploration acreage in Namibia’s offshore.

A senior energy official told Reuters this week that the government of Namibia plans to fast track the development of its first-ever oilfield to have it in production by 2026.

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Meanwhile, French major TotalEnergies is still drilling its Venus exploration well in Namibian waters in Block 2913B (PEL 56), which is close to Shell’s block. Just like with Shell’s block, both QatarEnergy and NAMCOR are partners. The start of drilling operations on the Venus well, in 3,000m water depths, was announced at the beginning of December 2021.

The well is being drilled by the Maersk Voyager drillship and it is targeting a large basin floor fan system with significant undiscovered petroleum initially in place that has been identified using 3D seismic data.

Commenting on Shell’s discovery, the African Energy Chamber, an association representing the interests of the African oil and gas industry, said that this discovery, coupled with the country’s favourable regulatory environment, is set to create an influx in new investment, while further positioning Namibia as a highly competitive and increasingly lucrative upstream destination.

NJ Ayuk, Executive Chairman of the African Energy Chamber, said: “Credit is due to Shell and partners for sticking with their drilling campaign in an environment where frontier exploration drilling fell to the lowest level ever recorded in Africa. Many majors have not had a long term approach rather they have instead focused on quicker return.”

Namely, according to an analysis by energy intelligence firm Westwood, there was no obvious loss of appetite for high impact exploration at the drill bit in 2021, but the decline in frontier exploration drilling shows that the industry is less concerned with long term renewal and is instead focused on quicker returns. Westwood also said that, after a quiet few years, Africa is expected to see key frontier tests in the Orange, Rio Muni, Mozambique, and Lamu basins.

Ayuk also pointed out that the Namibian authorities have been very pragmatic in their approach with energy companies after learning from the mistakes of others.

“I believe Namibia and many African countries will see more drilling of high-impact oil and gas prospects which is very good as these resources are needed to make energy poverty history,” Ayuk concluded.

The group believes that the discovery is set to usher in a wave of new investment across the entire energy value chain and, once developed, improve energy security in a nation that relies heavily on petroleum imports and intermittent hydropower. Meanwhile, it is critical that the country develops an oil and gas bill to ensure effective regulation, certainty, and overall beneficiation of the find.

However, as the global pressure is mounting to abandon the world’s reliance on fossil fuels and transition to clean sources of energy, it is critical for Namibia to put in place strict environmental policies to ensure oil and gas exploration and production is achieved with minimal emissions, African Energy Chamber said.

While the global push to abandon fossil fuels in favour of renewables is growing, oil and gas producing countries in Africa, whose economies are heavily reliant on hydrocarbons, beg to differ.

In a recent interview with the African Energy Chamber, Oscar Garcia Berniko, Director General for State Petroleum Companies and Petroleum Assets, Ministry of Mineral Resources and Hydrocarbons of Equatorial Guinea, confirmed that Africa is seeing production declines across key assets.

He also pointed out that people are not aware of the consequences of the anti-fossil fuels narrative in the lives of the people in Africa. “It’s unfair, especially if we take into account that Africa is not the region of the planet that pollutes more, but actually, Africa is one of the main lungs of the planet. I think we deserve better,” he said.

Berniko believes that the primary reasons influencing production decline in Africa include the influence of lobbies pushing for divestments of fossil fuels assets and the trend of exiting producing and mature assets to focus on more profitable and efficient assets.

In order to turn this around, African producing countries need to react with a package of incentives for operators to reconsider their strategy and go back to exploration and development of discovered resources, Berniko stated.

“I’m not only talking about fiscal incentives but making sure that we rethink the oil and gas game,” he said.

Two LSE-listed oil and gas exploration companies with acreage in the Walvis Basin off Namibia have also been encouraged by Shell’s results despite the lack of proximity of their assets to the one operated by Shell.

Global Petroleum holds a 78 per cent participating interest in PEL 0094 (Block 2011A) in the Walvis Basin. The company believes that the Graff-1 discovery clearly has the potential to underpin a new petroleum province offshore Namibia, which Global’s model predicts to extend to PEL 94, further north in the Walvis Basin.

Peter Hill, Global’s CEO, commented: “We note the apparent similarities between the Graff discovery and the prospectivity in our own licence, which is highly encouraging especially when combined with the strong economics of our prospects.”

Furthermore, Tower Resources has an 80 per cent operated interest in Blocks 1910A, 1911 & 1912B located in the Northern area of Namibia’s offshore, in the Walvis basin which is closer to the border with Angola and the Namibe basin, and approximately 950 km away from Graff-1.

Noting the considerable distance of its blocks from that operated by Shell, Tower said that, while it is considerable, certain conclusions can nevertheless be drawn that are relevant to its Namibian Blocks.

Tower’s most important conclusion is that the Graff-1 well demonstrates conclusively the potential for source rocks in the Namibian offshore to have been buried sufficiently to generate light oil in substantial quantities.

Tower is now moving forward with more detailed and focused geological and geophysical analysis aiming to high-grade areas for further seismic data acquisition, and we will also be looking out for further information regarding Graff and Venus.

In addition, Australian energy junior Pancontinental said that its operated PEL 87 licence off Namibia is on-trend to Shell’s Graff-1 discovery. The Australian company estimates that a minimum economic field size would be 200 million barrels of recoverable oil at the Graff location.

Pancontinental Technical Director, Barry Rushworth, commented: “The highly significant Graff-1 oil discovery is hugely important to Pancontinental’s efforts offshore Namibia, and to oil exploration offshore Namibia in general. It opens a new chapter in international oil exploration and development.”

Finally, Eco Atlantic is expanding its footprint off Africa through the acquisition of Azinam and its asset portfolio. This will allow it access to and operatorship of Block 2B in the Orange Basin, offshore South Africa and interest in the deepwater 3B/4B Block and the shallow water and nearshore 3B/4B Blocks.

Eco will also expand its portfolio with additional working interests offshore Namibia in its current oil blocks – petroleum exploration licenses: 97, 98 and 99.

The company is now working towards drilling a well on Block 2B, which is “a highly prospective play in the Orange Basin, offshore South Africa, close to the recent discovery by Shell and QatarEnergy in the Orange Basin in Namibia,” the company said. Eco also evaluated that Block 3B/4B is directly correlated to the Graff-1 well.

As evidenced, there has been a lot of discussion about Shell’s discovery in Namibia but, as Shell is yet to determine its volume and potential, it remains to be seen what will come of it in the end.

In the meantime, Namibia is preparing for an energy conference, which will unite regional energy leaders and international financiers for two days of dialogue and networking. It will take place in April 2022 in Windhoek under the theme “The Energy Mix: Positioning for Investment, Industrialization and Growth.”