By; Mupiri Matthias
Namibia is being watched by everyone. The energy world is paying attention, to be more precise.
Interest in further exploration in Namibia has been high ever since oil and gas giants Shell (United Kingdom) and TotalEnergies (France) revealed significant hydrocarbon discoveries in the country’s offshore Orange Basin in 2022. The speed at which Shell, TotalEnergies, and its associates will be able to complete multiple field development agreements with Namibia and begin production has also sparked interest.
Will their talks stall, as we frequently saw in African countries, or will the procedure proceed smoothly?
In addition to its enormity, containing up to three billion barrels of oil altogether, the 2022 Orange Basin discoveries were also noteworthy since Namibian drilling efforts up to that time had been somewhat underwhelming. Prior to Shell’s finding at the Graff-1 well and TotalEnergies’ Venus 1-X discovery, only about 15 wells had been sunk, and none of those earlier endeavors had produced commercial quantities of oil or gas.
Therefore, Namibia’s first opportunity to demonstrate to oil and gas corporations what they may anticipate after making discoveries there is in the Orange Basin. Contracting companies may be free from new tax regulations or rewarded to make up for legislation that increases their costs, such as new labor or environmental rules, depending on the text of the provision, also known as a “economic rebalancing” or “equalization clause”.
What matters is that events that took place after the companies’ arrangement was signed would not, in the end, have an influence on their return on investment.
Depending on the wording of the clause, also known as a “economic rebalancing” or “equalization clause,” contracting corporations may be exempt from new tax restrictions or compensated to offset legislation that raises their expenses, such as new labor or environmental rules, what important is that the companies’ return on investment would not ultimately be impacted by things that happened after the agreement was signed.
Investment guarantees for oil and gas businesses are rarely novel or revolutionary. There are fiscal stability clauses in effect in nations like Guyana, Mozambique, Mexico, and Angola, among others. While I am unable to provide research demonstrating that these nations have received more investment as a result of their provisions, I am aware that when developing nations choose not to give the clauses, oil and gas corporations have an incentive to restrict their investments there.
International consulting firm Deloitte made a statement on the value of financial stability clauses in a recent study on the subject.
According to the paper, stabilization clauses provide certainty and predictability, two essential elements for long-term investment project success. “Petroleum mining requires a lot of capital, and it takes a lot longer to recover your investment than it does in most other industries. The economics of a project may be considerably changed by any later modifications to the legislation of the host state.
Time is valuable, that much is clear. Namibia must not only include a fiscal stability guarantee in its petroleum deals, but must do so immediately. If not, it’s possible that the subject of financial risk will come up when negotiating a contract with Shell, TotalEnergies, and their associates.
I encourage Namibian authorities to take note of the delays that have occurred in the offshore Rovuma Basin of Mozambique. The early to mid-2010s saw the announcement of natural gas discoveries amounting to as much as 17 billion barrels of oil equivalent (boe), but Mozambique’s negotiations with operators, such as Italian energy giant Eni and U.S. business Anadarko, have dragged on for years. As a result, the Coral Sul floating liquefied natural gas (FLNG) project, fed by Coral Field, is the only one that have been finished thus far.
The FLNG project received a final investment decision (FID) in the middle of 2017, witnessed the start of construction in 2018, and shipped its first cargo in November 2022. This is a good move, but consider the advantages for the economy and energy security natural gas from Mozambique would have offered.
Then there’s the case of Tullow Oil’s significant oil finds, which were made in Ghana and Uganda and revealed roughly three months apart in 2006 and 2007, respectively. 2010 saw the start of Tullow Oil’s oil production from the Ghanaian Jubilee Field finding. Compare it to Tullow’s discovery of the Lake Albert Rift Basin in Uganda. In 2020, Tullow sold all of its Ugandan assets to Total (now TotalEnergies) following more than a decade of disagreements with the government and no resolution.
TotalEnergies reached final agreements in 2021 to begin the exploitation of Lake Albert’s resources, including the Tilenga and Kingfisher upstream oil projects and the building of the East African Crude Oil Pipeline (EACOP) between Tanzania and Uganda. Together with the China National Offshore Oil Corporation and the Uganda National Oil Company, TotalEnergies continues to advance these projects. Driving forward oil and gas projects is now much more difficult than it was in 2006, sadly, due to climate concerns and the desire for net-zero emissions.
Environmental campaigns are exerting significant pressure on TotalEnergies to give up its plans for oil production and the pipeline. Uganda has lost value and money for the past 15 years. At the African Energy Week in Cape Town, South Africa from October 16 to 20, important challenges like these will be raised, and investors and governments will need to work together to find solutions. IOCs are interested in a number of Namibian (and South African) areas, including the Orange Basin.
One of Africa’s most prospective high-impact wells, the Osprey prospect drilling target in Block 2012A in the Walvis Basin, for instance, is one of Eco Atlantic’s deep water Walvis Basin blocks (among others).
Global Petroleum, Namcor, and Aloe Investments are anticipated to start exploring in Walvis Basin Block 2011A this year. Exxon Mobil, Tower Resources, Maurel and Prom, Oranto Petroleum, Woodside Energy, Chevron, Galp, and Recon Africa are all now conducting extensive exploration work in various acreages throughout the nation in preparation for potential drilling in the near future.
Along with the onshore Owambo and Karoo basins, Namibia’s offshore Luderitz Basin and Namib Basin also present significant possibilities. However, if businesses start to view Namibia as a dangerous destination for investments, enthusiasm might swiftly wane.
More so than ever before, BW Kudu, a fully owned subsidiary of BW Energy and the National Petroleum Corporation of Namibia (Namcor), is optimistic about Kudu Gas and is working nonstop to deliver first gas in 2026. I adore this initiative since it might address Namibia’s energy insecurity and poverty problems through domestic gas production. Currently, 60% of Namibia’s domestic electricity requirements are imported.
The African Energy Chamber is not the only organization to call for change and encourage Namibia to take action to protect the investments made by oil and gas corporations. Prior to the significant Orange Basin discovery, this subject was discussed in 2020.
In a letter to Namibia’s Minister of Mines and Energy Tom Alweendo, NAMPOA’s then-chairperson Uaapi Utjavari discussed the potential benefits of fiscal guarantee clauses for sustaining continuous investment in Namibia’s developing oil and gas industry. A framework that balanced the requirements of the nation and investors was recommended by NAMPOA.
“There is a fundamental need for a stable and sustainable business environment so the country and the investors are able to plan ahead and rely on terms agreed upon,” Utjavari wrote. “An economic rebalancing provision provides appropriate security around economic terms, which are critical for large-scale multi-billion dollars project investment/bankability, while not infringing the host country’s sovereignty and are a common feature in many petroleum contracts globally.”
The suggestions NAMPOA made for Namibia in 2020 still make sense.
The Namibian people want to see Namibia benefit from all the advantages that its natural resources can provide, from enhanced energy security to industrialization and economic progress. Namibia may accomplish this if it conveys to the energy sector that it is dedicated to assisting businesses in realizing a respectable return on their investments. It would be wise to include a stipulation requiring budgetary stability in its contracts.
I therefore urge Namibia to take immediate action. ~Namibia Daily News