African newcomer to the O&G space making waves

Namibia steps up to cash in on reserves

OPINION PIECE: “In Africa, countries like Algeria, Nigeria, Libya, Egypt, and Angola have been in the business for decades, though much of their resource wealth remains untapped. When new discoveries come to light in nations previously unexplored or underexplored, one would think these more experienced countries would be able to out-hustle and out-muscle them when it comes to attracting investment dollars. However, recent experience shows that this is not always the case,” writes NJ Ayuk, Executive Chairman of the African Energy Chamber.

Recent discoveries in Namibia’s Orange Basin suggest it could hold up to three billion barrels of oil and 8.7 trillion cubic feet of natural gas. Excitement around the newly discovered resources is high, and though oil and gas production still lie ahead, Namibia has become a leader in African oil and gas investment.

Shell (UK) and TotalEnergies (France), which made the major discoveries in the Orange Basin with partnering companies, have both committed substantial portions of their 2024 exploration budgets to ongoing activity in Namibia.

Offshore exploration plans also have been announced by Chevron (US), Azule Energy (a joint venture between Italy’s Eni and the UK’s BP), and Portuguese energy group Galp. Meanwhile, Reconnaissance Energy Africa (Canada) and Namibian state oil company NAMCOR have begun drilling an onshore oil and gas exploration well in northeast Namibia.

What Not to Do

The excitement about Namibia’s resources is notably different than what we’re seeing in some of Africa’s other resource-rich nations. Take Nigeria, Africa’s largest oil producer by far. Despite colossal proven reserves of almost 37 billion barrels (the world’s total is 1.73 trillion), Nigeria is currently struggling to attract the $25 billion annual investment necessary just to keep its output at around 2 million barrels per day (bpd).

A new exploration well hasn’t been drilled in Nigeria in more than 12 years.

Oil majors are divesting from Nigerian assets and diverting future investments to other countries, as TotalEnergies did when it announced $6 billion in new projects in Angola. A new exploration well hasn’t been drilled in Nigeria in more than 12 years. Why?

The most obvious reason is security. Nigeria is notorious for its environmentally disastrous spills caused by rampant oil theft, vandalism, and sabotage. The country’s inability to protect its most valuable economic asset — responsible for almost two-thirds of Nigeria’s revenue — is a constant threat to employee safety as well as the bottom line for oil producers, and it doesn’t help with public relations either. There may be a ton of money still beneath Nigerian soil, but it’s not going anywhere, so it simply makes more sense to go extract it somewhere safer until those problems get resolved.

The other major problem with operating in Nigeria is legal uncertainty. As TotalEnergies CEO Patrick Pouyanné has said, the Nigerian legislature loves to debate oil policy but rarely ever settles anything, leading to inconsistent decision-making and an unstable and erratic policy environment.

Lack of transparency in licensing rounds, slow and complicated contracting procedures that expire too quickly, insufficient incentives for gas projects, and local manpower requirements not backed up by the education system are all significant obstacles.

In addition, local companies that take over abandoned assets are held to lower environmental standards than international companies, meaning the problems are getting worse before they get better.

Nigeria is now belatedly trying to address some of these issues. While the 2021 Nigerian Industry Act was a tremendous step in the right direction, implementation has been moving forward at a snail’s pace, but it has already spent much of the good will it was afforded in the past.

Charting a Better Path

So, is Namibia doing right, and what are the takeaways for Nigeria and other African nations?

Although Namibia is still at an earlier stage of development, it hasn’t just been watching from the sidelines. The government has already begun work to update its tax laws and provide an enabling environment for upstream activity.

Officials from NAMCOR visited Guyana in 2023 to learn more about oil developments, including how to involve local business, raise public awareness, and expand port facilities. They also learned from Guyana’s growing pains, noting that some of the best advice they received was to take their time and do proper infrastructure assessment.

The country is also getting a head start on diversification, with major law firm ENS assisting the government to come up with a regulatory framework for green hydrogen development and energy transition strategies.

While much remains to be done, Namibia already finds itself in good position to offer energy companies who are headed for the exits in Nigeria and elsewhere a soft place to land.