EKKEHARD FRIEDRICH
Today Shell wrote down their reserves in PEL39 offshore Namibia by USD 400m stating that it can not be commercially developed.
Warning shots have been fired.
With inaction to commit to developing adequate onshore support infrastructure, the generally slow administrative pace, and uncertain (and increasingly restrictive) policies, the cost of development of Namibia’s intricate ultra-deep offshore fields becomes increasingly prohibitive (which of course decreases the net present value of the reserves and leads to write-downs).
Let us be clear, Namibia’s offshore fields are extremely challenging in the first place and there is a very real risk that oil majors will reprioritise to other fields if the enabling environment deteriorates.
By comparison, currently, the deepest field globally is operated by Shell’s Turitella FPSO at a depth of 2900m in the Gulf of Mexico. In Namibia, we have fields at 3000m with more challenging sea conditions which would make the development of our fields a global first and an engineering marvel. Also, bear in mind that the Gulf of Mexico has all the supporting infrastructure in place which reduces the time and cost of development substantially.
If Namibia does not develop the adequate onshore infrastructure needed for the next phase of development, this will likely be done from Angola or South Africa which will cost the developers substantially more and will smother any direct local onshore supporting industry development (which will then happen in neighbouring countries).
Also note that it is very easy for an oil major to “pull up the wheels” and develop another field and come back in several years, if ever. This has been the case in several other African countries such as Senegal.
Not all is doom and gloom though, Namibia is still sitting with a world-class resource and many other operators have slightly “easier” fields to develop from a geological perspective than Shell. Namibia is also one of the best countries to live and work in.
The government is trying their best to aid this very new industry with very few resources at their disposal. Namibians just need to pull together, hold hands with the industry and fix a few simple things to improve the enabling environment to first oil to greatly enhance the chances of it coming off.
Why is it so important for Namibia to get this right? Oil and Gas is one of the few industries that can move the needle in turning around the fortunes of a country, creating prosperity and alleviating poverty (if handled correctly).
Again, putting things into context is useful. Guyana’s economy went from sub-US$ 1 billion to in excess of US$60 billion in just a decade, almost entirely due to developing their offshore oil fields. Namibia’s GDP is USD13 billion currently, and GDP could increase 5-fold, just by making this industry work.
Hardly any other industry can do that in such a short amount of time – an opportunity not to be missed by a country with one of the highest GINI coefficients in the world.
*Ekkehard Friedrich, CFA is a dealmaker and entrepreneurial strategy and transaction advisory professional with more than 15 years of experience, working across Africa, the Middle East and Europe. He is experienced across sectors but focused on the oil and gas, tourism and healthcare sectors at present.
