Commodities 2024: Namibia's nascent oil sector prepares for lift-off in 2024

After a series of unsuccessful spuds in the 1970s and 1980s, the Southwest African Coastal Basin spanning Namibia and South Africa was derided a "graveyard" for oil exploration. In the 48 years following Chevron's Kudu gas discovery in 1974, the Namibian section was only tested twice.

Then, last year, everything changed.

"With the discoveries of 2022, the Orange sub-basin went from a Zombie basin to the most exciting exploration destination in the world," said Justin Cochrane, African upstream regional research director at S&P Global Commodity Insights.

With billions of barrels of oil, the Orange Basin could be Africa's largest ever discovery, capable of transforming Namibia from one of the world's poorest countries to a major producer by the 2030s.

First, though, an entire industry must be created from scratch, with oil majors, juniors and tiny buccaneering explorers all competing for a slice of the pie. While a host of new wells are due to be drilled next year, 2024 will be characterized by the transition from exploration to development, market participants and analysts told S&P Global Commodity Insights.

"Exploration is one thing -- neither easy, nor certain and requiring a massive capital outlay. However contemplating a development, that is a different litany of equally complex, interrelated considerations that are in some senses more challenging -- indicating a potential commitment to develop, as Shell and Total each have, speaks to the potential of the Organ Basin opportunity in Namibia." said Robert Bose, president of Sintana Energy, which has indirect stakes in four offshore blocks.

New Guyana

Shell's Graff discovery and TotalEnergies' Venus find, in blocks 2913A and 2913B respectively, unlocked billions of barrels of oil, "reshaped the exploration landscape, and ultimately resulted in Namibia being compared to Guyana," said Cochrane.

In total, Shell has drilled seven exploration and appraisal wells, including Graff, Jonker, La Rona, Lesedi and Cullinan, while TotalEnergies has drilled three -- Venus, Venus 1-X and Nara -- and is currently sinking Mangetti-1.

Cochrane said the "the complex could hold an in-place resource of around 10 billion boe," and conceivably as much as 3 billion recoverable. "The level of Orange Basin activity is increasing and interest is through the roof," said Bose.

While the majors said Cullinan and Nara were dry, the latter did in fact hit hydrocarbons, just not in commercial quantities, according to reports. TotalEnergies declined to comment.

Majors have been so tight lipped about their Namibia prospects that investors and analysts are relying on clues. Shell, for instance, drilled its second Jonker appraisal well 23 km away from its first exploration well, according to Upstream, suggesting the resource is larger than many believed.

According to S&P Global forecasts, Namibia will see first oil in 2029 from Venus and 2030 from Graff, while BW Energy's Kudu gas field will come online in 2028. The trio will take Namibia's production to 381,360 b/d by 2035, higher than OPEC members Republic of Congo and Gabon. Other projects, including Jonker, would boost that number further.

The crude discovered offshore Namibia is light oil.

The new oil frontier is already drawing investment away from mature West African basins. "Given Namibia and South Africa's encouraging fiscal regimes and the large discoveries identified so far, we anticipate major energy companies will focus on developing fields in and around these areas at the expense of their more marginal production elsewhere," Gil Holzman, CEO of Eco Atlantic, which has four blocks in the Walvis Basin, told S&P Global.

OPEC, which has shored up its ranks with the addition of several African producers in recent years, is already eying Namibia as a potential new member. Antonio Oburu Ondo, Equatorial Guinea's oil minister and the current OPEC president, has even been encouraging his Namibian counterpart, Tom Alweendo, to join the group when production starts, sources said.

Should it join, Namibia would become the 14th member of OPEC, which controls about one third of global crude production capacity and has teamed up since 2017 with Russia and 10 other allies in a super-coalition to manage the oil market.

Seminal development

Bose said offshore Namibia "will be a very active exploration and appraisal environment in 2024." Portugal's Galp, which operates block PEL 83, is expected to complete its two-well Mopane exploration campaign in the first quarter. "This will be a seminal development for Sintana but also for the Orange Basin. It is the first block to see drilling activity beyond those of Shell and Total, it is potentially very large and will also provide visibility into the northerly extension of the basin" said Bose, whose company maintains an indirect interest in Custos Energy, one of Galp's partners in PEL 83.

Chevron could also start drilling toward the end of 2024, after having applied for an environmental clearance certificate for PEL 90. And Australia's Woodside is expected to exercise its exclusive option to take a 56% operating stake in PEL 87 from PanContinental, after analyzing 3D seismic on the block.

The South African portion of the basin and other Namibian basins, including the Walvis and Namibe, are expected to see further interest, including from majors.

Crucially, however, TotalEnergies and Shell are also poised to shift from exploration to development. The French supermajor is searching for a five-year continuous rig contract, according to reports, while Shell has said it will surrender the Deepsea Bollsta drilling rig in June 2024 to analyze its data and "plan the next phase of operations."

"We intend to continue our back-to-back drilling campaign over the remaining term of the contract by appraising the Jonker discovery and drilling at least one more exploration well," a Shell spokesperson told S&P Global.

TotalEnergies' Mangetti well, northwest of Venus, should complete drilling in the coming weeks, with results expected in Q1.

"There is a lot on deck to occur next year that will continue to reveal the size, the opportunity and potential leadership role of this basin in the global energy mix," said Bose.

"The orange Basin hatched in 2023," one investor told S&P Global. "Next year is the year it flies."

Lightning speed

Insiders say Namibia's government is focused on reaching first oil as quickly as possible while ensuring the nation benefits. Sources told S&P Global that Windhoek had sought advice from Guyana's government on rapid oil sector development.

Still, Namibia has a population of 2.5 million people and GDP of just $12.3 billion, according to the World Bank. Bose said the Southern African nation would like to build "sufficient local market capacity to fully participate in more than $12 billion in potential capex spending."

Entire sectors, from logistics and ports to hotels, will need to be created at lightning speed. And some fear Namibia's oil projects will come on stream as the world is attempting to phase down fossil fuel use. S&P Global analysts say global oil demand could peak at 109 million b/d in 2033.

But Holzman remains bullish. "Eco remains confident of the need for Namibia and South Africa's resources in both the local and international markets for many decades to come," he said. "It is not conceivable that the need for oil will be falling away in seven years' time."