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Oil discovery in Namibia: Lessons that can be derived from diamond mining

16 may 2022

Shell confirmed the discovery of light oil at the Graff-1 well offshore Namibia in early February, which marked the first oil find for the southern African country.

The Graff-1 well was drilled to a total depth of 5,376 meters in water depths of approximately 2,000 meters.

Further drilling in the petroleum exploration licence (PEL) 0039 area is expected to begin towards the end of 2022.

PEL 0039 covers approximately 12,000 km² in deepwater offshore Namibia.

"Results from our exploration well are encouraging, establishing the presence of a working petroleum system with light oil," an unnamed Shell spokesperson was quoted as saying by S&P Global Platts.

"We will continue evaluating the data and conduct further exploration activity to determine the extent of the system and how much of the hydrocarbons can be recovered."

Extensive laboratory analyses were being conducted to have an understanding of the reservoir quality and potential flow rates.

Shell made a second Orange Basin discovery in the La Rona-1 prospect last month, where the well confirmed hydrocarbon pay at multiple levels.

“The safe and successful execution of these back to back exploration wells in a short timeframe is a testament to the strong performance of this partnership,” said company executive vice president exploration Marc Gerrits.

Shell is the Operator of PEL 0039 with a 45% working interest, together with QatarEnergy (45%) and NAMCOR (10%).

French company TotalEnergies also announced in late February this year that it discovered light oil with associated gas on the Venus prospect, located in block 2913B (PEL 56) in the Orange Basin, offshore southern Namibia.

The Venus 1-x well, which is considered significant, was drilled to a total depth of 6,296 metres, by the Maersk Voyager drillship, and encountered a high-quality, light oil-bearing sandstone reservoir of Lower Cretaceous age.

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                       Source: TotalEnergies

“This discovery offshore Namibia and the very promising initial results prove the potential of this play in the Orange Basin, on which TotalEnergies owns an important position both in Namibia and South Africa,” said TotalEnergies senior vice president exploration Kevin McLachlan.

“A comprehensive coring and logging programme has been completed. This will enable the preparation of appraisal operations designed to assess the commerciality of this discovery.”

Block 2913B comprises a joint venture group that includes TotalEnergies (40%), QatarEnergy (30%), Impact Oil and gas (20%), and NAMCOR (10%).

"Following the recent success of the Graff-1 well by Shell, this second light oil discovery by TotalEnergies has demonstrated the world-class potential of this new play in the deep-water of the Orange Basin, which could be a major game-changer for Namibia's economy and its people," said Namcor managing director Immanuel Mulunga, last February.

Namibia holds about 11 billion barrels in oil reserves and its first production is expected to commence by 2026.

Recent estimates by Business Live put the value of the oil at more than $300 billion, which is 30 times the size of Namibia’s nominal 2020 GDP.

While the southern African country received the news of the light oil discoveries with joy, questions have arisen on whether the country will benefit from the oil the way diamonds have contributed to the national purse since their initial discovery in May 1908 near the southern coastal town of Lüderitz.

A resident director for De Beers in Namibia opined in 2017 that the southern African country earns more than 80 cents of every dollar generated by the partnership.

De Beers and the Namibian government each have a 50% shareholding in Namdeb Holdings and the Namibia Diamond Trading Company (NDTC).

President Hage Geingob said in an interview with AlJazeera last March that the discovery and consequent production of crude oil will not help much unless there is value addition.

“We should be careful [and] not get excited…it will take a long time, it is true that it may help us to develop our country, but oil has been a curse in many countries,” he said.

“So since we are the last ones (sic) to get it…we are talking with those that are involved as equals, we hope that we are going to get a win-win situation.”

The Namibian president spoke with a sober mind, which shows that he is alive to the reality on the ground.

Namibia tried this with diamonds.

Even though Windhoek gets royalties and taxes it also receives dividends as an equal partner of Namdeb Holdings and the Namibia Diamond Trading Company (NDTC).

Namibia signed a new 20-year business agreement with De Beers last year that reduced royalties paid by Namdeb to 5% from 10% for the next four years.

De Beers said the extended life of the land-based mines is expected to generate an additional $2.71 billion for the country, from taxes, dividends and royalties.

Namdeb’s land-based operations had been projected to end in 2022 due to unsustainable economics.

However, the fact that there is no meaningful cutting and polishing of diamonds in the country, means that money that could have remained in the country for local development continues to be expatriated.

This is a big lesson that the president appears to have learned from the mining of diamonds.

“Money has to go out to those who discovered it [the oil],” he said candidly in the Aljazeera interview.

"We have our royalties and so on so…we have gold and diamonds and we do not see the difference, it will still go outside in its raw form.

“Value is added outside and jobs are created outside the country…so we hope that with the good friends that we have there must be some kind of value addition in the country and that …way money can stay in [Namibia].”

Looking at the ownership structure of PEL 0039 and Block 2913B, it is interesting why the government did not consider the diamond model?

Is it because it did not have enough resources to fund the exploration work?

South Africa’s Daily Maverick quoted Rob Parker from the Economic and Social Justice Trust (ESJT) as saying last February that the oil discovery will be a curse to Namibians.

“The environmental consequences… on our fishing and tourist industries would be catastrophic. We also know that very few Namibians will actually benefit,” he said.

“An oil discovery will not make petrol cheaper as some seem to think, nor will it provide jobs in this nation where nobody has oilfield experience.

“At a time when there are financial incentives to go green, this nation blessed with abundant sunshine should be leveraging their competitive advantage, but instead we are going down a path that everyone else is leaving.”

Some activists are afraid of the rise of extremist groups just like what happened in the Niger Delta as the local community failed to benefit from the oil.

“We don’t want to be exploited like Shell exploits the Niger Delta,” ESJT member Rinaani Musutua was quoted as saying by the daily.

It remains to be seen what the future holds for the country’s oil and gas industry.

The president is aware of the lessons that can be drawn from the diamond industry, but the question is whether they increase their stakes in the operations should they become commercial and will they be able to convince their partners to add value to the oil in the country?

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished