Namibia has the money but fears taking oil risks – Brown

‘14 years before first oil’

Namibia has enough capital to participate meaningfully in oil and gas, but its reluctance to take risks could prevent local businesses from capturing the opportunities, economic analyst Rowland Brown says.

“There is plenty of money in Namibia. Money is really not the problem,” Brown told a recent Bank of Namibia oil and gas summit.

He added that the focus should instead be on developing projects, businesses and locally produced goods and services capable of competing globally and meeting the requirements of international oil companies.

Brown argued that Namibia would have to reconsider its approach to risk if it wanted domestic capital to support businesses entering the industry.

“We should not view risk as something that we need to manage down to zero, as perhaps the regulator might. Instead, we need to recognise that the potential returns that can be generated are very significant and, as a result, we need to consider our risk tolerance,” Brown said.

His remarks come as Namibia seeks to position local businesses to benefit from offshore discoveries in the Orange Basin while companies continue assessing whether those discoveries can be developed commercially.

‘Namibians can do it’

Brown also rejected suggestions that Namibians lack the expertise or structures required to participate in the petroleum industry, arguing that local ownership does not necessarily require all technical and operational functions to be performed by Namibians from the outset.

He used the example of a Namibian-owned oil rig, arguing that local ownership does not require Namibians to run every part of the operation from day one.

“It could be operated by a global player, with Namibian expertise gradually being brought in over time, so that we develop the local industry,” he said.

“But to say that Namibians cannot do it, that Namibians do not have the capital to do it, or that we cannot put the structures in place to make it happen, is factually incorrect.”

Brown still cautioned against unrealistic expectations about Namibia's position in the global petroleum industry, noting the country's output would remain a small fraction of worldwide production even once operations begin.

“With one floating production storage and offloading (FPSO), Namibia will likely produce around 0.15% of global oil supply. So we have to be realistic about the role we are playing in this industry,” he said.

He also called for faster investment and financial-decision processes, arguing that delays could make Namibia less competitive for international capital. Brown pointed to Norway, where he said comparable transactions take about two months, considerably quicker than in Namibia.

14-year wait

While Brown argued for greater willingness to take calculated risks, Shell Namibia country chair Eduardo Rodriguez illustrated the scale of the risk involved, warning that even a successful offshore petroleum development could take as long as 14 years to move from the start of the exploration process to first oil.

“If everything goes well, which it rarely does, you are talking about 14 years before first oil,” Rodriguez said.

He said the development timeline is set long before drilling, with companies first spending years acquiring and interpreting seismic data before deciding whether a prospect warrants the substantial investment required to drill an exploration well.

An offshore exploration well can cost around US$100 million despite offering only about a 10% chance of success, Rodriguez said.

“If I went to any bank with a proposal asking them to finance a US$100 million well with only a 10% probability of success, I doubt many would put up their hands,” he said. “That is simply how this business works.”

Rodriguez said this level of uncertainty explains why frontier petroleum provinces such as Namibia must remain competitive in attracting international investment, particularly when companies have competing opportunities in other jurisdictions.

A successful discovery is followed by a lengthy appraisal process and technical studies to determine whether the resource can be developed commercially, after which companies move through engineering and other development work before eventually considering a final investment decision.

Even after an investment decision has been taken, Rodriguez said several more years would be required to construct and install the infrastructure needed to produce an offshore field.

“You still have to build the facilities, procure an FPSO and install the subsea systems. That alone can take another four years."

Despite the discoveries made in the Orange Basin, Rodriguez stressed that Namibia remains in the exploration and appraisal phase and that uncertainty remains over which discoveries will ultimately progress into commercial developments.

“No final investment decision has yet been declared,” he said.

“We are all working very hard towards that objective, but there is still significant uncertainty.”

Adapt to succeed

Brown suggested Namibia should adapt its own financial and regulatory systems to the realities of an international industry.

“We need to realise that we also must change to suit what the rest of the world is doing, rather than expect them to simply dance to our tune,” he said.

He argued that local content should be built around creating competitive Namibian businesses capable of meeting the petroleum industry's technical and commercial requirements rather than requiring international operators to procure locally regardless of cost or capability.

“We are not asking the oil and gas industry to employ people or entities that double or triple the costs, or that are not technically compliant,” Brown said.

“We want to produce the goods and services that the industry needs [and] legitimately produce those locally as best we can," he added.