Namibia has the potential to generate over N$500 billion in potential revenues in the coming decade through taxes and royalties charged to the oil sector, an investment advisory firm has said.
Cirrus Capital’s Romé Mostert estimates Namibia’s oil industry could have potential to double government revenues to N$100 billion, with total government revenue having amounted to N$53.6 billion in the 2021/22 financial year.
“Assuming 3 billion barrels in reserve, US$80 per barrel and N$15/USD, the extraction potential of a reserve like this amounts to N$4 trillion. Running high level numbers suggest the direct revenue potential for the Government, through royalties and taxes amounting to N$500 billion,” he said.
“Assuming this oil resource is being extracted over a 10-year period, government revenue can amount to N$50 billion per year. This will see the government running fiscal surpluses and be the enabler for a sovereign wealth fund and projects like green hydrogen.”
Mostert indicated that Namibia will share in more than 50% of the operating cash flows from oil, a development which puts the country in a much better position as opposed to if the resource was not developed, amid calls for government to increase its current stake from the current 10% held through the National Petroleum Company of Namibia (NAMCOR).
“As it stands, the government, and by extension Namibia is set to benefit significantly from the oil resource, both directly and indirectly. The direct benefit will be in the form of royalties (between 5% and 12.5%) charged on revenue, plus 35% corporate tax (oil companies pay higher tax rates), plus an additional profit tax dependent on the projects’ IRR and a 10% shareholding through Namcor,” he said.
“Indirectly government will also benefit from the healthier economy in general, with the international companies deploying resources here, seeing increased demand for general goods and services, thereby seeing a general rise in economic activity and increased revenues for the government from other sources like PAYE, other corporate tax and VAT.”
The renowned analyst, however, warned that the opportunity cost will be massive if Namibia makes a policy mistake and discriminates against investors.
Mostert said the current calls for increased ownership in oil exploration and finds should have been considered before the government sold off the oil blocks.
“It should also be noted that the government was the initial holder of these exploration blocks, who then sold them to Namibians, who then sold them to these international companies. Besides the above listed revenues, the Government has already benefited from the sale of these assets and these companies are the legitimate owners of these resources having invested vast amounts of capital,” he said.
“Namibia will be very penny wise and pound foolish to ask for more at this point – the country is looking at a golden goose that needs careful looking after, not short-sighted slaughter.”
The Cirrus Capital Director said oil extraction in the country could take between 7 to 10 years if commercial viability of the find is confirmed.
“There is still a lot of water to flow into the ocean before oil will be extracted in Namibia. Firstly in this regard, we do not yet have confirmation that these finds are commercially viable, and that confirmation will still take some time. This requires a lot of work, as the resource needs to be quantified, the structures in which the oil sits need to be assessed for pressure and communication, and an extraction programme needs to be developed. More wells will be drilled and more data collected,” he said.
“The discovery of oil off Namibia’s coast is a positive development, but much still needs to be done to confirm viability and develop these reserves. Shell, Total and their partners have already spent billions, and decades of expertise, to find this oil, but will keep less than half of the operating profits from the extraction of oil, should it be viable. If viable, it will cost billions more to develop the infrastructure needed to extract the oil. Again, these companies will put in all the capital, and keep less than half the operating profit.”
NAMCOR and its partners, Shell Namibia Upstream B.V and Qatar Energy, are said to have discovered a working petroleum system for light oil in the Orange Basin, 270 km from the town of Oranjemund, where drilling operations commenced in early December 2021 and were safely completed in early February 2022.
The company’s other partners, TotalEnergies, alongside QatarEnergy, and Impact Oil and Gas have also announced the Venus-1X discovery, located approximately 290 kilometres off the coast of Namibia, in the deep-water offshore exploration Block 2913B, which covers approximately 8,215 km².
According to the Namibia Petroleum Operators Association (NAMPOA), exploration companies have sunk in over N$30 billion in the country since independence.
