May 04, 2024
Economy

Govt will not renegotiate oil deals

August 30, 2022
Govt will not renegotiate oil deals

The Ministry of Mines and Energy maintains that contracts and agreements entered into on behalf of the country with companies exploring for oil in the country present the best options available because of high-cost implication and specialized skill requirements of the sector.

"Concerns have been raised with regards to National Petroleum Corporation of Namibia (Namcor)’s participation. It is important to note that the 10% participating interest held by the state through Namcor is a carried interest, which means the State is not required to provide funds for the exploration and development phase which could run into billions of dollars. If the State wishes to hold a 51% participating interest in its exploration blocks, it will have to fund the exploration programme to the tune of hundreds of millions of dollars. This becomes even more difficult in the current dispensation of a global de-funding of oil and gas exploration," the Ministry said in response to calls by Popular Democratic Movement (PDM) leader McHenry Venaani for a review of all oil exploration and extraction deals amid allegations the government could have negotiated in bad faith.

The government department said the continuous investment by oil exploration companies over the years had contributed to the country’s current success of discovering oil, a process which has taken over 48 years from the discovery of Kudu Gas, a position which the government would not have managed to bear the costs.

“And this was only achieved through the continuous attraction of investments to Namibia and came at a cost of billions of Namibian dollars lost in unsuccessful exploration drilling campaigns. This would not have been possible if the Namibian government through its Namcor was a majority shareholder with this capital outlay requirement.”

The Mines and Energy ministry said the International Oil Companies (IOCs) are at risk of losing their investments running into billions of dollars if operations at the recently discovered oil off the coast of Namibia fail.

“The IOCs have the balance sheet and experience to either take the funding risk and/or to avoid significant loss of investment, the impact of which a country's economy is not naturally designed to withstand. The 90% participating interest that the IOCs take also means that in the event of a farmout, the new investor will have to fund a greater percentage of the exploration operations, as opposed to a scenario where the state already holds 51%; meaning that the new entrant will be funding a significantly lower percentage of the work programme."

The ministry said it was also industry standard that the IOCs take about 80% to 100% participating interest during the exploration phase.

“Having a 51% regime in Namibia, will be atypical and may also lead to view of expropriation tendencies, which is one of the major country risk assessments considered by IOCs and finance providers globally."

The government department said although it takes close to 5 years to establish the commercial viability of an oil find, the country will already start to benefit from the economic activity brought into the country, including goods and services that will be supplied by the local private sector, while the IOCs bear all costs associated with exploration.

“The journey from a discovery to appraisal, development and then production of first oil could take a minimum of 5 years depending on the requirements of the field. During all these stages, the saying post states that the state continues to benefit from the economic activity brought into the country, including goods and services that will be supplied by the local private sector, while the IOCs bear all costs associated with exploration.”

According to the Namibia Petroleum Operators Association, exploration companies have sunk in over N$30 billion in the country since independence searching for commercially viable oil finds.

 

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Last modified on Wednesday, 31 August 2022 17:11
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