Farm-Ins Reinforce Strong Exploration Trend
BMI View : Murphy Oil and OMV's acquisition of stakes in two blocks offshore Namibia, only two months after a similar farm-in by Royal Dutch Shell, reinforce our view that Namibia will see continued and increasing investor interest in its below-ground potential. With the companies planning seismic surveys throughout 2014, and with an uptick in exploration over the coming months, 2014 will be an important year for proving up the country's offshore potential.
Murphy Oil and OMV have farmed into a pair of exploration blocks offshore Namibia, taking up stakes in block 2613A and 2613B from Brazilian explorer Cowan Oil & Gas. Murphy Oil is taking a 40% holding in each block and will assume operatorship. OMV will take 25%, with Cowan retaining 20% and Namibian state company Namcor keeping 15%. Cowan had acquired the blocks in 2011 and has already undertaken two packages of 2D seismic.
These latest developments only reinforce our view that Namibia will likely see continued investor interest in its below-ground potential, despite a string of disappointing results . While the Kudu gas field in the only commercial hydrocarbon discovery made in Namibian waters thus far, investor sentiment towards the country has not dampened, with new companies attracted by a promising geology in close proximity to highly prospective Angolan plays.
In December 2013, Acorn Geophysical started shooting 2,128 square kilometre (sq km) of 2D seismic data in Block 2714B; this was closely followed in January 2014 with an announcement by Tullow Oil that it had begun a 3,000 sq km seismic survey in licence area EL 0037 ( see 'Offshore Exploration Persists Despite Limited Results', January 17 2014). The latest heavyweight to enter the country is Royal Dutch Shell, which acquired a 90% stake in two offshore blocks in the Orange Basin in February 2014. As we previously noted, with Shell currently looking to streamline capex and explicitly target high capital return, the decision to invest in Namibia offers further indication of the country's perceived prospectivity ( see, 'Industry Heavyweight Lifts Prospects,' February 18).
2014 may also see an uptick in exploration activity, with Repsol due to spud its first offshore exploration during the year, and Chariot Oil & Gas planning to commence drilling in H214, both targeting prospects in the Walvis basin.
Murphy Oil and OMV's entry into Namibian waters lends further weight to the growing trend of farm-ins and nascent exploration in Namibia's offshore potential. The companies are already reportedly planning a 3D seismic survey their respective blocks, which could go ahead as early as Q214. It would cover about 4,000 sq km, in water depths of between 500 and 2000 metres (m).
In our view, in addition to geology and geography, above-ground conditions have also been a key factor driving continued interest in the country's below ground potential. Namibia enjoys broad political stability, has strong institutional capacity and a comparatively well-developed financial system.
The country welcomes foreign investment and boasts an attractive fiscal and regulatory environment. In particular, the country's Foreign Investment Act guarantees investment security, free repatriation of profits and access to foreign currency. The country's Petroleum Act also offers some strong incentives. E&P licences closely resemble concessions, offering the holder exclusive right over the licence area and resources in place. State participation is also relatively low, and although it is common practice for Namcor to obtain minority stakes in licences, this is not mandated by the Act. The fiscal regime is generous for the region, composed principally of a 5% royalty, 35% Petroleum Income Tax (from which exploration expenditure may be deducted) and an Additional Profits Tax, where a licence area brings an after-tax real rate of return of 15% or more.