BMI View: Oranto Petroleum is offering a stake in two blocks offshore Namibia. We believe this farm - out will be a good test of investor sentiment toward the country. While the geographical features of Namibia promise large potential, we outline numerous above - ground and below - ground risks that could impair further exploration in the country.
Interest in Namibia has grown alongside an industry rush into countries lying along the West Africa n coast in hope of replicating subsalt discoveries made in South America. This is backed by the continental drift theory, which posits that the coastal areas of South America and West Africa exhibit similar geological characteristics - and thus hydrocarbons potential. Namibia also benefits from close proximity with Africa's second largest crude producer, Angola.
|Countries Along The Coastlines Of The Continental Drift Theory|
Despite booming interest in the region, Namibia is at present a highly frontier play, with no existing crude production. We nonetheless emphasise that we are currently seeing an acceleration of exploration in the country. In early May, Oranto Petroleum, a West African exploration and production (E&P) specialist based in Nigeria, proceeded to farm-out its 2011B/2111A Permit, formerly referred to as the Ondjou Block, in the Walvis Basin. This follows closely the last deal signed by Brazil-based independent HRT in November 2012, which sold a 14% stake in three offshore leases to Galp Energia in order to jointly explore and develop them (see our online service, November 26 2012, 'Fiscal Threat To Frontier Take-Off').
In 2012, Oranto conducted a 3D seismic survey of the prospect with the help of Polarcus and Fugro Seismic Imaging. The survey revealed hydrocarbon potential in the Upper Cretaceous layer, with possible additional prospectivity in the northern areas of the block. Acorn Geophysical is offering technical presentation to prospective buyers, and has committed to conducting further 2D and 3D seismic surveys on the prospect. We expect to see interest in the prospect from large frontier players, which would further confirm our view that exploration offshore Namibia is gaining momentum.
We nonetheless believe that there are numerous factors that could impair investor sentiment toward the country:
Above-ground risk remains high. Political stability could be an issue for a large investor. Additionally, the tax reforms implemented in March 2012 have increased exploration costs. The introduction of a withholding tax - which gives foreign companies only a 75% share of fees charged for their services, as the remaining 25% is given to the Ministry of Finance - has raised exploration costs by 33% according to Petroleum Commissioner Immanuel Mulunga.
The below-ground potential of Namibia is yet to be proven. The high-profile Kabeljou exploration well, lying within the Nimrod prospect in offshore Block 2714A, turned out to be a duster for block partners Petrobras, Chariot Oil & Gas and BP.