Oil is waiting on our doorstep

If the discoveries off the west coast of South Africa and Namibia are managed correctly, the spin-offs for the regional economies will be spectacular

A jackpot of oilfields in the Orange Basin, off the coast of Namibia — they were the largest finds in the world when discovered in 2022 — is likely to yield billions of barrels of high-grade crude when production begins in the next four to six years. It will have a significant effect on the economies of Namibia and South Africa.

Data and analytics firm in the energy and resources sectors Wood Mackenzie says in a report that the finds could yield 6-billion to 7.5-billion barrels of recoverable oil. This would contribute $9bn to Namibian coffers by the mid 2030s — more than double the country’s current budget inflows.

Operators TotalEnergies, Shell, Galp and Chevron are pumping hundreds of millions of dollars into exploring and developing the fields. TotalEnergies has allocated more than half its worldwide exploration budget to the Orange Basin.

Just a third of the Orange Basin falls in Namibian territory; the rest lies in South African

waters. The area runs roughly from about 100km north of the Orange River — which marks the southern border between Namibia and South Africa — to Saldanha in the south. The extended border out to sea (including the Orange Basin) is determined by the angle at which the river intersects with the ocean, namely in a southwesterly direction. This gives Namibia a generous portion of the discovery. And that’s where most of the action is.

The Namibian government is oil friendly for good reason — the country’s economy will be transformed once the proceeds of drilling are realised. South Africa, even as it lags Namibia by about three years, is attempting to move away from fossil fuels. But it’s sure to monitor the economic gains of its neighbour. South Africa’s petroleum bill has been working its way through parliament for the better part of a decade, while changes to legislation affecting the oil industry in Namibia can be made within weeks.

“The numbers coming out of

Namibia are so compelling that we expect South Africa will follow suit,” says Standard Bank Oil & Gas Southern Africa head Paul Eardley-Taylor.

“Africa’s domestic demand for both oil and gas accounts for about two-thirds of the continent’s production, putting greater emphasis on developing well-functioning infrastructure in Africa,” he says.

However it’s not all plain sailing. Oil exploration and drilling are complex and costly. In the Orange Basin, the depth — in some cases more than 3km below the surface — and distances — sometimes 300km offshore — bring logistical challenges and costs. “Aboveground” rules, determined by governments and influenced by environmentalists and antioil activists, compound the costs.

Yet advances in technology mean most oil can be prepared for export at source from a floating production, storage and offloading ship — tankers simply take on their load at sea without the need to send the oil ashore for processing.

Says ClucasGray portfolio manager Brendon Hubbard: “When a reserve is discovered, it is graded according to the likelihood of oil being present and economically viable for

South African developments ... lag those of Namibia by about three years

extraction in prevailing conditions. Geologists use a methodology to grade discoveries: 1P, 2P and 3P respectively indicate a 90%, 50% and 10% probability.

“If the yields are deemed to be sufficiently viable — and this will include [assessment of] the quality of the oil — a field development plan is put together outlining where and how drilling will take place. Then a final investment decision [FID] is made. For this, a huge document pack goes to the boards of the oil companies showing internal rate of return, what capital expenditure is required and what the returns are likely to be. Some of those FIDs are imminent in the Orange Basin, after which full-blown production begins. Typically the time from the field development plan to production is about three years,” he says.

“The fact that TotalEnergies has spent half its global exploration budget in Namibia tells us that this is high-quality oil and relatively easy to get at.”

While the African west coast oil reserves are in the exploratory phase, models exist in which production has been fast-tracked. The fastestgrowing economy in the world is Guyana’s, built on the back of oil discovered in 2015. The spin-offs include using gas, a by-product of oil drilling, to provide the piped energy to run electricity power stations on shore.

It costs up to $200m to sink a deep-water oil exploration well, but the returns in an abundant field such as the Orange Basin make it a no-brainer, and drilling activity will accelerate.

The question is how South Africa will deal with this bounty so close at hand.