Namibia delays inking of oil stabilisation agreements
Namibia is yet to agree to oil stabilisation agreements with several oil and gas companies currently drilling for prospects owing to the lack of information on potential discoveries, Cirrus Capital has said in its overview on projections for the economy for 2025.
The fiscal stabilisation agreement is seen as being critical as it provides provisions that accommodate risk of regulatory changes to investors, according to the Oxford Institute of Energy Studies.
“Negotiations thus far in Namibia have not been successful in getting a fiscal stabilisation clause in any agreement with the government since conversations began. The government, it appears, is reluctant to grant said clause as there is still limited information on what would be given up,” Cirrus Capital said.
Another worrying factor for Cirrus was the lack of clearly coordinated communication between the ministries of mines, which acts as custodian in the oil and gas sector, and the ministry of finance which is responsible for tax policy.
“There may be further issues of lack of communication between the ministry of mines, regulating oil and gas activity, and the ministry of finance. Limited data and information flow makes decisions around tax thresholds and fiscal stabilisation a very slow process,” Cirrus Capital said.
Oil producers are also anticipated to write off initial expenditure from their operations once that commenced, Cirrus Capital warned.
“Due to Namibia never having had to deal with an oil industry, a lot of the fiscal process - such as a specific tax return procedure - are not in place. If oil production does commence, the majors will be writing off their initial spend,” Cirrus Capital said.
Shell write-off, Chevron announcement dampens spirits.
The recent announcement by Shell to write off US$400 million, in addition to Chevron not drawing any potential oil and gas resources from its first drilling campaign was seen as casting doubt with regards to Namibia’s emergence as the next frontier for oil and gas exploration, Cirrus Capital said.
“Excitement around the oil industry took a hit with the announcements from Shell and Chevron, however news from Galp and Total Energies remain positive. With more drilling activity this year, far more announcements can be expected and not all positive.”
On the contrary, TotalEnergies appears to offer positivity owing to it potentially making a final investment decision (FID) by the end of this year.
“TotalEnergies appears the furthest along towards any possible commercialisation, with any decision of this more likely in late 2025. However, Namibia being an oil producer is still very much up in the air. Beyond the commercial viability of the discoveries, the fiscal and political landscape of the country requires certainty before approving FID,” Cirrus Capital said.
“Nevertheless, the exploration planned for this year will drive increased spend and FDI, particularly given the quantum. Should any positive development decisions be announced, these will also drive growth higher over the medium term in preparation. Should production go ahead, the first few years will see exploration and development costs written off, but there will be some immediate fiscal benefits - including the 5% royalty,” Cirrus Capital said.
The fiscal stabilisation agreement is seen as being critical as it provides provisions that accommodate risk of regulatory changes to investors, according to the Oxford Institute of Energy Studies.
“Negotiations thus far in Namibia have not been successful in getting a fiscal stabilisation clause in any agreement with the government since conversations began. The government, it appears, is reluctant to grant said clause as there is still limited information on what would be given up,” Cirrus Capital said.
Another worrying factor for Cirrus was the lack of clearly coordinated communication between the ministries of mines, which acts as custodian in the oil and gas sector, and the ministry of finance which is responsible for tax policy.
“There may be further issues of lack of communication between the ministry of mines, regulating oil and gas activity, and the ministry of finance. Limited data and information flow makes decisions around tax thresholds and fiscal stabilisation a very slow process,” Cirrus Capital said.
Oil producers are also anticipated to write off initial expenditure from their operations once that commenced, Cirrus Capital warned.
“Due to Namibia never having had to deal with an oil industry, a lot of the fiscal process - such as a specific tax return procedure - are not in place. If oil production does commence, the majors will be writing off their initial spend,” Cirrus Capital said.
Shell write-off, Chevron announcement dampens spirits.
The recent announcement by Shell to write off US$400 million, in addition to Chevron not drawing any potential oil and gas resources from its first drilling campaign was seen as casting doubt with regards to Namibia’s emergence as the next frontier for oil and gas exploration, Cirrus Capital said.
“Excitement around the oil industry took a hit with the announcements from Shell and Chevron, however news from Galp and Total Energies remain positive. With more drilling activity this year, far more announcements can be expected and not all positive.”
On the contrary, TotalEnergies appears to offer positivity owing to it potentially making a final investment decision (FID) by the end of this year.
“TotalEnergies appears the furthest along towards any possible commercialisation, with any decision of this more likely in late 2025. However, Namibia being an oil producer is still very much up in the air. Beyond the commercial viability of the discoveries, the fiscal and political landscape of the country requires certainty before approving FID,” Cirrus Capital said.
“Nevertheless, the exploration planned for this year will drive increased spend and FDI, particularly given the quantum. Should any positive development decisions be announced, these will also drive growth higher over the medium term in preparation. Should production go ahead, the first few years will see exploration and development costs written off, but there will be some immediate fiscal benefits - including the 5% royalty,” Cirrus Capital said.
