Shell Faces Setback in Namibia's Oil Exploration Efforts

In a significant blow to Namibia's ambitions of becoming a crude oil producer, Shell has announced a $400 million write-off over a problematic offshore oil discovery. The company stated that the resources found in the PEL39 block off the coast of Namibia cannot currently be developed commercially due to technical challenges. This news comes as Namibia’s government remains hopeful about the potential of its oil sector, despite the difficulties faced by major energy companies.

Shell, in partnership with QatarEnergy and Namibia’s national oil company, discovered hydrocarbons in block PEL39 in 2022, a find that generated significant interest from the global oil industry. Along with TotalEnergies' nearby discovery, these finds sparked optimism about Namibia’s potential to become a player in the global oil market, despite the country’s current lack of production. However, after drilling nine wells over the last three years and making additional discoveries, Shell reported that the oil and gas resources encountered present significant technical and geological challenges for development.

In a statement to Reuters, Shell acknowledged the difficulties but emphasized ongoing efforts to explore potential solutions. "While we recognize that extracting the discovered resources presents challenges, the extensive data collected shows that there remain opportunities," the company said. "Together with our partners, we are continuing to explore potential commercial pathways to development, while actively looking for further exploration opportunities in Namibia."

Despite Shell’s setback, Namibia remains optimistic. The Ministry of Mines and Energy expressed confidence that the country’s oil and gas development will continue to progress. "It is not a setback," the ministry said in a statement. "We are positive that the remaining potential of PEL39 and other exploration campaigns will translate into commercial developments."

Shell’s CEO, Wael Sawan, had previously described the challenges of Namibia’s offshore acreage, citing issues with the permeability of the rock, which has made oil and gas extraction more difficult. Additionally, sources told Reuters that the high natural gas content of the discoveries has further complicated the development process.

Despite Shell’s decision to write off the $400 million, other oil companies remain active in Namibia. Portuguese oil firm Galp recently made a major discovery in a different offshore license, and several companies, including Chevron, BP, and TotalEnergies, have announced plans for further exploration in the country. TotalEnergies, for instance, is expected to make a final investment decision on its Venus discovery by the end of this year.

For Shell, the $400 million write-off is part of a larger $700 million total write-off related to exploration projects, which also includes a $300 million write-off in Colombia. The company will report its full fourth-quarter results on January 30.

The future of Namibia’s oil sector remains uncertain, but the country is still positioning itself as an important player in the global energy landscape. As Shell and other companies continue to explore and drill in Namibia’s waters, the hope is that these challenges will eventually lead to the commercial development that would allow the country to join the ranks of global oil producers.

Source: Ron Bousso, Reuters, January 8, 2025