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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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Supermajors Are Flocking To This Booming Oil Frontier

Exxon is moving to rapidly expand its exploration footprint in this little-known venue, French Total SA is spudding its first well here, small-cap Eco Atlantic - of offshore Guyana fame - is stepping up offshore activity, and onshore, fellow junior Recon Africa is hoping to be sitting on the next Eagle Ford. 

The next giant Brazil-style offshore pre-salt oilfield, or even the next thing to rival Eagle Ford, could very well be found in an emerging player in the final frontier of Africa that isn’t yet on investor radar. 

The venue is Namibia. 

And it’s not just about geology that could be analogous offshore to Brazil’s pre-salt bonanza, or onshore to the massive South African Karoo Basin… it’s about technological advancements that make the opportunities look that much more promising that just a few years ago. 

The wild success of Exxon offshore Guyana, with 16 back-to-back commercial discoveries and first production launched ahead of schedule, hasn’t only led to hope for similar finds right across the maritime border in Suriname - it’s sent a message to explorers and investors alike that hydrocarbons we thought were out of reach, aren’t anymore. 

Offshore Namibia, research indicates that Namibia’s Orange Basin has similar a source rock to Brazil. 

Source: IHS Market

That’s why Exxon Mobil (NYSE:XOM) moved to expand its exploration acreage last year, adding another 28,000 square kilometers to its offshore holdings, with depths reaching 4,000 meters. This is in addition to XOM’s 40% stake on another 11,500-sq-km offshore oil and gas license in Namibia.

French oil giant Total SA (NYSE:TOT) is gearing up right now to start a three-well drilling campaign that includes one of the deepest wells ever drilled in Africa - two wells in Angola and one in Namibia. Drilling will start this month, with Maersk’s Voyager rig. 

The potential hasn’t escaped Qatar Petroleum, which is farming into Total’s Namibia blocks.

Shell (NYSE:RDS.A) is also delineating a deep-water wildcat prospect offshore Namibia, planning to spud this year. 

Eco Atlantic (LON:ECO), which is also partnering with French giant Total and Irish mid-cap Tullow oil in Guyana’s Orinduik license offshore, owns four licenses offshore Namibia, including a majority stake in the Cooper Block. ECO has a drill target ready at the Osprey Prospect, and is looking for another partner right now, with three more years on its license. 

Onshore, Reconnaissance Energy Africa has scooped up the entire 6.3-million-acre Kavango Basin (quite a feat for junior with a $40-million market cap). RECO has a 90% interest in the basin, while Namibia’s state-run company holds the other 10%. 

RECO moved quickly to buy up this basin, which is as big in territory as Eagle Ford, when world-famous geologist to the majors, Bill Cathey, hinted that the shale play would likely produce commercial hydrocarbons. RECO has a 4-year exploration license leading to a 25-year production license starting on commercial discovery. 

Why Namibia?

Namibia has no proven oil reserves. The only existing commercial discovery is the Kudu gas field discovered by Chevron (NYSE:CVX) in the 1970s. 

That’s why explorers in the region tend to favor Angola - but that may be short-sighted. 

What’s attracting majors now is geology, advanced technology, a promising petroleum regime - and the fact that this is the final frontier for oil exploration. 

Everyone from majors Exxon, Shell and Total to mid- and small-caps Tullow, ECO Atlantic and RECO think this could be the next Guyana, Brazil, Angola, or Eagle Ford - all combined in one place. 

“Namibia is one of the places where the geology is very interesting,” Shell Upstream’s VP of exploration for the Middle East and Africa, Colette Hirstius, recently told an African oil conference in Cape Town. “We recently acquired seismic data and are continuing to be encouraged by what we see,” she added. 

Shell’s regional venture exploration manager, Menno de Ruig, described the entire Orange Basin as “based on the Aptian source rock, which has been proven in the basin” and remains “one of the main attractions”. 

“We are sitting at the mouth of the Orange basin, it is a major delta system with all the plays that you typically can expect in a delta system.”

And the regime is ideal after watching the demise of Angola through entrenched corruption and mismanagement of oil wealth. 

Reconnaissance Energy Africa (TSX-V: RECO, OTC: RECAF) CEO Jay Park notes that Namibia offers a 5% royalty and a 35% corporate income tax on its oil profits. “It’s an attractive environment because they haven’t found anything yet and the country is vastly underexplored,” Park told Oilprice.com. 

Namibia might not be the final frontier –but  it might be the resounding ‘no’ to peak oil fearmongering. 

“It is interesting to look back seven or so years when the talk of peak oil was very real,” says Park. “Then, too, everyone said all the easy resources had been found and produced, and called for $200 oil. But technology has proven that sentiment to be false.” 

Park’s theory is that we’re only in the early stages of shale E&P still, and while there have been huge developments from data to drilling tech, there’s still a lot more to be learned, which means that Namibia has now become a lot more attractive.

As to why Namibia isn’t pinging investor radar right now, Park says this: “You probably hadn’t heard of Suriname on the oil map, either, until a couple of months ago. By the time it’s on everyone’s radar, it’s much less of an opportunity. And Namibia is a virgin opportunity.”

Though Namibia has taken much of the spotlight in Africa recently, it’s also important to pay attention to Big Oil giants making big bets on other lesser-known exploratory projects on the continent.

Total, for example, recently announced a major oil discovery offshore Suriname with its partner, Apache (NYSE:APA). Apache’s agreement with Total included $100 million upfront payment and expenses incurred in exploration. The find was a major boon for both Total and Apache, especially considering there had not previously made any commercially viable oil discoveries. The find is doubly beneficial for Suriname, which could be a significant turning point for the small country’s economy.

Though it’s not entirely off the beaten path, Egypt has also captured the attention of Big Oil in recent years. Just last month, in fact, the country awarded Chevron (NYSE:CVX) and Shell key exploration blocks in the red-hot Red Sea. The blocks cover a total area of around 10,000 sq km and carry combined minimum investment of $326 million, Egypt’s petroleum ministry said, adding that potential investment would rise to "several billion dollars" if discoveries were made.

By. Charles Kennedy

**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**

Forward-Looking Statements. Statements contained in this document that are not historical facts are forward-looking statements that involve various risks and uncertainty affecting the business of Recon. All estimates and statements with respect to Recon’s operations, its plans and projections, size of potential oil reserves, comparisons to other oil producing fields, oil prices, recoverable oil, production targets, production and other operating costs and likelihood of oil recoverability are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties including, without limitation: risks associated with oil and gas exploration, development, exploitation and production, geological risks, marketing and transportation, availability of adequate funding, volatility of commodity prices, imprecision of reserve and resource estimates, environmental risks, competition from other producers, government regulation, dates of commencement of production and changes in the regulatory and taxation environment. Actual results may vary materially from the information provided in this document, and there is no representation that the actual results realized in the future will be the same in whole or in part as those presented herein. Other factors that could cause actual results to differ from those contained in the forward-looking statements are also set forth in filings that Recon and its technical analysts have made, We undertake no obligation, except as otherwise required by law, to update these forward-looking statements except as required by law.

Exploration for hydrocarbons is a speculative venture necessarily involving substantial risk. Recon's future success will depend on its ability to develop its current properties and on its ability to discover resources that are capable of commercial production. However, there is no assurance that Recon's future exploration and development efforts will result in the discovery or development of commercial accumulations of oil and natural gas. In addition, even if hydrocarbons are discovered, the costs of extracting and delivering the hydrocarbons to market and variations in the market price may render uneconomic any discovered deposit. Geological conditions are variable and unpredictable. Even if production is commenced from a well, the quantity of hydrocarbons produced inevitably will decline over time, and production may be adversely affected or may have to be terminated altogether if Recon encounters unforeseen geological conditions. Adverse climatic conditions at such properties may also hinder Recon's ability to carry on exploration or production activities continuously throughout any given year.

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