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Shell Is Betting Big On Namibia’s Oil Boom


Shell Is Betting Big On Namibia’s Oil Boom

While all recent oil exploration attention has been on Exxon’s (NYSE:XOM) massive string of discoveries in Guyana, another giant player and a junior explorer are shifting to focus toward what may be the next up-and-coming oil hotspot …

It’s Namibia–a country that’s never produced a barrel of oil.

We don’t hear much about new oil discoveries these days. Onshore discoveries are almost unheard of because nearly everything except the African final frontier has been explored. Offshore discoveries are few and far between.

That makes all the exploration activity in Namibia the foundation for another Guyana story–but this time we think there could be a lot more room for investor reward.

Suddenly, Namibia is a growing source of exploration news, with a significant discovery by Shell (NYSE:RDS) offshore and maiden drills by Recon Africa (TSXV:RECOOTC:RECAF) onshore in the giant Kavango Basin already providing clear evidence of a working petroleum system.

Now, it’s about to get a lot more exciting …

Namibia’s Oil Explosion

Namibia is already turning heads in the oil world. It may have even caught the eye of some of the largest oil exploration companies in the world—and for good reason.

With geological similarities to Brazil and Guyana—the latter having seen astounding oil exploration success—explorers are sinking tons of money into finding and tapping these potential resources.

Namibia’s northern neighbor, Angola, already has a successful oil industry and is a long-time member of OPEC, producing an average of more than one million barrels per day.

Namibia may have the potential to rival this northern neighbor, and with oil prices approaching $90 per barrel, we think it is even more likely that Namibia could become the next big oil and gas player on the global scene.

Shell Namibia

Shell Plc. (NYSE:RDS.A) just stunned  us with a discovery announcement at its offshore Graff-1 well in Namibia.

The Graff-1 well results showed at least two reservoirs containing what Reuters sources have called “a significant amount of oil and gas”, which we estimate could be worth up to $29 billion at $88 oil.

Shell’s Namibia discovery is on the Petroleum Exploration License 39, 45% owned by Shell, and 45% owned by Qatar Petroleum. The National Petroleum Corporation of Namibia (NAMCOR) owns the final 10%.

The government of Namibia is expected to make an announcement on the details of Graff-1 next week, while Namibia’s Minister of Energy and Mines said it was in the final stages of data collection to thoroughly assess the find’s potential.

Shell’s success could trigger an increased interest in further exploring the country’s oil resources.

“If successful, Graff-1 could spark significant international investment to a region which has had minimal E&P exploration and production activity over the last 25 years,” IHS Markit analyst Hugh Ewan said in December when Shell began drilling Graff-1, according to Reuters.

Indeed, even more of the world’s best oil finders have taken an interest in Namibia’s offshore oil prospects, including ExxonMobil (NYSE:XOM) and TotalEnergies (NYSE:TTE).

Like Shell, Total began drilling in its Venus-1 exploration block—close to Shell’s discovery—in December. Venus-1 is Namibia’s deepest water exploration well to date, and according to IHS Markit, is “one of the most anticipated wells worldwide.”

An analysis of Venus suggests a minimum economic field size of around 120MMbbls at $70 crude. IHS Markit has also referenced the “favourable fiscal regime in the region” which “suggests that a discovery equal to 300 Mbbls could have an NPV of around 1 billion MMUSD with a break-even below 50$/bbl”.

Exxon, on a wildly successful drilling and production spree in Guyana, and with a presence in neighboring Angola, increased its Namibia acreage in 2019, adding 7 million net acres after signing an agreement with Namibia and NAMCOR for blocks 1710 and 1810, along with farm-in agreements with NAMCOR for 1711 and 1811A.

With Shell’s latest find offshore, the investment  into Namibia exploration could increase, and onshore is perhaps where the biggest potential gains may be made because this is where NAMCOR is partnering with a small-cap explorer for whom a discovery could create incredible upside, unlike for a supermajor.

Recon Africa

Along with some of the largest names in oil exploration—Shell, Exxon, and Total—Reconnaissance Energy Africa (TSXV:RECOOTC:RECAF) is also poised to take part in Namibia’s oil future, with RECO and NAMCOR definitely confirming in August the evidence of an active petroleum system in the giant Kavango Basin.

The results were indicative of a play with “world-class potential,” according to Horizon Well Logging Inc’s Dough Milham, who conducted the sample logging data and analysis for RECO.

The company’s first Namibia well is due to be spudded this quarter.

RECO is expected to publish its drilling schedule for H1 this year as soon as all permitting is approved by the government.

For RECO, we anticipate things moving pretty quickly now, with seismic interpretations expected to more precisely pinpoint exact drilling locations for what RECO hopes to be a major onshore oil discovery.

RECO has rights to almost as much acreage as Exxon, with 6.3 million acres located in Namibia’s Kavango Basin, which Wood MacKenzie has identified as an analogous basin to the Permian Basin in the United States.

There’s clear reason for our excitement here …

Dan Jarvie, one of the world’s most famous geochemist wildcatters known for the Texas Barnett play calling Namibia the final frontier for potential oil discoveries, notes that this is “a very strong independent junior explorer here sitting on a sedimentary basin that rivals South Texas in a massively under-explored region”.

So, with Shell clocking a “significant” find already offshore and Recon Africa gearing up to continue drilling its massive 6.3-million-acre play onshore that some experts think could contain up to a potential 120 billion barrels, Namibia has every reason to start celebrating its exciting entrance onto the global oil exploration scene.

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