Whose Oil Is It Anyway?

We agree with the apparently convicted fraudster NJ Ayuk that Namibians should not be alarmed that Shell has pulled the plug on plans to produce oil just two years after significant hype suggested the country was on the verge of joining the ranks of top oil producers.

Major oil and gas producer Shell this week announced it will write off US$400 million on a project that in 2022 had identified significant potential for oil and gas offshore Namibia. The discovery involved Qatar, which is itself a leading gas producer.

Further explorations were undertaken by Shell, TotalEnergies, Galp and others, showing the potential for billions of barrels and raising hopes that it’s only a matter of preparation and less than a decade for Namibia to become a noteworthy producer.

Shell has now said its discoveries are not commercially viable.

The announcement has raised concerns in some circles that production prospects may not be as straightforward and as close as initially thought.

NJ Ayuk, aka Njock Ayuk Eyong, the executive chair of the Africa Energy Chamber (AEC), has urged calm as he argues that Namibia’s prospects remain promising. Ayuk has controversially been offering policy and legal advice to the Namibian government.

“There is no need for alarm. The country’s oil and gas story is still unfolding, and there’s so much more to come. The government has been a strong supporter of investment in the oil sector and has created a stable climate that makes Namibia a go-to destination for investors,” Ayuk says in an article published on the AEC website.

It’s not accurate that the climate is stable. But Ayuk has a point, to an extent.

In contrast too, Shell’s “write off” of the N$7.5 billion investment project should be looked at from other perspectives by Namibian leaders and the population alike.

There are three key areas where the Shell decision can serve as a cautionary lesson for our expectations: Beware rushing to borrow and thereby pushing Namibia into serious debt on the mere hype that it will become a producer; ensure a truly stable regulatory environment that attracts and retains business investments; get rid of the entitlement mentality that the “resources are ours” and thus the government and Namibian individuals should have free ownership of every exploration and production project.

Shell might have provided several technical explanations, such as rock formation and geographical positioning, as reasons for deeming the once-promising discovery unprofitable. However, we can’t help but wonder whether Namibia’s political and regulatory atmosphere might have also put them off.

Are the laws in place clear and stable enough to ensure an investor’s money and long-term profitability is protected? So far the answer is they are not.

Changes to petroleum legislation have been in the works for years with no resolution in sight. Investors simply do not like unclear and forever delayed policies and laws.

The blind and unchecked nationalism surrounding ownership – rightly criticised but poorly articulated by late president Hage Geingob – cannot be dismissed as a potential obstacle to investor decisions, especially in a business where costs are prohibitively high.

Then there are the politicians with their short-term clamour for votes that has led to them already over-selling the oil discovery to the extent that borrowing in advance seemed decided. It was clear towards the end of last year that the so-called “local content” policy was being hyped up by Cabinet ahead of the elections.

We believe that restraint should be exercised until investors in oil and gas production have made their final investment decisions and have signed firm contracts before putting the taxpayer into more debt.

Shell’s decision is a strong indication that the idea by some in government to borrow billions of dollars for the green hydrogen experiment amounts to recklessly gambling with Namibia’s resources when the country has so many pressing social needs in housing, education, health and basic food security.

Potential versus production: They both start with P, but there’s a huge distance between the two. It is not merely a matter of counting the chickens before they hatch, it’s a question of making the necessary policy decisions. Clear-headed thinking and a responsible approach are needed.

Let’s not be alarmed. Yet, we cannot afford to ignore the warning signs either.