Namibia's petroleum industry heats up with new oil discovery and investment opportunities

Yesterday’s announcement of the third oil discovery made in the offshore orange basin by Shell Namibia, Qatar Energy, and Total Energies brought Namibia's petroleum industry back into the limelight.

As a result of the recent successful oil discoveries made, we picked up on an influx of international upstream and midstream service providers spurting to Namibia seeking their corporate residence in Namibia’s petroleum sector. We continue to watch as potential investors are continuously induced to invest in the exploration or production of petroleum or the provision of auxiliary upstream and midstream services in the country.

Below is an overview of Namibia's petroleum regulatory environment, including licensing requirements and local content considerations.

Types of Licences

If investors desire a slice of the petroleum pie, investors may either register a company in Namibia to apply to the Commissioner for Petroleum Affairs (“Petroleum Commissioner”) for a reconnaissance licence, an exploration licence or a production licence to produce petroleum under the Petroleum (Exploration and Production) Act, 1991 or alternatively acquire shares in existing licenced companies.

A reconnaissance licence authorises its holder to search for petroleum by:  

• geological, geophysical and photogeological surveys; and
• remote sensing techniques.

The reconnaissance licence is valid for two years and can be renewed for two further periods of two years, subject to the minister's discretion.

An exploration licence authorises its holder to conduct activities such as:

• geological, geophysical, geochemical, palaeontological, aerial, magnetic, gravity or seismic surveys;
• the appraisal of such surveys;
• drilling for appraisal purposes; and
• the study of the feasibility of any production operations or development operations.

The exploration licence is valid for four years and can be renewed for two further periods of two years, as may be determined by the minister. A production licence authorises the licensee exclusively to produce, sell or otherwise dispose of petroleum recovered. The production licence is valid for a period not exceeding 25 years and can be renewed for period not exceeding 10, as may be determined by the minister.

So far, Namibia's petroleum sector has granted only two reconnaissance licenses, 31 exploration licenses (with 42 pending applications), and a single production license.

Before being granted with an exploration or production licence, an agreement, in line with the Petroleum (Exploration and Production) Act, 2 of 1991 must be concluded with the minister. The Model Petroleum Agreement,1998 (the “Model Agreement”) contains certain proposed terms and conditions relating to:

• the minimum exploration operations or production operations to be carried out;
• the minimum expenditure in respect of exploration operations or production operations;
• the formation of joint ventures or the operation of production sharing or other joint arrangements (including profit-sharing by the State);
• the participation, including the acquisition of equity share capital, by the State through Namibia Petroleum Corporation of Namibia; and
• guarantees to be issued by the licensee to ensure the due and proper performance by the licensee of its obligations. The terms and conditions in the Model Agreement can be amended as long as they remain consistent with the Petroleum (Exploration and Production) Act, 1991.

If investors seek to only provide auxiliary upstream and midstream services to licenced exploration or production companies, they do not have to obtain any of the said petroleum licences neither enter into a petroleum agreement. Investors may simply register a company in Namibia and embark on the provision of such upstream or midstream auxiliary services without having to obtain the above petroleum licences under the Petroleum (Exploration and Production) Act, 1991. After completing the standard registration and tax regulatory procedures, investors can provide upstream services to licensed exploration and production companies without any restrictions.

Local content considerations

For licenced companies, certain general conditions are prescribed on petroleum licences that form the basis for local content. In terms of section 14 (c) of the Petroleum (Exploration and Production) Act,1991 , licence holders must:

• “in the employment of employees, give preference to Namibian citizens who possess appropriate qualifications for purposes of the operations to be carried out in terms of such licence;
• carry out training programmes in order to encourage and promote the development of such citizens in such person’s employment;
• after due regard being had to the need to ensure technical and economic efficiency, make use of products, equipment and services which are available in Namibia;
• and co-operate with other persons involved in the petroleum industry in order to enable such citizens to develop skills.”

It is worth noting that the minister has the flexibility to adjust these conditions to promote local development. If the minister tailors the conditions and imposes specific quantitative conditions on petroleum licences for i.e., local ownership or control or local value addition requirements on the procurement of upstream services providers than it may impact upstream service businesses. As it stands, if investors, vested in provision of upstream services are registered in Namibia and make auxiliary services available in Namibia then section 14 (c) condition would be complied with.

There are more local content conditions prescribed in the Namibia Investment Promotion Act, 2016 and New Equitable Economic Empowerment Bill, 2016 that may concern investors, however both aforesaid Acts has not been brought into force yet since 2015.

Investors looking to explore and develop petroleum in Namibia will find the licensing regime for the petroleum sector to be straightforward. Additionally, those who wish to provide auxiliary upstream or midstream services to licensed companies can register their businesses in Namibia by complying with standard business registration and tax requirements. In as far as local content requirements are concerned, the conditions imposed on petroleum licences of exploration or production companies will best guide Investors in regard to what local content requirements must be considered to provide auxiliary upstream or midstream services to licenced companies.

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Read the original publication at ENSafrica.