Majors Set Sights on Southern Africa's Final Frontier

The Issue

Southern Africa is becoming an attractive destination for upstream investment thanks to giant offshore finds. Limited production history in the frontier province and efforts to fast-track development could mean unwelcome subsurface surprises, but for the majors — notably TotalEnergies and Shell — the region ticks a number of boxes. As well as resource potential, relatively low aboveground risk and fiscal terms that allow lower break-even costs, it offers longer-term opportunities for low-carbon energy investment.

Orange Blossoms

For Total and Shell, Namibia’s deepwater Orange Basin offers access to some of the industry’s most advantaged barrels. The geology is good, the oil quality is light and not too sulfurous, and the companies stand to get payback in a relatively short period from their giant discoveries, Venus (Total) and Graff (Shell). The developments rank highly in both majors’ global portfolios, and they have quickly followed up initial discoveries in February with back-to-back exploration and appraisal drilling.

Shell is working to establish the size and commerciality of its Graff-1 and La Rona strikes, both on Petroleum Exploration License (PEL) 39. This month, it also began drilling the Jonker well to check for a possible eastern extension of the Venus find. If the fields were proven to be in communication, a unitization agreement with Total would be necessary. Shell’s discoveries to date are “more complicated because they will have to produce from multiple fields,” Immanuel Mulunga, CEO of Shell's state-run partner Namcor, told Energy Intelligence at a recent conference.

There is a clear sense of urgency about evaluating the finds. The potential resource size has not yet been divulged, with too many variables said to be in play. Shell previously said its deepwater Namibian barrels were among the least carbon intensive in its portfolio, giving them added resilience through the transition. Shell CEO Ben van Beurden has also spoken highly of the potential in Namibia, among other frontier areas, and the country's willingness to develop resources that the world "desperately needs."

An African Guyana?

Total will re-enter and test production at Venus, on PEL 56, in early 2023 and drill a further well, Venus 2, up to 20 kilometers away from the discovery well. Namibian officials estimate Venus could hold as much as 12 billion barrels of oil equivalent. “It wouldn’t be hard to get to those numbers — the field is so massive,” one geologist said. Total also has an option to test the Venus West prospect, which could hold 3 billion boe.

Key Discoveries Offshore Namibia, South Africa

Appraisal work suggests that the gas-to-oil ratio in the Orange Basin's waters is lower than first thought, making it possible to inject all the gas in the early stages. This would enable both Total and Shell to opt for an early oil production system. Total could feasibly start development in 2024 and achieve first production in 2027-28, officials estimate. They talk of a phased development involving multiple floating production, storage and offloading (FPSO) vessels, each with capacity of 250,000 barrels per day. “Guyana is a good analog for what we might end up doing,” said Mulunga, whose company also partners Total in Venus. The South American country has delivered some of the world's biggest oil discoveries in recent years and its resources, with low emissions intensity, are being developed using FPSOs.

Exxon Mobil, for which Guyana has been particularly prolific, is also present in Namibia, focused further north on the Namibe Basin straddling the border with Angola, where it plans to drill a wildcat in early 2024, while fellow US major Chevron recently took a block in the Orange Basin itself.

Fast as a Luiperd

Neighboring South Africa is also attracting upstream investment from majors. Total said previously that such frontier opportunities need not necessarily be ultra-long cycle or high cost, but with a quick turnaround could drive medium-term value. The company is currently negotiating the conditions to market gas and condensate to fast-track development of its Luiperd discovery. Government officials say the two gas finds to date on Block 11B/12B in the South Outeniqua Basin — Luiperd and Brulpadda — hold over 3 trillion cubic feet.

Total proposes an early production system for the first phase, with a three-well Luiperd development tied back to existing infrastructure in neighboring Block 9. From there, gas will flow via an existing pipeline to the mothballed PetroSA-operated Mossel Bay gas-to-liquids refinery or to state power giant Eskom’s nearby diesel power plant, which could be converted to run on natural gas. “The idea of this phased development is to start in the most efficient, quickest way possible … producing gas from Luiperd and give the gas market time to catch up so that we can then move into a bigger development,” Garrett Soden, CEO of Africa Energy, the junior partner in Block 11B/12B, told Energy Intelligence.

Phase 1 could potentially start up in 2027 at an estimated cost of $2.5 billion and with a break-even of around $30 per barrel. Production would be limited by existing infrastructure capacity to 210 million cubic feet per day of gas and 18,000 b/d of condensate. The key will be to get a gas offtake price that makes the project work and government approval for the production license; the latter is likely to take until early 2024, Soden said. A potential development of Brulpadda for Phase 2 could more than double production. But Total and its partners would need to invest in a new pipeline to Mossel Bay, built to withstand challenging conditions, including waves and currents at the surface that may complicate laying a pipeline in deepwater, and the local gas market would need to be developed.

Green Challenges

For both Total and Shell, southern Africa demonstrates how frontier upstream exploration might evolve, offering scope to integrate it with broader transition-focused growth in renewable power generation, hydrogen and related products like ammonia. Namibia and South Africa are particularly suitable for low-cost green hydrogen production thanks to their large solar and wind resources, long coastlines that allow them to use seawater, and vast land resources.

However, environmental campaigners in South Africa are targeting the Total scheme, describing it as “a conceptual fraud that tries to portray a switch from coal to gas as a green energy transition.” They also want to block the company's plans for a multiwell campaign in the Orange Basin. Shell, whose plans to shoot 3-D seismic off the Eastern Cape province have been stopped by court orders from environmental campaigners, also needs legal clarity and has appealed a recent court ruling.

South Africa is expected to take until at least late 2023 to ratify its Upstream Petroleum Resources Development Bill. That should not affect commercial terms for Block 11B/12B, however, which are “grandfathered” for potential changes.