Shell Writes Down its Holdings off Namibia By $400 Million

After three years and nine exploration wells, Shell has decided to write down the value of its lease area in Namibia's Orange Basin by $400 million. 

Shell has discovered oil in more than one of its wells in the block, but has decided that these prospects "cannot currently be confirmed for commercial development." Shell encountered geological challenges and technical difficulties during the drilling campaign, including low permeability in the formation, which makes extraction difficult. 

Namibia's energy ministry said Monday that despite the findings related to reservoir quality and subsurface complexity in the lease area, it believes that the basin still holds potential for development. "The collective discoveries from the nine drilled wells amount to significant volumes of hydrocarbon accumulations. The government of Namibia remains committed to developing these discoveries, which are believed to be commercially viable," the ministry said in a statement Monday.

On Monday, Namibian energy minister Tom Alweendo told The National that Shell was not walking away, and that it was a matter of finding more economical ways to develop the resource down the road. In a statement, he said that the write-down was unfortunate, but that E&P efforts off the country's shores "have barely begun to scratch the surface." 

Other nearby lease areas may prove better-suited to development. TotalEnergies is currently in the middle of an appraisal campaign in lease area PEL 56, not far from Shell's PEL 39. Other firms with active interests in lease acreage off Namibia include Woodside, Rhino Resources, Chevron, Namcor and Trago. Galp's Mopane prospect in PEL 83 may be commercially viable, and the Portuguese producer is looking for a partner to bring it to market. 

"The Namibia governement will continue working with dedicated companies to develop these resources and our plan to first oil are still on track," said Alweendo. "We remain confident that ongoing exploration efforts will reveal commercial opportunities and look forward to delivering first oil production in the near future."

The African Energy Chamber added that the Orange Basin's best prospects may be towards the north end, and that its gas reserves might prove to be commercially viable. The chamber also pointed to the promise and potential of the Walvis Basin, another Namibian offshore region with strong potential for gas development.