Shell’s challenges may reflect wider issues for oil drilling companies

Shell used the Deepsea Bollsta rig, formerly known as West Bollsta for its drilling campaign in Namibia’s Orange Basin; Source: Odfjell Drilling

Energy lawyer Shakwa Nyambe has cautioned that the challenges Shell is facing in the Orange and Walvis Basins may soon affect other oil drilling companies operating in these regions. His remarks follow the UK-headquartered energy giant’s recent write-down of US$400 million in the Orange Basin.

Speaking to NewsOnOne, Nyambe highlighted the inherent difficulties of deepwater drilling, which demands advanced equipment and significant financial investment.

“It’s a challenging industry,” he explained. “The Orange Basin’s deepwater conditions, coupled with subsurface challenges and high gas ratios, make it expensive and unpredictable. For instance, Shell’s initial estimate of three billion barrels of oil reserves in 2023 was drastically reduced to three million barrels in February 2024, reflecting these hurdles.”

Nyambe urged the government to collaborate more closely with investors to ensure mutual benefits from natural resources. Citing examples from Angola and Brazil, he suggested introducing incentives for deepwater exploration, such as reduced corporate taxes or royalties.

“Countries like Angola and Brazil offer special incentives for deepwater drilling to attract and support investors. Namibia could explore similar measures to ensure the industry thrives and benefits both parties,” he said.

Nyambe also pointed to historical challenges, referencing Brazilian firm HRT’s 2013 dry well in the Orange Basin as a reminder of the uncertainties inherent in oil exploration.

Since the Graff-1X discovery in 2022, Shell has drilled eight wells, including La Rona-1, Jonker-1, Graff-1A, Lesedi-1X, Cullinan-1X, Jonker-1A, Jonker-2A, and Enigma-1X. Several of these wells have encountered hydrocarbons within PEL 39, a deep offshore area covering over 12,000 square kilometers and located 250 kilometers from the coast.

However, the Ministry of Mines and Energy said that Shell faced technical and geological challenges in PEL 39, concluding that some discoveries were not commercially viable.