LONDON – Shell (NYSE: SHEL) will write down around $400 million over an oil discovery offshore Namibia that it deemed commercially unviable in a blow to the southern African country’s efforts to become a crude producer.
Shell told Reuters that discovered oil and gas resources in offshore block PEL39 in Namibia “cannot currently be confirmed for commercial development.”
In 2022, Shell and its partners, QatarEnergy and Namibia’s national oil company, discovered hydrocarbons in block PEL39. This discovery, along with another made by TotalEnergies (NYSE: TTE) in a nearby block, sparked huge global interest in the southern African country, which has no oil or gas production.
Shell drilled nine wells in the license over the past three years, making several other discoveries.
More recently, Portuguese oil company Galp also made a major discovery in a different offshore license.
However, the British company encountered technical and geological difficulties in the development of the resources.
“While we recognize that extracting the discovered resources presents challenges, the extensive data collected shows that there remain opportunities. Together with our partners, we are continuing to explore potential commercial pathways to development while actively looking for further exploration opportunities in Namibia,” Shell said in a statement on Thursday.
On October 31, CEO Wael Sawan told analysts that Namibia’s acreage was “very challenging” and that the lower permeability of the rock made extracting oil and gas more challenging.
Sources told Reuters that the offshore discoveries also had a high natural gas content, further complicating their development.
Namibia’s Ministry of Mines and Energy said in a statement on Thursday that Shell’s decision will not significantly impact Namibia’s oil and gas development.
“It is not a setback. We are positive that the remaining potential of PEL39 and other exploration campaigns will translate into commercial developments,” the ministry said.
Galp, Chevron (NYSE: CVX), Rhino Resources, and Azule Energy, a joint venture between Italy’s Eni (NYSE: E) and BP (NYSE: BP), are all planning to drill exploration wells in Namibia this year. TotalEnergies plans to make a final investment decision on the development of its Venus discovery by year-end.
In a trading update ahead of its fourth-quarter results on January 30, Shell (NYSE: SHEL) said it expects to take an exploration write-off of around $400 million without providing details.
The company added that it would take another $300 million write-off related mainly to exploration licenses in Colombia.
