Field Notes: From first studies to FID
The process to de-risk a potential discovery
This Field Notes was to provide some context on how a licence like those held by Sintana is progressively de-risked and studied, advancing towards Final Investment decision (FID). We are using Sintana’s portfolio to show how the process works with different licences. You can read more about the situation of each licence in the specific post about Sintana.
In order to be ready to produce oil or gas, the partners must go through a series of studies and actions to confirm the amount of hydrocarbons and how they will be extracted. This long process is fairly standard in the industry. A high-level overview of what the whole process looks like and where each of Sintana's licences currently stands is as follows, according to our interpretation of the status of each licence:
First, the partners must confirm the presence of oil in the blocks by acquiring seismic data, modelling the subsurface, drilling wells to confirm and/or update the models, and evaluating the discoveries (if any). This is the part of the process that is most influenced by the geology of the area. Once the presence of hydrocarbons has been established, the engineering and permitting teams replace the geologists as the life of the party. The duration of this stage depends on the conditions present at the selected location, e.g. water depth, and previous knowledge of the geology, e.g. Mopane was partially de-risked by Venus and Graff. More importantly, the experience of the teams involved is what really makes a difference, and a junior company will struggle in completing most of these tasks due to the lack of human and economic resources.
Then, the partners must prepare a Field Development Plan (FDP) or Plan for Development and Operation (PDO) that outlines the main concepts that will be used to extract the oil and gas from the fields. The FDP or PDO (sometimes both at different stages of the process) is submitted to the local authorities that have to review and approve it. This may include a back and forth process between the technical experts from both sides that introduce changes to the original plans. The preparation and approval of the FDP could require a minimum of 12 months after completing the exploration and appraisal activities, with 18-24 months being more realistic in a frontier jurisdiction like Namibia.
After the FDP/PDO is approved, partners will begin the required Front End Engineering Design (FEED) studies to define every aspect of the construction, including costs. In parallel, partners will engage with the Namibian authorities to prepare the permits for the construction and production stages. The FEED studies can consume another 12 months, particularly in deepwater and harsh sea conditions like in Namibia.
Finally, partners will receive these permits and agree on a FID, which include all the financial arrangements and commitments with banks and financial entities providing debt funding. The internal discussions for reaching FID can consume 6 to 12 months, with the negotiations to secure the funds (i.e. large companies have annual budgets that have to be approved well in advance) becoming the most time-consuming aspect.
Hence, considering all the stages of the process from identifying a prospect, successfully drilling it and completing the engineering, regulatory and financial aspects, the time required to transition from a contingent lead to FID could take between 2.5 and 5 years. However, this timeline should be considered only in areas where the presence of hydrocarbons is confirmed, and not in frontier exploration. In cases like in Namibia where the interest faded after the first exploration activity in 1960s and 1970s and again in the 2010s, this process can be measured in decades, not in years, like for the Kudu gas field. New discoveries will go through a more expedited process, with new discoveries taking a few years to get to FID.
But that’s not the end of the path, construction, installation and commissioning of all the fixed and floating infrastructure is the next leg of this travesty through the sea of despair. The whole process is affected by many external factors, but the most important one is the presence of infrastructure that could be reused for transporting the oil or gas, for example.
In the case of the Venus discovery, Total has estimated that Venus’ first oil is forecasted for 2029/2030, which means 7 to 8 years since its discovery. Hence, the timeline for Mopane from discovery to first oil could be similar, with first oil realistically expected at some point between 2030 and 2032. As Namibia finds more oil and gas in its waters and the fields are developed, the time from discovery to first oil will shorten as a result of the maturation process for the authorities and the industry, with shorter lead times. However, there is hope that this will improve, as evidenced by the initiation of projects such as Baker Hughes' construction of a new slurry plant and assembly, maintenance and repair base in Walvis Bay.
This is part of a series of articles on technical aspects of oil and gas exploration and production, we will continue publishing this type of articles that complement the deep dives into specific companies.