Custos Energy, a Namibia-focused oil and gas company, has agreed to transfer its 10% participating interest in petroleum exploration licence 90 (PEL 90) to Chevron for $11 million (approximately N$182 million) in cash. The deal, announced by Custos on Thursday last week, involves its wholly owned subsidiary Trago Energy and Harmattan Energy, a Chevron Corporation affiliate. This transaction marks a significant development in the company's strategy to manage its exposure to exploration and development costs.
The agreement provides for Trago to receive the $11 million when the transaction completes, as well as further contingent payments linked to appraisal and production milestones. Additionally, the deal includes payments associated with commercial production, currently estimated at between 1.5 million and 2.5 million barrels of oil, depending on oil price assumptions. This structure allows Custos to retain potential upside if the licence advances to commercial production, while reducing its immediate financial commitments.
The transaction is subject to government, regulatory, and third-party approvals. Once completed, Custos will give up its 10% participating interest in PEL 90 but will no longer be responsible for its share of future exploration and development costs. This move is seen as a way for Custos to mitigate the potentially significant costs and risks associated with further exploration, particularly as the licence prepares for the Nabba-1X exploration well.
Custos chairman and chief executive Knowledge Katti highlighted the company's involvement in PEL 90 since it was awarded in 2018 and its role in bringing Chevron into the licence in 2022. He emphasized that the transaction allows Custos to maintain exposure to the licence's potential without having to fund its participating interest, describing it as a more capital and risk-efficient approach.
Chevron is the operator of PEL 90, which has also attracted QatarEnergy and Equinor as partners. The licence is currently preparing for the Nabba-1X exploration well, a significant event that could determine the future of the project. By exiting the licence while retaining upside, Custos is positioning itself to benefit from potential future developments without the associated costs.
As part of the deal, Custos will contribute N$10 million through the Knowledge Katti Foundation to the University of Namibia Foundation. This donation will support the construction of UNAM's new campus in Walvis Bay, reflecting the foundation's focus on education and its support for over 120 Namibian students. Katti noted that Namibia's greatest resource is its young people, underscoring the importance of educational investments.
The deal represents a strategic move by Custos to balance its exposure to the risks and rewards of oil and gas exploration. By securing a cash payment and retaining potential upside, the company aims to navigate the complexities of the energy sector while contributing to Namibia's educational development. The transaction is a testament to Custos's efforts to optimize its portfolio and create value for its stakeholders.
Key points
- Custos Energy sells its 10% stake in PEL 90 to Chevron for $11 million, retaining potential upside.
- The deal allows Custos to reduce its exposure to exploration and development costs while maintaining potential benefits.
- Custos will contribute N$10 million to the University of Namibia Foundation to support educational development.
