The legal framework governing the exploration for, development and production of oil and gas in Namibia is set out in the Petroleum (Exploration and Production) Act, 1991 (the "Petroleum Act"), the Petroleum (Taxation) Act, 1991 (both as amended principally by the Petroleum Laws Amendment Act, 1998) and the Model Petroleum Agreement 1998. The economic and fiscal aspects of the terms contained in these legal instruments are outlined under the Summary of Economic and Fiscal Terms. The other terms are outlined here.


The Petroleum Act provides for three types of licenses:

  1. reconnaissance licenses;
  2. exploration licenses; and
  3. production licenses.

Reconnaissance, exploration or production operations can be conducted in Namibia only under the authority of an appropriate license issued under the Petroleum Act. Applications for these licenses have to conform to the requirements of the Act. The Minister, in granting a license, does so subject to conditions. Such conditions are in practice contained in the Model Petroleum Agreement as regards an exploration and production license. There are also a few mandatory statutory conditions, which are set out in section 14 of the Petroleum Act. These relate to the licensee giving preference to qualified Namibian citizens in its recruitment of employees etc.

Model Petroleum Agreement

The Minister is required by section 13 of the Petroleum Act to enter into a petroleum agreement with an applicant for a petroleum exploration license before he/she grants such license. In order to facilitate the discharge of this statutory obligation, the Government has prepared and published a Model Petroleum Agreement to serve as a basis of negotiation with applicants for exploration licenses. This Model is a concession type agreement and its clauses draw from international petroleum industry practice and holds no surprises for international petroleum companies.

Among the more important clauses in the Model Petroleum Agreement is one that gives an applicant for an exploration license a right to the grant of an initial exploration license for a period not to exceed four years. This may be renewed for further periods not exceeding two years on each occasion. In general, an exploration license may be renewed only twice. The Act permits the Minister to extend the initial exploration period and the renewal periods by up to 12 months each, where a licensee shows good cause to him. This discretion is intended to enable the Minister to respond to the operational exigencies of particular licensees.

The Model makes provision also for an applicant for a license to commit to a minimum exploration work program. The contents of the work program must be stated in the initial application and is a biddable item under the following negotiations. The Government will negotiate specially tailored work programs for each area in respect of which it grants a license. Also biddable are the second and third tier rates of the Additional Profits Tax and the Training and Education Fee and the negotiated figures on these items are inserted into the relevant clauses in the Model.

The Model sets out the procedure to be followed by a licensee on discovery of petroleum. The licensee is forthwith to inform the Commissioner for Petroleum Affairs and then to evaluate the discovery to determine whether it is of potential commercial interest. If it is, the licensee has to take steps to appraise the discovery in accordance with an appraisal program in conformance with the requirements of the Agreement. It is expected that implementation of the appraisal program should be completed within two years although upon good cause shown to the Commissioner he may extend the period. 

The holder of an exploration license who makes a commercial discovery is entitled to apply for a production license and, subject to complying with the requirements of the Act, is entitled to the grant of such license. A production license may be granted for a period not exceeding 25 years and may be renewed for such further period, not exceeding 10 years, as the Minister may determine at the time of such renewal. A production license may be renewed only once. Among the many other clauses of the Model is one that provides for a Technical Advisory Committee (TAC) consisting of an equal number of Government nominees and nominees of the licensee to monitor the petroleum operations of the licensee. The TACs under the First and Second Round Licenses proved to be a useful interactive forum between the Government and existing licensees in Namibia on the details of their petroleum operations.

Decommissioning Regime

The Petroleum Laws Amendment Act 1998 sets out provisions regulating the decommissioning of facilities used in petroleum exploration and production operations in Namibia. These provisions provide that the holder of a production license is under an obligation to establish a trust fund after 50% of the estimated recoverable reserves of the relevant production area has been produced. After this, the holder is obliged to make annual payments into the trust fund in accordance with a specified formula to be based on the unit of production method. The money accumulated in the fund is to be used to finance, ultimately, the decommissioning of the petroleum installations, which were used to produce petroleum from the field in question. 

This decommissioning is to be in accordance with a decommissioning plan submitted initially as part of the licensee's application for a production license and reviewed, and if necessary revised, no later than one year before the date on which 50% of the estimated recoverable reserves of petroleum in the relevant production area is scheduled to be produced. A revised decommissioning plan is to be subject to Ministerial approval. The payments made into the trust fund under this regime are deductible in the computation of Petroleum Income Tax and Additional Profits Tax.