Galp sinks in Namibia deepwater deal and may dive again

In April last year, a discovery in Namibia became Galp’s gold mine. On the 21st of that month, a Sunday, the Portuguese oil company announced its estimate that it would be possible to extract 10 billion barrels from the Mopane complex, in which it held an 80% stake. In the stock market session following the announcement, shares soared to unprecedented levels: they rose 21% in a single session and reached an all-time high later that week.

Since then, the topic, in particular the sale of half of Galp’s 80% stake in this exploration, has dominated calls with the oil company’s analysts at each results presentation. Shares have gradually corrected since then, falling to the €12 mark and more recently returning to €18. On Tuesday, Galp announced that its partner in the Mopane exploration will be TotalEnergies, and the promise that the Portuguese company made to take off, after all, with the agreement, led it to lows in March 2020, a month that marked the beginning of a pandemic that was very damaging (also) for oil companies.

Galp shares closed Tuesday’s session down 14.68% at €14.79, the biggest drop since 9 March 2020. This performance meant that the oil company lost €1.77 billion in market value — it now has a market capitalisation of €10.3 billion.

Banco Carregosa indicates that, in the short term, “Galp is expected to face high volatility”, given the lack of detail about the agreement and the absence of proven reserves. The trajectory will depend on confirmation of volumes and greater visibility of the monetisation plan, says João Queiroz, head of trading at Banco Carregosa, pointing to the evolution of crude oil prices and progress in the energy transition as “catalysts” for the share price movement. “There may still be room for further declines, especially if the price of oil does not increase”, predicts XTB analyst Vítor Madeira.

In a call with journalists late in the afternoon, João Diogo Marques da Silva, co-CEO of Galp, stressed that “this was a long process” and conceded that, on the market side, there was an expectation of “an agreement with more benefits in the short term, with evident cash up front”.

In this sense, some investors may have become “less enthusiastic”. However, “we are clearly enthusiastic about the long-term vision that these assets bring us and that they gain with this partner”, concluded the co-CEO, explaining that there are a number of indicators that are being digested by the market and that may lead to a different view on the part of investors.

For co-CEO Maria João Carioca, the reaction reflects the fact that Galp has a somewhat diverse investor base, ranging from reference shareholders, “who welcome this vision very well” as it aligns with Galp’s strategy, to “investors with a much more short-term profile” who were counting on a faster cash return.

The stock market felt the lack of cash

“The fall mainly reflects the very high expectations that the market had for this deal”, explains XTB analyst Vítor Madeira. The agreement raises doubts about the “capacity for autonomous monetisation”, considers the head of trading at Banco Carregosa. Reuters quotes RBC, which states that the deal appears to be “more constructive” for Total Energies than for Galp, as it does not involve upfront cash payments.

According to XTB, after the discovery was announced in 2024, investors anticipated “a cheque for many billions”, which would translate into a “strong immediate cash inflow”. For the same investment house, the 40% stake that Galp retains still carries “considerable risk and potential”, but does not yet crystallise the value or open up much room for extraordinary dividends or share buybacks. In addition, the expected returns from the exploration have fallen.

From XTB’s perspective, if the agreement included a cash payment or majority support for exploration investments by TotalEnergies, “the reaction would probably be less negative or even positive”. For Queiroz, there could be a less negative or positive reaction if the option had been for a partial sale at a premium or a partnership that preserved greater operational control.

“This agreement seems to be an attempt by Galp to reduce its risk in the Mopane exploration, given that the oil reserve is in deep waters and, therefore, the risk of the operation is high”, interprets Vítor Madeira. Queiroz points out that control over a “transformational” asset is reduced, redefining expectations regarding Galp’s value capture, despite mitigating financial and operational challenges.

“Galp’s decision to give up its position in exchange for smaller positions in other explorations could generate lower output for the company in the long term”, says Vítor Madeira.

In a call with analysts early on Tuesday afternoon, Galp’s co-CEO, Maria João Carioca, stated that “in fact, this is an exchange of assets”, so she is “aware that this does not immediately distribute cash”, but there are other “drivers of value creation”. Therefore, “we considered that it was a commitment that continued to generate significant value”, she emphasised.

Total Energies delivers assets and helps with financing

The two “value creation drivers” under the agreement, in the co-CEO’s view, are the assets obtained in exchange for the stake, as well as the financing support, known as “carry”. In exchange for the 40% stake in Mopane, handed over to TotalEnergies, Galp will receive a 10% share in licence 56 (PEL56), where the Venus discovery is located, and 9.4% in licence 91 (PEL91), both currently operated by TotalEnergies.

Galp’s chairwoman, Paula Amorim, points out that Galp is “strengthening” its portfolio with “high-potential projects”. In the case of licence 56, a final investment decision is expected in 2026. The Venus complex will be about two to three years ahead of Mopane.

The French oil company will also bear half of Galp’s exploration, evaluation and development costs in Mopane, which will later be paid to TotalEnergies with 50% of the cash flows generated by the project until the development phase, i.e. until the first barrel is extracted and the first cash flows begin to emerge. The total cost until that “first oil” is expected to be between $10 billion and $12 billion, the co-CEO said.

“Whereas previously we were bearing 100% of the development costs for Mopane, we will now bear 25% of those costs. This represents a significant amount”, said the co-CEO, who pointed out that carry is a “relatively common practice”. Maria João Carioca emphasised that the carry has no cap and is interest-free.

The co-CEO of Galp stressed that the agreement also protects the company’s financial health: “Until now, our financial position, which is particularly solid, has been very important, instrumental and fundamental in allowing us to do a deal that is not just a deal, not just a short-term value capture transaction, but also a transaction with a longer-term perspective.”

The French oil company has also reacted to the deal, considering that the agreement positions it as the operator of the two largest oil discoveries in Namibia and paves the way for the development of an important production hub.

Upon completion of the transaction, the consortium for exploration in the Mopane complex will be owned 40% by Galp, 40% by TotalEnergies, 10% by Namcor and 10% by Custos.