Focus: Gabon faces mixed outlook for oil production

Focus: Gabon faces mixed outlook for oil production

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alibongo
President Ali Bongo

Gabon, one of sub-Saharan Africa’s oldest oil producers, has seen its oil output decline from a 1997 peak of 370,000 barrels per day (bpd) to an average of 237,000 bpd in 2013, owing to maturing oil fields and the lack of new discoveries. Production from the country’s larger and much older fields such as the Rabi, Tchatamba Complex and Oguendjo, which dominated production previously, has fallen by as much as 67 per cent, giving way to numerous smaller fields.
According a research note by regional commercial bank Ecobank, these new fields, which were brought onstream by oil companies such as UK’s Perenco, France’s Maurel & Prom and other independent oil producers (IOCs), have only helped to sustain production above 230,000 bpd. Based on recent offshore discoveries, the government expects to double production in the next five years. ‘The higher level of oil production is expected to provide a major economic boost for the country, which is looking diversify away from its dependence on the oil sector,’ Ecobank said.
The sector generates nearly 90 per cent of total export revenue and 56 percent government revenue. More importantly, the government hopes to spend the oil revenue on a major infrastructure development programme, which is expected to cost about $20 billion. The project will see Gabon spend between $1.5 and $2 billion annually from 2015 as it looks to develop transport, communications, healthcare and other economic facilities to boost economic activities in the country. Ecobank says, however, that ‘increasing its oil production is going to depend on a number of factors, including the level of exploration activity, the discovery of oil reserves to boost production, the attractiveness of the country’s fiscal terms and global oil market dynamics.’
After Nigeria, Gabon has the highest number of active oil blocks that have been licensed to oil and gas companies, as well as open blocks that are yet to be licensed. Gabon has a total of 52 active blocks where oil companies are actively prospecting for oil and gas. The country also demarcated another 42 deepwater blocks for which it tried to hold a licensing round in 2013, but was forced to suspend. According to Ecobank, ‘the suspension was largely to give time for the passage of a new hydrocarbon law, scheduled for passage in the first quarter of 2015.’
Discoveries to unlock more reserves
The newly licensed oil fields are expected to play a significant role in boosting oil reserves, which, Ecobank says, need to increase before Gabon can achieve desired oil production levels. ‘Unlike its peers in the pre-salt [offshore]play, most of Gabon’s discoveries have been in the shallow water (except Total’s Diaman 1 discovery). These discoveries are likely to add over 500 million barrels to Gabon’s oil reserves based on preliminary studies and figures reported. More importantly, these discoveries support the prospects of Gabon’s deepwater region.’ It is essential to accelerate the development of these discoveries in order to reverse further decline in output, as new fields will also begin to decline in a few years. Additional oil output from new fields brought onstream in recent years and field re-development programmes have prevented a considerable decline in production, but they are unlikely to be effective for long.gabonoil.1
Fiscal terms remain attractive
A key element that will determine Gabon’s ability to achieve its oil ambitions, according to Ecobank, is the attractiveness of its fiscal terms, especially under the new hydrocarbon law awaiting final passage into law and implementation. Although the government of Gabon is looking to increase its share of revenues from oil operations in the country and introduce local content requirements, it intends to balance these with investor-friendly incentives, negotiable royalties and low state participation. Among the top five producers in sub-Saharan Africa, Gabon offers investors the greatest degree of flexibility in its fiscal terms. Four of the seven fiscal items in its new hydrocarbon law are negotiable and are determined at the point of signing the petroleum contract. These terms include signature and renewal bonuses, cost and profit oil and calculation of proportional royalties.
Profit oil is also based on a sliding scale, with a minimum of 50 percent in the first year for shallow waters and a 45 percent for deepwater. ‘This gives a government take of between 56 and 65 percent, which is on a par with the group average of 59 percent,’ Ecobank comments. Its notes that although state participation has been increased under the new law to 20 percent from 15 percent previously, with the national oil company empowered to take an additional 15 percent, it is lower than state participation in Angola (50 percent) and at par with Equatorial Guinea,’ it adds.
Outlook
Gabon faces a mixed outlook for oil production. Outlook could potentially be boosted by Total Gabon’s Anguille field redevelopment programme, which is expected to add between 7,000 and 10,000 bpd to total output. However, the high rate of decline in oil output from matured fields could see overall output decline further. Furthermore, exploration activity offshore Gabon has gradually slowed down, as measured by rig counts falling from 9 rigs in January to 5 by August. Ecobank attributes the reduction to oil companies spending considerable time gathering seismic information to avoid drilling unsuccessful wells, especially following UK independent Ophir Energy’s unsuccessful 3-well programme in the first half of 2014.
The global dynamics in the crude oil market are also likely to dampen investment sentiments as crude oil prices are $77 per barrel (November 4), while the US has reduced oil imports from African producers. ‘These developments could potentially create negative headwinds from the Gabon oil industry within the short to medium term,’ Ecobank cautions. ‘However, the shift in demand towards heavier crude oil grades in the US could favour Gabon, which trades mostly heavy crude grades. More importantly, Gabon’s deepwater is likely to present a major exploration focus for oil companies looking to quickly exploit West Africa’s offshore potential while oil prices are still favourable,’ it adds.

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