Gabon Oil & Gas Report Q4 2013
Published by Business Monitor International
on Oct 16, 2013
, 89 pages
PDF - Download Now with 3 Quarterly Updates format - Download Now
The redevelopment of existing fields alongside the start of new fields will offer some upside to Gabon's upstream. However, we expect output to peak near the middle of the decade, limiting the extent of recent gains. While there is a promising level of activity offshore (and to smaller extend onshore) that could offer some support to production, without significant discoveries being developed we maintain our view that output is set to trend lower as volumes from mature fields decline. A delayed bidding round and Gabon's forced exit from the EITI highlight the challenges the country's business environment pose to further investment as the dispute over fields seized by the government continues.
The main trends and developments we highlight for Gabon's oil and gas sector are as follows:
- While we expect some near-term gains in oil production, the long-term trend for Gabon's oil production is for decline as production falls from mature fields and fails to be offset by new volumes. We expect output to average around 235,000 barrels per day (b/d) in 2013. While at present, we see more downside than upside risk to these figures, we note that a series of recent discoveries in Gabon's deepwater and increasingly in subsalt acreage underscore the untapped potential of the country despite its status a mature producer.
- The results from Total's Diamban-1B well, the country's firsts subsalt well, were promising, with the French international oil company reporting drilling intersected 49-55 metres (m) of net gas and condensate pay offshore. The find was important for Gabon, which has seen less success in deepwater drilling campaigns that its West Africa neighbours. Reports indicate Total, alongside partners Cobalt and Marathon, are targeting some 250-800mn barrels (bbl) of oil. While Total indicated the tests confirms the presence of a working hydrocarbons system, more liquids-rich discoveries will be necessary if subsalt finds are to be developed, given the limited commercial prospects for gas offshore Gabon.
- The result of the Diamban-1B probe underscore what is thought to be sizable untapped hydrocarbons potential in Gabon's deepwater and subsalt plays. Gabon is thought to be analogues to Brazil's Sergpe Alagoas and Reconcavo Basins. A number of international oil companies (IOCs) are planning further seismic and drilling campaigns offshore, which present upside risk our reserves and production forecasts over the longer term.
- However, we note that unlocking this latent potential will require greater clarity on in regards to the country's business environment, which has been damaged in recent years by corruption, perceived resources nationalism and strikes by the local workforce among other worrying trends.
- In February, Gabon was removed from the Extractive Industries Transparency Initiative (EITI) following repeated delays to submit information regarding revenues and taxing in the oil sector. The development was a worrying one, given the country's continued reputation for corruption notwithstanding recent efforts to undo a system of patronage that had developed under the rule of the country's late leader Omar Bongo Ondimba. Although Gabon intends to return to EITI, it will have to do so under an even more onerous regulatory framework.
- Proposed changes to improve transparency in the sector would improve confidence if enacted, but we note that recent moves by the government underscore challenges related to the country's business environment. Following a sector-wide audit over 2011 and 2012, the government has moved toward a more assertive position. While officials have attributed the policy shift as part of a plan to combat corruption and better distribute the economic windfalls of natural resource wealth, the government's recent actions have provoked concern within the industry.
- The most notable case is an ongoing dispute with Addax Petroleum, acquired by China Petrochemical Corporation (Sinopec) in 2009. According to regulators, Addax breached contract terms and will not see its stake at the Tsiengui field renewed once it expires in 2015. In January, the government cited similar contract breaches in taking control of the Obangue field from Addax, which rejects the claims. A local judicial review panel has now been set up to oversee the dispute.
- BMI estimates that gas production will continue to rise in line with consumption over the next decade, largely as a result of reductions in flaring, although there is upside from the recovery of associated gas as new fields are brought online. We have slightly adjusted our forecasts to the downside in line with historical data and news regarding projects, but our core view remains that gas output will grow over the decade as infrastructure comes online, notwithstanding delays and the potential upside from new discoveries.
- This is particularly the case with the government's nascent Gas Master Plan, which will likely see increased use of gas as a feedstock for power and will reportedly expand upstream activity to harness non-associated gas resources. However, we note limited concrete progress to date regarding additional details for further developing associated or non-associated gas and related infrastructure beyond previously outlined plans.
- Having once been the third largest oil producer in Africa, Gabon's oil production has declined by more than 34% since peaking in 1997. Considering oil accounts for 45% of GDP and 60% of government revenue, as well as 75% of export earnings, declining production poses a key challenge to the country's macroeconomic position. BMI predicts that on the back of falling production, Gabon's economy is due to face slowing growth.
- At the time of writing we assumed an OPEC basket oil price for 2013 of US$109 per barrel (bbl), falling to US$101/bbl in 2014.
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