Gabon Oil & Gas Report Q2 2014
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 248,000 barrels per day (b/d) in 2014. 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 sub-salt acreage underscore the untapped potential of the country despite its status a mature producer.
- In the 2013 November licensing round Gabon was able to award prospective deepwater blocks to an impressive roster of companies. With West Africa's deepwater potential attracting the interest of independents and majors, some of whom have cited preferable entry costs compared to other frontier plays such as offshore East Africa, Gabon is in a strong position to capitalise on the lure of its untapped potential. This prospectivity saw Gabon successfully award 13 oil and gas blocks to 11 companies, including: Ophir, ExxonMobil, Eni, Repsol, Marathon, Noble, Perenco, Petronas, Cobalt, Elenilto and Impact.
- 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 in regards to the country's business environment, which has been damaged in recent years by corruption, perceived resource nationalism and strikes by the local workforce among other worrying trends. We believe concerns over business environment was one of the major reasons for relatively disappointing licensing round results, when only 18 out of 48 total blocks were awarded.
- In February 2013, 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.
- In December 2013, Gabon's oil minister Etienne Ngoubou announced that the country has delayd the adoption of a more transparent and rigid oil law to early 2015. The government had initially planned to pass the law by the end of 2013. The law is reportedly intended to bring in new transparency requirements for its natural resources sector including the establishment of a data agency. This unexpected delay in the adoption of the new law is a worrying sign for foreign investors in the country's oil and gas sector, adding greater worries about already troubled business environment.
- 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 was a dispute with Addax Petroleum, acquired by China Petrochemical Corporation (Sinopec) in 2009. According to regulators, Addax breached contract terms and was not going to see its stake at the Tsiengui field renewed once it expires in 2015. A local judicial review panel has now been set up to oversee the dispute. While, the dispute has been settled in January 2014 and Addax announced signing of a new Production Sharing Contract for drilling oil in Tsiengui, Obangue and Autour fields, the dispute sent worrying signals to potential investors.
- We forecast gas production rising from 0.07bcm in 2013 to 0.4bcm by 2018. Although exploration poses some upside to our forecast given a plan to boost production and utilisation of gas for power generation and industrial feedstock, an absence of clear investment to capture and monetise gas precludes any larger increase in our forecasts. Harnessing gas will require infrastructure the country presently lacks and therefore cooperation with oil producers in the country will likely be necessary.
- Gabon's oil and gas infrastructure is limited. The only significant downstream oil asset is the 24,000b/d SOGARA refinery, built in 1967 and set to close by 2016. In 2012 Gabon signed a memorandum of understanding with South Korea's Samsung to build a modern 50,000b/d facility in Port Gentil.
Interest in West Africa's deepwater potential remains strong, underscored by Total's recent subsalt discovery and the recent award of a number of offshore blocks to an impressive roster of companies. Although the uptick in exploration activity offshore Gabon is encouraging, the country's business environment remains a serious concern with the potential to slow or deter the rebound in interest. Notwithstanding the upside, we retain our view that oil production in Gabon is set to plateau from middecade and gradually decline. The start of some small new fields or redevelopment will fail to offset falling volumes from mature fields elsewhere.
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