Africa Oil & Gas: Gabon’s new oil regime threatened by power vacuum

The west African Opec member has moved fast to revise offshore licencing terms as it makes more blocks available.

Gabon has unveiled a new licensing round, along with a set of eye-catching contract terms designed to lure back explorers that largely shunned the country’s offshore in the era of low oil prices. But the timing of a new hydrocarbons code that would establish those terms could be delayed by parliamentary hurdles and a presidential power vacuum.

The need to make the latest round a success made revisions to the existing hydrocarbons code—drawn up at the peak of the oil market in 2014—inevitable. So unattractive was the 2014 code for investors, that no new exploration deals were established on the basis of it.

As a signal of its intent, Gabon now plans to reduce the amount of corporate tax paid by licensees to zero from 35pc under the 2014 code, including income tax in the state profit share.

Meanwhile, royalties in production-sharing contracts are being adjusted to suit differing acreage characteristics. Minimum royalties on the new code are set at 7pc for blocks in conventional oil zones and 5pc for deep and ultra-deep offshore oil zones. For gas, the rates are 4pc and 2pc for those same zones, respectively. Other terms such as profit splits also look more favourable to the license holders. For both oil and gas, the split is 50pc and 45pc for conventional zones and deep and ultra-deep zones respectively.

The exploitation period for oil would be 15 years initially with renewals possible for another eight years and then a further seven years. For gas, the exploitation period would be 20 years plus seven and another plus eight years. The state would take a 15pc carried interest in the production phase of developments, while the state-owned Gabon Oil Company would take a 10pc stake “at the market price”.

Gabonese petroleum minister Pascal Houangni Ambouroue said at November’s Africa Oil Week conference in Cape Town that the new legislation would also allow greater flexibility to adjust agreements according to oil price variations.

Movable feast?

However, while the headline terms look more attractive, the industry will be cautious, given that many of the figures provided by Gabon, including royalties, are lower limits, rather than set rates.

“The licensing round is based on bids, so what people really want to see is what the terms will look like after negotiations with the government,” says Jean-Baptiste Bouzard, an African oil and gas analyst at consultancy Wood Mackenzie. He notes that there is a plethora of smaller taxes outlined in the code, the size of which could also make a difference to the final terms.

However, the speed with which the hydrocarbons code has been developed suggests Gabon is sincere in its efforts to woo back the international oil companies.

“Discussions with oil and gas companies over the new code started in March and to have a draft code presented by November is quite fast for sub-Saharan Africa. It suggests that the government really wants to get investment going,” Bouzard says.

Arrested development

The need for speed is clear. Production has been on the slide for the second smallest producer in Opec, as investors steered clear of potential developments that looked unviable with oil prices below $50/bl. Both Shell and Total sold off their Gabonese assets in 2017, as they sought more lucrative prices elsewhere.

Crude output dipped from around 220,000 b/d in 2016 and has been running around 200,000 bl/d in 2017 and 2018. Opec put the figure for October 2018 at around 186,000 b/d, while Wood Mackenzie forecasts the annualised figure for 2018 will be around 210,000 b/d. These numbers are a far cry from the heady days of the mid-1990s when production topped 350,000 b/d.

That decline looks set to be arrested in the short term, albeit temporarily.

“We’ve seen more activity, but I don’t think this is directly linked to the atmosphere in Gabon. It more related to the oil price-a lot of projects that were not attractive at $50 are more interesting at $70 to $80,” says Bouzard.

Norwegian-listed independent BW offshore started production in September from its Tortue offshore development in the Dussafu license area, offshore southern Gabon, which was producing 12,500 bl/d in November. The company said on 20 November that it had also taken a positive final investment decision on a second phase of that development.

The BW Adolo floating production, storage and offloading facility on the Tortue development has a capacity of 40,000 bl/d and was scheduled to make its first offloading in late November.

BW has also just completed drilling an appraisal well on the Ruche North-East structure in the same area, which it said “confirms the upside” for the Dussafu license.

Meanwhile. Pertamina’s Maurel and Prom has resumed development drilling on its Erzanga field in an effort to offset production declines there. Assala Energy, the Carlyle Group-backed venture that acquired acreage from Total, also has plans to drill.

However, major discoveries are needed to turn the tide.

“The overall trajectory for Gabonese production is downwards. Most of the companies have been going after incremental developments, but there are not enough ‘greenfield’ developments and the deepwater discoveries that have been made recently don’t look commercial at the moment,” Bouzard says.

Wood Mackenzie says production could decline to 160,000 bl/d by 2022 if no new developments are sanctioned.

Distant Bongo

Gabon’s opaque politics may also yet get in the way of rapid investment.

Little happens in the Gabonese oil industry without President Bongo’s input, so his absence since falling ill on 24 October while in Riyadh raises questions about the speed with which the hydrocarbons code can be implemented.

Foreign media reports suggest he suffered a stroke, despite the Gabonese government initially saying only that he had suffered dizziness. However, a statement from the presidency issued in mid-November mentioned he had bleeding that required medical management. He now is reportedly en route to London for treatment.

Energy minister Ambouroue, said in Cape Town that the hydrocarbons code would be ready by the end of 2018. But it was unclear whether that meant it would be enacted into law by then or just be in a form ready to be presented to parliament, or whether it could be ratified if the president was still absent or ill.

Source: Petroleum Economist