Which Way for Gabon's Offshore Sector?

Gabon, sub-Saharan Africa’s eighth largest oil producer, last week participated in the last of its earlier scheduled nine events held in North America, Asia, Europe and Africa, to popularize the 12th shallow and deep water licensing round with only three months before the bidding process is closed.

Even as Gabon’s Hydrocarbons minister Noel Mboumba, who was appointed to the position in June this year, was leading a government delegation to the 18th PESGB / HGS Conference on African E&P in London last week, questions still abound as to whether the West African country, which has seen its crude production drop from an all high 370,000bpd in 1997 to 200,000bpd currently, has finally agreed to confront the issues that have previously pushed back the licensing round timelines and also, if there is in place now specific measures to address these push-back factors ahead of the new closing deadline of January 2020.

Although Gabon has been participating in this technical E&P conference and exhibition on Africa, this year is unique for this Gulf of Guinea country, which has an estimated 2.5 billion of proven oil reserves, because of the upstream regulatory changes that came into effect nearly four months ago, the appointment of a new minister to spearhead the licensing round and the lingering uncertainty on how the oil and gas sector will respond to recent but yet to be fully implemented industry reforms.

But of concern to many analysts of Gabon’s upstream segment has been the unpredictability of when the 12th shallow and deep water licensing round would finally come to a close, if at all. Initially, the licensing round involving 12 shallow water and 23 deepwater blocks, which was launched in November 2018, was set to close in April 2019. This deadline was later pushed back to June 2019 coinciding with the appointment of Mboumba.

Gabon once again revised the deadline to September 2019, probably to give the new Hydrocarbons minister an opportunity to get acquainted with the progress of the process. The deadline has now moved to January 2020.

The shifting deadlines for the closure of the offshore licensing round comes at a time when Gabon’s president Ali Bongo Ondimba, who has huge influence in the country’s hydrocarbons industry, is battling ill health after suffering a stroke while on a visit to Saudi Arabia in 2018. He is said to be recuperating in Rabat, Morocco.

But in June this year, Ali Bongo assented to the 2014 New Hydrocarbons Law, which despite being lauded as investor-friendly is yet to attract the much needed upstream investment in exploration and production especially at this time when Gabon’s production has been sliding as more production fields mature and no major new discoveries have been made as yet.

The new hydrocarbons code has incorporated major changes to the previous one by for example knocking to zero percent the corporate tax for international companies and increasing the cost recovery to 70% and 75% for shallow and deepwater blocks up from 65% and 70% respectively.

Moreover, the royalty rates have been reduced under the new hydrocarbons code to 7% from 13% for shallow blocks and 5% from 9% for deep-water assets while government participation has been trimmed to 10% from the previous 20%. Also reduced is Gabon’s share of profit to 45% from 55% for shallow blocks and 40% from 50% for deepwater production.

Currently, Gabon requires new oil discoveries and fresh production fields have to be brought online to support the government’s economy that gets up to 80% of its export earnings from oil, a commodity that also accounts for more than 50% of the country’s national revenue.

Recently, Gabon struck a deal with Malaysian oil and gas company Petroliam Nasional Berhad (Petronas) for blocks F12 and F13 that have an estimated 200,000bpd, the first such agreement in more than four years. This could have been done under the existing law that allows government to auction its blocks or negotiate directly with exploration and production companies.

Other players in Gabon’s upstream space include Total Gabon, Assala Energy, Perenco Oil, Addax Petroleum and Chevron.

For international and local companies that would be enticed enough to participate in bidding for shallow and deep-water blocks, Spectrum Geo, which has been appointed as Official Technical Partner to support the Direction Generale des Hydrocarbures (DGH) in marketing the licensing round, has confirmed acquisition of “17,000 sq. km of 3D broadband data over key acreage in addition to offering strategically-positioned regional 2D seismic coverage.”

“This highly-anticipated round has been specifically timed to leverage the latest insights on exploration potential offered by the availability of new 3D seismic data on the margin, over a number of different exploration plays,” says a statement by the Ministry of Hydrocarbons.

But with the uncertainty surrounding the 2014 New Hydrocarbons Code having partly been cleared with President Ali Bongo’s assent to the law last June, Gabon’s biggest headache now is how to effectively divorce commercial oil and gas interests from the country’s political maneuvering that is likely to keep upstream investors at bay if not slow their investment plans in the short term.