Gabon: Gabon signs seven oil production-sharing deals

Next months of negotiations, Gabon signed seven exploration and production-sharing contracts in August, which it hopes will spur new exploration in deep-water offshore blocks and generate up to $1.1bn in new investment , according to estimates from Gabon’s oil ministry.

Following licence awards at the end of last-year, the ministry announced on August 8 that it had signed contracts (Contrat d’Exploration et de Partage de Production, CEPP) with six companies inclunding Impact (UK), Repsol (Spain), Marathon (US), Noble Energy (US), Petronas (Malaysia) and Woodside (Australia).

Gabon is part the top five oil producers in Sub-Saharan Africa, pumping roughly 240,000 barrels per day (bpd) in 2013. However, this is down from a peak of 370,000 bpd in the late 1990s due primarily to maturing fields, which means the offshore blocks could mark a notable turnaround for the sector.

Although the government has accelerated its plans to diversify the economy in the completed five years to reduce its dependency on crude exports, by spending heavily on infrastructure, hydrocarbons continue to underwrite the economy. Oil-related activities account for, on average, roughly half of total government revenues and over 80% of export revenues, which adds urgency to the efforts to attract new oil investment .
Lifting roadblocks

Gabon’s 10th tender round was initially scheduled for October 2010, but plans were put on hold while the government worked on drafting a new hydrocarbons code, which was passed in June and recently adopted. The petroleum code carves out a larger role for the national inclunding allowing it the option to capture a better share of oil revenues. It seeks to clarify investment and production sharing terms, inclunding the role reserved for Gabon Oil Company (GOC), which will have the right to purchase a 15% share in all new oil contracts.

The tender was finally held in October last year, at the same time as a total of 13 offshore oil and gas blocks were provisionally awarded to 11 companies, which represented a significant step forward for the sector. Investor interest in Gabon’s offshore play has peaked in recent years thanks to geological similarities with the east coast of Brazil. Significant offshore discoveries have been made in the pre-salt layer, inclunding sizable discoveries elsewhere along the Gulf of Guinea, such as Ghana’s Jubilee field.

Combined with efforts to improve oil recovery at maturing fields, oil minister Etienne Ngoubou stated in October that the development of offshore resources could double production to 500,000 bpd in the medium-term.
Arrangement Negotiations

Since again, the conclusion of the seven new CEPPs has proven to be a complicated process with discussions dragging on for nine months and several arrangement drafts, according to press reports.

The government has sought to take a additional robust approach to auditing and managing the sector in recent months, which has meant that the roster of companies eligible to negotiate production-sharing contracts has changed since last October. Thirteen firms were initially declared eligible for negotiations. However three junior firms were dropped from the inventory in May, according to press reports, next the ministry concluded that they would be unable to finance offshore drilling projects, although one since argued its case successfully enough to ink one of the seven CEPPs. Two of the oil majors, Total and Shell, were not awarded blocks last October but both firms were invited to join the negotiation process in May.

Interest in the offshore licences was aided by the discovery, in August 2013, of a gas condensate reserve in the deep offshore Diaba licence held by France’s Total in partnership with two US-based firms, Marathon and Cobalt, inclunding the Gabonese government. The Diaba discovery indicates the potential for further discoveries, and has helped to raise the profile of Gabon’s offshore plays.

Italian operator Eni as well announced in July that it had made a new discovery of gas and condensates in the pre-salt layer of its offshore Nyonie licence. While the operator is conducting further analysis of the findings, initial estimates indicate the reserve contains up to 500m barrels of oil equivalent.