Gabon confronts the producers amid new oil policy
Oil companies operating in Gabon seem set for a bumpy ride as the government gives wings to its new oil policy
For decades, Gabon has been seen as a safe if unexciting oil province – but recent developments are changing that view. The government is implementing a new oil policy designed to increase sharply the state’s share of oil revenues, and it is carving-out a wide-ranging role for its new state oil company. Some say that recent confrontations with the producers were planned as asset-grabs for the new company.
The Gabon Oil Company (GOC), set up in 2011 after the government had been without a state oil company for many years, already has oil production. In January it took over the running of the Obangué onshore field, after the authorities claimed it back from Addax, a wholly-owned subsidiary of China’s state-controlled Sinopec. According to the London Financial Times newspaper, the oil minister has said that a second Addax field, Tsiengui, will be taken back when the company’s licence comes up for renewal in 2015.
The minister, Etienne Ngoubou, alleges that Addax has breached contract requirements relating to revenues and oil prices, and says that two other, unnamed, companies face similar allegations and will also have assets reclaimed. Addax disputes the allegation and, in June, started action seeking damages at the International Court of Arbitration, to which the government replied with a counter-claim.
GOC says, in its first three months of running Obangué, it cut the operating cost of the 9,000 barrels a day (b/d) field to $12/b, which will give the state an additional $40 million of revenue over the year. Obangué and Tsiengui were the only producing fields operated by Addax, but it also operates the Autour development prospect and it holds interests in several fields operated by other companies.
Under the previous president, Omar Bongo Ondimba, who ruled for 41 years until his death in 2009, Gabon was stable but repressive, with notably indistinct boundaries between national finances and the president’s. The authorities were welcoming to the international oil companies, and it was well-known that they were prepared to be flexible about contract terms.
Bongo’s son, Ali Bongo Ondimba, who took over as president after an election of disputed fairness, faces more open dissent but has ambitious plans for modernisation. He has set out to re-shape the highly oil-dependent economy into an entrepreneurial emerging market, and has brought in a team of technocrats charged with changing the culture. Maixent Accrombessi, the powerful chief-of-staff, and oil minister Ngoubou, appointed in February last year, are behind the overhaul of the oil sector.
The new petroleum code – not yet passed into law, and with much still to be clarified – sets out to increase the state’s share of oil profits from the present 20% to 30% within five years and to 35-45% over the coming 20 years. The code sweeps away existing laws and regulations, many of which set out only principles, and replaces them with specifics – although, with years of informal agreements in place, companies are concerned that the specifics will not reflect their existing positions. There are to be targets for indigenisation, with training to be stepped up so that local staff can take senior positions, and there are plans to use the new regulations to cut the volume of gas flared by 90%.
Building on the existing arrangements with the two largest producers, Shell and Total, all companies are to be required to establish local subsidiaries with head offices in Gabon, with the code setting a limit of 62.5% for the state’s interest in the subsidiary. Shell operates through two local subsidiaries, one owned 75% by Shell but the other owned 100%, while Total owns 58.28% of Total Gabon, with the state holding 25.0% and individuals holding 16.72%.
GOC will play a key role in the new business environment, as it will hold the state’s 20% equity share in all developments – increased from the present 10%. Additionally, GOC plans to buy its own interests in growth assets, according to chief executive Serge Toulekima, and is seeking farm-ins and evaluating relinquished acreage. For its own operations, the focus will be on marginal fields in onshore and shallow-water areas while capabilities are built-up.
The government is introducing its new oil policy at a time when production has been flagging and there are plans to attract investment for a push into deeper waters. Gabon’s oil output peaked at 370,000 b/d in 1997, but for most of the past 10 years has run at just under 250,000 b/d. The late-1990s surge was the result of Shell’s development of the onshore Rabi-Kounga field, but Rabi-Kounga proved to be a difficult producer and output declined rapidly.
Recently, Shell-operated fields have been flowing about 65,000 b/d while Perenco operates fields with an output of 58,000 b/d and Total has an operated production of 56,000 b/d. Other operators with significant production are Vaalco (25,000 b/d and rising) and Maurel & Prom (22,000 b/d). In June, Maurel & Prom refuted a suggestion that it might be the next target for an asset claim, saying it is not involved in any tax litigation in the country.
Exploration, mainly by the smaller producers, has been stepped-up recently, and the oil ministry forecasts a small rise in production this year as a result, but the main fields are elderly and in long-term decline. The big hope for future output is the country’s deep-water areas. In common with Angola, to the south, Gabon has high hopes for making discoveries in pre-salt structures – with the west African coast having been adjacent to Brazil’s pre-salt basins before the continents drifted apart, there is optimism for finds of comparable size.
A deep-water licensing round – the country’s 10th round, which was due to open in 2010 but was cancelled after the Gulf of Mexico disaster – was to be re-launched last year, and then was targeted for June this year. But it cannot be opened until the new petroleum code is in place, and there was no word in June as to the progress of talks on the code. One company said the authorities faced difficulty in reconciling the terms needed to attract explorers to high-cost, high-risk, pre-salt work with their aim of raising the state’s share of revenues overall.
Gabon was one of the world’s earlier offshore development areas, and was a proving-ground for offshore technology in the 1970s, but exploration of its deeper-water areas has not been very successful. The first moves into the pre-salt have shown promise, however: US company Harvest Natural Resources has made two discoveries with pre-salt wells in its Dussafu Marin licence, off the southern part of the coast, in relatively shallow water.
In 2011 the company found nearly 17 metres of oil zones with the Dussafu Ruche Marin-1 well, and early this year it announced the find of nearly 13 metres of oil zones with Dussafu Tortue Marin-1, both wells being drilled in 116 metres of water. Dussafu Tortue Marin-1 was sidetracked for appraisal, and the firm hit another 138 metres in a different formation. Harvest said in June that it has started development studies for its discoveries, although the firm also said it is seeking to farm-out all of a part of its interest in the licence. Harvest holds 66.67% in Dussafu Marin, with Norway’s Panoro holding 33.33%.
Meanwhile, the spotlight is on Gabon’s first deep-water pre-salt well, which was spudded in April by Total. The well, Diaman-1, is also off the southern part of the coast but in 1,700 metres of water – and, with the area said to have similarities with blocks to be included in the 10th round, the result could be pivotal to the outcome of the round. Drilling, using the Ocean Rig Olympia drillship, is expected to take 120-150 days. Interests in the licence, Diabla, are Total with 42.5% Marathon with 21.25%, Cobalt with 21.25% and the state with 15.0%.
When the petroleum code is in place, the ministry will be looking downstream. Much of the country’s associated gas production is flared, and there are plans to increase utilisation for electricity generation and local industries. The petroleum code will give the ministry more powers over flaring, but there are also plans to open-up access to gas infrastructure to help create a local market.
There are also plans for a new refinery, to replace the small – 21,000 b/d nameplate capacity – Sogara refinery at Port Gentil, in which Total is the largest shareholder. Although Gabon’s product requirements amount to only about 13,000 b/d, the simple Sogara unit struggles to produce enough transport fuels to meet local demand, and it is too small to upgrade.
The government wants to build a new facility of at least 50,000 b/d capacity, capable of processing Gabon’s high-sulphur (1.0% S, 30°API) Mandji blend. Exports might flow to Europe, where the shorter journey could allow products to compete with Europe’s growing imports from Asia, the ministry says. During a visit to South Korea last year, Ali Bongo signed an outline agreement with SK Energy covering participation in the project. SK Energy is also interested in taking territory in the licensing round.