Gabonese incentives reform pays off
An enhanced regulatory and fiscal framework appears to be attracting IOC and NOC exploration interest
Newly appointed Gabonese hydrocarbons minister Noel Mboumba will point to evidence that the recent petroleum code overhaul is rebuilding investor confidence when he embarks on a promotional drive.
Houston-based West African producer Vaalco said in late August that it was expecting delivery in early September of a jack-up rig to commence a its 2019-20 drilling campaign. The firm plans to drill first an appraisal well, followed by a development well, at its Etame field, promising a further appraisal well and up to two more development wells later this year and early next. The firm also extended its lease contract for its Gabonese floating, production, storage and offloading (FPSO) vessel to September 2021 with an additional one-year option.
This positive news comes just weeks after the signature of Gabon’s first new exploration permits in five years, with Malaysia’s national oil company (NOC) Petronas taking on offshore blocks F12 and F13.
Petronas already holds block F14, for which a gas and oil discovery from the Boudji-1 well was announced in March 2018. The government says that the development of Petronas’ three assets could deliver output of 200,000 b/d, a bullish claim which would require exploration results rather more positive than has so far been publicly confirmed.
The news from Petronas and Vaalco will be useful evidence for Mboumba as he seeks to persuade international investors that the new petroleum code offers a more attractive framework than previous legislation.
Previous terms were set before the 2014 oil price slump, when Gabonese officials thought they would be able to drive a much harder bargain with potential investors. The law had barely made it onto the statute book before prices collapsed—and interest in Gabonese offshore exploration unsurprisingly dried up. The new petroleum code, complete with rewritten regulatory and fiscal frameworks, aims to stimulate a rebound.
When Mboumba’s predecessor Pascal Houangni Ambouroue launched Gabon’s licensing round in November last year, he announced a raft of impending changes. These included sweeteners such as the abolition of 35pc corporation tax, a pruning of exploration royalty rates from 9pc to 5pc, a reduction in the state’s profit oil take and longer contract periods.
The recent Petronas deal was vindication of the incentivised approach set out in the new code
The draft legislation was approved in December 2018 and enshrined in law on 16 July, after which Mboumba publicly presented his outlook to government ministers, industry operators and other experts.
The government aims to stimulate investor interest in exploration, particularly on the blocks in the current bidding round. It is also aiming to encourage operators to bring marginal fields into production, in the hope of boosting confirmed reserves, promoting gas projects and creating jobs through the expansion of local content and subcontracting. It also hopes the code will promote a more environmentally conscious approach and a stronger focus on social responsibility.
Domestic political pressure is focused on different priorities. When then oil minister Houangni Ambouroue presented draft legislation to senators in May, their questions centred on domestic consumer issues, such as retail pump prices and problems at domestic refiner Societe Gabonaise de Raffinage (Sogara).
The government may care little, though, about domestic opposition now that the new law is in place. Its overwhelming priority is to stimulate more international oil company (IOC) activity and considers the recent Petronas deal as vindication of the incentivised approach set out in the new code.
200,000bl/d Official output estimate from Petronas’ Gabonese blocks
The commercial successes also provide a measure of reassurance that investors have not been discouraged by the political uncertainties created by President Ali Bongo Ondimba suffering a stroke in November 2018. He has made a slow but steady recovery, although it remains unclear how much he is involved in day–to-day decision-making and how much is left to Prime Minister Julien Nkoghe Bekale.
Foreign investor confidence may also have been slightly bolstered by the fact that the government and French environmental services firm Veolia have reached an amicable settlement over the state’s February 2018 expropriation of the French group’s 51pc stake in national power and water utility SEEG.