Offshore blocks: After successful finds in recent years, the drilling continues

The offshore oil potential in Gabon has generated significant interest among oil companies in recent years due to the area’s geological similarities with Brazilian pre-salt layers, to the success of offshore blocks elsewhere in the Gulf of Guinea and to indications that it may contain analogous hydrocarbons systems. The large number of companies bidding on the offshore blocks that were offered in October 2013 reflects the consensus that offshore Gabon holds considerable promise for exploration below depths of 1500 metres, but shallower blocks too have seen an uptick in interest.

Deepwater Exploration 

Total claimed an early success in Gabon’s deepwater offshore exploration when one of its wells, called Diaman-1B, drilling in the ultra-deep waters of the Diaba block in August 2013, uncovered a 50- to 60-metre accumulation of gas condensate with suspended liquid hydrocarbons at a total depth of 5585 metres. The French oil major’s find lies in the pre-salt layer about 100 km off the coast at a depth of 1729 metres.

The Diaba Block (G4-223) is an expansive holding of 9075.62 sq km in which Total retains a 42.5% operated interest, in partnership with Marathon (21.25%), Cobalt (21.25%), and the government of Gabon (15%). While the commercial viability of the discovery is still unclear, the Diaba find is significant in that it proves the existence of a hydrocarbons system in Gabon’s pre-salt deepwater zone, and indicates the potential for additional discoveries.

Shell, the other dominant player in the sector, is expected to announce exploratory drilling in blocks BC9 and BC10, according to local press, which together represent a surface area of 13,550 sq km. The oil major holds a 75% operating interest in these, in partnership with the China National Offshore Oil Corporation, which holds the remaining 25%. France-based Perenco, having recently acquired a new drill-ship, has launched deepwater drilling in its own Arouwé block in 2014. London-based Ophir Energy drilled three new exploratory wells in 2014 in its Gnondo (4240 metres), Mbeli (4229 metres), and Ntsina (3297 metres) blocks, but has so far uncovered no significant hydrocarbons systems and has opted to end its 2014 exploration programme in Gabon in favour of assets in Equatorial Guinea.

Shallow-Water Exploration

Several recent discoveries in Gabon’s shallow-water offshore zones have re-energised interest in the area, even as deep-water exploration begins to pick up speed. Houston-based Harvest Natural Resources discovered oil pays of 12.8 metres and 37.5 metres in January 2013 while drilling an exploratory well, the Tortue Marin-1 (TM1), on the Dussafu block, in which it holds an operated two-thirds equity, shared with Norway’s Panoro Energy. The TM1 well was drilled through 115.8 metres of water, to a total depth of 3432 metres. In October 2013, Harvest entered into talks to sell its Dussafu interest to Swiss-based commodities trader Vitol for €102.2m. Hoping to encounter similar results, VAALCO Energy has begun its own exploratory drilling in its Etame Marin block, which is adjacent to the Dussafu block.

The latest shallow-water find is Italian operator Eni’s discovery in July 2014 of gas and condensates in the pre-salt layer of its D4 block, about 13 km offshore near Libreville. Eni’s Nyonie Deep-1 well was drilled through 28 metres of water to a total depth of 4314 metres, yielding initial estimates of about 500m barrels of oil equivalent (boe) in place. Eni operates both the D4 and adjacent D3 blocks, owning a 100% share in both. Total Gabon also plans to drill new exploratory wells near its Grand Anguille licence (G6-16), which it holds at 100%, in 2014.

The recent shallow-water finds have prompted new seismic studies and raised hopes of a rebound in production levels even as older fields reach maturity. Recent 3-D seismic surveys have been conducted in Perenco’s offshore holdings, in Total’s Grand Anguille block, and in Harvest Resources’ Dussafu block. Pura Vida has also completed technical studies in its Nkembe block, revealing strong indications of a new play in the pre-salt layer.

New Licenses Awarded

In October 2013, with investor interest surging following Total Gabon’s success in the Diaba block, Gabon awarded 13 new offshore licences (later reduced to 11) for blocks that had originally been part of the 10th bidding round – initially scheduled for 2010 but later postponed to allow for a more thorough roadshow and evaluation. The new licences cover water depths ranging from 200 to 4000 metres.

The list of successful bidders includes many smaller companies making their first foray into Gabon. Ophir Energy expanded its Gabonese holdings with bids on two new blocks: A3 and A4. ExxonMobil submitted a bid for block C11, and worked with Spanish firm Repsol to bid on block E13. British firm Impact and US company Marathon Petroleum were awarded blocks B7, D13 and D14, respectively. Marathon was also awarded block G13. Perenco, in a solo bid, was awarded block E14, and block F14 was awarded to Malaysian company Petronas. After the awards, in May 2014 three of the new licensees – Marathon, Cobalt and Elenilto – were de-listed, with the government citing doubts about their ability to finance offshore drilling operations.

Operating Environment

In late July 2014, the oil minister, Etienne Dieudonné Ngoubou, announced the adoption of a new hydrocarbons code, which could significantly impact future exploration in Gabon’s offshore zones, particularly in deep and ultra-deep depths. The code’s content has been a source of debate among operators since its release in January 2014, especially as relates to the level of transparency in tendering and to the size of incentives on offer for deepwater exploration – a complicated and costly venture.

As Charles Tchen, the CEO of Independent Petroleum Consultants, explained, “In the deep offshore blocks – especially those which have not yet been awarded – exploration will be more expensive and riskier, thus requiring more resources and investment, meaning that companies undertaking exploration in these blocks will be looking for more favourable contract terms. However, this is the exploration area which will be most impacted by the new hydrocarbons code. If the new terms are viewed as less favourable for the oil companies, it will complicate exploration efforts. By contrast, the terms of the older production-sharing contracts (PSCs) are, from the oil companies’ perspective, among the most favourable in the region.”

It is not yet clear when the code will actually go into effect, nor whether it will apply to companies currently negotiating contracts on licences that they acquired in October 2013. However, it is possible that some companies may hesitate to sign PSCs under the new code, despite having submitted successful October bids.

Long-term Strategy

Current annual oil production is around 240,000 barrels per day (bpd), down from its peak of 370,000 bpd in 1997, but the government hopes to eventually double annual production to 500,000 bpd. It will be some time, however, before the new deepwater and ultra-deepwater exploration zones begin producing, assuming commercially viable reserves are discovered.

Said Tchen, “The deep and ultra-deep offshore exploration won’t stop the current decline in oil production; the timeline is too far out. Even in the already-awarded offshore blocks, where explorations are currently under way and one discovery has already been made, prospects for production are medium term at best, and there is a more eminent need to slow the decline in oil production as so much of the country’s revenue depends on it.”

Oil fields in traditional blocks, both offshore and onshore, are reaching maturity, but there is room to boost production by drilling new wells, using recovery enhancement techniques and upgrading equipment. “Enhancing oil recovery in the traditional extraction areas has the best potential to arrest the decline in the near term,” said Tchen.

Redevelopment and recovery enhancement efforts were begun in 2008 for Total Gabon’s Anguille Marine concession, where a new platform was put in service in March 2013 and began producing a month later. Enhancing the recovery rate for existing fields is costly, as additional wells must be drilled and new techniques employed, reducing the profitability of each additional barrel extracted. Due to the higher costs of operation, oil companies are likely to seek more favourable contract terms from the government, whether for enhancing the rate of recovery at existing fields or for undertaking the high-risk exploration of unproven deep and ultra-deepwater blocks. Whatever the uncertainties regarding the regulatory environment, however, Gabon’s offshore zones show strong enough potential for future discoveries that investor interest is likely to persist.