OBG talks to Robert L Gerry, Chairman and CEO, VAALCO Energy

Interview: Robert L Gerry

To what extent can West and Central African oil and gas contribute to the US energy mix?

ROBERT L GERRY: West and Central African crude enjoys a transportation advantage over Middle East crude, which has led to much interest among oil companies in the region and to US foreign policy encouraging diversification of supply. This applies only to oil, not to gas, as the US is undergoing a shift from a net gas importer to exporter due to shale gas. The region should enjoy its geographic advantage to the extent that it offers a competitive investment environment.

What impact will domestic production of US shale gas have on African producers?

GERRY: In big picture terms, the industry has always reflected the law of supply and demand. This makes us accustomed to volatility, like it or not. It is conceivable an abundant supply of US gas will depress demand and prices for African gas, and if we were contemplating gas development in the area, our economic analyses would have to show sustainability in the downside case.

How can Gabon attract further investment into the future development of its oil sector?

GERRY: Gabon could do much to attract investment from new players and reinvestment by companies already here. The deep water is “virgin” and high-risk, while the shallow water and onshore blocks are mature, characterised by small, hard-to-find fields.

Due to high costs and risks in all areas, the terms need to be competitive. We are seeing a general tightening of terms on an ad hoc basis, with fiscal provisions being changed and new contractual requirements being imposed. Room needs to be made for the role of the new Gabon Oil Company, which is presently in flux.

Gabon rightly cherishes its international reputation for stability; however, we continue to worry about the possible effects of regulatory flux. We would like to see Gabon practice more consistently its overall policy of showing hospitality towards international investors.

How do you see small and mid-size oil operators’ role in Africa’s exploration and production sector?

GERRY: Without question, it is the small and mid-size independents that are leading the way. Companies that are not household names are demonstrating outstanding success in exploration and ability to attract capital to new basins and oil plays. The largest companies are allowing their smaller cousins to assume most of the risks and buy interests in discoveries at a premium. African countries that are doing the best are those which create favourable regimes for small, competent companies to risk much and, when successful, make handsome returns in proportion to the risks they bear.

What are the greatest financial and operational challenges facing oil companies in Gabon?

GERRY: First, the poor state of basic infrastructure complicates many things. Irregular air links and lack of options between Libreville and Port-Gentil lead to inefficiency and high cost. Education is another challenge. The law requires a 90% Gabonese workforce, but the national educational system does not graduate enough technical and financial personnel with skills that meet global standards, including in health, safety and environmental practice. That requirement also decreases person-to-person transfers of international expertise that come from more of a mix. Furthermore, cost pressures arise from multiple sources. The local economy of Port-Gentil is already inflated, and there are constant pressures for companies to do things that add cost.

When it comes to the sourcing of equipment such as drilling rigs what challenges do you face?

GERRY: The rig market is indeed tight and that has caused delays in VAALCO’s drilling and reinvestment plans. We have seen this affect other operators as well.

Service companies have told us that they are very squeezed and that revenues are flat. It would complicate an already tough situation if any of them were to pull out and reduce supply and choice even further.