Exploring the options: Attention turns to deepwater blocks as the wait for the new hydrocarbons code continues

While oil was first discovered in Gabon in 1953, it was not until the early 1970s that substantial production began. Since then, the exploitation of petroleum reserves has been the dominant generator of revenue for the Gabonese economy, accounting for around 52% of GDP and 58% of government revenues in 2011.

DECLINING PRODUCTION: For most of the 1980s and 1990s, Gabon was sub-Saharan Africa’s third-largest oil producer, after Nigeria and Angola. Gabon achieved peak production in 1997, at 370,000 barrels per day (bpd). Since then, output has declined by one-third, to 245,000 bpd in 2010, as large fields have matured. Gabon’s most productive field, the Rabi field, which produced upwards of 200,000 bpd in the late 1990s, has fallen to a level of 23,000 bpd. Gabon has is now the sixth-largest producer of crude in region, having been eclipsed by Equatorial Guinea, Sudan and Congo.

The country’s total oil production in 2011 was around 89m barrels, according to Total Gabon. In its “Statistical Review of World Energy 2012,” BP pegged the output slightly higher, at 89.43m barrels – equivalent to 12.2m tonnes. Gabon’s deepwater and ultra-deepwater blocks remain largely unexplored, however, and could have the potential to raise both production and reserves significantly if deposits are found.

Despite Gabon’s prolific oil wealth, downstream activities and electricity-generation capacity remain underdeveloped. The country’s sole refinery has struggled with capacity and profitability issues for the past decade due to underinvestment and dated technology. Fuelled by economic growth in the non-oil sector, demand for electricity has exceeded supply in recent years, increasing at a rate of more than 7% a year since 1997, according to World Bank figures. Years of underinvestment have created shortages, although recent government investment in the sector should bring new capacity on-line over the next few years.

INTERNATIONAL INVOLVEMENT: Since commercial production of crude petroleum began in the early 1970s, Gabon’s hydrocarbons sector has been dominated by international oil companies (IOCs). Of the 22 oil companies present, seven are currently producing.

Total Gabon is the largest producer in the country, according to the US Energy Administration. The company, a subsidiary of French oil giant Total, produced an average of 56,800 bpd, totalling 20.7m barrels in 2011, a year-on-year (y-o-y) decline of about 12.9%, due to strikes, maturing fields and non-programmed disruptions. Shell Gabon is the second-largest producer with about 17% of total production, followed by Perenco with 16%. Addax Petroleum, which was bought by the Chinese Petrochemical Corporation (Sinopec) in 2009, is the fourth-largest producer, with 12% of output. French producer Maurel and Prom, Houston-based Vaalco and Canadian Natural Resources, together with their partners, account for about 27% of total output.

Production based on current proven reserves is forecast to continue its slow decline. Most of Gabon’s onshore and shallow-water offshore potential has been explored. “Gabon is a mature oil market. While the production remains stable, most of the fields will start declining production in the coming years and are starting to face technical issues, such as sand and paraffin infiltration,” Benoît Pinson, the regional manager for Gabon and Cameroon at Weatherford, an oil services company, told OBG. There are opportunities to increase yields with investments in new technologies, and there is always the possibility of a new discovery. Without significant new finds, for which the greatest potential lies in the deep and ultra-deep blocks offshore, Gabon’s production outlook is likely to continue its decline.

RESERVES: The Gulf of Guinea is growing in importance as a global source of crude. In 2010 West Africa exported 4.6m bpd, 10% of global exports. Since 2000 the region’s exports have grown by 39%, and are forecast to rise to 20% of world production in 20 years. Gabon is a major producer within the region, yet its proven production capacity has decreased in both absolute terms and relative terms as neighbouring countries have stepped up output. Whether Gabon contributes to the Gulf of Guinea’s growing clout in world energy production will largely depend on if there are successful finds in the unexplored ultra-deepwater blocks.

Gabon has estimated proven reserves of 3.7bn barrels according BP’s “Statistical Review of World Energy 2012”, representing 0.2% of global proven reserves. This estimate has risen substantially from 900m barrels in 1990 and 2.4bn barrels in 2000, corresponding to the changing dynamics of fields in production as well as the addition of new discoveries. At current production levels, Gabon’s proven reserves will last 41 years. Barring any major new discoveries, that period of time could be significantly shorter, as capacity also depends on the oil price and the cost of production per barrel, which increases as fields mature. Consequently, estimates regarding the lifespan of Gabon’s existing reserves range from less than 20 years to more than 40 years.

THE PRICE OF OIL: The price of oil has remained remarkably high over the past decade. While it fell sharply following the onset of the global economic crisis of 2008, the price rebounded quickly and has subsequently remained near historical highs. Commodity prices are notoriously hard to predict, but continued demand from Asia and other emerging markets, along with political turmoil in the Middle East and increased production costs, point to stable or rising prices.

The cessation price of Gabonese oil is determined by reference to the price of North Sea Brent. A discount price is established quarterly by a joint commission including members of the president’s office; the Ministry of Finance; the Ministry of Mines, Oil and Hydrocarbons; and the oil firms. The reference price is used as a benchmark for the negotiation of off-take agreements for smaller producers, which do not have globally integrated supply chains. For larger firms like Shell and Total, the cessation price serves as a benchmark for their internal off-take activities. In 2011 the price for North Sea Brent rose about 40% y-o-y, from an average of $79.50 per barrel in 2010 to an average of $111.26. As of early October 2012, Brent was trading at roughly the same level, at just over $112 per barrel.

Gabon produces two types of crude oil. Mandji crude is a medium-heavy variety that is high in sulphur and is supplied mainly to refineries on the Mediterranean, as well as the US Gulf Coast and Singapore. In contrast, Rabi light, which is destined principally for the North American fuel market, contains far less sulphur but has other atmospheric contaminants, namely a high percentage of wax. Prices for the Rabi light and Mandji varieties trade at a differential to the North Sea Brent price depending on the supply and demand characteristics of the market. In 2011 Mandji crude traded at an average discount of $6.20 a barrel, down slightly from $4.70 a barrel in 2010. Rabbi light traded at a discount of $0.90 a barrel in 2010 as opposed to an average premium of $0.90 a barrel in 2011.

UPSTREAM REDEVELOPMENT: The majority of recent foreign investment in the petroleum sector has been aimed at boosting production at established fields. By far the biggest investment in recent years has been Total Gabon’s redevelopment of the shallow-water offshore Anguille field. The $2bn redevelopment programme has involved the drilling of additional wells from existing installations as well as putting in place a new platform in the north of the field to improve drainage.

Addax is also considering a substantial investment with its partners in the near future to extend production of its Atom offshore block. Maurel and Prom has invested almost $221m in the development and exploration of its holdings in Gabon, and Tullow Oil, in partnership with Perenco, invested $160m in 2011 and plans investments of approximately $190m in 2012.

EXPLORATION: Exploration in Gabon has increased over the past decade. According to the Ministry of Mines, Oil and Hydrocarbons, there are currently a total of 22 companies involved in exploration. Investment in exploration has increased substantially in recent years, rising from about $70m in 2000 to $450m in 2011, with exploratory drilling increasing from three sites to between 25 and 30 over the same period of time.

This exploration activity does not include the blocks belonging to the so-called 10th licensing round, which comprises 42 deep and ultra-deep offshore blocks. Bidding on the 10th licensing round was delayed by the government in 2010 and has yet to be restarted.

The increase in exploratory activity can in part be attributed to a changing dynamic across the oil sector. Smaller players are increasingly involved in preliminary exploration, reflecting the preference of large firms to focus on acquisitions and production. “International majors have reduced their risk exposure in exploration activities, with one of the main changes in the oil industry being that the majors come in to develop fields after discoveries have been made,” David Roux, the director-general of Tullow Oil, told OBG.

A second driver of new exploration in Gabon is an interest in deepwater salt and pre-salt plays. Many of the new exploration projects are targeting deepwater offshore blocks that have valid exploration licences. “Since 2011 very few oil exploration projects have been launched. However, opportunities for the future are positive, as we await output from the results of the ultra-deep offshore bid round,” Naceur Souguir, the base manager for Geolog, an oil services company, told OBG.

Total Gabon will likely be the first to start deepwater exploratory drilling. It is planning to begin exploratory drilling of the Diaba block, an offshore deepwater block south of Port-Gentil, in the first quarter of 2013. The American company Marathon Oil recently purchased a 21.25% stake in the Diaba licence from Total and will participate in the exploration.

Shell has exploration rights to three partial deepwater blocks: BC9 and BCD10 in the south and Igoumou in the north on the border with Equatorial Guinea. Exploration was in the second phase for the Igoumou block but has been halted due to unresolved territorial disputes. ENI, the Italian oil firm, is executing an exploration programme of three onshore blocks along the border with Equatorial Guinea and two shallow-water offshore blocks south of Libreville. The American firm Anadarko is involved in preliminary exploration of its deepwater holding off the coast of Libreville.

Brazil’s Petrobras is also beginning an offshore exploration programme in Gabon. “Developments offshore are interesting, as Petrobras has opened offices in Port-Gentil and is rushing in to develop blocks it purchased from Ophir Energy, which operates four blocks, in the framework of a joint venture,” Charles Tchen, the founder of International Petroleum Consultants, told OBG. Ophir acquired 3D seismic imaging in 2012 and exploratory drilling is planned for the fourth quarter of 2013. As for Petrobras, the company has farmed-in to the two northern blocks of Mbeli and Ntsina, and is working with Ophir to identify drilling prospects there. Petrobras is bringing extensive experience of pre-salt geology and deep-offshore development technology to the table. The exploration wells on these blocks will be the first to be drilled in pre-salt geology in northern Gabon, but Petrobras is first planning to complete 3D seismic imaging, which will clarify the prospects for the fields and Petrobras’ ultimate plans, according to Tchen.

OFFSHORE: As evidenced by the rush to explore deepwater blocks, the greatest promise to rejuvenate Gabon’s production lies off the coast. “Ultra-deep offshore is the next frontier of oil and gas exploration and production in Gabon,” Souguir told OBG. Major deepwater and ultra-deepwater reserves have been found off the coast of Ghana, Nigeria and Angola and are in various stages of development. Across the Atlantic, Petrobras has been exploiting ultra-deep reserves for more than a decade. As South America and Africa were a single continent millions of years ago, it is possible that both coasts share similar characteristics.

10TH BIDDING ROUND: With this geographic hypothesis in mind, the government scheduled the 10th oil licence bidding round for October 2010, which was to include licences for 42 exploration blocks with a focus on deepwater, pre-salt plays. In preparation for the licensing round, the government conducted 1300 km of seismic imaging of the sedimentary basin, the results of which can be purchased by oil companies interested in undertaking their own analysis.

Despite strong interest from about 20 companies in the new exploration blocks, the government cancelled the licensing round and the permits remain unattributed at this point in time. The government cited delays in the implementation of the new hydrocarbons code, which remains at the planning stage, as well as security and environmental concerns raised by the Deepwater Horizon disaster in the Gulf of Mexico in April 2010 as reasons for the cancellation of the bidding process. It is unclear at this time when the government will open bidding on the new blocks or precisely what process it will use when it does so.

REOPENING LICENSING: There is, however, a strong incentive for the government to reopen the licensing process before the end of 2012. Total is scheduled to begin exploratory drilling in the first quarter of 2013 at its Diaba field, which shares many characteristics with the deepwater blocks offered in the 10th licensing round. “Once Total starts production, we should have a clear indication of the overall potential of this area, although we believe there are strong opportunities to develop in this field even at this time,” Souguir told OBG. If Total fails to find significant deposits, the value of the 42 blocks could decrease significantly. Consequently, it is quite likely that the government will work to implement the new hydrocarbons code and begin the licensing process of the 42 blocks in 2012.

While there is optimism about the prospects of the pre-salt blocks, deepwater drilling is risky and difficult. “Deep and ultra-deep offshore developments remain extremely challenging. One must remember it costs around $1m per day to operate in a 3000-metre-deep area. This high risk must be evaluated carefully and strong indications or prospects to discover abundant resources are essential before launching this type of operation,” Weatherford’s Pinson told OBG.

Not all analysts are convinced of the geographic hypothesis. Gabon differs from existing pre-salt plays in Brazil, Ghana and Nigeria in that it lacks a major river to deposit sediment like the Niger, Volga or Amazon. Until exploratory drilling begins, the true extent of Gabon’s deepwater deposits will remain uncertain.

CURRENT & NEW CODES: Current production and exploration licences are negotiated within the framework of Gabon’s mining code. Royalties generally range from about 10% to 20%. A petroleum income tax of 40% to 73% and an annual land tax, calculated per sq km, may also apply depending on the nature of the contract. The most common type is an exploration and production-sharing contract (EPSC), which has been in standard use in the industry since 1997. The EPSC dictates the monthly payment of mining royalties, which vary between 15% and 20% depending on the level of production, the contractual rate (each permit has a specific fiscal term) and the official cession price.

The government has been working on a new hydrocarbons code to harmonise regulations across the industry and provide incentives for deepwater exploration and production. The code should also include new measures on safety and the environment, and in particular regulations on deepwater operations and gas flaring. Measures are also expected to regulate the percentage of non-Gabonese workers who will be allowed to work in both technical and managerial positions in foreign oil companies operating in Gabon.

Although much ink has been spilled over the code, it has yet to be implemented. Obviously, until it is ratified by parliament and enters into force, it is unclear exactly what the code will contain. This uncertainty has served as a brake on investment, as companies are waiting to see how the new code will affect current and planned operations. The delay has also served to stoke fears about the impact of the new regulations. “In general, the regulatory framework in Gabon is attractive. In particular, smaller companies have been able to negotiate good contractual terms for smaller fields. The new hydrocarbons code, however, is worrying because the government’s equity share in projects is set to go up from 10% to 20%,” Tchen told OBG.

Regardless of deepwater potential, Gabon needs to ensure that any new regulatory framework also takes into account Gabon’s maturing onshore and shallow-water fields and their particular regulatory and economic circumstances. “Gabon needs to develop a stronger policy to encourage enhanced oil recovery techniques and start optimising the last drops of its declining wells before abandoning them,” Pinson said.

NATIONAL OIL COMPANY: As part of the restructuring of the regulatory environment governing oil and gas exploration and development, the government decided to create a national oil company. The Gabon Oil Company (GOC) was created in August 2011 and has recently started recruiting its management team. The role of the company will be to manage the government’s share of both exploration and production, as well as to create indigenous technical expertise with the capability of managing exploration and production in the country and around the world.

“The GOC will be instrumental in increasing the government’s presence in the sector, as it is likely that it will take over the government’s share of existing and future projects. While the GOC will pay for its share of existing projects, the financing mechanism remains unclear,” Tchen said. The new national oil company has already taken a stake in some of Perenco’s assets and recently bought shares in Addax Petroleum. It has also expressed a desire to independently market the government’s share of profit oil, which may cause problems for those firms which use independent storage and offtake terminals like CNR and Vaalco.

The company’s principle long-term challenge will be to build up the necessary local technical expertise to explore and develop projects around the world. As most of the new production in Gabon is likely be in deepwater blocks, the technical and investment requirements are high; only a few companies have the expertise to develop projects in these conditions. It will thus be a challenge for the GOC to develop the necessary expertise and resources to become a deepwater producer.

HUMAN RESOURCES: Finding sufficient human resources is a challenge to companies operating in the oil sector in Gabon. A small country facing systemic training and education challenges, Gabon faces difficulties providing sufficient qualified local personnel, particularly at the operational level. At the same time, recent labour disputes have encouraged the government to enforce a policy of “Gabonisation”, which requires the majority of workers in the sector to be of Gabonese origin. The perceived failure of IOCs to adhere to local content regulations lead to a strike in 2011, which forced some firms to halt operation for a few days.

The difficulty IOCs have in meeting the need for human resources with local workers is a symptom of a larger deficit in Gabon’s education system. In addition to inadequate specialised training facilities, the primary education system also needs strengthening. With these problems in mind, the government is working to address the skills deficit with new training programmes in partnership with the private sector as well broader investments in primary education (see analysis).

FLARING: In coordination with a World Bank programme to reduce gas flaring worldwide, the government has implemented a zero-flaring policy. Gabon passed a no-flaring law in January of 2010. On all rigs a minimum level of flaring is necessary for safety reasons. The government has yet to set a baseline level, requiring each company to negotiate with the government with regard to their specific flaring requirements. The problem of flaring is particularly acute on older rigs, as they do not possess the technology to re-inject natural gas or reduce flaring. At the same time, it is often difficult to justify significant new investment in older fields with limited remaining reserves.

Nonetheless, according to the government, all companies operating in Gabon are cooperating with the flaring directive and are developing strategies to reduce, re-inject or reuse gas. The hydrocarbons code, when it is eventually implemented, should provide more clarity on minimum levels of gas flaring.

GAS-FUELLED DEVELOPMENT: As part of its economic diversification strategy, the government has expressed a desire to better utilise its natural gas resources. The lack of developed gas transportation infrastructure and limited demand has forced many hydrocarbons companies in the past to resort to flaring or, more recently, to re-inject the natural gas back into their wells. To develop a larger market for natural gas, the government is pursuing various projects, including the construction of a fertiliser plant in Port-Gentil and the construction of gas-fired power plants. There have also been discussions of developing liquefied natural gas (LNG) export capacity. It is unclear, however, whether there will be enough gas to supply all of the projects currently under discussion.

According to Total, about $4m of natural gas, the equivalent of about 27m cu metres, was sold to supply Gabon’s domestic market in 2011 – about the same as in 2010. Total natural gas reserves are estimated at 28.32bn cu metres. The majority of natural gas was supplied to Port-Gentil and Libreville by Perenco to operate gas-fired electric generators.

Since 2006, the government has been the sole purchaser of gas, which it resells to Société d’Energie et d’Eau du Gabon (SEEG) to supply its gas generators. Current gas transport capacity to Libreville is close to saturation, and as a result there is discussion of installing a second pipeline to meet growing demand sparked by new projects and additional power plants coming on-line. Shell has expressed interest in developing LNG capacity. As limited gas reserves do not justify investment in a conventional LNG project, Shell is working with the government to implement offshore liquefaction of gas, a proprietary and lower-cost technology that could also be used to augment domestic supply.

SERVICES: There is an active oil service sector in Gabon, structured around providing technical support and services to IOCs. International leaders such as Schlumberger and Weatherford are present, as well as smaller Gabonese players like Petrogas Worldwide. “Oil and gas firms are very concerned about safety and security issues. These concerns get inevitably translated into strong opportunities for smaller services companies offering solutions of all kinds, from environmental and safety to security and health,” Guy Deguy, the director of global risk consultant Apave, told OBG.

The exploration and development of the deepwater offshore blocks will generate new opportunities for oil services companies, from increased use of aviation and helicopter services to highly specialised technical drilling. Offshore exploration is not the only driver of growth in the oil services sector, however.

“Even if the Gabonese oil market starts to shrink, there will still be strong potential to grow in the services field, thanks to the changing technologies, techniques, and the rising demand for sophisticated services to exploit depleting reserves,” Pinson told OBG. This will be greatly aided by the implementation of further sector-specific training for locals (see analysis).

STORAGE: There are two principle oil storage and off-take terminals in Gabon. Cape Lopez, which is owned and operated by Total, has a capacity of 640,000 cu metres (4m barrels) and can accommodate tankers with capacities of up to 300,000 tonnes. This terminal is used for the export of approximately 70% of Gabon’s crude oil. The Gamba terminal, operated by Shell in the south of the country, is the second biggest in Gabon with a capacity of 167,000 cu metres (1.4m barrels).

REFINING: Gabon’s sole refinery is located in Port-Gentil and operated by Société Gabonaise de Raffinage (SOGARA), which is owned by a consortium of private operators and the Gabonese government. Built in 1967, the refinery is small by current standards with a maximum capacity of about 1.2m tonnes per year. Moreover, its technology is outdated and consequently the company has difficulty meeting local demand for certain products, notably diesel and butane. While in recent years production has improved considerably, from about 650,000 tonnes in 2009 to some 983,000 tonnes in 2011, according to SOGARA, the enterprise remains unprofitable and benefits from a production subsidy provided by the state. This is largely due to a lack of capacity – an issue which is not easily fixable.

“With a capacity of 1.1m tonnes, SOGARA would still be unprofitable even with upgrades,” Jean-Baptiste Bikalou, the director-general of PetroGabon, told OBG. “A new refinery with a capacity of 3m to 5m tonnes a year would be able to compete with refineries in India and the Middle East to sell refined products to Europe. Moreover, given the shorter distance to Europe from Gabon, the products would also be greener.” In line with the urgent need for greater refining capacity, the government is formulating plans for the construction of a new refinery, possibly in cooperation with South Korea giant Samsung, which would be able to meet all of the needs of the domestic market as well as produce for export (see analysis).

“Investing in refining capacity is essential for Gabon’s – or for any country’s – security and development,” Pierre Reteno N’Diaye, the managing director of SOGARA, told OBG. “It provides greater integration of the supply chain and prospects for growth to upstream and downstream industries. It is also essential to protect the country from external events that might affect distribution, such as piracy.”

DISTRIBUTION: Commercial and retail distribution of petroleum products is managed by four companies: Total Marketing, PetroGabon, Engen and Oilibya. SOGARA has a monopoly on the sale of fuel domestically, which is provided to all four companies, although the individual import of lubricants is permitted. Demand for petroleum products grew by 12% in 2011 to 655,829 tonnes, reflecting economic growth in general and preparations for the 2012 African Cup of Nations football tournament in particular.

Growth is expected to continue going forward, fuelled by activity in the construction and mining sectors in particular. In response, distribution companies have been executing an expansion programme. Fuel marketers have been renovating existing petrol stations in order to comply with new fuel storage regulations as well as opening new ones. Oilibya, for example, plans to open two petrol stations a year from now until 2015, increasing the size of its network by 50%.

Storage of petroleum products is managed by three firms. Société Gabonaise d’Entreposage de Produits Pétroliers (SGEPP) is owned by the government, along with Engen, Total and Oilibya. SGEPP operates depots in Libreville and Muanda. Oilibya independently owns storage facilities in Port-Gentil and Ndjolé, and Total Marketing operates a single depot in Lambaréné. The government is looking for partners to build new storage infrastructure, as current capacity and security do not correspond to higher demand and new safety regulations. In particular, the depots at Lambaréné, Port-Gentil and Libreville are lacking in capacity.

ELECTRICITY GENERATION: Electricity production and distribution is managed by the SEEG, which was granted a 20-year concession by the government in 1997. Veolia, the French multinational, owns a controlling stake in SEEG. As Gabon’s population is highly concentrated in three relatively isolated urban areas, there is no national grid. Three regional grids constitute the majority of the electricity infrastructure.

Total generation capacity in 2011 was 400 MW, with 170 MW of installed hydroelectric power and 229 MW of installed thermal power. In 2011 the SEEG generated 1837 GWh, an increase of 4.9% from the previous year, and served 244,076 customers, up by some 6.3% over 2010. Demand has grown at over 7% a year since 1997, according to the World Bank.

Gabon’s diversification strategy, which calls for greater industrialisation of the country, should increase demand at an even greater rate over the medium term as processing plants in timber and fertiliser, among others, begin operation. The country has experienced acute electricity shortages, mostly in and around the Libreville area, which has led to calls for the renegotiation of the Veolia concession and efforts to reorganise the sector by the government (see analysis).

To compensate for increased demand, both the state and the SEEG have invested in new generating capacity. The first phase of a 70-MW gas-powered thermal plant was recently completed by the Israeli firm Telemenia. The same company is working on a 104-MW project in Port-Gentil (see analysis). The government is also investing in hydroelectricity. Preliminary work has begun on a dam on the Ngounie river, called Imperiatrice, with an estimated cost of €106m. The 70-MW, two-phase project aims to supply power for manganese and niobium mines that are planned in the region. Construction of the 56-MW FE2 dam at Okano has already begun.

Transmission lines are planned to connect these two dams to the Libreville grid to augment supply to the city as well as the Nkok Special Economic Zone. Financing for the high-tension lines has not yet been identified. A third dam, the two-phase, 240-MW Grand Poubara project being built by Sinohydro in the south of the country, will supply electricity for a planned manganese processing project near Franceville.

WATER: In addition to power, the SEEG also manages the water supply. In 2011 it distributed 61.5m cu metres of water, down slightly from 62.8m cu metres in 2010. The number of customers served, however, rose by 4.6%. Production in Libreville has been severely constrained by lack of transport capacity from Ntoum, where the SEEG runs a treatment facility. To address this, the government recently announced a CFA60bn (€90m) project to pipe water from Ntoum to the city.

OUTLOOK: Growth in the energy sector has been below potential as IOCs have adopted a wait-and-see approach pending the release of the new hydrocarbons code before investing in new production and exploration. While Gabon’s declining overall production has been reversed by recent exploration activities, the long-term prospects for its conventional oil sector remain limited; it is unlikely that a major new discovery will be found onshore or in shallow waters. The continued growth of output likely depends on the discovery of significant pre-salt and salt-level deepwater deposits. While the drilling of the Total’s Diaba field will help shed some light on things, until the new code is implemented and exploration can begin on the 42 deepwater blocks, only speculation is possible with regard to the country’s larger deepwater prospects.

Even in the event of significant offshore finds, deepwater remains challenging and expensive. Increased royalties under a new licensing scheme, lower oil prices, and Gabonisation requirements could all hamper investment in the deepwater segment. In contrast, the oil services sector should continue to see strong growth, as both deepwater exploration and maturing fields necessitate investment by producers in new technology. Demand for electricity and water should continue to rise, putting pressure on a system that is already overburdened. It is unclear at this time whether significant government investment in new capacity will alleviate supply concerns in the short term due to feedstock supply and transmission challenges.

Over the medium term, work will need to be carried out to rationalise existing and future investments in order to make the most efficient use of Gabon’s generating capacity. Without regulatory reform and planning, both demand and price concerns will continue to endure for the foreseeable future. At the same time, however, economic development and growth are setting the stage for future private sector investment opportunities in both electricity and water. The conclusion of SEEG’s 20-year concession in 2017 could also give way to further new investment opportunities within the sector.