Gabon looks to deepwater blocks to increase production

As the drop in oil prices continues, upstream investment in Gabon has slowed as operators decrease their capital expenditure and production costs. The situation is hardly unique to Gabon, with other producers in the Gulf of Guinea, such as Nigeria and Ghana, facing similar situations. However, it comes on top of a decline in Gabon’s production, down from a peak of 370,000 barrels per day (bpd) in 1997 to 230,400 bpd in 2015, a result of maturing onshore oil fields and increasingly complex offshore deposits. Nonetheless, the medium- and long-term outlook for Gabon is surprisingly encouraging, with significant scope for a rise in production thanks to promising new blocks on offer, although the high capital requirements needed for the blocks – which are primarily in deepwater zones – along with a more stringent regulatory framework, may dampen interest in the short-term.

Acquisitions

Nine exploration permits were awarded to seven international oil and gas companies during a 2014 licensing round. UK-based juniors Impact Oil and Gas and Ophir Energy acquired 100% interests in three blocks and two blocks, respectively, while 100% interests in one block each were secured by Malaysia’s Petronas, US-based Marathon Oil, Spain’s Repsol and a joint venture of the US’s Noble Energy with Australia’s Woodside Petroleum.

The government has been keen to ensure that the blocks begin producing as soon as possible, in some cases setting deadlines for the drilling of production wells for block holders. Similarly, as part of the agreements, operators must subscribe to the multi-client 3D seismic survey conducted by French geophysical survey company CGG on more than 25,000 sq km in Gabon’s offshore southern basin. “Regardless of the economic conditions of the moment, exploration permits have a time limit,” Erik Watremez, a partner at EY, told OBG. “The Gabonese state wants to compensate the recent drop in revenue by augmenting exploration and especially production, so it is putting pressure wherever it can,” he added.

This could be beneficial for operators, given the availability of production equipment, said Charles Tchen, CEO of Independent Petroleum Consultants. “Oil prices are low, so budgets are tight. There are many services companies out there competing for little work. Rig prices are down by more than half. It is therefore not a bad time for operators to be moving ahead with such activities,” he told OBG.

Current Round

Gabon’s minister of petrol and hydrocarbons, Etienne Dieudonné Ngoubou, officially announced the launch of the country’s 11th licensing round in October 2015. Initially set to close at the end of March 2016, the bidding round was extended to May 2016, with the results still pending as of October 2016. The number of blocks on offer was limited, with only five deepwater zones up for grabs – a reflection in part of the global drawdown in capital spending by operators as well as the low levels of interest in previous bidding rounds. The five blocks on offer – E12, E14, F12, F13 and G14 – are all in the country’s pre-salt prospect area, where exploration firms have increasingly shown interest in the past couple of years. While technically complex to access and exploit, the success of pre-salt production in Brazil and Angola have highlighted the potential those deposits offer.

There was a limited interest in the number of blocks open for bids during the 11th licensing round, a reflection of the poor global market environment, although impacted as well by the stringent requirements of the country’s most recent hydrocarbons law (see overview), enacted in 2014. However, faced with maturing fields and a plateauing production, the government has every interest in boosting the attractiveness of its blocks. Indeed, if the deposits prove to be commercial, the benefits for both the operators and the state would be significant.