The outcome of the latest deepwater exploration efforts in Gabon is expected to have a significant impact on the government's upcoming licensing round for the Gabon basin. While positive results could spell major interest from potential bidders, regulatory uncertainty and the state's on-going dispute with a Chinese oil company have created some concern among industry players.
In May, Total Gabon, the local unit of the French company, stepped up its deepwater drilling operations off the southern coast in search of oil reserves. Expectations are high, given the similarities between the geological formations in the areas of Gabon's deepwater exploration blocks and those of Brazil's pre-salt Lula (formerly Tupi) field, where in 2007 Petrobras discovered 6.5bn barrels of recoverable oil - one of the largest discoveries in decades. Deepwater efforts elsewhere in the Gulf of Guinea, including Ghana's Jubilee field, have led to similarly encouraging finds.
If drilling in Gabon's Diaman-1 well yields positive results, it could bring with it a flood of foreign investment with the bids for new blocks, as has been seen in Brazil. Adrian Drewett, the former head of Shell in Gabon, told the Financial Times in May that a discovery could lead to something of a "gold rush" - something which would benefit Gabon's upstream sector, given that many of its older fields are matured and production is down from its earlier highs of the late 1990s.
Bidders interested in the deepwater prospects may also be emboldened by recent discoveries in the country's existing offshore blocks. Total Gabon, for example, announced in April that first oil had been achieved on the Anguille Marine Nord platform in the Anguille field, at a depth of around 30 metres. A total of 15 producing wells and six injectors are expected to be drilled from the platform as part of Phase 3 operations, and the field is projected to produce an average of 20,000 barrels of oil equivalent a day by 2015.
Australia-listed Pura Vida Energy has also moved in and made more solid evaluations of the Nkembe block, in which it owns an 80% share, with the rest held by the government. The block covers an area of 1210 sq km about 20 km off the coast, in water depths of between 50 and 500 metres. The company announced on June 6 that the block likely contains around 815m recoverable barrels of oil and has said that it plans to fund development activities on the block "shortly".
The new finds, together with the encouraging prospects for deepwater plays, have helped instil a new sense of optimism in the hydrocarbons industry, although a complicated legal dispute between a subsidiary of China's top refiner Sinopec, Addax, and the Gabonese government has injected an element of uncertainty.
Addax has been accused by the government of failing to pay Customs duties and not complying with other laws - something that the Chinese-owned producer, who also holds stakes in three other fields, is contesting - which led to the transfer of Addax's 8500-barrels-per-day Obangue field, to the state-owned Gabon Oil Company in January 2013. The issue is now before the country's courts awaiting judgment.
Etienne Ngoubou, the minister of petroleum, energy and hydroelectricity, has said the situation is a result of the government enforcing the terms of its agreements with oil companies. "It is not that the contracts were too favourable to oil companies, but they were rarely applied," he told the Financial Times. "There is a stricter application of the texts and that upsets their bad habits."
In spite of these difficulties, Ngoubou remains confident that a new hydrocarbons code - which is in draft form - will support the development of the sector. As he told OBG last year, "The government is particularly concerned with good governance for the process of allocation for the deep and very deep offshore blocks in our sedimentary basin. In order to successfully promote these blocks, our country needs to implement a new hydrocarbons code to effectively regulate oil operations as well as to encourage the entry of new multinationals and the creation of consortiums."
The standardisation of sector practices under the code could take some time to implement, as existing companies seek to adjust to new regulations and weigh up the risk-reward ratio of the offshore blocks. However, the potential for deepwater discoveries and profits is likely to maintain interest in the sector and to bring new capital into the country.
© Oxford Business Group 2013
