Above Ground Concerns Threaten Long-Term Upside Risk
BMI View: Gabon's oil production is expected to witness a small short-term increase from 243,560b/d in 2013 to a peak of 252,610b/d in 2015 from a number of small projects. However, output is again set to decline without new developments to support further growth. We note that strong long-term upside risk exists from the country's offshore and sub-salt potential. However, the country's continued troubled above-ground situation could result in downside risk to exploration and project development in Gabon.
Once Africa's third largest oil producer, Gabon's crude oil and liquids production has been trending downwards, owing to natural depletion of resources in producing fields. This has contributed to a slide in oil production from its peak of 370,270 barrels of oil per day (b/d) in 1997 to about 242,000b/d in 2012, a decline of about 35%.
For 2013-2016, we project a slight increase in oil production from smaller oil projects. In particular, Total's planned developments, along with other new investment are expected to slow Gabon's rate of production decline in the short term. Much will depend on Total's offshore Anguille field redevelopment, which should see 21 new wells deliver an average of 20,000 barrels of oil equivalent per day (boepd) by 2015. This should maintain output at the field at around 60,000b/d mark until 2018. Other developments include Harvest Natural Resources' Dussafu field development which should be producing by 2016, Addax Petroleum's Tsengui and Obangue drilling programme, and the Autour field development. Regarding Addax's projects, recent seizure of these fields by regulators had seen output fall and threw long-term production profiles into doubt. However, In January 2014, Addax announced a settlement of the issue with the Gabonese government, and the signing of a new Production Sharing Contract for the three fields. We therefore expect the drilling programmes to go forward.
|Trend Of Decline Continues, But Offshore Long-term Upside Risk|
|Gabon Oil Production (000b/d)|
These small projects underpin our forecasts for Gabon's oil production to slightly increase from 243,560b/d in 2013 to a peak of 252,610b/d in 2015. However, output is again set to decline without new developments to support further growth.
Limited Short-Term Upside Risk
However, we note that there remains limited upside risk to our forecast for Gabon's crude oil production, with ongoing exploration and discoveries which could likely be developed, notably:
Vaalco Energy is moving forward plans to build two new offshore platforms in the Etame field, with first oil expected 2014, and a second platform on the Southeast Etame discovery and North Tchibala reservoirs. Production at the offshore Etame field began in December 2010, with a rate of some 3,600b/d. However, the operator is hoping for more offshore success with a number of prospects identified. An existing floating production storage and offloading (FPSO) unit offshore helps to de-risk activity from an infrastructure perspective.
Drilling should also take place in H213 on the Ovoka block, with Vaalco, Sasol and China Petrochemical Corporation (Sinopec) planning to spud an exploration well targeting 140mn barrels of oil. In September 2013, Vaalco revealed it had completed the well on the Ovoka licence after abandoning a well targeting the Ebouri field in June after water was encountered. Further upside from Vaalco comes from ongoing negotiations over the N'Gongui 2 discovery onshore in the Mutambu Iroru permit. Plans were afoot to tie the field into existing infrastructure for Total's Atora field.
Tullow Oil and Marathon Oil both announced ongoing deepwater exploration in their respective licenses. Perenco Oil is also evaluating subsalt prospects on the Arouwe licence with the Sputnik lead identified.
Stronger Long-Term upside Risk
We note that Gabon's chance at significantly rising its oil production lies in possible sub-salt offshore discoveries. Indeed, the result of Total's subsalt well in 2013, the first to be drilled in Gabon were encouraging. The company reported its Diaman-1B well intersected 49-55 metres (m) of net gas and condensate pay in the Diaba licence. The find is important for Gabon, which has seen less success in deepwater drilling campaigns than its West African neighbours. Reports indicate Total, alongside partners Cobalt and Marathon, are targeting some 250-800mn barrels of oil. While Total indicated the tests confirm the presence of a working hydrocarbon system, more liquids rich discoveries will be necessary if subsalt finds are to be developed, given limited commercial prospects for gas offshore Gabon.
Australian based Pura Vida announced positive results from an initial evaluation of the Nkembe block offshore Gabon. A review of four prospects on the block puts prospective mean recoverable prospective resources at 815mn bbl of oil. Gabon's deepwater acreage remains highly prospective and relatively underexplored with most production from shallow water or onshore basins. This could attract interest and bring-in much-needed investment that will be necessary if Gabon is to offset the continued decline in output from producing fields.
Above-Ground Problems The Largest Concern
While the country's deepwater and sub-salt potential could be promising, we note that the largest risk to oil exploration and development lies in the country's significant above-ground risks, which could stem investor interest.
Indeed, the government's approach to the oil sector has progressively switched over the past two years. We have witnessed a trend by which the government is pushing to expand its participation in the oil sector in the hope of generating more revenues and to ensure the maximum level of local participation to reduce recent domestic tensions and strikes. In 2013, the government announced that the newly-created Gabon Oil Company would be entitled to a stake of up to 15% in new licenses issued. The government has also transferred some of its fields to the company.
Gabon has also sought tougher terms for foreign companies operating in the country, with the recent conflict with Addax Petroleum serving as an example of the significant above-ground risks.
In addition, a delayed transparency oil law is a worrying sign for foreign investor in the country's oil and gas sector. The law is reportedly intended to bring in new transparency requirements for its natural resources sector. When considering that the country was recently removed from the Extractive Industries Transparency Initiative (EITI) following repeated delays to submit information, the delay in the new law and the announcement of harsher terms for companies does not send out positive signals to foreign investors. Reports have quoted a source from Total, one of Gabon's largest current producers , indicating that the new 2015 target date for the law was unsettling, as it would leave more time for government thinking to change ( see, 'Delay To New Oil Law Latest Worry For Troubled Sector,' December 16, 2013).
We note that this development adds to already disappointing licensing round results in November 2013. While Gabon was able to award prospective deepwater blocks to an impressive roster of companies, less compelling is that only 18 of 48 blocks were awarded ( see, 'Blocks Awarded But Challenges Endure,' November 1, 2013). We therefore maintain that the country's increasingly tough terms and push for more revenues from an oil sector already in decline, will likely put further suspicion on the part of foreign companies, and may warrant caution on exploration. Should the increasingly negative business environment not improve, this could further deter investments and result in a continuing long term downward production trend for Gabon.