Prospectivity Hit By Business Environment Woes Ahead Of Bid Round

BMI View: Recent offshore exploration underscores the potential of Gabon's deepwater and , in particular , its sub-salt acreage. However, interest in a planned June 2013 licensing round may be damaged by recent moves by the government. The efforts are attributed to reversing decades old patronage, but have been interpreted by some in the industry as resource nationalism.

Australian based Pura Vida ann ounced positive results from an initial evaluation of the N kembe block offshore Gabon. A review of four prospects on the block puts prospective mean recoverable resources at 1.0 2bn barrels (bbl) . Although promising, the resource potential of the Nkembe will only be confirmed by drilling . Pura Vida will continue additional 3D seismic surveys over the course of the year with an aim to ward sizing up other prospects and plays.

The promising assessment should help Pura Vida with a planned farm - out that will raise funds for drilling operations. A data room is to be opened soon . Interest in the Pura Vida's stake offshore Gabon may also be supported by a discovery earlier in 2013 : the 20mn bbl Loba M1 sub- salt find , which is near recently assessed prospects on the Nkembe block. At the time of the discovery, Pura Vida noted that shallow water and existing nearby infrastructure supported Loba 1's commercial potential.

Prospective Recoverable Resources For Nkembe Block
Prospect Resevoir P90 P50 P10 Mean
Source: Pure Vida
MVIM West Sub-Salt (Gamba Fm) 247 588 1102 639
POM Deep Sub-Salt (Gamba Fm) 89 205 381 225
Lepidote Deep Post-Salt (Anguille Fm) 61 120 219 131
Loba Deep Sub-Salt (Anguille Fm) 14 24 35 24
Total (Gross) 1019
Net to Pura Vida at 80% 815
Hopes For Share Price After Gabon News
Pure Vida Share Performance (AUD)

Recent events underscore the remaining potential of what is a mature oil producer. These include among others Harvest Resources appraising a recent sub-salt find, Total drilling the Diaman-1 well targeting resource potential of 2.25bn bb l south of the Nkembe block and Royal Dutch Shell recently announcing it would forgo a costly move into East Africa for a stake in West Africa's subsalt plays including Gabon ( see, 'Shell Seeks Shelter From Above Ground Woes,' June 4 ) . Gabon's deepwater acreage remains highly prospective and relatively underexplored with most production from shallow water or onshore basins .

In 2010, a licensing round was due to include 42 deepwater and ultra - deepwater blocks centred on sub-salt prospects but was delayed to allow for regulatory changes. With sub -salt discoveries seeming to confirm the country's potential, and interest already high the back of geologic similarities to Atlantic margin plays Brazil and Ghana, Gabon's upcoming bid round could attract strong interest. This p articularly the case given a number of major international oil companies (IOC's) with an existing presence.

Given major fields are in decline, new exploration and production is essential given that according to BMI 's country risk team oil continues to account for 71.1% of exports and over 50% of government revenues ( see, 'Current Accounts Forecasts Upgraded,' May 23 ). Our current forecast calls for output to fall nearly 12% from 2012 to 2022 as reservoirs further deplete and the upside from brownfield and greenfield projects remains small based on announced projects.

Output Stumbles Despite Sub-Salt Potential
Gabon Total Oil Production & % Change y-o-y ('000b/d)

The key risk to momentum in Gabon's offshore lies with its business environment. Following a sector wide audit over 2011 and 2012, the government has moved toward a more assertive position. The most notable case is an ongoing dispute with Addax Petroleum , acquired by China Petrochemical Corporation ( Sinopec ) in 2009 . According to regulators, Addax breached contract terms and will not see its stake at the Tsiengui field renewed once it expires in 2015. In January, the government cited similar contract breaches in taki ng control of the Obangue field from Addax, which rejects the claims. A judicial review panel has now been set up to oversee the dispute.

However Tseingui, now managed by the state owned Gabon Oil Co (GOC) which was created in 2011, has seen output drop from 12,000b/d to below 6,000 with workers and local communities dependent upon revenues generated by the field expressing frustration at the gove rnment . Yet with Gabon's oil minister , Etienne Ngoubou, suggesting two other oil companies will face a 'partial reclamation of assets' as officials 'have proof of irregularities ' the row may not be over. While the other firms facing actions were not revealed, it was reported that the country's two largest producers - Total and Royal Dutch Shell - would not face sanctions.

Gabonese officials attribute the recent approach on contracts as part of larger effort to undo previous patronage and gain more equitable terms as the country seeks to boost development and raise living standards. Although less noble motivations have been offered, particularly with newly created GOC set to manage seized fields and with the most important IOC's at present unlikely to face similar risks. The revisions may be away for GOC to garner more revenues and control of the sector without formal renegotiation process.

However with corruption endemic in the country, a push for more transparency would likely be welcomed, but the reaction has been the opposite. Operators in the country have expressed concern over the seizure of fields and push for better terms. Regardless o f the true motive behind the government's actions, that these events come so close the licensing round in June is a net negative for the sector. The manner in which the government has chosen to handle the disputes underscores the uncertainty of the sector as efforts are made to boost government control. Indeed this could see some otherwise interested part i es stay away from the licensing round or dampen farm-out prospects for Pure Vida.

This article is tagged to:
Sector: Oil & Gas
Geography: Gabon

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