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Total Scores Another Pre-Salt ‘Win’ in Gabon

France’s Total SA has made a pre-salt gas discovery in the deep-waters off Gabon, following on pre-salt oil finds earlier this year, which could galvanize investment in the country’s pre-salt potential, but only if we see more oil and less gas.  

In mid-August, Total (TOT) announced an accumulation of gas condensate in a pre-salt layer of the ocean bed, some100 kilometers off the coast of Gabon.

The Diaman-1B successfully confirms the existence of a working petroleum system and is the first discovery drilled in the deep-water portion of the pre-salt play. The Diaman-1B well was drilled to a total depth of 18,323 feet in approximately 5,673 feet of water. The find is about 60 miles from the nearest pre-salt discovery made earlier this year by Total.

For now, there are no details as to the scale of the discovery, as Total is still analyzing the data.

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Total Gabon is the operator of the license, with a 42.5% working interest. Marathon Oil holds a 21.25% non-operated working interest, while Cobalt International Energy has a 21.25% percent stake and the government of Gabon retains 15%.

Earlier this year, Total made oil discoveries in pre-salt layers off the coast of Gabon and Cote d’Ivoire.

Spurring optimism over Gabon is the pre-salt potential of Angola, which is analogous to pre-salt darling, Brazil.

But this second find for Total brings to light the gas potential, rather than the already snowballing oil potential, and while the excitement is still there, the hope for another oil find, rather than a gas find dulls the fervor a bit.

Indeed, shares in Marathon and Cobalt both fell on the news of the gas discovery. It’s not a huge find, and it’s not oil.

It’s an expensive drilling endeavor that will be more challenging economically and commercially than oil extraction. So far this year, Total has reportedly spent $922 million on development in Gabon, which represents a 20% increase over expenditures last year.

Gabon, however, is confident that gas will prove another boom for its economy, and it’s already preparing for another licensing round later this year for new oil and gas blocks.

Related Article: Looking for the Next Mega Oil Play

What investors should be wary of is contractual uncertainty here. Investors warily eyed the Gabonese government’s decision in December 2012 to cut Addax Petroleum—a subsidiary of China’s Sinopec—out of a production-sharing agreement on accusations of corruption, tax evasion and violation of contractual obligations.

This led to the creation, in 2011, of Gabon Oil Company, a national organization tasked with managing state shares in oil companies operating on its territory. Now it’s branching out into production on its own. It is 60% owned by the Gabonese government and plans to produce its first oil next year.

This is not necessarily a bad thing, especially for Gabon, but it is the country’s transition from a passive to an active role in oil and gas exploration and production, and transitions can be shaky periods of uncertainty.

By. Charles Kennedy of Oilprice.com




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