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Viktor Katona

Viktor Katona

Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest. Disclaimer: views set…

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Is This Africa’s Next Big Oil Frontier?

Africa seems to be emerging as the prime drilling spot for the early 2020s – it is still relatively under-evaluated, would be cheaper than any other domestic project for Western or Russian majors (i.e. Arctic oil or deepwater) and seemingly would not be subject to the socially sensitive climate agenda issues that are restricting E&P activities in OECD countries. Thanks to a palpable amelioration of upstream terms and conditions, Gabon is returning to the global map of E&P investments – very timely going in the opposite direction of Nigeria’s recent drive to tax offshore projects more. Can Western majors join the competition with Asian oil and gas firms and outmuscle competitors?

Were you to assess Gabon’s upstream code some 5 years ago, one would witness an increasing amount of political tensions between the Gabonese authorities and Shell, Total, Tullow Oil and other European investors. Then-Prime Minister David Cameron even went as far as to address a personal letter to President Ali Bongo, stating that the latter’s $100 million back-tax claims were unsubstantiated and that both sides would be better off if international operators would have full freedom to choose whom they employ for appraisal-related activities like seismic surveying. This came on the back of a 2014 fiscal regime tightening by the Gabonese government, which chose to act in a predictably rigid way when confronted with the ramifications of a price freefall.

Now Gabon has seen a rather unexpected flurry of upstream activity, having awarded two offshore blocks to the Chinese CNOOC in November, bringing the total of E&P allocations in the past four months to 7, more than double of the past four years’ aggregate. The root cause of such bright developments can be traced back to the new amended 2019 Petroleum Code. All the novelties it brought about – the elimination of the 35 percent corporate tax, the capping of state participation at 10 percent and decrease in royalty rates by 3-4 percent, as well as the prolongation of offshore exploration periods and many others – escalate Gabon from one of the least active performers of the 2010s into one of the potentially most interesting upstream regions of Africa. Related: Why Hasn’t Hydrogen Gone Mainstream?

Source: OilX, OPEC.

As often with African countries, the political will to sweeten contractual terms for international oil companies came about only after some disappointing results – in case of Gabon, the main (evident) reason behind it were the disappointing results of the 12th licensing round planned for 2018, including both shallow and deepwater blocks in Gabon’s offshore. The licensing round was bound to be wrapped up in April 2019 yet due to weak interest was postponed thrice, with a current deadline of January 10, 2020. President Bongo Ondimba’s health issues (suffered a stroke in late 2018) might have promoted the liberalization drive, too, as after the unsuccessful coup attempt the convalescing President must reconvince investors that Gabon is safe for investors wherever they come from.

Simultaneously with the abovementioned changes that effectively bring back the pre-2014 terms, Petronas’ drilling successes have also improved Gabon’s upstream stature. Just when it seemed that Gabon’s golden days are over – in both 2015 and 2016 there were no exploration wells drilled whatsoever, whilst 2017 only saw one – Petronas’ Boudji-1 well, spudded March 2018 in some 2800 meters of water, hit a 90-meter high-quality pre-salt column. Although rumours persisted that the Boudji discovery, along with another pre-salt find by Repsol (Ivela), was balancing on the brink of commercial viability, the Malaysian NOC claimed that its appraisal well corroborated their positive expectations from the field.

Perhaps confirming the positive indications, Petronas took up two more blocks in Gabon’s offshore this August – blocks F12 (Yitu) and F13 (Meboun) blocks are located up north to Petronas’ F14 (Likuale), up-dip from Boudji. Petronas has already presented its future drilling schedule – it seeks to drill the Jove Marine well in Q4 2020 in Block F13, to be followed up with Mbama, expected to be spudded in Q3 2021 in Block F12. Both are in shallower waters – Jove Marine is in 2000 meters, whilst Mbama is in mere 700 metres –thus should these formations confirm that Gabon’s offshore contains better quality sands than the onshore, Petronas might be on the roll in West Africa. Related: Another Oil Major Bails On Marcellus Shale

Graph 2. Gabon Offshore Blocks.

Source: Offshore Energy Today.

Buoyed by Petronas’ drilling, the Chinese offshore firm CNOOC signed up for two blocks previously owned by Royal Dutch Shell (BCD09 and BCD10), confident that the 2014 discovery of the Leopard well (200 metres of net gas pay, similarly in a pre-salt reservoir) will be only the beginning. Another noteworthy firm in Gabon’s offshore is Assala Energy, a Carlyle Group-owned subsidiary focusing primarily on Gabon – Assala bought Shell and Total’s onshore blocks in 2017-2018, adding 3 new blocks in October 2019. All of the new acreages (Mutamba Iroru, Nziembou, Ozigo) are located in the onshore Gabon basin, with the management hoping that drilling results would render Assala’s production portfolio less mature.

Beyond any doubt, there is still ample space for improving things in Gabon. The country still hosts only one refinery, the 20kbpd Sogara Refinery commissioned more than 50 years ago and still operating at a very low level of sophistication – despite prolonged talks with South Korean firms on a long-needed refinery revamp. Gabon should also appreciate its gas reserves more – heretofore some three-quarter of gas produced was either reinjected or simply flared – and not necessarily for domestic use since most of the country’s foreseeable energy demand could be satisfied with new hydropower projects (the country has around 6GW worth of untapped hydro potential). Above all else though, Gabon needs to guarantee the firmness of its upstream terms which rank it only below Angola on the list of W-African oil-producing countries.

By Viktor Katona for Oilprice.com

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