Gabon: Energising a new framework
Gabon has begun to outline some of the principal components of its long-awaited new hydrocarbons code, which aims to refresh the sector’s existing regulation, increase public revenues derived from production and improve the attractiveness of its maturing oil resources.
While the specific regulations and incentives of the new code have yet to be released, Étienne Ngoubou, the minister of mines, energy and petroleum, laid out its main elements in a public statement in October. The code’s timeline has not been outlined. One of the primary objectives of the new law is to capture a larger percentage of oil sector revenue to boost budgetary support for public investment programmes and encourage greater participation from national companies in the industry.
Gabon already has several measures in place to harness oil revenue for the advancement of its economic development goals. Since 1975, oil companies have had the option to pay part of their required income taxes into development funds, such as the Provision pour Investissements Diversifiés (PID), a public fund dedicated to economic development projects, and the Provision pour Investissements dans les Hydrocarbures (PIH), which finances investments specifically related to the development of the oil and gas industry.
Funding was recently disbursed from the PID and PIH to support the renovation of the runway at the Port-Gentil International Airport, the main aviation link for the country’s oil capital, and the construction of new roads to the city of Gamba – both key infrastructure improvements for oil-producing regions.
Furthermore, Gabon restructured its Fund for Future Generations in February to launch a sovereign wealth fund (SWF), which will receive a key part of its capital from the hydrocarbons industry. Some 50% of revenues above the benchmark oil assumptions set in the annual budget will be transferred to the SWF; once it reaches the target capitalisation of €784.2m, three-quarters of income from SWF investments will be transferred to the treasury for budgetary support. Funding from the SWF is expected to go toward the development of infrastructure in high-potential sectors, such as ecotourism.
The moves come on the back of other changes to strengthen the state’s strategic role in the sector. Currently the Ministry of Mines, Energy and Petroleum estimates that less than 20% of hydrocarbons profits remain in Gabon. To adjust this under the new code, the government is expected to hold a stake in all new exploration and extraction operations following the recent creation of a national operator, the Gabon Oil Company (GOC). Through this and other measures yet to be announced, the government aims to retain 30% of oil profits in the next five years, and to increase this to 35-45% in the next 20 years.
However, Ngoubou also highlighted the government’s commitment to attracting new investments in so-called “frontier” oil and gas exploration in Gabon’s deepwater offshore blocks, which are situated on the edge of the oil-rich Gulf of Guinea. This is crucial given the mature state of many of Gabon’s existing fields and the forecasts for declining production in the medium-term. As a result, the new code is expected to provide a competitive incentive structure for offshore drilling. The current hydrocarbons code, which dates back to 1962, is considered to be poorly adapted to today’s regulatory and industrial framework. In June, Ngoubou cited the outdated code as one of the reasons for the suspension of the 10th tender round for Gabon’s offshore blocks, which has stagnated since October 2010. The ministry indicated that the finalisation of the new code should permit individual negotiations for the allocation of the remaining blocks to restart.
While uncertainty over regulatory frameworks and exploration terms has stalled investment in other countries – most obviously in Nigeria, where the lengthy multi-year debate over the Petroleum Industry Bill has led to a drop in capital spending from most foreign operators – in spite of the limited details of its pending code revision, Gabon has continued to see a steady if modest flow of capital into new projects.
Total Gabon, a local subsidiary of the French IOC, launched operations at a new oil platform on the Anguille Marine Nord field in May, with production set to begin in 2013. The new platform is expected to increase Total’s production on this already mature field. A redevelopment programme launched on the Anguille field has gradually introduced new infrastructure that should increase the capture of oil by 13-23%, as well as prolong the life of the field’s resources. Overall investment in the field reached CFA2bn (€3.05m), according to government figures.
Meanwhile, UK-based Tullow Oil – who is a lead partner in the consortium developing Ghana’s massive Jubilee field further north in the Gulf of Guinea, and holds a stake in 18 offshore licences in Gabon – announced in September that it is preparing to begin oil exploration off the coast of Cap Estérias, 30 km north of Libreville. Following the completion of environmental studies, Tullow is set to launch three exploratory wells on the Kiarsseny Marin licence. Overall, the operator announced it is planning CFA93bn (€141.7m) in investment in its Gabon operations in 2012, up 16% year-on-year.
Continued activity by foreign partners and efforts to maximise resources from more-mature fields bode well for short-term activity. In the meantime, the government’s effort to take on a more active role in sector operations through several channels should help to more effectively funnel the country’s resource wealth into national development projects. However, as oil resources gradually decline, Gabon will also need to ensure that the incentives offered under the new code are sufficient to stimulate new investment projects in the coming years.