Gabon Oil and Gas Report Q3 2012

BMI View: Gabon must tempt new investment in exploration and production or face a decline in output as fields mature. We expect oil volumes to fall from 241,000b/d in 2012 to 234,000b/d by 2016. The government does appear to be making efforts to improve the country’s upstream environment by establishing more flexible licensing terms and a favourable tax code. However, the industry continues to be dogged by labour unrest over the level of foreign involvement. This may scare potential investors away and thereby quicken the rate of decline, raising downside risks to our forecasts.

Main trends and developments we highlight for Gabon’s oil and gas sector are as follows:

BMI expects oil production to fall from 241,000 barrels per day (b/d) in 2012, to 234,000b/d in 2016, as fields mature. That rate of decline may prove to be too optimistic if labour unrest continues and no new exploration and production investment emerges.

We expect new investment in exploration will be driven by subsalt successes in areas with similar geology on both sides of the Atlantic transform margin. However, at this stage few new drilling campaigns have been announced so BMI has left its oil reserves forecasts unchanged.

Consumption of crude is likely to rise very gradually and from a low base. We expect demand to rise from 14,000b/d in 2012 to 15,000 by 2016. This level remains within the limits of the existing 24,000b/d Port-Gentil refinery.

BMI estimates that gas production will continue to rise in line with consumption over the next decade. Indeed, the government is likely to increase the use of gas in power generation now that basic infrastructure is in place to harness and transport associated gas volumes to the main consuming markets. As demand rises, we are likely to see a gradual fall in the amount of gas lost through flaring, which could push marketed volumes to as much as 0.27bn cubic metres (bcm) by 2021.

The dispute between the government and local union ONEP remains the most significant risk to our forecasts. Ongoing discussions between the union and the government have averted a second strike but there is a risk of re-escalation. The unrest has damaged Gabon’s upstream business environment, making a speedy settlement essential. However, the government will have to steer a difficult course between ameliorating the concerns of the powerful ONEP union, while not alienating foreign oil companies through reactionary and populist regulatory reform.

At the time of writing we assume an OPEC basket oil price for 2012 of US$111.47 per barrel (bbl), falling to US$107.00/bbl in 2013. Global GDP in 2012 is forecast at 2.6%, down from an assumed 3.1% in 2011, reflecting a faltering recovery in the US and an uncertain eurozone debt situation. For 2013, growth is forecast at 3.3%.