New Market Research Report: Gabon Oil & Gas Report Q3 2013

Supported by field redevelopment and to a lesser extent the upside from the start of some small new fields, we expect a slight increase in Gabonese oil production over the short term. However, we expect that around the impact of these projects will dissipate by mid-decade, with output again falling as the decline from mature fields fails to be offset by new volumes. While we see upside to this outlook from new discoveries or unannounced plans, the long-term outlook for Gabon's oil supply will be tied to offering new acreage, with the country's deepwater and subsalt acreage seen as highly prospective. However, this bid round has already been delayed and with little activity to report, the previously targeted June date looks set to slip. Moreover, with longstanding concerns about corruption and labour relations, the most recent developments - which have seen fields seized by the authorities - underscore concerns regarding the business environment, which could see otherwise interested parties hesitate to invest in the revival of Gabon's flailing oil sector.

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The main trends and developments we highlight for Gabon's oil and gas sector are as follows:

* While we expect some near-term gains in oil production, the long-term trend for Gabon's oil production is for decline as production falls from mature fields and fails to be offset by new volumes. We expect output to average 243,000 barrels per day (b/d) in 2013, before falling to 235,000b/d in 2017. While at present, we see more downside than upside risk to these figures, we note that a series of recent discoveries in Gabon's deepwater and increasingly subsalt acreage underscore the untapped potential of the country despite its status a mature producer.
* However, unlocking this untapped potential will require greater clarity over fiscal and tax regimes. Although terms were to be reformed to offer greater incentive for investment in exploration and production, falling production seems to have encouraged contradictory policy, with oil minister Etienne Ngoubou confirming that the goal of fiscal reforms was to increase the share of oil profit remaining in Gabon to 35-45% in 20 years. He estimated that less than 20% remains currently.
* The government would also expand its role in the sector with the newly created Gabon National Oil Company receiving 10-20% equity stakes in both new acreage and as part of the renewal of existing licences.
* More industrial action, which saw the oil workers union strike for several days in March, underscores the enduring threat of labour tensions to operations. Although officials and operators downplayed the impact of a week-long strike in March, the frequency of labour action and prospects that the government may overreact and further undermine confidence in the country's business environment support our view that elevated above-ground risks remain a key threat to investment in Gabon's oil sector.

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