Oil majors divesting Gabon: A blessing in disguise?

Lower oil prices have made Gabon’s task of reversing a decline in production almost impossible. Investments have slowed and drilling has practically stopped. Since prices started spiralling down in June 2014, at least 2,500 jobs have been lost in the sector, according to the country’s oil workers union Onep.

Gabon, which rejoined Opec last year, produced around 200,000 b/d in January, Argus estimates. Its output peaked at 365,000 b/d in 1997. And the fact that Total and Shell have put some of their mature assets in the country up for sale could easily be seen as bad news for the country. One might think production is set to dwindle further as majors divest.

Total has just agreed to sell stakes in 12 mature oil fields in Gabon to Anglo-French independent Perenco Energy for $350mn. The French major is divesting almost all of its onshore assets and its 100pc interest in the Rabi-Coucal-Cap Lopez pipeline as part of the deal. The company will lose around 13,000 b/d of production from the sale.

Shell is currently in advanced talks about the sale of its onshore operations in the country. Perenco was among the contenders for Shell’s assets. But investment firm Carlyle has emerged as the frontrunner.

Far from being a curse, the departure of Total and Shell could well be a blessing in disguise for the country’s output, as the majors’ assets are being snapped up by more nimble firms. Oil majors move on when assets are past plateau production. They are not geared to operate and invest in mature fields. And production tends to decline.

Smaller companies can put more emphasis on the maintenance of those assets. And increased maintenance can contribute to push production up. Perenco, which has the lowest unit production costs in Gabon, has made developing mature fields in a lower price environment its specialty.

Other firms are looking to do the same in the country. Even if Gabon’s production is unlikely to increase radically following the change in ownership of the more mature fields, the spiral of decline may well be halted.

But for Gabon to truly reverse production decline, it will have to unleash its pre-salt potential. And the good news is: Shell and Total are both holding on to their deep offshore assets. Total will hold stakes in 14 fields in Gabon, including the deep offshore field Diaba block, after the transaction completes. And the company will still hold its operating stake in the Cap Lopez oil terminal.

Oil majors are not leaving Gabon altogether. True, the oil industry has emerged leaner from almost four year of crisis and rig rates have tumbled. But oil prices will have to move higher before firms dare to risk drilling deeper in areas that remain to be explored.

US independent Harvest Natural Resources is leaving the country, as it was struggling to fund its development plans for the pre-salt Ruche oil field, in the offshore Dussafu block. Harvest’s shareholders approved the sale of the company to BW Energy Gabon on 24 February.

But when the storm is over oil majors might be best placed to take the plunge.

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