Gabon’s Oil and Gas Code a Game Changer for Revamped Exploration

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In line with the government’s goals to attract investment into offshore exploration, Gabon has modernized its regulatory framework through a revised oil and gas code implemented in July 2019.

Gabon’s oil and gas sector is managed and regulated by the Ministry of Petroleum and Hydrocarbons, which implements the government’s hydrocarbons policy. Gabon’s initial Hydrocarbons Code was signed in August 2014, in the midst of plummeting oil prices. Less than favorable market conditions, combined with a slow adoption of the Code and its decrees, translated into sluggish investments over the next five years and a failure to sign new agreements with explorers between 2014 and 2019.

Following revisions to the Code and its promulgation in early 2019, hopes are high that a revised and more flexible regulatory framework will translate into new capital and technology injections into the sector.

With an ongoing licensing round to wrap up in 2020, the new legal basis for the petroleum sector places an emphasis on heightened financial incentives for operators.

As a result, the New Code is expected to further liberalize the exploration market, with Gabon recording increased interest from previously non-established operators in the country. The right to explore, develop and exploit oil remains subject to agreements by the State of Gabon, but the new code sets out new parameters to galvanize investment, despite the absence of any major oil and gas discoveries recently.

In 2019, Malaysia’s state-owned oil company Petronas signed an agreement with the Gabonese government for two exploration permits, the first in five years for Gabon. Petronas’ management expressed that the New Code was a key driver in its decision-making. Since then, France’s Perenco, China National Offshore Oil Corporation and U.K.-based Assala Energy have all signed exploration agreements under the New Code.

While some aspects of the New Code are unchanged from the previous regime and will be familiar to those oil and gas companies active in the region, there are some key differences offering financial incentives to developers. Notably, State participation in production sharing contracts (PSC) can be halved, and the same reduction applies to the maximum stake that the State can acquire in an exploration company. Both of these measures seek to allow potential investors a greater degree of control over operations.

Under the revised legislation, fiscal terms notably include zero corporation tax and reductions in the government take for shallow and deep-water concessions. Surface and mining royalties and production shares of the State will be taxed at different and lower levels.

In all cases, taxation rates are made subject to specific figures related to the negotiation of the PSC. For shallow blocks, royalties are down from 13% to 7%, and down from 9% to 5% for deep-water operations. However, gas exploration will generally attract lower taxation rates and percentages of carried interest than oil. State profit has been reduced, down from 55% to 45% for shallow blocks, and down from 50% to 40% for deep-water. The New Code also includes changes to the corporate tax scheme. Previously, corporate tax was paid in cash or in kind on top of the State’s production share.

Within the new framework, corporate tax is included in the production share and payable in kind only, allowing a greater proportion of hydrocarbons to be offset against initial costs. These amendments are set out to reduce the potential risk for companies and alleviate the financial burden of exploration campaigns. The rate of petroleum tax is yet to be determined and will be included in the pending new finance law.

Despite these major improvements and regained attractiveness of Gabon’s oil and gas upstream sector – along with Gabon’s well-established producing framework, political stability and strong presence of international companies – newcomers should be aware of the recent entrance of the currency exchange regulation of the Central African Economic and Monetary Community (CEMAC).

Aimed to further strengthen financial performance and transparency of the petroleum sector, the new CEMAC regulation brings in several requirements considered burdensome for integrated oil companies, such as the obligation to repatriate export proceeds.

Gabon’s oil and gas sector revitalization strategy remains welcomed by established operators, as well as investors eyeing central African long-term producers, whose ambitions had been tamed by an outdated fiscal regime. The new code has enabled Gabon to be more competitive in undertaking increased petroleum production through potential offshore discoveries while sustaining current production levels.

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