Gabon: New Hydrocarbon Code to revitalise the oil & gas sector?

In order to attract new investment into the country, Gabon has recently adopted a new hydrocarbon code (Law n°002/2019 dated July 16, 2019 (the New Code)). This law is set to liberalise the market further from its predecessor (Law n°011/2014 dated August 28, 2014 (the Former Code)), with the aim of providing more attractive opportunities for companies looking to invest in Gabon’s oil and gas sector, particularly in a climate where oil prices are roughly half of what they were in 2014. The sector has suffered from limited interest since then, with only a few Production Sharing Contracts (PSCs) entered into. Although the right to explore, develop and exploit oil remains subject to authorisations granted by the State and the negotiation of a PSC, it is hoped that the New Code will set out some improved general parameters to galvanise investors in the absence of any major new oil discovery.

Whilst some aspects of the New Code are unchanged from the previous regime and will be familiar to those oil and gas companies already active in the region, there are some key differences offering financial incentives to developers. Significantly, State participation in the PSC can be halved (reduced from 20 percent to 10 percent) and the same reduction applies to the maximum stake the State can acquire in an exploitation company. Both of these measures should allow potential investors a greater degree of control over operations.

In terms of surface and mining royalties and production share of the State, different hydrocarbons will be taxed at different (and lower) levels. In general, gas will attract lower taxation and percentages of carry interest than oil, although in all cases, the rates are banded and subject to PSC negotiations rather than fixed percentages. There are also significant changes to corporation tax – under the Former Code it was paid (in cash or in kind) on top of the production share of the State, whereas now it is included in the production share and therefore payable in kind only – and to the treatment of cost oil, where the New Code allows a greater proportion of hydrocarbons to be offset against initial costs. Additionally, but the rates can be amended in exceptional cases, e.g., in marginal fields where no new discovery is made. These changes will help to reduce the risk profile and financial burden faced by companies. However, it should be noted that that rate of petroleum tax is yet to be determined, as it will be dealt with under a pending finance law.

The improved financial position and increased flexibility that the New Code presents has already had a positive impact on the market. Petronas, the Malaysian state-owned oil company, has recently signed an agreement with Gabon for two exploration permits, making it the first company to sign an exploration and production contract in the country in five years and citing the New Code as a driver for the deal. Gabonese officials hope that other oil and gas companies will follow suit in the near future.

As a final note, although Gabon remains a well-established producing country benefitting from a stable political environment and a strong presence of international oil companies, the currency exchange regulation nº02/18/CEMAC/UMAC/CM (the New CEMAC Regulation) of the Central African Economic and Monetary Community has recently entered into force¹. The New CEMAC Regulation has several requirements that are considered burdensome by IOCs, such as the obligation to repatriate export proceeds, and it can only be hoped that enforcement of the New CEMAC Regulation will not hinder the advancement of the oil and gas sector, which the New Code is aimed so squarely at achieving.

You can review the changes in more detail, with a helpful side-by-side comparison of the financial terms of the Former Code and New Code available here.