Identifier
Created
Classification
Origin
09LIBREVILLE506
2009-11-17 12:45:00
CONFIDENTIAL
Embassy Libreville
Cable title:  

GABON: U.S. OIL COMPANY SELLS ASSETS DUE TO OIL

Tags:  EPET ENRG EIND TPHY GB 
pdf how-to read a cable
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C O N F I D E N T I A L SECTION 01 OF 02 LIBREVILLE 000506 

SIPDIS

DEPARTMENT FOR AF/C FOR LISA KORTE

E.O. 12958: DECL: 09/24/2019
TAGS: EPET ENRG EIND TPHY GB
SUBJECT: GABON: U.S. OIL COMPANY SELLS ASSETS DUE TO OIL
SECTOR TRENDS

Classified By: Ambassador Eunice Reddick for reasons 1.4 (b) and (d)

C O N F I D E N T I A L SECTION 01 OF 02 LIBREVILLE 000506

SIPDIS

DEPARTMENT FOR AF/C FOR LISA KORTE

E.O. 12958: DECL: 09/24/2019
TAGS: EPET ENRG EIND TPHY GB
SUBJECT: GABON: U.S. OIL COMPANY SELLS ASSETS DUE TO OIL
SECTOR TRENDS

Classified By: Ambassador Eunice Reddick for reasons 1.4 (b) and (d)


1. (SBU) Summary: U.S.-owned Marathon Oil sold its permits
and holdings in Gabon to a French company, but will continue
to monitor its exploration of offshore blocks from Houston.
This move effectively discontinues Marathon's active
operations on-the-ground. Another U.S. company, Vaalco,
remains and has increased its commitment in Gabon.
Nonetheless, diminishing oil production has cut into
government revenues for Gabon, which makes revitalizing the
oil sector and encouraging new investments important
priorities for newly-installed President Bongo. End Summary.
--------------
BACKGROUND: WHERE IS THE OIL?
--------------


2. (C) Despite attempts to diversify, Gabon is still heavily
reliant on its petroleum sector, which accounts for 82% of
exports and approximately 65% of revenue. The government has
stated it wishes to expand other economic sectors including
tourism, mining, fishing, and timber, but multiple factors
hinder private investment and growth. Diminished production
in the well-mined oil fields of Gabon underscores the need
for diversification. In 1997, production was approximately
370,000 barrels per day (bpd). Twelve years later, this
figure is estimated to be closer to 235,000 bpd. Business
Monitor International stated in their 2009 report that "Gabon
is neither a significant regional producer nor consumer of
gas." They also forecast a decrease in production over the
next decade of 11.3%.


4. (SBU) There is a general consensus among local branches of
oil giants that the significant decrease in production can be
partly attributed to the exploitation of the same sites and
lack of development of new ones. Many players believe that
once the "below the salt" surveying process is refined, there
will be a renewed oil boom offshore. However, without more
players exploring onshore as well as offshore, the petroleum
sector of Gabon will continue to suffer diminished revenues.
In addition, wider economic diversification requires improved

fiscal policies, institutional capacity-building,
infrastructural improvements, and the curbing of corruption.


5. (SBU) Gabon is expected to launch an oil licensing round
for more than 40 blocks from two of its deepwater basins in
May 2010. Also in 2010, oil firms operating in Gabon will be
banned from flaring gas, according to a government
spokesperson. The government will seek to use new
technologies to recover the gas, and also increase LNG
production.

--------------
GOODBYE, MARATHON
--------------


6. (U) Marathon's physical departure from Gabon takes place
against the backdrop of the stagnating oil sector and its own
technical limitations. On August 28, Marathon Oil signed an
accord with Perenco which signs over all their Gabonese
interests and assets, including permits, to the French
company. The contract was ratified by the Gabonese Ministry
of Energy on September 23. Included in the deal are the
contracts of 85 Marathon employees.


7. (C) Stephen Lum, the head of Marathon,s operations in
Gabon, explained the company's decision to sell its active
holdings to Perenco as tactical. He claimed Marathon was
"not disenchanted with Gabon" and he said that Marathon has
devoted almost $10 million in the last year alone in seismic
and deepwater evaluation of Gabon,s potential deposits.
Marathon, present in the country since 1993, has exhausted
its current holdings and has encountered unspecified
"technical difficulty" in extracting more. Perenco is better
equipped to handle the technical challenges of Marathon,s
sites, according to Lum. Marathon will continue to explore
Gabonese waters from their base in Houston rather than
maintain a local operation. Lum stated that the transfer of
financial and administrative assets should be completed by
the end of 2009.

--------------
HELLO, PERENCO
--------------


8. (U) Perenco began operations in Gabon in 1992, with the
acquisition of two offshore fields south of Port-Gentil. The
former production is officially given as 50,000 bpd utilizing

LIBREVILLE 00000506 002 OF 002


29 offshore and onshore licenses, but estimate the new
holdings will increase their production by 15,000 bpd.
Perenco has been aggressively developing new reservoirs, and
this new acquisition is in line with their recent expansions,
including the Loche East Field site in 2007. Its partnership
with the Gabonese Government is strong, as it is the gas
provider to the power plants in Libreville and Port-Gentil,
which results in approximately 680,000 cubic meters of gas
per day used. Perenco also works closely with Total Gabon.

--------------
VAALCO'S PAYOFF
--------------


9. (C) Another U.S. company, Vaalco, is staying in Gabon.
It has invested significantly in exploratory drilling both
offshore and onshore in Gabon, and despite setbacks, recently
discovered a successful development well expected to increase
its production significantly. In 2008, Vaalco invested $14.9
million in exploration, spending $2.5 million alone on
unsuccessful Gabonese prospects. Undeterred, Vaalco
allocated additional funds in early 2009 for more exploratory
drilling in Mutamba, which is a promising onshore
development, as well as a new prospect offshore. Its methods
have reaped recent rewards, with a successful discovery in
late 2008 in Ebouri field which started production in April

2009. The new well set a production record for the company,
with 24,993 bpd from the Etame Marin block, a statistic which
is now the average for the site.

--------------
COMMENT
--------------


10. (SBU) Gabon's oil sector has languished due to
overexploitation and new technological needs, but Vaalco's
new wells indicate that persistence and willingness to
explore additional sits could have a long-term payoff for
U.S. companies. Economic diversification is high on the new
President's agenda, but encouraging new investment in the oil
sector will remain a critical priority as he attempts to put
Gabon back on sound economic ground.
REDDICK