Business Environment To Weigh On Auction Success
BMI View: Recent discoveries and Eni's entry into the underexplored Cuvette Basin could attract interest in an expected licensing round to be launched in Congo-Brazzaville in early 2014. A successful licensing round and the exploration and production activity it could bring about pose upside risk to our forecasts for the country's oil reserves and production. While the country's offshore and onshore acreage could be attractive for producers looking into less explored areas, the country's poor business environment could see limited participation from players new to the market.
The Republic of Congo (Congo-Brazzaville) is planning a new licensing round that could offer 10 blocks both onshore and offshore. This could be launched by early 2014, according to Alfred Charles Sockath, upstream head of national oil company (NOC) Societe Nationale des Petroles du Congo (SNPC). Three of these blocks will be in the Cuvette Basin while the other seven are still being decided. Blocks offered would include shallow water licences previously held by firms such as Total and Eni. Further details were available at the time of writing.
Rekindling A Congolese Rush
A series of discoveries in the past year could rekindle interest in Congo-Brazzaville's oil sector, which has been plagued by falling crude oil output since its peak of 312,000 barrels per day (b/d) in 2010. Despite an increase in associated liquids output from natural gas production, the country has been unable to reverse the overall downward trend. According to the US Energy Information Administration (EIA), oil reserves have remained flat since 2009, and without new additions we forecast reserves to fall from 1.6bn barrels (bbl) at the start of 2013 to 1.01bn bbl by 2022 at the current rate of production and discovery.
|Congo-Brazzaville Total Liquids Production (LHS, '000b/d) & Proven Oil Reserves (RHS, bn bbl)|
However, there has been encouraging signs in recent months, with several discoveries made:
August 2013: Eni announced oil and gas discoveries made in two shallow water wells, which the Italian firm estimates could hold around 600mn bbl of oil and 19.6bn cubic metres (bcm) of gas-in-place (see 'Eni Find Boosts Production Outlook', August 6);
September 2013: Oryx Petroleum hit oil and gas at its offshore Elephant prospect in the Haute Mer A licence (see 'Discovery Points To Long-Term Offshore Potential', September 11).
These discoveries show that there is potential remaining in Congo-Brazzaville. In particular, firms diving deeper into offshore West Africa hoping to ride on the subsalt and deepwater discoveries made along the Atlantic Fairway Margin could be interested in offshore blocks offered in this new licensing round. Congo-Brazzaville's geography - lying adjacent to oil-rich Angola - would make it an attractive option to more heavily-explored countries, where more stringent licensing terms have emerged alongside more established hydrocarbon potential.
Equally significant is Eni's push to explore the onshore Ngolo block in the Cuvette Basin, which was made official through an exploration licence issued by the Ministry of Hydrocarbons to the Italian company and its pratner SNPC in July. Eni stated at its press announcement that the basin is 'so far little explored' and 'is one of the new themes of frontier exploration in Africa'. The major oil producer's interest could also prompt other companies to also take a closer look at the onshore potential of Congo.
Same Old, Same Old
A successful licensing round, which would pave the way for greater exploration and production possibilities, poses upside risk to both our reserves and production forecasts. While interest may increase, its business environment may deter new entrants into the market. In the World Bank's 2014 Ease Of Doing Business ranking, Congo-Brazzaville placed 185 out of 200 countries surveyed, and ranks 44th out of 47 countries in sub-saharan Africa. It scores particularly poorly for the following categories:
Starting a business: It takes about 101 days on average to start a business in Congo-Brazzaville, compared to 29.7 days for the sub-saharan African average and 11.1 days for OECD countries;
Paying taxes: The total tax rate as a percentage of profit is 63.8% in Congo-Brazzaville, compared to an average of 53.3% in sub-saharan Africa and 41.3% in OECD countries. An ambiguous 'other taxes' take up the biggest share of taxation in Congo-Brazzaville.
|Congo-Brazzaville's Difficult Business Environment|
|Ease Of Doing Business Ratings|
As such, interest in Congo-Brazzaville's new licensing round is likely to continue to come from existing players familiar with the country's business environment. These include large and influential international oil companies (IOCs) such as Eni, Total and Chevron, significant independents Perenco and Maurel & Prom, as well as Africa-centric independents such as Ophir.