'Signal to investors': Gabon junta goes for broke with $1.3 bil Assala oil pre-emption

In 2014, Swiss trader Glencore lent Chad $1.4 billion in a cash-for-crude deal to help its national oil company buy Chevron's upstream and midstream assets in the Central African country.

Soon after, the oil price crash left Chad struggling to meet its repayments. A decade on, the coup-hit nation still owes Glencore hundreds of millions of dollars.

Analysts and investors say a similar situation playing out in West Africa is giving them deja vu.

Five months after seizing power in a coup, Gabon's new government is tapping up trading houses to help it finance a $1.3 billion deal for Carlyle's oil company Assala, thwarting a bid accepted last year from France's Maurel & Prom (M&P).

While some investors say the first oil sector intervention since August's coup is doomed financially, politically driven and injurious to the OPEC member's investment climate, others say it reflects a restructuring of the industry amid an exodus of IOCs, with African governments demanding more control over their resources.

"You are looking around and saying, who do I trust? Who will really unlock that value? And if I don't have that trust, I'm going to try to do it myself," a Western oil executive familiar with the industry in Gabon told S&P Global Commodity Insights, summing up a mindset increasingly taking hold on the continent.

Pre-emption rights

In August 2023 US private equity firm Carlyle accepted a $730 million bid from Pertamina-backed M&P for Assala Gabon and Assala Upstream Gabon, which hold seven onshore production licenses -- six of them operated -- a pipeline network and the Gamba export terminal. Assala's production is around 45,000 b/d, up a third since 2017 when the assets were purchased from Shell for $587 million.

The deal would boost M&P's group production to 67,800 b/d and make it Gabon's second-largest producer after Perenco. The assets' proximity to M&P's Ezanga, Kari and Nyanga-Mayombe fields -- which produce around 15,000 b/d -- create cost-cutting and optimization opportunities.

At the end of November, however, state-owned Gabon Oil Company (GOC) announced it would use its pre-emption rights to acquire Assala itself, giving it 80 days to come up with the funds. In a New Year address, President Brice Oligui Nguema said the action would "demonstrate [Gabon's] sovereignty in the oil sector, which is at the heart of the economy."

Oil provides most of the Gabonese government's revenue, but output has slipped from 365,000 b/d in 1996 to 210,000 b/d last year, according to the Platts OPEC Survey from S&P Global, due largely to underinvestment. Gabon's medium-sweet Rabi Light and Rabi Blend crude grades are popular in Europe, Israel and Asia.

Analysts say Nguema -- who ousted Ali Bongo to end the Bongo family's six-decade rule -- is hoping to boost his popularity ahead of elections in 2025 or 2026. And energy sovereignty is a potential vote-winner.

Financing an Assala acquisition is easier said than done. Sources close to the transaction said GOC -- which is said to be low on funds -- would need to stump up $730 million in equity and take on $600 million of debt at closing.

Moreover, the very mature assets would require significant investment just to maintain production -- indeed Carlyle sunk over $1 billion into them. GOC operates a single field, Mbouma, according to S&P Global, with output under 1,000 b/d.

"The key problem is the financing. No one credible would fund it," said one source, adding that the government was now under pressure to deliver. "It sends a signal to investors," said another.

Talks have taken place with Vitol, sources said, while potential partners included Trafigura and Turkish outfit BGN. But observers have questioned whether trading houses would take on $1.3 billion of risk for the opportunity to market 45,000 b/d of crude, particularly given Glencore's experience in Chad, and whether banks and insurers would back such a deal.

"The trading companies would be taking a risk that the assets will be operated at a world-class level for 7-10 years and GOC doesn't have that track record," said a banking source. "[GOC] can definitely raise debt on the back of the asset, zero question about it. Can they fund the full price? It's impossible."

"The financial commitments that are needed are not there at the moment," NJ Ayuk, chairman of the African Energy Chamber, told S&P Global. "Pre-emption is not bad... [but] it shouldn't be used unnecessarily for the sake of resource nationalism."

Ayuk said the private sector in Gabon and other African companies could have stepped up to buy the assets with GOC.

M&P, Carlyle, Trafigura and Vitol declined to comment. Gabon's government spokesperson did not respond to a request for comment. GOC could not be reached.

Oil intervention

For now, M&P is persisting with its bid and CEO Olivier de Langavant has continued to travel to Gabon to get it over the line. The Paris-based company is said to be willing to hand GOC a larger stake in the project. Unless GOC can mobilize the funds by February the M&P deal is likely to proceed.

Yet some West Africa oil players said the episode reflected new realities of operating in the region's petrostates, amid growing demands for energy security. Chad last year nationalized ExxonMobil's oil assets, while Equatorial Guinea is preparing to operate the US supermajor's Zafiro field from 2025.

"A lot of their income generation is driven by the resource. And they go: 'Who is going to take care of this stuff?'," said an IOC official active in the country. "That's your customer. You can't go in there and expect the governments to roll over."

"The highest bidder is not necessarily the best offer when dealing with assets in Africa," said a Gabon investor, stressing the importance of relationships with relevant authorities and local expertise.

Ayuk cautioned, however, that dwindling upstream investment should be top of mind for African producers like Gabon.

"The real focus should be: what are M&P's plans, how will they work with GOC to ramp up production, increase local beneficiation and at the same time try to get GOC to increase its stake?" he said.

"Gabon has to think differently if they want to make this successful."