Gabon offers production sharing agreements (PSAs) for upstream operations. Although, concession agreements may be granted for marginal and mature fields, and to domestic operators.

Under PSAs, licensees are required to pay biddable signature and production bonuses, surface fees, and contribute towards several support funds to promote hydrocarbon and sustainable development within Gabon. A flat, biddable royalty is payable based on gross production; a rate range of between 2%-15% applies. Following this, the cost recovery limit is biddable but must range between 70%-90%, and the state profit oil share is also biddable subject to a minimum state share threshold (20%- 45%). The limits imposed on royalty, cost oil, and profit oil vary by hydrocarbon type and water depth. Blocks located in water depths greater than 500m are incentivised through more attractive fiscal terms. Corporate income tax is paid by the state on the licensee’s behalf, and the state also has the right to acquire a stake in the project.

Under the minimum PSA terms, Gabon’s regime offers a good rate of return, a highly competitive fiscal take, and is significantly more attractive than the terms offered by the repealed 2014 Petroleum Code. However, this competitiveness would be eroded if bid submissions are made above the minimum thresholds set.

Regressive elements within the regime, including the royalty and the effective royalty (through the minimum profit share to the state) allow the fiscal take to increase as prices decrease or costs increase. Although this is not mirrored as a fiscal take reduction when costs decrease or prices increase.

The new petroleum legislation introduced effectively reverses the tough fiscal changes introduced in 2014. The new terms will be tested during the 12th licensing round, which was previously scheduled to close in April 2020, although has now been postponed until a later date due to the Covid-19 pandemic.

Since the new code was introduced there have been early indications that the terms could encourage investment. Following the code, several companies have executed exploration agreements, the first signed in five years. However, whilst the new terms are significantly more attractive, the capital expenditure cuts (focused on exploration budgets) by companies and the sector uncertainty stemming from the Covid-19 pandemic may be barriers to investment in the near term.