Understanding the costs of oil production in Gabon

As one of Africa’s leading oil producers, Gabon relies heavily on its petroleum sector, the backbone of its economy. Coastal and offshore oil fields are operated by international companies through agreements with the government. However, understanding Gabon’s earnings from oil production requires more than just tracking production volumes or exports. It demands a detailed analysis of the often-complex costs associated with oil extraction, which can significantly impact government revenues.

A study on the country’s oil costs, published by EITI Gabon in July 2024, marks an important step towards greater transparency and accountability, especially as cost disclosures were introduced under the 2023 EITI Standard.

Why oil cost disclosure matters

Capital and operating costs often represent the largest share of a company’s expenditures which, under a production sharing regime, can be recovered once production begins. These costs, while essential for developing extractive resources, can potentially reduce government earnings, particularly in the early phases of a project.  Auditing these costs is therefore crucial to ensure that only legitimate and verified expenses are claimed by companies. Without proper oversight, companies may inflate costs or classify ineligible expenses as recoverable, ultimately reducing the state's share of profits.

Capital and operating costs often represent the largest share of a company’s expenditures.

Since 2022, Gabon’s government has committed to auditing oil costs as part of a reform programme with the IMF, aiming to improve fiscal transparency and ensure reliable oil revenue reporting. Civil society organisations have also called for greater oversight, emphasising the need for transparency to strengthen public trust and economic stability.

Key findings

Cost discrepancies

The study, which analysed data from legal documents, production reports, EITI disclosures and company submissions, uncovered notable discrepancies between costs reported by operators and those recorded by the government. For example:

• Assala Gabon S.A. reported oil costs of USD 475 million, while the government recorded USD 384 million – a 24% difference.
• Maurel and Prom reported oil costs of USD 1.2 million, while the government recorded USD 234 million – a -99% discrepancy.

Variations in production costs

The study provided a detailed breakdown of the production costs per barrel per producing company, highlighting significant variations in production costs across operators. For instance:

• Perenco Oil and Gas Gabon reported the lowest production costs at USD 0.18 per barrel.
• BWE recorded the highest costs at USD 67.18 per barrel.

Such disparities reflect differing operational models and efficiency levels and the maturity of the blocks under production. Detailed cost audits are essential for fair cost recovery practices and accurate profit sharing.

Challenges

The study identified several challenges that hinder transparency and accurate cost reporting in Gabon’s oil sector:

• Contract disclosure: After the publication of the study, the Ministry of Economy began publishing excerpts of extractive contracts, a positive step toward transparency. However, the lack of full disclosure makes it difficult to monitor the impact of costs on revenues earned as key details on cost recovery, fiscal terms and obligations remain inaccessible.
• Data gaps: Missing documents, including signed contracts and audit reports, limited the ability to review recoverable costs thoroughly.
• Lack of efficiency and transparency of the audit process: Delays in audit processes, compounded by the non-publication of audit reports and concerns over the independence and objectivity of cost auditors.
• Discrepancies: Inconsistencies between the government and company cost data complicates cost verification efforts.

To address these issues, the study recommended enhancing audit procedures, improving cost reporting and systematically documenting production discussions to strengthen governance.

A step towards transparency

Gabon’s effort to audit oil costs in line with the 2023 EITI Standard marks an important milestone in ensuring its natural resource wealth is effectively managed in the interest of citizens. By introducing cost disclosures under Requirement 4.10, the EITI Standard equips countries like Gabon to monitor and manage oil costs effectively, ensuring that oil companies only recover legitimate costs and that the state receives its fair share of profits.

By introducing cost disclosures under Requirement 4.10, the EITI Standard equips countries like Gabon to monitor and manage oil costs effectively.

As Gabon continues to strengthen transparency in its extractive sector, detailed and regular audits will be critical in preventing inflated costs and promoting accountability. These steps provide a strong foundation for better governance and sustainable economic growth.