Gabon is considering changes to the distribution of oil revenues to make its ultra-deepwater blocks more attractive. Wood Mackenzie’s proposal combines a 19% royalty on the value extracted with a minimum 20% share of production after cost recovery. The consultancy also recommends removing signing bonuses. These parameters remain proposals: they have not been adopted in the hydrocarbons code being prepared.
A model designed for the riskiest projects
Presented on October 14 in Cape Town during African Energy Week, the formula focuses on the profitability of operations rather than production volume alone. The “R-factor” mechanism adjusts revenue allocation according to the ratio of a project’s cumulative receipts to capital expenditure incurred. When costs are high and repayment remains incomplete, the operator’s share may remain larger; as profitability improves, the public share increases according to contractual thresholds.
For ultra-deepwater projects, this approach addresses a specific difficulty: upfront investment, specialized equipment and technical risks are greater than for many producing assets. Entry costs can deter companies if they must pay a large bonus before even confirming an economically exploitable deposit. Removing these bonuses would reduce the immediate payment, but defer part of the state’s compensation to future revenue, if the project succeeds.
The state’s share and cost recovery
The proposal includes retaining a 19% royalty on the value of oil produced, followed by a minimum 20% state share of the production remaining after cost recovery. The exact calculation would depend on contractual clauses: the definition of eligible costs, the recovery schedule, profitability thresholds and verification rules. Without these details, the model cannot be compared precisely with other fiscal regimes or the actual share reaching the Treasury estimated.
This distinction is essential. A minimum share announced after recovery does not mean that the state immediately receives 20% of every barrel. Cost recovery can defer revenue, while a production-based royalty is received earlier. A robust contract must therefore specify accounting controls, cap recoverable expenditure, publish calculation rules and address cost overruns. The aim is to attract capital without allowing a lasting erosion of public resource revenues.
A reform expected amid decline
The timing adds to the stakes. Gabon’s oil production fell 8.7% year on year in the first quarter of 2026, according to the Directorate General of the Economy and Fiscal Policy. The draft 2027 budget projects a 9% decline in oil revenue, using an oil price of $70 per barrel. A new discovery could help replenish reserves, but exploration and subsequent production take several years and cannot quickly offset falling output from existing assets.
Libreville is already seeking to attract international companies. ExxonMobil signed a memorandum of understanding in October 2025, Shell in June 2026 and BP in October 2026. These preliminary agreements are not binding operating contracts. In April, the Minister of Petroleum and Gas indicated that production-sharing contracts could follow within four to six months. The content of the future code and contractual terms will determine whether that intention materializes.
Making conditions predictable for investors
Wood Mackenzie cites Angola’s experience, where regulatory changes begun in 2018 helped stabilize production at around 1.1 million barrels per day. This comparison does not mean the results can simply be replicated in Gabon: geology, infrastructure, costs and field portfolios differ. It does, however, underline the role of contractual predictability in long-term investment decisions.
For Gabon, the issue goes beyond easing entry conditions. It needs to establish a clear regime that allocates risk, guarantees fair public compensation and avoids frequent renegotiation. The number of available blocks—26 according to Wood Mackenzie, mainly onshore and in shallow water—does not by itself indicate which ultra-deepwater prospects will be offered or at what pace.
The coming weeks should clarify the role of these recommendations in the new code and in the announced contracts with major oil companies. Until the legislation and contracts are published, the R-factor model remains an option advocated by a consultancy, rather than a Gabonese rule in force. The decisive test will be whether the framework attracts funded exploration programs while ensuring verifiable state revenue at every stage of a project’s life.