As per a media report, the oil and gas major TOTAL S.A. (TOT) will be asked by the Gabonese tax officials to pay an arrear tax of $805 million, for activities undertaken by the company between 2008 and 2010.
Gabon is a West African nation rich in oil and gas reserve but lacking in technical expertise and the capital required to fund exploration and drilling activities. So, to unlock value of its natural reserves, the Gabonese government had allowed TOTAL to explore its shores.
TOTAL has been working in Gabon for more than five decades. TOTAL operates in Gabon through its subsidiary TOTAL Gabon. TOTAL owns 58.28% in Total Gabon with the government holding 25%.
TOTAL Gabon recorded revenues of $1.8 billion in 2013, up 6% year over year. The production from this unit averaged 46,900 barrels per day in 2013, up 3% from the year-ago figure of 45,400 barrels per day. Currently, the Gabonese government aims to increase total oil production to 500,000 barrels per day from the year-ago level of 240,000 barrels per day.
Given the government’s stake in TOTAL Gabon, we expect this unit of TOTAL to gain from the planned increase in production. However, the tax dispute could impact the future prospects of TOTAL in Gabon, unless the matter is sorted out with the government officials.
Recently, Addax Petroleum, a subsidiary of China Petroleum & Chemical Corp. (SNP), has settled a dispute with the Gabonese government by paying $400 million. The initial claims were for $1 billion.
Whether TOTAL will toe a similar line is something we have to wait and see. Else the company can fight the case at the international tribunal.
However given the oil and natural gas prospects in Gabon it will be in the best interest of the company to amicably settle the dispute. An unfavorable ruling can impact the margins of TOTAL.
Gabon has a well-developed oil and gas industry with operators like Royal Dutch Shell (RDS.A) and Vaalco Energy Inc. (EGY) among others exploring opportunities here.
TOTAL currently has a Zacks Rank # 3 (Hold).
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment