Point of View: Pan-Ocean CEO, Pres. Lyons cites caution, diligence as keys to African success

June 7, 2004
There is only one way to take a smaller North American independent and turn it into an expanding producer in Africa with good growth prospects.

There is only one way to take a smaller North American independent and turn it into an expanding producer in Africa with good growth prospects.

Slowly, with a great deal of due diligence and more than a pinch of North American entrepreneurship, says David Lyons, president and CEO of Pan-Ocean Energy Corp. Ltd. The former small Alberta producer, once known as Ocelot Energy Inc., is now headquartered in the tax haven of Jersey, Channel Islands. Lyons is based in Winchester, near London.

In its operations in Gabon, the company has focused on development of low-cost, long-life light oil reserves. Pan-Ocean is now an established producer of light crude oil, both onshore and off Gabon.

The company is producing more than 8,500 b/d of light crude and expects to increase that to 12,000 b/d by yearend, based on its current exploration, appraisal, and development drilling program.

Lyons says there is a real prospect of going to a production level of 20,000 b/d in the next 2 years. That points to the rationale for the company moving from Canada: declining Western Canadian oil reserves and the fact that many smaller companies hit "a glass ceiling" on production growth at about 10,000 b/d.

Meanwhile, the company also has participated in the Songo Songo natural gas development, pipeline, and gas-fired power project in Tanzania (OGJ Online, Oct. 23, 2001).

Pan-Ocean Energy Corp. Ltd. CEO, Pres. David LyonsGabon choice
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It disclosed in February that its board approved a restructuring of Pan-Ocean assets that would lead to the company distributing its Tanzanian assets to Pan-Ocean shareholders as equity in a new, separately managed public company. "The rationale for the restructuring is to allow the two companies to focus on their respective core businesses and to enhance access to capital for the new company that will hold the Tanzanian assets," the company said at the time.

Lyons said he visited more than half the countries in sub-Saharan Africa before choosing Gabon as the ideal place for a small producer to set up shop.

He says the same cautious approach should apply to any country in West Africa, and stresses that each one is different.

The Pan-Ocean CEO says any company considering a similar move should be prepared for a long haul and a slower development process than in a North American setting.

"I don't think there is such a thing as an overnight international success story. It just doesn't exist. It's an oxymoron," Lyons says.

He says the prospecting criteria for a good location was a long-term project involving large volumes of data.

The Petroleo Nautipa floating production, storage, and offloading vessel handles production from Etame field off Gabon for operator Vaalco Energy Inc., Pan-Ocean Energy Corp. Ltd., and other partners. The field, which came on stream in September 2002, holds 150 million bbl of OOIP, of which 30 million bbl is estimated to be recoverable. Photos courtesy of Pan-Ocean.
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These included the various grades of countries' crude oils, the presence of other foreign companies, infrastructure in place, the ability to raise finances, and political stability.

"You have to be very careful. It's a lot like the real estate game. The best projects do have the best fundamentals and the best location. We essentially settled on Gabon as the best place in sub-Saharan Africa to find oil."

Lyons says Gabon has a stable government, a population of 1 million, and a "with-it" energy department that actively promotes new players and works with them.

The country has been in the oil business almost 50 years and has production of about 250,000 b/d.

Major operators in Gabon, such as Royal Dutch/Shell Group, Amerada Hess Corp., Marathon Oil Corp., and Total SA provide a ready market for Pan-Ocean production, and most of the oil is shipped to North America.

The Pan-Ocean executive says that, in North America, "once you find the oil the rest of the infrastructure and systems are often around and you can generate value. Internationally, it takes longer to put everything in place, but once you do that, you will grow more quickly. It creates "a very powerful [production] machine."

Production growth

Pan-Ocean is growing. Its production has risen by 80%, from less than 5,000 b/d in 2002. Lyons says initial growth was slower than expected because of the complexities of putting all the pieces in place.

Pan-Ocean has three core light oil producing areas in Gabon: Etame, Tsengui, and Remboue. It also has exploration prospects in three areas: Etame, Tsengui, and Awoun.

Brent-quality light crude is produced from the Obangue and Remboue onshore fields. The company has a 92.5% working interest in Rembuie and a 92% working interest in Obangue. Both are operated by Pan-Ocean. The company has a 31.36% interest in Etame offshore field, which is operated by Vaalco Energy Inc., Houston.

Earlier this year, Pan-Ocean confirmed a new pool discovery with the Ebouri No. 1 wildcat 6 miles northwest of Etame.

Independent engineers assessed the discovery's probable reserves at 2.6 million bbl of oil net to Pan-Ocean's working interest.

The company said it is believed the new field could be tied back this year to existing floating production, storage, and offloading facilities at Etame. The FPSO has a capacity of 25,000 b/d of production. Current production is 15,000 b/d of 36º API gravity oil, with 4,704 b/d net to Pan-Ocean.

The Etame partners plan an additional development well at Etame in an effort to increase production to more than 20,000 b/d.

In addition, the partners plan to drill another exploration well on their Etame Marin permit in fulfillment of obligations on the concession.

Future increases

The Pan-Ocean CEO says the 2004 drilling and exploration program planned by the company and its partners offers strong prospects for a significant production increase.

The program includes four exploration wells, three development wells, and one appraisal well. In all, the program is budgeted at $40 million.

The first well in the program was the successful Ebouri No. 1 wildcat.

"The odds would say that, as you work through this program, that's the kind of result you should get with the program we are implementing," Lyons says.

Career highlights

David Lyons, president and CEO of Pan-Ocean Energy Corp. Ltd., has spent his career in the resource industries after graduating in law from Queen's University, Kingston, Ont., in 1979. He also earned a BA from the University of Calgary in 1980. He is based in Winchester, near London. The company's headquarters are located in Jersey, Channel Islands.

Employment

Lyons joined Calgary-based Ocelot Industries Inc. in 1984 after practicing law and working in the mining and natural resources processing industries. He worked for Ocelot in marketing and project development areas and was named CEO of Ocelot in 1991. Lyons then orchestrated the transformation of the small Alberta producer into an expanding offshore operator under the name of Pan-Ocean.