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Angola tries to ride out the slump

The economy has stalled and oil-output growth targets will not be met. Now the president has put his daughter in charge of the state company

Angola has been hit hard by the collapse of oil-export revenue, while the installation of Isabel dos Santos, the president’s daughter, as head of state oil firm Sonangol in June has raised questions for the oil companies with which it does business.

Economic growth has collapsed with the oil price. The finance ministry said in July it was cutting its GDP growth forecast for this year to 1.3% from a previous estimate of 3.3%, which was already a drop on previous growth. Government revenues—mostly from oil—will also fall, from $24.4bn to $18bn, and so, therefore, will spending, from $30bn to $24bn.

The latest drop in the oil price will probably now send the government back to the IMF asking for a loan. It had suspended these talks back in April, when oil prices looked to be recovering.

International oil companies (IOCs), largely ensconced safely offshore, have tried to float above the local economic travails, focusing on their own need to cut costs. But a string of project cancellations and deferments over the past two years has thwarted the government’s plan for oil output to rise above 2m barrels a day. Its level remains about 1.77m b/d, propped up by projects sanctioned before the price collapse. ExxonMobil’s Kizomba Satellites Phase 2 development started up ahead of schedule in 2015, with peak production of 70,000 b/d, bringing total output at the company’s block 15 development to 350,000 b/d.

Eni started producing from the Mpungi field in its West Hub project in deep-water block 15/06 in early 2016—output is now around 100,000 b/d—and plans to bring on stream its East Hub project on the same block in 2017. Total’s deep-water Kaomba project, in block 32, is also expected to produce first oil in 2017, using two floating, production, storage and offtake vessels, each with capacity of 115,000 b/d.

Projected problems

But new projects are thin on the ground; deep-water projects being on no company’s to-do list in a period of austerity. So, although Total’s chief financial officer Patrick de La Chevardière hinted at the end of July that the Zinia phase 2 project—an adjunct to the existing Pazflor development on block 17—remains a prospect, its timing is unclear.

This makes the IOCs’ bargaining position stronger, which might persuade Sonangol to loosen some of the terms of its production-sharing agreements. “Sonangol is not yet in a position, either financially or technically, that it can drive projects forward without the IOCs leading the way,” says David Thomson, principal sub-Saharan Africa analyst at consultancy Wood Mackenzie. “So one could see—and there have been some signs already—a loosening of fiscal terms.”

As for Isabel dos Santos’s appointment to lead Sonangol, after her father sacked the board in April, IOCs are watching with interest. She is supposed to clean up a company that has been long mismanaged, and often a byword for corruption. But many are sceptical. She has drafted in several Western firms, including Boston Consulting Group and PwC, to advise on a revamp at the state firm.

In July, she also halted negotiations on the sale of assets belonging to Sonangol and removed all powers held by the company’s legal department, other than those related to disciplinary matters. Analysts expect her to be a candidate to replace her father when he steps down from the presidency in 2018.

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