Angola's upstream is back to business
With a new president elected, the country will be keen to bolster oil and gas exploration to compensate for flagging output from mature fields
Following a predictable victory for Eduardo Dos Santos' chosen successor João Lourenço in Angola's presidential elections, the country's oil minister has said he expects to launch an onshore licensing round once a new government is installed.
The previous round was suspended in the run up to the election.
Isabel Dos Santos, the head of state-run firm Sonangol, cancelled the country's onshore licensing round, which had awarded acreage in December 2015 to little-known and locally-based companies with little prospect of having the resources to develop it.
The oil minister, José Maria Botelho de Vasconcelos, said a tender for fresh acreage in the Namibe Basin, offshore southern Angola, may also be opened in 2018 as part of an effort to compensate for falling production on maturing, older fields. He told Bloomberg that around ten offshore blocks could be offered but said there was "nothing concrete at the moment".
Whether the end of the Dos Santos era—he was the second-longest serving leader on the continent—heralds a change of direction for Angola is uncertain. This is not least because Dos Santos remains head of the ruling MPLA political party, his daughter is currently head of the state oil company and his family's interests extend throughout the economy. However, as Petroleum Economist reports in its September 2017 issue, there are hopes that reforms benefitting both the oil sector and the rest of the economy will gather pace, with Dos Santos seemingly now in the back seat.
Botelho de Vasconcelos said collaboration between the state authorities and the oil companies had cut production costs in Angola to an average of around $10-12 a barrel, down from $15-20/b in 2014. This was achieved partly by streamlining the country's tendering processes.
Cost-cutting has been essential for a country whose economy has nose-dived, in tandem with oil prices, since mid-2014. Botelho de Vasconcelos said that, based on market indications, Brent prices could reach $60/b by the end of the year. Front month Brent futures were trading at around $52/b at the start of September. A recovery in the oil price is crucial for the well-being of the Angolan economy, which is almost entirely dependent on oil revenues for its foreign earnings.
The minister refused to be drawn on whether Opec, of which Angola is a member, should extend production cuts beyond March next year, saying that members of the group would be in a better position to assess the situation at its next meeting in November.
Output for Africa's second-largest oil producer has remained at around 1.7m b/d, despite efforts to raise the level to 2m b/d, as declines at mature fields and technical problems offshore took their toll.
Botelho de Vasconcelos also said he expected efforts to diversify the economy away from the oil sector will step up now the election is over. However, such reforms have been often promised by government officials over the years, with little practical impact. The country is rich in commodities, including diamonds and gold, and has produced some impressive headline economic growth figures in the years since it emerged from a brutal civil war in 2002. But financial mismanagement and corruption during the Dos Santos era has left much of the population in poverty, while only a small, rich elite enjoy the spoils of oil revenues.
While it is likely that Dos Santos' decision to step down from the presidency will change Angola, it is unlikely to be an overnight transformation.