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Capacity up, supply down in Angola

Angola says it has already begun to reduce supply but how and where is unclear

Angola committed to lopping 80,000 barrels a day off its output of 1.75m b/d and already seems to have made the cut. State oil company Sonangol said in early January it had removed 78,000 b/d of supply-although it's not yet clear where or how.

The supermajors are well represented in Angola and, of course, were not signatories to any supply deal (though they'd all like a higher oil price). BP produces about 310,000 b/d in Angola; Total just under 290,000 b/d; and Eni about 135,000 b/d.

And Angola has had a pretty successful downturn, at least in supply terms. Eni brought output of its West Hub deep-water project to 100,000 b/d, when production started from the Mpungi field in early 2016. The Italian company plans to bring its East Hub project on the same block into operation in 2017. Total's deep-water Kaomba project, in block 32, is also expected to produce first oil in 2017, using two 115,000-b/d floating, production and storage offshore vessels.

Some of that growth contributed to the global glut. Yet the oil sector accounts for 95% of the country's export revenues, and, with GDP flat in 2016 and poverty endemic across most of the country, the government badly needs higher oil income. So the 80,000 b/d cut-a fraction of Angola's recent capacity increases-is worth the effort, if it helps lift the market.

Still, a long-term cap on production is not a goer, especially as elections loom later this year. President Eduardo Dos Santos, in power since 1979, has said he will not stand for re-election as leader of the ruling party. His successor will wish to see new oil capacity used to boost cashflow.

Sonangol needs more income too. It racked up huge debts during the lean years. These are now beneath $10bn but Isabel Dos Santos-appointed head of Sonangol by her father, the president, in mid-2016-wants the figure to fall to $8bn by end-2017. So, with capacity in hand, Angola will have every incentive to start using it if Opec deal doesn't yield the extra income the country needs.

PE verdict: Happy to cut for now. But patience will exhaust quickly if the deal doesn't succeed in firming prices

Don't count on it

Equatorial Guinea likes Opec so much it joined the cuts in December and applied to join the club in January. It pledged to remove 12,000 barrels a day-the how and when are less clear. It produced 289,000 barrels a day in 2015, down from a peak of 350,000 b/d in 2007, according to BP.

The government is struggling to find new sources of oil to offset declines from fields such as ExxonMobil's Zafiro development, which has produced the bulk of Equatorial Guinea's oil over the past two decades. A new offshore licensing round was launched in mid-2016 with the government saying then that the results would be announced in early 2017. But even if this brings new upstream investment, it won't yield output in this price cycle. Equatorial Guinea is one of several minor producers Opec roped into signing the deal in Vienna in December. They aren't in the deal to comply-they are there to pad out the list of non-Opec participants.

PE verdict: Opec's monitoring committee won't be overly interested in Equatorial Guinea's output numbers

This article is part of a report series on Opec. Next article: How much can Nigeria add?

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