Opec quota about to bite
Oil production is rising fast and was likely to have reached the country's new Opec quota last month – but the authorities had not agreed ceilings with the large operators by presstime. The quota problem threatens investment in the next wave of mega-projects
Angola's oil production is on a surge, driven by the recent start-up of deep-water developments operated by BP, Chevron, ExxonMobil and Total. Output averaged 1.61m barrels a day (b/d) in 2007, but by the end of the year had increased to about 1.8m b/d. By February, it should have reached the 1.9m b/d quota given to the country by Opec with effect from 1 January – Angola's first quota since joining the organisation in January 2007.
The problem is: output is scheduled to continue to rise. Production from fields already flowing or under development could lift output to about 2.1m b/d by the end of this year, and to nearly 2.3m b/d by the end of 2009. Even allowing for the decline of older fields, 2.5m b/d could be on tap in 2011.
The country's oil minister, Desidério da Costa, has given assurances that Angola will comply with its quota, so licence or company ceilings will be needed. It is understood that some discussions have been held with the operators, but neither the ceilings nor the mechanism for imposing them had been decided last month.
Publicly, the majors present sang-froid on the issue. Total said: "The [Opec] allocation is not a problem for us," but would not comment further. Chevron said: "We are proceeding with developing our projects as planned." Another operator said Angola would probably ignore the quota and allow production to rise as scheduled, saying that at a time of high crude prices and tight supplies this would be the best outcome.
However, continuing uncertainty would not be the best outcome for operators weighing investments in the next wave of deep-water developments. All of the four main operators have multi-field development projects in advanced stages of planning. Large developments receiving the go-ahead this year are unlikely to flow oil before 2012, and will need to produce at maximum for many years to achieve the hoped-for returns. Any uncertainty about Angola's branding as an expansionary oil producer would put these investments in question.
The government has relied heavily on the majors, with the result that fields operated by Chevron, ExxonMobil and Total – and, since October when it joined the producers, BP – account for well over 90% of the county's production. But two recent policy threads aim to change the corporate structure: since late 2005, the authorities have been favouring China's state-owned Sinopec with sought-after licences (PE 5/07 p16); and, more recently, they have been trying to attract a variety of much smaller companies.
The 2007-08 licensing round, which opened in December, is designed to deliver corporate diversity, according to IHS, the government's consultants for the round. A total of 43 companies pre-qualified to be operators in the round and another 38 to be licence participants – the latter group including many little-known firms.
The prospective operators include all the existing production operators in Angola and two significant additions – Shell, which pulled out of the country three years ago, and StatoilHydro, which has licence holdings, but has not been an operator. The list also includes firms from India (Essar, ONGC Videsh) and Russia (Gazprom, Lukoil, Sintezneftegaz), together with Africa specialists including Addax, Afren and Tullow, and substantial European new-entrants including Gaz de France and Repsol YPF.
The 10 blocks on offer provide a range of risk-and-reward profiles. Three newly designated ultra-deep-water areas, Blocks 46, 47 and 48, seem likely to appeal only to the largest companies, in view of the lack of exploration history and the high costs of working in water extending to 3,000 metres deep. The state's Sonangol will take a carried 20% interest in each of the three blocks.
Three shallower areas off the mid-part of the coast, Blocks 19, 20 and 21, have all been explored before, but prospects are lifted by ExxonMobil's preferential right to take the operatorship of Blocks 19 and 20, with a 30% interest in each, if it chooses to match the highest of the bidding proposals made by other companies. Sonangol will take a carried 20% in Block 19, but 65% (15% carried, 50% paying) in Blocks 20 and 21.
Block 9, mainly covering shallow water, has also seen unsuccessful exploration, but Sonangol wants 65% of this block (of which 15% will be carried). Two areas in the onshore Kwanza basin, KON 11 and 12, could provide the lowest-cost exposure to the country's oil prospects – and 70% of each is reserved for Angolan companies. Sonangol will have a carried 20%, but the share will have to be carried entirely by the non-Angolan participants.
Also on offer is the Cabinda Central block, onshore in Angola's enclave of Cabinda – a block that has been out-of-bounds to explorers until now because of security problems, and which is likely to need mine-clearance before seismic work can start. Sonangol will take 50%, of which 20% will be carried. Interest in this block has already been shown by Afren – last year, the firm signed an outline agreement to join the Devon-headed group that had held the licence in force majeure, but the authorities quashed the deal.
The schedule for the round calls for bids to be lodged on 13 March and opened in public the following day. Sonangol says contract negotiations will take place in May, approval from the government should be given in June and contract signing is targeted for July.
The Cabindan onshore has been tipped as a high-potential province, with costs lower than the offshore – the area is on-trend with the geology of Chevron's prolific Blocks 0 and 14, offshore, and the presence of oil has already been shown by drilling work in the early 1970s. Chevron's onshore terminal for its offshore fields, at Malongo, would provide a convenient evacuation route for any production.
One Cabindan area is already seeing drilling. Australia's Roc activated its licence to the Cabinda South block in 2005, carrying out mine-clearance and shooting seismic. The firm started drilling last year, finding a deposit of heavy crude at a very shallow depth with its first well, Massambala-1, in the southwest corner of the block. Subject to agreements, Massambala will be appraised this year. The second and third wells, Cevada-1 and Soja-1, gave non-commercial shows. Milho-1 – the first well to target a difficult pre-salt structure – was drilling last month, and three other pre-salt structures have been identified for drilling by mid-year.
Work has also started in the Cabinda North licence. This was held in force majeure by Occidental until the firm relinquished it in October and Sonangol took over as operator. The licence group had not been completed last month, but will include Norway's InterOil, the UK's Soco, Japan's Teikoku and Angola's ACR (see licence interests). InterOil said in January that seismic work – the acquisition of 1,450 km of 2-D – had started and drilling was targeted to start in 2009. The licence calls for five wells in the initial three-year exploration period.
LNG and more
With an agreement signed in December, Angola is on course to join the world's liquefied natural gas (LNG) producers in 2012, to become the continent's sixth and southernmost producer. The LNG project should also provide growth opportunities for local industry, because its extensive gas-landing system will make available up to 1.3bn cubic metres a year (cm/y) for industrial use. Further, a separate agreement, also signed in December, sets out the framework for a second LNG train with different participants.
The road to LNG has not been easy: the first studies were launched by Chevron in 1999 and since then the location of the liquefaction facility, its sources of gas and its backers have all seen changes. It seems there was pressure for a smaller scheme, but the grand view has prevailed.
The complex will take associated gas from Chevron's Block 0 and from all four of the deep-water producing licences – Chevron's Block 14, ExxonMobil's Block 15, Total's Block 17 and BP's Block 18. There are plans to link-in BP's Block 31 and Total's Block 32 at a later stage. Some non-associated gasfields – Quiluma, Enguia North, Atum and Polvo, in shallow-water Blocks 1 and 2 – will also be included, for security of gas deliveries. Extensive pipelaying will be necessary to bring the gas to the liquefaction complex, which will be at Kwanda island, near Soyo.
The contract to build the single-train, 5.2m tonnes a year plant has been awarded to Bechtel, and last month another agreement secured the use of ConocoPhillips' optimised cascade technology for the facility. The project will be implemented by Angola LNG, owned by: Chevron (36.4%), Sonangol's Sonagas (22.8%), BP (13.6%), Eni (13.6%) and Total (13.6%). It has already been agreed that the plant's entire output will be sent to the US' Clean Energy terminal, being built at Pascagoula, Mississippi, by Gulf LNG.
The government has been less successful with another diversification plan: its envisaged export refinery. After more than a decade of trying to interest the majors in the project, it moved ahead as a venture between Sonangol and Sinopec – but a year ago the partnership broke up after disagreements on the target market for the products.
The plan for a second train was launched by Eni, which had earlier signed a co-operation agreement covering gas developments with Sonangol. A group made up of Eni (20%), Sonagas (40%), Gas Natural West Africa – a venture between Spain's Gas Natural and Repsol YPF, (20%), Galp Energía (10%) and Exem (10%) – is to study existing and potential gas sources for the train.
Sonangol immediately announced plans to build the refinery on its own, and that idea was reiterated recently by the oil minister. The Sonaref facility at Lobito is envisaged as being built in two phases of 120,000 b/d each and will be designed to process the country's heavy and acidic grades of crude, which sell at a discount because many refineries cannot take them.
Meanwhile, there are still plans to expand the country's only existing refinery, at Luanda, which became state-controlled last year when Sonangol took over Total's interest. The topping-and-reforming refinery has a capacity of 39,000 b/d, which covers about two-thirds of the country's demand.