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Angola boosts efforts to shore up flagging production

Africa's second-largest oil exporter needs more than the currently envisaged pipeline of oil projects if it is to remain a force

Angola is pushing hard to win further investment from both existing and new upstream partners, as it seeks to stave off production declines from its maturing mainstay fields. The coming year should give a good idea of its chances of success, with the first licensing round for eight years planned and direct talks with majors over fresh exploration likely to come to a head.

Carlos Saturnino, president of state energy firm Sonangol, has been busy playing up the positives for an oil province that has traditionally proved costly for operators. He insists all Angolan oil projects are profitable with oil trading at $60-70/bl and could survive a return to much lower prices than that.

"With oil at $61/bl, no license holder would lose money," Saturnino told local media following a December meeting with Opec Secretary General Mohammad Barkindo in Luanda. He also claimed that, even during the depths of the recent downturn, projects had not made a loss, even if margins had been heavily squeezed.

Angolan oil production has been on the slide, down from over 1.7mn bl/d in 2016 to around 1.5mn bl/d in late 2018. As an Opec member, Angola agreed to comply with the cartel's December pact to cut supply by 1.2mn bl/d from January 2019 in a bid to support the oil price. Angola's share of cuts could be almost 50,000bl/d.

That will be viewed as little more than a necessary short-term inconvenience for the Luanda government, which could ill afford another oil-price slide — the post-2014 era of low prices destroyed government income. Boosted by the recovering oil price, the sector accounted for around 60pc of Angola's tax revenues in 2018, according to the International Monetary Fund.

Scrapping for investment

The bigger long-term problem is that Angola is in competition with rival oil-producing nations for investment, which it needs to attract if further output declines are to be averted. Saturnino has suggested production could slide to as low as 1mn bl/d in the early 2020s, unless new reserves are discovered and exploited.

A restructuring of the upstream sector, which is supposed to be completed by the end of 2020, is intended to help investor confidence. Lower marginal field tax rates were announced in May 2018 and a new national oil and gas agency is being created to handle hydrocarbons exploration and production agreements.

The agency is to take over responsibility from Sonangol, whose tight grip on the industry spawned allegations of corruption and inflated costs during the era of José Eduardo Dos Santos. His 38-year presidency came to an end in 2017 when he stepped down ahead of elections.

Rare licensing round

Response to a rare licensing round, due to be announced by mid-2019, will be a bellwether indication of the success of efforts to court investors. The round is slated to include both onshore and offshore blocks in the Congo, Namibe and Cunene basins, and would also focus on opening up marginal fields. Sonangol says it will facilitate the entry of smaller independent firms to a country where the majors have traditionally held sway.

Angola is in competition with rival oil-producing nations for investment

New projects and expansions have been relatively scarce, but there have been a few bright spots of late. One was the start of production at Total's Kaombo Norte floating production, storage and offloading (FPSO) facility on Block 32 in the Lower Congo basin in July 2018. When this is augmented by production from the Kaombo Sul FPSO, planned for later in 2019, the overall project will have added 230,000bl/d to Angola's output.

Another was the start of production in late November by Eni at the Vandumbu field in Block 15/06 of the Congo basin via the West Hub N'Goma FPSO. This, combined with the use of improved subsea equipment, will add 20,000bl/d, bringing total production from the block to around 170,000bl/d and extending a plateau in output, according to Eni.

Wooing the majors

But the government also badly needs successful outcomes from its efforts to persuade its existing partners among the majors to carry through on proposed drilling campaigns.

BP signed an agreement with Sonangol in December 2018 to develop the Platina field in deep-water Block 18, which would be the UK-based firm's first new Angolan development since 2013. Sonangol also agreed to extend the production licence for the BP's Greater Plutonio project, also on Block 18, to 2032.

BP and Sonangol signed memorandums of understanding (MoUs) to continue discussing further exploration on Blocks 31 and 18, and to look at possible exploration on Blocks 46 and 47.

Also in December, Sonangol said ExxonMobil had signed an MoU that paved the way for discussions over the possible development of Blocks 30, 44 and 45 in the Namibe basin in the south of the country. Meanwhile, Total agreed last May to revive exploration on ultra-deep-water Block 48 in the Lower Congo basin.

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