Offshore in Depth

The August 23rd election in Angola signaled the end of the 38-year rule of President José Eduardo Dos Santos, but it brought few expectations for change in the country’s politics, oil policies, or conditions for its impoverished citizens. The new president, João Lourenço, is a long-time Dos Santos loyalist, with little incentive to make big changes.

Dos Santos and his MPLA party fought for Angola’s independence from Portugal and waged a 25-year civil war against UNITA, the current opposition party. He has used his office to maintain a tight grip on power, and to make his family and friends fantastically wealthy. Last year, he named his daughter Isabel, already the richest woman in Africa, to be chairwoman of Sonangol, Angola’s national oil company, which by law is a partner in every oil concession. He also named his son, José, to manage the country’s sovereign wealth fund. As insurance, Dos Santos issued decrees before the election to solidify these appointments, and to grant his family and associates lifetime immunity from prosecution.

Poverty amid oil riches. Angola is also a poor, third-world nation. The IMF reports that 37% of its population lives on just $1.25/day. Twenty percent of children in Angola die before their fifth birthday. The U.S. EIA estimates that more than 50% of the energy consumed in the country is biomass, and that just 18% of the rural population has access to electricity. Inflation stands at 29%, after peaking at 42% in 2014, and Luanda ranks as the world’s most expensive city. The country’s economy is dependent on oil revenues, which account for 75% of the government’s income, so the sustained drop in oil prices sent economic and political shock waves through the country.

Angola’s oil resources are, nevertheless, a bright spot for the country, which has 9.5 billion bbl in proved reserves, according to the latest World Oil estimate. With supply disruptions in Nigeria, Angola has become Africa’s largest producer, with exports of 1.67 MMbopd after OPEC–induced cutbacks. Angola first produced oil in 1955, but the nation did not become a major producer until the deepwater discoveries made in the 1990s. Chevron’s Kuito field in Block 14 was first to come online in 1999. Subsequently, Total, Chevron, ExxonMobil and BP developed other deepwater fields, and Angola’s production increased 15% annually during the 2002–2008 period, peaking at 2.0 MMbopd. Since then, technical difficulties and rapid reservoir depletion have held production capacity at 1.8 MMbopd, despite ongoing development.

Recent developments. Recent new offshore production additions include Eni Angola’s Armada Olombendo FPSO in Block 15/06, which went online in February 2017, and Chevron’s Mufumeria Sul platform, which began producing in March. Together, these facilities will have peak production capacity of 190,000 bopd. Production from Total’s ultra-deep Kaombo project in Block 32 has been pushed back until 2018, due to shipyard construction delays on its FPSOs.

Angola’s only LNG train is the world’s first LNG facility that exclusively handles associated gas. Construction began in 2007, and some shipments were made in 2013, but the plant was shut down for major repairs until early 2017. It is now operating at 78% capacity and has resumed shipments. Angola has estimated gas reserves of about 11 Tcf. Better-defined commercial terms for operators, and future exploration, could find gas fields to help bring the plant to full capacity.

Pre-salt potential. Another potential boost to Angola’s oil production could come from pre-salt plays in the Kwanza and Lower Congo basins, whose geology mirrors Brazil’s Campos basin. Nine IOCs were awarded blocks in a 2011 licensing round in the Kwanza basin. Most of these companies have slowed their investments in Angola’s pre-salt, the EIA reports, because of disappointing results, complex geology and lower oil prices.

One exception is Cobalt International, which has drilled nine exploratory wells, three appraisals, and four development wells in the northern pre-salt Kwanza basin offshore Angola, and one exploratory well in the pre-salt deepwater region offshore Gabon. Fifteen of these wells have been successful in finding pre-salt hydrocarbons. Cobalt reports that the Block 21 Cameia discovery confirmed the presence of an expansive pre-salt hydrocarbon reservoir. Cobalt describes its Orcas discovery in Block 20 as the largest oil discovery found to date in the Kwanza basin, with potential estimated resource potential of between 400 and 700 MMbbl of oil.

In 2015, Cobalt agreed to sell its 40% interest in Blocks 20 and 21 to Sonangol, but the deal was canceled. Development plans for these blocks are on hold.

Challenges remain. Though rich in resources, Angola faces immense challenges. Angola is now China’s largest source of oil, but the country cited debts to China in its request for a $1.5-billion bailout from the IMF. Sonangol also owes nearly $900 million in payments to IOCs operating in the country. In June of last year, when President Dos Santos appointed his daughter Isabel to head up Sonangol, her remit was to reorganize the company to improve efficiency and repair its battered finances. In December, Ms. Dos Santos fired the entire executive committee of Sonangol’s upstream subsidiary for “management weakness and financial causes.” And during the ongoing reorganization, decision-making has slowed, and projects have been delayed.

Declining reserves may be the biggest threat to Angola’s oil sector. Only eight rigs are working in the country, compared to 24 in 2014. Beginning in 2019, production is expected to decline 11%/year without new projects being sanctioned. It remains to be seen whether international oil companies will make the investments needed to reverse this trend.  

About the Authors

Ron Bitto

Contributing Editor

Ron Bitto has more than 30 years of experience as a technology marketer and writer in the upstream oil and gas industry. RON.BITTO@GMAIL.COM