Africa Oil Week musings: Angola’s licence to drill

Ahead of this year’s Africa Oil Week, the Gneiss Energy team has been discussing the what we see as the key areas of interest for the African oil & gas sector over the next five years.

With licensing rounds and policy changes set to figure high on the conference agenda, Angola seemed to be the logical place to start.

The country has been in the headlines mostly for the right reasons over the last year or two. In September 2017, João Lourenço replaced José Eduardo dos Santos as President and he has since set about dismantling the dos Santos family’s control of the country, particularly the oil & gas sector.

With Angolan oil production falling from a 2008 high of 1.9 million barrels per day to 1.42 million bpd in June this year, Lourenço’s reforms were badly needed. The country has struggled to attract new investments and projects have been delayed by Sonangol’s lack of capital amid problems with poor governance and corruption.

The new President has started shaking up the sector in a bid to improve its fortunes and there have been some signs of life. In February, Total kicked off production at its Kaombo Sul FPSO in Block 32, which will add 115,000 bpd, taking overall capacity from Kaombo to 230,000 bpd. Meanwhile, in late July, Eni said that it had found 650 million barrels of oil in place at the Agogo field in Block 15/06. Both assets are located in water depths of 1,400-2,000 metres.

Total has plans to drill an exploration well in Block 48 in the Lower Congo Basin, which the company expects to set a new record for water depth.

The sector reforms have seen Sonangol replaced as the concessionaire for the country’s oil & gas assets, with the Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (APNG) set up to take its place. This has been accompanied by Presidential decrees aimed at increasing clarity and improving investor confidence ahead of licensing rounds geared towards helping achieve the long-stated ambitious production target of 2 million bpd.

APNG will hold a Namibe-focused frontier licensing round in September, with nine blocks offered in the basin and another in the Benguela sub-basin and additional offerings are also planned for 2020, 2021 and 2022.

Deepwater, deep pockets

Most of the country’s oil reserves are located in deep or ultra-deepwater. The combination of the cost of drilling in these and the challenges of doing business in the country have meant that large international oil companies have dominated the sector.

However, the government has improved terms for marginal field development and incentivised exploration within existing blocks as well as establishing a Natural Gas Framework to ensure the monetisation of gas in existing and new concessions.

All of this is geared towards reinvigorating the sector with new entrants and a renewed emphasis on exploration.

There have been signs of smaller companies entering the play with Maurel et Prom closing a deal for 20% in Blocks 3/05 and 3/05A. The French company said that the move was a reflection on Angola’s recent investor-friendly regulatory and political developments.

A new trend?

The question is: are moves like this indicative of a new trend?

Angola’s reserves of 17 billion barrels of oil and 935 bcm of gas reserves mean that it remains an attractive proposition, but there were serious concerns about operating there. The reforms appear to have created enough positive sentiment to keep incumbents interested and it is likely that new entrants will be involved in the upcoming licensing rounds.

Super-majors and IOCs will continue to dominate the Angolan upstream, but elsewhere, incentivised gas and marginal field opportunities will attract nimbler players.

We look forward to discussing this and other topics with you in Cape Town. Until then, please feel free to get in touch.