It is 12 months since Isabel dos Santos was appointed as Chairwoman and Paulino Geronimo (a geologist) as CEO of National Oil Company Sonangol. The last year has been described as an emergency in terms of revenues, both for Sonangol and for the state: according to the World Bank, petroleum comprises some 97% of Angolan exports and around 75% of government revenues, so the decrease in global oil prices has resulted in an 11% drop in GDP for Angolan E&P from 2014-2015.
Following a series of generally unsuccessful, and exceedingly expensive, ultra-deepwater exploration wells drilled in the Kwanza Basin from 2014 onwards, many of the IOCs withdrew from the basin in December 2016, when the initial exploration phases of the licences expired. In terms of field development, no new final investment decisions (FIDs) have been taken in the Lower Congo Basin since Total’s Kaombo project in 2014.Following Isabel dos Santos’ appointment, Sonangol’s Board of Directors has taken urgent measures to improve and streamline the bloated organisation. Measures include cost containment, cancellation of non-priority contracts, rationalization of expenses, and a review of internal business processes. Sonangol had branched into non-core areas such as real estate; these have been reined in. In terms of personnel, there has been “Organisational Optimisation”; but so far, this process has reduced the total number of active personnel by just 4%.
There are also plans to separate Sonangol’s joint function as NOC and concessionaire, a move that would drastically improve transparency in the oil sector. It remains to be seen whether Sonangol will emerge from this process as a fit-for-purpose NOC. According to Maka Angola, a long-term anti-government publication, Isabel dos Santos went to the Finance Minister in May 2017 to request US$ 3 billion in emergency funding as the company was on the verge of bankruptcy; the request was refused as the state did not have the liquidity. This assertion cannot be verified.
After the spate of deepwater Kwanza wells drilled 2014-2015, of which only Cobalt made any discoveries worth noting, almost all operators have now withdrawn from the basin. The exceptions are Total (Block 40/11 and Block 25/11), and Repsol (Block 22/11). Cobalt also still operates Block 20/11 and Block 21/09 after a planned farm-out to Sonangol P&P was terminated in August 2016 when required government approvals were not granted. Cobalt is still looking for partners, but a dispute with Sonangol regarding extensions to the licences seems highly likely to delay this. IOCs will be watching closely to see whether Cobalt can extricate itself from Angola under fair and equitable terms.
Angola Kwanza Basin Relinquishments – DI International
No successful bid rounds have been held since 2011, when the deepwater Kwanza blocks discussed above were awarded. The 2014 Onshore Kwanza LR was cancelled in May 2017; Sonangol cited as reasons the drop in oil price, the long period since the round was launched, the fact that the Terms of Reference (ToR) would not allow for profitable operations in the current economic climate, and the fact that the round was specifically aimed at Angolan E&P companies, which may particularly struggle in the current climate to provide the needed bank guarantees and signature bonuses. But the ToR were unlikely to be profitable even at $120 / bo. It is clear that Sonangol will need to review terms if it hopes to attract IOCs back in future licensing rounds. The long-standing political aim of increasing the participation of local companies as operators and partners in licences now seems dead in the water.
It has long been expected that a bid round for blocks in the Namibe Basin and Lower Congo Basin would be launched, but there is no indication on timing. In October 2013, Sonangol announced that that bid rounds would be held on a bi-annual cycle, with 15 blocks to be awarded in 2013, 12 in 2015 and 15 in 2017. However, since the announcement not a single block has been awarded via competitive bidding.
Drilling & Seismic Operations
Significantly less exploration took place in 2016 than 2015. Around 80% less 3D was acquired in 2016 than 2015 (1,050 sq km compared to 5,300 sq km) and no 2D or 4D acquisition took place in 2016 at all (560km 2D data and 480 sq km 4D data was acquired in 2015). Throughout H1 2017 Total has been the only operator to acquire seismic data, over Block 17 and Block 32 (contractor: PGS).
Likewise, just three NFWs and one appraisal well were drilled in 2016 compared to 9 NFWs and 4 appraisal wells in 2015. These were Zalophus 1 (gas) and Golfinho 1 (gas & condensate) on Block 20/11, Ohanga 1 (condensates & water) on Block 35/11, and Ochigufu 3 on Block 15/06. Discovered volumes (Zalophus 1 and Golfinho 1) were 669 MMboe (OOIP). Both wells appear to be marginally commercial at the current time. There are currently no exploration wells planned for 2017, although Repsol believes it still has a drillable prospect on Block 22/11 and Total has identified candidates for drilling on Blocks 25/11 and 40/11.
2016 Angola Exploration Wells – DI International
In terms of development drilling, around 52 producers and 20 injectors were completed in 2016, with the bulk of activity in Block 0 Area A (Chevron). This is a major increase on 2015, where 28 development wells and 25 injector wells were drilled. Major current field developments include Eni’s East Hub (onstream early 2017) and Chevron’s Mafumeira South (onstream October 2016) and Total’s Kaombo project (expected onstream in 2018).
Production & Downstream
2016 production was ~1.72 MMbo/d, a decrease of 3% on 2015, mainly due to FPSO maintenance on Total’s Dalia field. Due to production problems in Nigeria, Angola did become Sub-Saharan Africa’s top producer during the year (a title Nigeria has now reclaimed). Mpungi & Mpungi Norte (Block 15/06), and Mafumeira Sul (Block 0) came onstream during the year. Angolan oil is predominantly exported to China (63%) followed by India (10%). At the start of 2017, the country agreed to OPEC production limits; national production was limited to 1.673 MMbo/d, a 78,000 bo/d cut compared to December 2016 production. Sonangol has informed operators of the monthly limits per concession.
Angola New Fields Onstream 2016-2017 – DI International
Costs per barrel produced have been cut. The weighted average per barrel is US$ 7.62, down from US$ 9.32 (2015). The most efficient production is from Block 31 (BP) at US$ 4.73 / bo. By contrast, the depleted fields of Block 3/05, Block 4/05, and the onshore Soyo licences are running at US$ 20-30 / bo. Conventional wisdom suggests that Angola needs oil prices to be > $60/bo to be attractive to investors.
Significant downstream investments – notably in the Lobito refinery – have been deferred indefinitely. The old Luanda refinery continues with a nominal capacity of 65,000 bo/d (utilisation 83%). Its feedstock oil is from Block 3/05 fields, and from Plutonio and Hungo. Apart from this internal consumption, all produced oil is exported.
At present, IOCs do not have the right to gas discovered within their licences. Sonangol has long been working to consolidate sufficient gas resources to shore up a second train at Angola LNG, and has acquired numerous discovered fields, as well as exploration acreage. One acquisition is the Lontra field on Block 20/11 which Sonangol P&P was awarded in December 2015 (the field was discovered by Cobalt and is one of the seven discoveries the company made on its Kwanza Basin acreage since 2011). Most of this Sonangol operated acreage is however in the Lower Congo Basin (see Sonangol operated acreage figure). Sonangol P&P (the exploration subsidiary) does not have the technical and financial capacity at present to develop all of these fields (particularly those located in deepwater), or operate ultra-deepwater exploration acreage, and will need IOC assistance if ALNG II is ever to come to fruition. Additionally, any future gas discoveries in the deepwater Kwanza (which is now increasingly considered to be a gas-prone basin) would have to be huge to be economic; there is no infrastructure at present and construction costs are likely to be prohibitively expensive.
Sonangol operated acreage – DI International
The problems at ALNG (operated by Sonangol (22.8%), Chevron (36.4%), BP (13.6%), Eni (13.6%), and Total (13.6%)) in recent years may hinder future investment decisions in ALNG II. The plant is currently operating but has suffered several issues and shut-downs since it was first online in Jun 2013. Offshore gas resources which supply the plant are estimated to be 10.5 Tcf, which is sufficient LNG feedstock for over 20 years. The blocks supplying the gas are: Block 15 (operator ExxonMobil), Block 17 (operator Total), Block 18 (operator BP), and Blocks 0 and 14 (operator Chevron).
The year 2017 is pivotal for both Angola and Sonangol: the President of Angola, Eduardo dos Santos will stand down prior to elections on 23 August 2017; the ruling MLPA party – in power since independence in 1975 – is certain to retain control. The new MLPA candidate, Jose Lourenco, currently defence minister, is part of dos Santos’ inner circle and is not expected to shake up the political scene. Thus Isabel dos Santos is likely to retain control of Sonangol.
Her key challenge is undoubtedly the restructure of Sonangol and resolving its conflict of interest of being both the NOC & concessionaire. However, a review of fiscal terms is also urgently required if IOCs are to be persuaded to take up exploration once again. This will necessarily include changes to the way the ownership of gas resources is dealt with. Isabel dos Santos’ own conflicts of interest (with regards to her other business interests) are likely to be a hindrance.
The Nigerian Petroleum Industries Bill and associated restructure of NNPC should serve a lesson to the consequences of delaying the process: investment in Nigeria has been on hold for years whilst operators await clarification of terms and stability.