Nearly two decades after securing initial rights, Total CEO Patrick Pouyanné was in Luanda to snip the ribbon on a $16 billion oil project. It’s not clear when he, or his peers, will be cracking open the bubbly in Angola again.
Without another mega-project like Total’s Kaombo on the horizon and fields getting old, Africa’s second-largest crude producer is facing a steep decline unless it revives exploration in what was once one of the world’s most exciting offshore prospects.
Sonangol, the state oil company, is negotiating contracts for new blocks with oil majors and Angola plans to hold an auction next year, the first tender for exploration rights since 2011.
It’s a race against time for a country where oil accounts for 95% of exports and around 70% of government revenue. Luck will also play a part, as always in exploration where finding oil can never be guaranteed.
Without new projects, output could fall to a million barrels per day by 2023, according to the oil ministry. That is down from 1.5 million at present and nearly half of what Angola was producing a decade ago. The country risks having its OPEC quota cut and is struggling to ensure long-term feed for its $10 billion liquid natural gas plant.
President João Lourenço won an August 2017 election promising an “economic miracle” in Angola, which despite oil wealth struggles to provide basic services to a mostly impoverished population growing at three percent a year. Falling oil production means a third consecutive contraction is expected in 2018, while annual inflation runs at 18%.
To turn around, Angola asked international oil companies to the table, offering better fiscal terms and more collaboration.
With the time from exploration to first oil on new areas is anything from five to 10 years, Angola is offering tax breaks to encourage companies to link existing marginal discoveries to operating production platforms.
There are signs the measures are working, though some oil experts wonder at what cost for the south-west African country.
“The level of exploration activity in Angola is beginning to change,” Sonangol chairman, Carlos Saturnino, said.
He expects between five and 10 new concessions to be signed next year.
Exxon, he said, has shown interest in some blocks in southern Angola’s unexplored Namib basin, while advanced discussions are being held with BP, Equinor and ENI for rights to the ultra-deep 46 and 47 offshore blocks.
BP and ENI declined to comment. Equinor and Exxon did not immediately respond to a request for comment.
Total, which operates 40% of Angola’s production, plans to drill its first exploration well in four years. Beneath 3,630 metres of water on block 48, it will be one of the world’s deepest.
“We hope it will be a play-opener for ultra-deep in Angola,” said André Goffart, Senior Vice-President for Development. “We are seeing a new wave of exploration in Angola.”
Signs of fresh exploration follow a period of near-paralysis due to a lack of drilling success, a slump in oil prices and a deteriorating relationship between Sonangol and oil majors.
Angola’s offshore reserves are expensive to explore and develop, making it a hard sell for shareholders when oil is at $40. The number of rigs operating off Angola’s shores dropped from 18 in early 2014 to just two in 2017, according to oil services company Baker Hughes.
The steep drop in prices from 2014 came as companies were smarting from the failure to discover Brazil-like oil reservoirs beneath a layer of salt on the African side of the Atlantic. The search for the “Angolan pre-salt” resulted in some of the most expensive dry wells ever drilled and sapped exploration appetite.
Critics say the situation was exacerbated by Isabel dos Santos, the former president’s daughter and previous chair of Sonangol, under whose leadership new projects ground to a halt. Dos Santos denies allegations of mismanagement, saying she helped turn around an almost bankrupt company.
“There are few places in the world right now where oil majors are in as good a negotiating position as here,” said an international oil executive in Luanda on condition of anonymity.
Some local experts fear the deals Angola is striking are too beneficial for companies, although details remain private.
“If Angola gives away too much it could create problems further down the line,” said José Oliveira, an oil specialist at the Catholic University in Luanda.
The country has little choice given its imminent production decline and a lack of money or expertise to lead the drilling campaigns itself.
Asked if he will be back soon to launch another giant project like Kaombo, Total’s Pouyanné shrugs. “We’ll see what we find,” he said. “It’s possible.”