Angola Could Reap from New Policy Regime

Angola, sub-Saharan Africa’s second largest oil producer after Nigeria, is optimistic the new fiscal and regulatory regime now in place would translate into a reversal of the country’s declining oil output and attract more private investment in its upstream oil space especially in the highly underdeveloped deep- and ultra-deepwater hydrocarbon fields.

Nearly five years after the slide in global oil prices was set in motion by a disruption in the international supply chain and collapse in demand that pushed the cost of a barrel to below $40, Angola seem to have crafted a revival strategy in partnership with international oil companies. The partnership has not only led to a change in the process of awarding concessions and slashing of various taxes to woo more exploration and production investors but could enable the country boost revenues that fell by 56% in 2017 as the effects of low global oil prices took toll on the economy.

Faced with the problem of diminishing foreign currency, that hit an eight-year low of $12.8 billion in early 2018, and dwindling investment in both new and mature exploration and production fields, Angola co-opted the international oil firms into a taskforce that reviewed, developed and reformed nearly the entire upstream operations leading to promulgation of two new laws and amendments to Presidential Decrees.

The team did not only recommend changes to the procedures in awarding concessions but also how the process is managed in addition to providing suggestions in marginal field development, field abandonment process and suitable natural gas laws particularly in development areas as the newly elected President João Manuel Gonçalves Lourenço embarked on substantial oil sector reforms.

With the new recommendations, Angola, which produces an estimated 1.55 million barrels/day (bpd), 75% of it from offshore fields, allowed for award of concession licenses through public tender without requiring prequalification from bidders. In addition, Sonangol EP, the country’s national concessionaire, is allowed to approve contracts with third parties to carry out petroleum operations without a public tender if the value of such a transaction is below $1 million, up from the previous ceiling of $250,000. Although for contracts of between $1 million and $5 million, a public tender is involved, the parties involved do not need approval from Sonangol EP.

But what appears to a major shift in policy as Angola prepares for more licensing rounds, is the reduction by 50% of the petroleum tax for discoveries and petroleum tax on marginal fields. The tax for discoveries that have not been developed because of their small size, with less than 300 million barrels, or lack of infrastructure has been reduced from 20% to 10% while tax on marginal fields has come down to 25% down from 50%.

The bid by Angola to encourage more exploration in development areas, improve the oil sector’s efficiencies, reduce taxes and woo more private sector investors, may have contributed to the decision by American oil major ExxonMobil to ramp investment in one of the country’s offshore production oil field.

ExxonMobil, which holds an estimated 19% market share of Angola’s oil sector behind Total and Chevron with 41% and 26% respectively, has this week announced together with its partners “they will further invest in Block 15 offshore Angola to increase production as part of an agreement with Angola’s recently established National Agency for Petroleum, Gas and Biofuels.” The restructured Sonangol, will have a 10% share in the project.

“This renewed collaboration will enable Angola to optimize recovery and add production from mature fields,” said Hunter Farris, senior vice president of ExxonMobil Upstream Oil & Gas Company on the project that is expected to increased Angola’s output by an additional 40,000bpd and create 1000 local jobs.

ExxonMobil said recent changes to the production sharing agreement will see operations in Block 15, which has produced more than 2.2 billion barrels of oil since 2003, extend to 2032, bring Sonangol into the partnership with 10% interest while Esso Angola, BP Exploration, ENI Angola Exploration and Equinor Angola will have 36%, 24%, 18% and 12% respectively.

Apart from ExxonMobil, there are other exploration and production companies involved in Angola’s ultra-deep projects such as Total, which is developing the $16 billion Kaombo project that is expected to peak at 230,000bpd and BP’s operated Plutao, Saturno, Marte and Venus (PSVM) $14B project.

ExxonMobil has interest in three deepwater blocks covering nearly 2 million gross acres in Angola with the country planning a new licensing this year, the first in eight years.

The absence of the licensing rounds, the African Development Bank observes “has negatively affected new discoveries and production growth.”

Previously, Sonangol had announced a $6 billion oil prospection and development program to avert decline in output it projected could hit 1.3 million bpd by 2022.

But now with the new reform agenda for the oil and gas sector, Angola’s under-developed offshore blocks could soon find new suitors willing to take advantage of the new fiscal and regulatory environment to invest.

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