Angola, Africa’s second-largest oil producer, is among the continent’s most oil-dependent nations. Some 95 per cent of its export revenues and 70 per cent of tax come from petroleum.
There’s a problem, however: Angola is running out of oil to sell.
Angola’s oil blocks are being quickly depleted as new investment has all but dried up. Production has fallen from a peak of 1.9m barrels per day in 2010 to just above 1.4m b/d.
That has had a devastating impact on an economy that was, until a 2014 fall in oil prices compounded the problem of dwindling reserves, among the fastest growing in Africa. After years of double-digit growth, the third-largest economy in sub-Saharan Africa has failed to grow for four years. This year it is likely to manage less than 0.5 per cent, below the rate of population growth.
“The goose that lays the golden egg is in trouble,” said Alex Vines, an Angola expert and head of the Africa Programme at Chatham House, a British think-tank.
That prolonged recession has concentrated minds. President João Lourenço, who took over as president in 2017 from a predecessor who had eked out 38 years in power, has made it his mission to revive the sector, in a country that had earned a reputation as one of the most corrupt in the world.
This month Angola launched a comprehensive licensing round that will see the country auction off 55 new blocks by 2023, including nine in the frontier Namibe Basin. Mr Lourenço has also overseen a sweeping overhaul of the legislative and regulatory environment after consultations with oil majors — many of which had previously complained of being treated more like annoying interlopers than valued investors.
For the first time, Angola is also thinking strategically about how to exploit large reserves of gas, until now considered little more than a byproduct of lucrative oil production. “Lourenço took it upon himself to review what was going on in the oil industry,” said Adam Pollard, a senior upstream analyst at Wood Mackenzie, the energy consultancy. “It was apparent there were problems.”
The most far-reaching reform was his decision to split the functions of Sonangol, the state oil company, which was formerly both operator and regulator in an opaque system. “Sonangol was both a concessionaire and the regulating body,” said Maria da Cruz, president of the US-Angola chamber of commerce. “That’s like being a referee and a player at the same time.”
Investors welcomed the split and a commitment to sell off Sonangol’s dizzying array of non-core assets, though some eyebrows were raised when Gaspar Martins, a man closely associated with the pre-Lourenço regime, was brought in as chairman in May.
Angola has also changed its tax and other frameworks to make it more attractive for companies already pumping oil to exploit marginal fields and those contiguous to mature operations.
Roderick Larson, president and chief executive officer of Oceaneering, an oil engineering company, said that instead of having to start a separate concession, oil companies could now extract oil from fields next to their own. “It’s invigorated all the oil companies to take a fresh look at Angola,” he said, saying the new approach would allow operators to “squeeze all the juice” from fields.
Still, with oil prices volatile and a far cry from the $100-plus level of Angola’s boom years, experts say it will be hard to arrest the decline in production, let alone push volumes back to previous levels.
Angola has disappointed before. Several companies, including Statoil of Norway and ConocoPhillips of the US, spent billions acquiring acreage and drilling in the so-called pre-salt oil blocks, once thought to contain prodigious quantities of oil. They found nothing. Most drilling ceased in 2014.
Still, there are some signs of new activity. Total of France, which is investing $16bn in a floating deep-sea facility, began production in Kaombo Sul in April, bringing production to 235,000 b/d. Eni of Italy, which has been operating in Angola since 1980, is also said to be enthusiastic about prospects, though other majors, including ExxonMobil and Chevron of the US, are thought by observers of the industry to be more hesitant.
“Anyone who is already here will be interested,” said Paul Eardley-Taylor, an oil expert at Standard Bank. “The key is, can you get new guys interested in Angola?”
Given the scale of Angola’s ambition and the scarcity of experts, including geologists, he wondered whether Luanda had the capacity to execute its revival plans.
Experts said oil majors were unlikely to invest in exploration in unproven areas, which are mostly in deep or ultra-deep waters. They would instead leave risky investments to small and medium exploration companies, they said, though some of those — including Kosmos of the US, Petronas of Malaysia and Adnoc of Abu Dhabi — have shown scant interest.
Mr Eardley-Taylor also cautioned that the new gas law, trumpeted as opening a further front in Angola’s hydrocarbons sector, was at this stage little more than a statement of intent.
Even if Mr Lourenço’s push pays dividends, it is unlikely to be a quick fix. It will take time to complete geological work in the new areas. Even under optimistic scenarios, said Mr Pollard, “it could be a couple of years before anyone actually drills anything”.