Turning the Corner in Angola

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Read more on Angola’s market outlook in the Special Report 2020: Angola COVID-19 Response – outlining the country’s path toward creating bankable opportunities, resuming drilling activities and taking proactive fiscal measures to boost liquidity in the interim. Download the report and other AES Special Reports here.

Prior to the onset of COVID-19, Angola was set to see a rise in production to 1.4 million barrels per day (bpd), following the introduction of a new royalty and tax regime aimed at boosting energy investment. Then, COVID-19 hit, throwing a spanner in the works and causing a subsequent drop in oil prices. As a result of OPEC-led cuts, Angola’s production currently hovers closer to 1.1 million bpd. In response to the crisis, the government has taken several proactive fiscal measures to alleviate debt payments, reassess its budget and boost liquidity for companies in the interim. According to an Africa Oil & Power (AOP) poll, half of respondents expect that the Angolan market will rebound in three to five years.

Nevertheless, a silver lining remains: as COVID-19 has led to the repatriation of oil and gas workers, the opportunity for national companies to fill the vacuum has emerged, in addition to serving as a cost-saving mechanism in a low-price oil scenario. According to another AOP poll, 85% of respondents believe that COVID-19 is an opportunity for enhanced local content development. Similarly, Angola’s need to diversify, even within the energy sector, has never been more urgent, through natural gas monetization, mineral wealth extraction and domestic refining and manufacturing capabilities (fuel, petrochemicals, fertilizers, etc.) Refinery construction continues to push forward and could offer a solution to offset lost revenues while supporting Angola’s domestic consumption needs.

Unlike several of its oil and gas-producing neighbors, Angola has not experienced cancellations of any large-scale projects due to COVID-19 and has sought to maintain its production, in accordance with OPEC-issued quotas. Between March and May 2020, the country’s leading operator, French major Total, produced more than 600,000 barrels per day (bpd) on Blocks 17 and 32, and its Zinia FPSO recently produced its one-billionth barrel. Operators may delay exploration wells of larger installations to prioritize short-cycle projects, such as Total’s Zinia Phase 2 and Clov Phase 2 on Block 17, and Caril Pop-Up and Mostarda East on Block 32.

Turning the Corner in Angola 1

Although Total idled three of its drillships at the onset of COVID-19, its deep-water Skyros rig was brought back online in July, and Maersk Voyager is due to restart at the end of August. Seadrill West Gemini is also set to resume activity, which previously had been dormant offshore Namibia. Meanwhile, U.S. major Chevron cancelled its VALARIS DS-8 offshore rig contract, with plans to focus on cost-managed production at existing fields.

Fortunately, recent license extensions granted before COVID-19 to Block 14 (to 2028), Block 17 (to 2045) and Block 15 (to 2032) could alleviate time and financial pressure on the completion of drilling programs, and offshore activities, seismic acquisitions and non-routine production and maintenance operations are expected to ramp-up in the latter half of this year. In terms of yielding new discoveries, the 2020 licensing round will continue to put nine offshore blocks in the Kwanza and Lower Congo basins on offer, but on an adjusted timeline.

With 75% of Angola’s production derived offshore, safety and travel protocols have been implemented onshore bases. All incoming personnel must stay on arrival for 14 days at facilities approved by the Ministry of Health. Following a negative test for COVID-19 after the two weeks spent in self-isolation, personnel are allowed to move offshore. Only essential maintenance is authorized, and crew rotations for offshore staff have been extended while scheduled replacements are in self-quarantine at monitored facilities onshore. Operators and service companies alike continue to work closely with the government on health and safety-related matters. As a result of immediate collaboration forged between public and private sectors, no safety incidents have occurred, and Angola’s production has remained largely unaffected, with the exception of compliance with OPEC-issued quotas.

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Sihle Qekeleshe is a Web Editor at Energy Capital & Power. She has experience as a Copywriter and Editor in various industries.

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