Growth in Angola’s oil industry picks up pace

With the recent launch of the ul­tra-deep offshore Kaombo project, the upcoming start-up of CLOV project by June, three exploration wells planned in the Kwanza basin this year and the planned bid round to award 10 new oil blocks in May, Angola’s oil and gas industry is set for a significant growth.

Angola, Africa’s biggest oil pro­ducer after Nigeria, is making spir­ited efforts to ramp up exploration and production in the country as it seeks to increase production to 2 million barrels per day (bpd) next year and then maintain that level for five years.

The development of CLOV, which started in 2010, resulting in the installation of a fourth floating production, storage and offloading (FPSO), with a production capacity of 160,000 barrels of oil equivalent per day, is scheduled to start up in mid-2014.

The $10 billion CLOV project, which stands for the fields Cravo, Lirio, Orquidea, and Violetal, is esti­mated to hold 505 million barrels of crude.

Last week, Total and its joint ven­ture partners made the final invest­ment decision to develop the ultra-deep offshore Kaombo project in Angola. With a production capacity of 230,000 bpd, Kaombo will devel­op estimated reserves of 650 million barrels. Following an intensive opti­mization exercise, the project’s capi­tal expenditure to reach full capacity was reduced by 4 billion dollars to 16 billion dollars, with an expected start-up in 2017.

Located approximately 260 km The largest risk faced by Nigeria will come in the form of delayed offshore projects and investments as a result of the uncertainty surrounding the adoption and content of the PIB.

offshore Luanda in water depths ranging from 1,400 to 1,900 meters, the Kaombo project will develop six of the 12 discoveries already made on Block 32.

Angola, which extracts nearly all its crude from offshore fields, is seek­ing to develop its onshore potential, with a tender process for onshore oil exploration at 10 new blocks in the Congo Basin and Kwanza Basin starting on May 30. According to its state oil firm Sonangol, the 10 blocks may hold, on average, reserves of 700,000 barrels of oil each.

Isn’t Angola stealing the show?

Coming at a time when interna­tional oil companies are cutting their capital expenditure and deep water costs are rising globally, analysts say that Total’s decision to continue with its Angola project shows how inves­tors view Angola’s longer-term off­shore prospects.

Angola produced 1.73 million barrels of oil per day on average last year, with major international firms such as France’s Total, Britain’s BP and Chevron of the United States among the leading operators.

Last year, Chevron Corporation’s $10 billion Angola LNG plant came on line with the first cargo shipped in June. In Nigeria, Chevron-operated Escravos Gas to Liquids (EGTL) project scheduled to start up last year has yet to come on stream as at the time of filing this report. The project, which has been severally delayed, is a 33,000-bpd gas-to-liquids plant de­signed to process 325 million cubic feet per day of natural gas from the Escravos Gas Plant expansion.

French oil major Total had last year announced that first oil from its Egina deepwater oil field in Nigeria was expected in 2017, but the com­pany and the FPSO contractor have been dragged to court over local con­tent issues.

The company awarded a $3.1-bil­lion FPSO vessel contract for the Egina deepwater oil field to South Korea’s Samsung Heavy Industries (SHI), with Lagos Deep Offshore Logistics (LADOL) as local content partner. The award however gener­ated controversies between Samsung and a sister Korean firm, Hyundai Heavy Industries (HHI), regarding the local content value of the con­tract.

The case is still in court, raising concerns that the project may be stalled or be delivered far behind schedule if the litigation lingers.

For Total, Angola remains a pri­ority country, with a commitment to develop the Angolan oil indus­try. It is already the top operator in Angola, with equity production of 186,000bpd, mainly due to its Gi­rassol, Dalia and Pazflor deepwa­ter fields in the huge Block 17. The blocks it operates produce a total of 600,000 bpd, over a third of the country’s output.

“Angola could potentially regain the top oil producer spot by the end of 2014 with oil production expected to start from Total’s CLOV field proj­ect. The field is expected to achieve a peak production level of 200,000 bpd and could increase Angola’s oil production to 2 million bpd,” said Ecobank Research in its April 9, 2014 Energy, Oil and Gas update.

In 2009, Angola displaced Nigeria as the top African crude oil producer after years of militancy significantly reduced capacity. But the Southern Africa country’s grip on the title was short-lived as Nigeria regained it in 2010 as production hit 2.4million bpd.

What does this mean for Nigeria?

Nigeria’s hydrocarbon sector has continued to struggle amid a wors­ening political and business environ­ment, echoed Business Monitor In­ternational (BMI), in its 2014-second quarter Nigeria Oil and Gas Report.

The African top oil producer cur­rently produces between 1.9million and 2million bpd of crude oil, with rising security problems related to oil theft, pipeline sabotage and piracy in the Gulf of Guinea affecting produc­tion and curtailing oil exploration projects. Last year, the country did not come near its production target of 2.53 million bpd. Reserves base has declined from 37 billion barrels to 35 billion barrels.

The long-delayed Petroleum In­dustry Bill (PIB), which is expected to overhaul the industry and expand investment, is still stuck in the legis­lative pipeline.

According to BMI, the largest risk faced by Nigeria will come in the form of delayed offshore projects and investments as a result of the uncer­tainty surrounding the adoption and content of the PIB.

Should the current situation in the Nigerian oil industry endure, project investments and cancella­tions could see Nigerian production stagnate in the longer term, the agen­cy said, adding that “A substantial in­crease in production is unlikely until the PIB is passed.”

“Adoption of the Petroleum In­dustry Bill (PIB), which we do not expect before the Nigerian 2015 election, would be a strong signal for investors that Nigeria’s hydrocar­bons sector, is ready to move forward. Without the adoption of the PIB, further offshore project delays could occur, resulting in a stagnation of Ni­gerian production,” said BMI.