Angola oil woes grow as production hits 16-year lows

London — All is not well offshore Angola. Once considered the epicenter of deepwater oil, the West African nation has seen its production slump to multidecade lows, with more falls likely in 2021, according to industry sources and analysts.

Angola is now banking heavily on BP, Eni, Total and ExxonMobil, all of which have some oil projects planned, to help salvage its crude output.

The country's crude output slumped to 1.12 million b/d last month, its lowest in around 16 years, according to S&P Global Platts estimates. This represents a decline of 40%, or 680,000 b/d, in the past five years, underlining how dramatic the descent has been. Angola produced a record high of 1.90 million b/d in March 2010, just over a decade ago. But it is now among a few OPEC+ countries for which officially mandated cuts have been largely meaningless given the extent to which output was in decline.

"Oil output is now back at levels last seen in 2005, when deepwater production was first beginning to ramp up," said Nick Branson, director of Gondwana Risk and a contributor to the Angola Briefing newsletter.

"Despite a series of reforms designed to facilitate field development, Angola's production outlook is on a steep downward trajectory, with oil output at risk of falling as low as 1 million b/d by 2025," he added.

A decade ago, Angola was courted by Western governments and its coast was a hotbed of drilling and exploration activity. But the fall in oil prices, the advent of US shale production, and the accelerating pace of the energy transition have all but stifled the country's offshore prospects.

Platts Analytics expects Angola to pump 1.10 million-1.20 million b/d this year.

"Production declines will continue through 2021 due to a lack of new project startups," it said in a recent note.

But there could be some bright spots ahead for Angola, with a slew of upcoming projects planned.

Upstream prospects

BP recently resumed drilling activity at the Platina oil field in Block 18. Production is expected to reach 30,000 b/d, with first oil expected in the fourth quarter of next year.

Total has said it will drill the Ondjaba-1 wildcat well in Block 48. Analyst estimates suggest the well could yield around 800 million barrels.

"The prospect of commercial discovery in ultra-deepwater would breathe new life into the Lower Congo basin, likely prompting a licensing frenzy," Branson said.

"Over the longer term, Angola will be counting on ExxonMobil's exploration expertise to realize new discoveries in the frontier Namibe basin, after the firm signed contracts for three blocks last October," he said.

BP has still to take a final investment decision on the Palas, Astrea and Juno projects in Block 31, while Total is also finalizing the Chissonga field development in Block 16.

In addition, Eni is targeting a full development of the Agogo field via a new hub in Block 15/06, following some new discoveries in the past three years.

"All these would make major boosts to the production outlook; however, market uncertainty is likely to leave at least two of these three projects in limbo until 2022," Branson said.

New licensing round

The country's much-touted new licensing round, which includes onshore blocks in the Kwanza, Namibe and Benguela basins, hasn't quite lived up to the hype.

"Boosting onshore production is a major thrust of Angola's hydrocarbons exploration strategy; however, the delayed 2020 bid round is highly unlikely to attract the deep-pocketed foreign investors needed, given concerns over security, social and environmental risks," Branson added.

The Angolan government, led by President Joao Lourenco, has found it very tough to stem the steep production decline despite the implementation of many new oil and gas reforms.

Key producing fields like Pazflor, Cabinda, Girassol, Hungo, Kissanje, Plutonio and Dalia have all matured and declined at the same time.

A fall in upstream activity since the oil price crash of 2014 has also stymied foreign investment, which was already low due to tough fiscal terms and high production costs.

Lourenco, who took over from his predecessor Jose Dos Santos in 2017, has made a number of oil policy changes.

One has been the restructuring of state-owned Sonangol. The government created the National Agency of Oil, Gas and Biofuels (AMGP), which now assumes the role of national concessionaire for hydrocarbon licenses.

The country's oil ministry has sweetened some of the fiscal terms for some contracts, giving international oil companies higher returns and opening up offshore and onshore basins. But even more needs to be done for Angola to reverse the current trend of falling output.