FEATURE: Mixed picture for Angolan oil sector as it faces sustained output decline

Despite a revival in upstream activity offshore Angola this year, exploration enthusiasm in the African oil producer has been largely lackluster, pushing its government to extend the deadline for its latest oil licensing round, analysts and industry sources said June 14.

This comes amid a dramatic decline in Angolan crude production, although with some recent discoveries, there could be a marginal rebound in output by the end of the year, they added.

The country's much-touted new licensing round, which includes onshore blocks in the Kwanza, Namibe and Benguela basins, has been slow to take off.

State-owned energy regulator, Agencia Nacional de Petroleo, Gas e Biocombustiveis, or ANPG, recently pushed back the deadline for the submission of bids and reduced the entry fee.

Nick Branson, director of Gondwana Risk and a contributor to the Angola Briefing newsletter, said these decisions indicated that interest in the country's onshore bidding round had been muted.

"Despite favorable fiscal terms, the nine blocks on offer are highly unlikely to attract deep-pocketed investors given the environmental, social and security risks associated with onshore production," Branson said.

Branson also said these delays would have a knock-on effect on Angola's plans to auction off eight offshore concessions, including sections of Blocks 16, 31 and 32 adjacent to existing fields and infrastructure. "The next offshore licensing round is now likely to be delayed until Q2 2022," he added.

New projects

Angola is desperate to overturn the chronic decline of crude output, which has been severely hit by technical and operational problems at some fields, aggravated by a lack of upstream investment and incentives.

Angolan oil production has not got off to good start in 2021, with output slumping to 1.125 million b/d in May, according to official ministry data, the lowest level in 16 years. More steep falls are likely in the coming months, with exports poised to drop below 1 million b/d in July, according to official loading programs released by state-owned Sonangol.

"The symbolic drop below the coveted 1 million b/d mark is an alarming prospect for a country that was producing some 1.4 million b/d barely 18 months ago," said Branson.

But there could be a slight rebound in production by the end of this year due to the recent start-up of TotalEnergies' Zinia Phase 2 oil project in Block 17 along with some other recent discoveries.

Production from the Zinia Phase 2 deepwater project is expected to peak at 40,000 b/d by mid-2022, and will feed into the Pazflor export grade.

Also, BP's 30,000 b/d Platina project and Eni's 10,000 b/d Cuica discovery could come online by the end of this year, sources said.

S&P Global Platts Analytics expects Angola to pump 1.1 million-1.2 million b/d this year. "Production declines will continue through 2021 due to a lack of new project start-ups," it said in a recent note.

Drilling comeback

The country, which typically produces heavy but sweet crude has traditionally been among the top suppliers to China. But key fields like Pazflor, Cabinda, Girassol, Hungo, Kissanje, Plutonio and Dalia have all matured at the same time.

On the plus side, upstream activity has increased after a long drought exacerbated by low oil prices and the coronavirus pandemic.

BP, Eni, TotalEnergies and ExxonMobil are all very active in the country at the moment, and drilling is on an upward trend.

ANPG said nine units were engaged in drilling activity in May compared with seven in April, with exploration work carried out at 16 wells.

In April, Italy's Eni made a new light oil discovery at the Cuica well, while BP recently resumed development drilling at the Platina oil field in Block 18.

TotalEnergies is expected to drill the Ondjaba-1 wildcat exploration well in Block 48, and is also finalizing the Chissonga field development in Block 16.

Angola is also looking to attract companies that specialize in improved oil recovery techniques as the OPEC member works hard to reverse its crude output decline.

Many oil companies and producers resort to improved oil recovery and enhanced oil recovery methods to deal with declining oil fields or basins.

ANPG, issued a tender April 9 looking for "consultancy services to conduct studies on optimization of secondary and improved oil recovery (IOR) methods."