Global Insight Perspective | |
Significance | Sino-Angolan joint venture Sonangol-Sinopec International has bid US$1.1 billion for the signature bonus in Angola's latest licensing round - a new record. |
Implications | This huge sum eclipses the recent record bid of US$902 million by Italian firm Eni. Blocks 17 and 18 have estimated reserves of 1 billion and 700 million barrels respectively. |
Outlook | These enormous bids should easily be enough to secure China access to the expected hydrocarbon deposits. China has significant investments in Angola and these bids further cement the two countries' strategic relationship. |
New Record for Signature Bonus
A new record signature bonus has been offered in Angola's latest licensing round. The Sino-Angolan joint venture, called Sonangol-Sinopec International (SSI), will see the Chinese company Sinopec pay a US$1.1-billion signature bonus for each of the relinquished parts of Blocks 17 and 18.
The two bids from SSI amount to US$2.2 billion for the rights to prospect for oil, but the joint venture has also promised US$200 million in the form of investment in "social projects". While the massive billion-dollar bid will garner the attention, the Angolan government is known to encourage and covet the commitment to help rebuild the country's infrastructure, which was decimated during the country's three-decade-long civil war.
The Chinese may have felt they needed to break the billion-dollar signature-bonus mark to secure their targets after Italian energy firm Eni last month offered US$902 million, at that point setting a new record, for the relinquished part of Block 15 (see Angola: 7 April 2006: Eni Offers Large Signature Bonus to Secure New Angolan Block). SSI's bid to become operator of Block 15 only managed to secure a 20% stake; the block is believed to hold 1.5 billion barrels of oil.
The current licensing round has been presided over by Carlos Saturnino, a Sonangol director who was keen for the interest in Angola's offshore reserves, which had recently been buoyed by Eni's outrageous bid on Block 15, to be carried over into the new bidding round.
Saturnino stated that Sonangol's expectations were surpassed by the bids it has received. The relinquished areas of Blocks 17 and 18 are estimated to contain one billion barrels and 700 million barrels respectively. However, Block 18 is considered higher risk, and Saturnino has claimed that, in the deep and deeper Cretaceous sections, reserves could range from one to three billion barrels.
Sonangol Selects Partners in Other Blocks
Aside from Eni's success in Block 15, Sonangol has announced the companies who have clinched deals to become the operators in other offshore blocks. Brazilian energy firm Petrobras secured a 40% operating stake in Block 6 and an 80% operating stake in Block 26, Sonangol has a 20% stake in both blocks. According to Platts Commodity News, Houston (U.S.)-based Gabon player Vaalco Energy is the operator of the relinquished part of Block 5 with a 40% stake. While Tullow seems to have agreed to a 50% operating stake in Block 1, Sonangol has a 20% stake in both Blocks 1 and 5.
Outlook and Implications
These huge bids from Sinopec should easily be enough to secure the rights to the relinquished areas of Blocks 17 and 18. The signature bonuses are incredible figures, but only follow the previous record-breaking bid by Eni for Block 15. China has the capital to make these deals, with its economy growing at 10% GDP, but the country also needs to lock up new sources of energy in order to feed its economic boom. This deal makes sense in this respect as it secures further supply. Angola has an extremely good relationship with the Chinese government in Beijing and is currently China's biggest supplier of crude oil. China has significant investments in Angola and the two countries have agreed to work together on the 200,000-b/d Lobito refinery in central Benguela province, which is set to come onstream in 2009 (see Angola: 21 March 2006: Sinopec Takes On Lobito Role in Angola with Prospect of Upstream Pay-Off). Angola has also managed to negotiate a US$3-billion oil-backed loan with China, which is being used to rebuild the country's infrastructure. China's continued financial assistance is preferred to the more stringent conditions that would be applied if Angola chose to accept money from international financial institutions. Angola's production capacity has increased to 1.4 million b/d and Amadeu Azevedo, Angola's National Director of Petroleum, has stated that Angola would be producing more than 2 million b/d by the end of 2007.Saturnino expects to announce the results of the bidding process on 8 June.