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FEATURE: Angola faces daunting task to boost output to 1.3 million b/d in coming years

Highlights

Angolan crude output languishing at 17-year low, below 1.10 mil b/d

Platina project, Zinia Phase 2 could spark minor rebound

Upstream drilling, exploration work gradually starts to rebound

The Angolan government is hoping to stabilize its oil production at 1.3 million b/d over the next three years but this could prove very difficult due to the lack of major projects in the pipeline, as its key fields continue to mature and decline at the same time, industry sources and analysts said.

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Angola, which used to be Africa's second largest oil producer until late-2020, has its seen output tumble to a 17-year low of just below 1.10 million b/d in recent months.

The OPEC member has been unable to control a sharp decline in its oil production over the past five years because of technical and operational problems at some fields, aggravated by a lack of upstream investment and incentives. In 2017, Angola pumped an average of 1.65 million b/d, according to S&P Global Platts estimates.

On Aug. 6, the Consultative Council of the Angola Ministry of Mineral Resources, Oil and Gas, held a meeting where it discussed the government's targets to increase investment in the country's oil and gas sector, which has already seen some progress, spurred by an increase in exploration and drilling activity in recent months.

The number of rigs in operation have risen to eight in 2021 from three last year, and the Ministry is hoping to add six more rigs by the end of 2022, it said.

"The forecast is there will be a progressive increase in subsequent years, which would allow a stabilization of production levels over the next three years, at around 1,300,000 b/d," the ministry said in a statement on Aug. 9.

Energy majors like Eni, BP, TotalEnergies and ExxonMobil have resumed upstream work in the West African country since late-2020.

Minor rebound

There are some expectations that the rise in activity could result in a small rebound in Angolan oil output in the coming 12 months. This is also due to the recent startup of TotalEnergies' Zinia Phase 2 oil project in Block 17 along with some other recent discoveries.

Nick Branson, director of Gondwana Risk and contributor to the Angola Briefing, however, expects a minor rebound in Angolan product due to some recent discoveries.

"There is scope for a partial rebound later this year as production at Total's Zinia Phase 2 is currently ramping up, while BP's Platina project and Eni's Cuica discovery are set to come online [soon] boosting output," he added.

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. 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 or early next year, according to industry sources.

But S&P Global Platts Analytics expects Angola production to decline further due to lack of new major project startups, and expects it to average below 2019-20 levels.

"Production averaged 1.2 million b/d in H1 2021, consistently below its OPEC quota," it said in a recent note.

S&P Global Platts Analytics expects Angola to pump 1.1 million-1.2 million b/d this year.

For July, Angola had committed to keep production at 1.319 million b/d under the recent OPEC+ deal.

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

Sonangol overhaul

Another priority of the government is to fully restructure state-owned oil company Sonangol, which has endured a few rocky years.

Speaking at the Aug. 6 meeting, Angolan minister of mineral resources, oil and gas, Diamantino Azevedo said there was still a need to "readjust and redefine Sonangol's role," through the restructuring process.

Sonangol is "implementing its exploration and production strategy for the period 2020-2027, focused on increasing the hydrocarbon exploration activity and on complying with the operational plan and investments to increase operated production to a level of not less than 10% national production," according to Azevedo.

The overhaul has already taken around three years due to the large size of Sonangol, which boasts of subsidiaries outside the oil sector, spanning industries such as media, entertainment, aviation, technology and finance.

The government is keen to privatize most of Sonangol's non-oil businesses, as under the previous regime the company had ventured into various countries and businesses.

Sonangol is also currently in the middle of selling partial stakes in eight offshore blocks as part of the government's plan to streamline the cash-strapped company.

Sonangol's economic woes have mirrored those of Angola, with both hit by the significant fall in oil prices since mid-2014 as well as a steep decline in oil output.