 Oil industry |
 the gold rush of the third millenium |
Angola's oil industry makes the rest of the economy pale into insignificance. The sector accounts for 40% of GDP, and a whopping 90% of its government revenues. Foreign investment is measured in billions of dollars, a total of $18bn having already been pledged by the oil majors over the next four years. So why the rush?
All agree that Angola could be sitting on the largest untapped petroleum reserves outside the Middle East. An allegation that the US State Department takes very seriously since the US already imports more oil from Angola than from Kuwait.
Despite thirty years of civil war, Angola's oil industry has come a long way since Petrofina first discovered oil there in 1955. Already in the late 1960's the industry began to expand significantly when the Cabinda Gulf Oil Company (a wholly owned subsidiary of Chevron) discovered oil offshore the coastal enclave of Cabinda. By the turn of the millennium there were 29 offshore and onshore blocks under license, thirty companies held licences in Angola and 14 were operators.
Oil production has quadrupled since 1980 and currently stands at 810.000 barrels per day. Angola's contracts with multinational oil companies mean its production is set to skyrocket even more. Forecast to double by 2004, output could reach as much as 2.5 million bpd by 2015. Such a result would make Angola Sub Saharan Africa's n.1 oil producing country, ahead of Nigeria, currently the biggest producer in the region producing 2 million bpd (barrels per day).
Today, Chevron is the American oil company with the longest standing experience in Angola. The company has been present in Angola since the late 60's and has been rewarded for keeping its investments there even when the US administration broke off diplomatic relations with Angola, a soviet client state during the cold war. As operator of block 0 which produces a daily average of 600.000 barrels, the company is Angola's largest crude oil producer, accounting for as much 70% of production. Total investment plans for Angola since Chevron merged with Texaco last year total $6 billion over the next five years.
But Chevron is not alone in the rush for Angola's offshore oil riches. Recent discoveries coupled with a business-friendly government, in place since the beginning of the nineties, has prompted the world's major oil companies to step up their investments in Angola; amongst the biggest: Exxon-Mobil, BP Amoco, Total Fina Elf and Shell-Royal. The attraction: Angola leads the world's oil producing countries with a 583% replacement rate and occupies the third position in the world for new oil discoveries.
Today offshore oil exploration in deep water is the name of the game for the oil majors and Angola is where it is happening. Mr. Manuel Vicente, Chairman & CEO of SONANGOL, the National oil company of Angola, assures that a major challenge right now is "to consolidate deep-water exploration and production, even though we hope to start drilling next year from our ultra-deep water exploration".
In 1997, CABGOC discovered the first oil field in deep waters on block 14 and went into production in January last year. Its production is expected to peak at 100.000 bpd in the course of 2001. Since the discovery of the Kuito field, five more deep-sea fields have been discovered in block 14. In a move to quickly put block 14 discoveries into production Peter Robertson, President of Chevron Overseas Petroleum, announced investment plans for Angola that will total approximately $6 billion over the next five years.
The most spectacular discoveries so far have been made in block 17 operated by Paris based Total Fina Elf, the world's fourth largest oil major. So far 10 out of 12 exploration wells have resulted in a discovery. Named after flowers in Portuguese, Girassol, Dalia, Rosa and Lirio are estimated to contain up to 2 billion barrels. A jackpot in the oil industry, the Block 17 discoveries will make Total Fina Elf the largest producer of crude oil in Angola by the end of the decade.
An obstacle to the development of production in Angola has often been the lack of onshore facilities to support large deepwater oil and gas operations. However, Petromar a joint venture between Paris based oil-engineering concern Bouygues Offshore and Sonangol is changing that. Petromar is one of the key contractors in developing Girassol (which means sunflower), the first of the block 17 fields to go into production. In 1998 the company won a $35 million dollar contract for the construction of 14 underwater pipes connecting the oil wells at the bottom of the Girrassol field in block 17. 'The water is at 2°C and the oil has to be kept at 70°C during the two or three kilometers it travels along the sea bed from the well to the main shaft and then another 1300 meters up to the floating platform' says Tanguy Cosmao, Managing Director of Petromar at his offices in Luanda. 'It is the first time ever that this technology is applied at such a depth'. The connection pipes known in the industry as 'bundles', were successfully launched in May this year. Production at Girrassol using the world's largest floating production and storage vessel is expected to start in November with a production plateau of 200,000 bpd.
The record breaking headlines of Angola's oil industry are pushing more and more companies to invest in the long term. 'If you look at the last four years, Petromar accounts for the main portion of Bouygues Offshore's investment in production facilities' adds Mr. Cosmao. Indeed despite experiencing difficulties linked to the war in 1994, Petromar has invested in a new head office in Luanda and a new production facility in the northern town of Soyo 'The Dalia field is similar to the Girassol, the idea is to re-use our Soyo production facility for future bundle or flow line contracts, says Mr. Cosmao.
Angola's oil reserves are estimated between 10 and 12 billion barrels of which 7 are located in deep waters (-1500 meters) and ultra deep waters (-2500). The intensification of drilling in deep and ultra deep waters is expected to increase reserves furthermore. In April, BP and Shell reported two further oil discoveries in deepwater Block 18 where it currently has a 100% drilling success rate since it was awarded the licence by state oil company SONANGOL in 1996. In June, Exxon Mobile subsidiary Esso Exploration Angola, announced its eleventh discovery on block 15 which it operates. So far its reserves are estimated at 3.5 billion oil equivalent barrels. Later in the same month the company announced its first discovery on block 24 which it also operates. The success rate of oil prospecting in Angola is prompting an acceleration of foreign investment in the oil sector, which is expected to attract a further $18 billion over the next five years.
In all, Angola's oil industry has received more than $8 billion in foreign direct investment to date. Angola's oil bonanza, as it is often referred to, is expected to bring development and prosperity to the region. In 2000, oil exports generated $6.5 billion, half of which goes to the state in the form of taxes on production. However, Angola's 12 million inhabitants continue to live in desperate poverty and the fear of war. To such an extent that the oil industry has been accused of exacerbating rather than resolving the crisis through a web of intricate finances linking foreign arms dealers, the government, the central bank and the state oil company. The government denies any wrong doing but foreign oil companies operating in Angola have come under increasing pressure from human rights groups to provide data about payments to the government.
As part of the IMF staff monitored program and a government commitment to open up the oil industry's books, last October the Ministry of Finance commissioned a complete audit of the industry. KPMG a prominent international auditor won the 30-month $1,6 million contract of which 32% is to be funded by the World Bank. Recently tarnished by scandals involving senior French officials and top businessmen in alleged kickbacks to several African leaders, Tota- Fina-Elf was the first to hand over data and information on their transactions with Angola. BP-Amoco has also set the example by pledging to publish total net production by block, aggregate payments to the state oil company SONANGOL, related to production sharing and total taxes and levies paid to the government as a result of operations. A commitment to openness and transparency from the oil majors as well as the Angolan government is essential for all Angolans to start reaping the benefits of their country's mineral wealth.
Such is the priority of SONANGOL, Angola's state oil company. Founded in 1976, it is 100% owned by the state and serves as the business arm of the Angolan government being responsible for coordinating and controlling all petroleum activities. The enactment of the petroleum law (law 13 of 1978) made SONANGOL the sole distributor for oil exploration and production rights in the country. In this role it has developed the country's oil revenues through partnerships with foreign companies. Partnerships may take the form of a commercial company, a joint venture (JV) or a production sharing contract (PSC).
| Exploration blocks are awarded by competitive tenders to SONANGOL. The latest round of bidding took place in 1999 for blocks 31, 32 and 33 all situated in the ultra deep waters of the Congo basin(-2500 meters). The close proximity of blocks 14 and 18 where important discoveries had been made pushed up the bidding to record levels. Block 31 was won by BP-Amoco for $350 million while Total Elf Fina spent $210 million obtaining the operatorship of block 32 and it took $370 million for Exxon to win block 33. Sonangol raised a total of $930 million and has plans to auction the ultra deep waters of the northern Congo Basin, the Kwanza Basin and Namibe basin.
As an example of such a vote of confidence from the majors, Sir John Browne, CEO of BP Amoco, came to Angola last July 2001 to announce to the Government his intention to invest over $ 7 billion over the decade. As many foreign investors, Sir John Browne realizes how much potential Angola has to offer and especially how much return on investment one can make, despite the inherent difficulties of making business in an oil-driven economy. As Mr. Vicente says, "We are known to be tough negotiators and we need to improve our legal framework towards foreign investors, but everybody knows that when we sign an agreement we always respect it". Mr. Vicente seems even proud to add "one of our greatest achievements over the years is that we have assured our partners a safe and sustainable working environment".
Through production contracts, Sonangol markets 40% of the country's oil which has earned it the status of biggest and by far the wealthiest company in the country. Its income is reinvested into projects aimed at increasing revenues from oil while respecting the environment and diversifying Angola's economic base.
With these objectives in mind, Sonangol recently agreed with Texaco, now Chevron Texaco, to develop a liquefied natural gas (LNG) plant. 'We flare approximately 80% of the associated gas derived from oil extraction. This is a polluting and wasteful process. So we have developed the LNG plan, which is extremely important for the development and supply of gas in Angola' explains Mr José Maria Botelho de Vasconcelos, Minister of Petroleum. Due for completion by 2004, the project will convert associated gas from the major deep water discoveries in blocks 15, 16, 17 and 18 into about 4 million tons of liquefied natural gas per year for domestic consumption and export. Prospective markets include Europe, South America and USA. The Government aims to reduce gas flaring to zero by 2010.
But protection of the environment is certainly not the main reason behind the LNG project. Angola counts with huge proved gas reserves in the offshore blocks. These reserves alone can feed the LNG plant with 4 MM tons/year for a period longer to 20 years. Certified offshore blocks (Gaffney, Cline & Associates) reveal reserves that double the amount of required gas: 4 Tcf (trillion cubic feet) certified, 9,5 Tcf probable and 26 Tcf possible. Optimistic speculations arose when two other gas fields were discovered in Blocks 15 and 18 with gas volumes still to be certified. Besides, most of Angolan deep and ultra-deep water areas remain unexplored.
Angola LNG Project
The first LNG shipping is expected to be delivered in 2005
The LNG plant will process both associated gas and shallow-water gas. Most of it is high quality gas, 0-2% carbon dioxide and nitrogen. Non-associated gas provider fields will be chosen among the richest in condensate and LPG. The first LNG shipping is expected to be delivered in the beginning of the year 2005. This project, including the construction process, will not only generate important revenues for Angola but will also create around 10,000 direct and indirect jobs. As Mr. Manuel Vicente says, "a priority here is to create opportunities for our people in order to solve unemployment and criminality problems". Mr. Vicente counts on the oil industry not only to reduce the unemployment level but also to create the conditions that will enable to level up the qualification of the Angolan labour force. "The only way to rebuild the Angolan industry is training the people. I cannot believe that a company can stay here for long only with expatriates, they have to count on Angolan staff", points out Mr. Vicente, implying Sonangol's endeavour to increasing the local content of the Angolan output.
Another priority for Sonangol is the diversification of its oil industry. While most upstream investment has been concentrated offshore, Angola's downstream industry has been negatively affected by war and insecurity on the mainland. With a capacity of only 39,000 bpd, the old Fina Petroleos de Angola refinery can barely keep up with Angola's growing domestic needs. Long queues in Luanda's petrol stations are a common sight. But this is set to change as Sonangol prepares for its biggest project yet: a $3 billion, 200.000 bpd refinery to be constructed in the coastal town of Lobito about 400 kms south of Luanda.
Interviewed in his Luanda offices, Vice President of Sonangol Syanga Abilio said 'the decision to go ahead with this project is closely linked to the large oil discoveries made off the coast of Benguela province which is where Lobito is located'. 'With basic engineering scheduled to begin this fall and assembly in 2002, the refinery will become fully operational by 2006' he adds.
Earlier this year a feasibility study was carried out by Kellog Brown & Root a business unit of the Halliburton Company, the world's largest provider of products and services to the petroleum and oil industries. Mr Abilio is proud to announce 'the study concludes that there is a market for the Lobito refinery not only in Southern Africa but also on the East Coast of the USA, Brazil and Asia. Indeed with the biggest refinery in Southern Africa located in Durban, South Africa, the Lobito refinery will be able to compete in terms of refining capacity.
Asked what this project symbolises for Angola's development, Mr Abilio is quick to remind us of the social and strategic role Sonangol plays in Angola's fledgling economy: "In order to compete in the global economy, we must create the adequate infrastructures in areas where we have a comparative advantage. If we do not develop our energy and use it towards obtaining better social conditions in Angola, we cannot talk of integration. We must therefore maximise the revenue we can get from our resources and building the Lobito refinery is an important step in that direction". Mr. Vicente definitely shares the same point of view and adds, "as we are currently producing four times more petrol than the refinery would be able to deal with, any company willing to build another refinery is welcome to do so".
A key aspect of Sonangol's development policies is helping Angola widen its economic base. As such, the company has its own airline Sonair and recently created its own telecommunications company Mercury. Sonair has a fleet of ten helicopters and ten aeroplanes. In November last year, the company passed a wet lease agreement with pioneering air charter company World Air to operate a bi weekly MD11 shuttle service between Luanda and Houston. Thanks to the Sonair contract, World Air is the first American carrier to ensure a regular service between the United States and Angola. To comply with FAA regulations the World Air must supply its own security personnel on the ground in Luanda. The chartered flight could pave the way for scheduled flights between Luanda and the U.S.Another area of Angola's economy that Sonangol is helping develop is the telecommunications industry through its subsidiary Mercury.
Mercury: millions of megabites of information
Angola's coverage is low with 0,5 lines per 100 people. Earlier this year, Mercury launched the country's first mobile phone company using GSM technology in partnership with Portugal Telecom and other local and foreign shareholders. The operator has an installed capacity of 50.000 lines, which can be extended to 150.000.
However Mercury's ambitions do not stop there. Created with the group's telecommunications needs in mind, it now plans to sell its excess voice and data transmission capacity to private clients in the oil industry and beyond. 'In the past oil companies in Angola had to set up there own telecommunications systems at a very high cost. Once two or three licensed operators appear on the market that will no longer be necessary' explains Alberto Araujo, Managing Director of Mercury.
Mercury has already invested over $40 million in Vsat and microwave technology. This year it will acquire a public operators' license which it will eventually use to woo a strategic partner from overseas.
Despite its growing influence within the world oil industry and invitations from member countries, Angola has no immediate plan to join the OPEC. Mr. Manuel Vicente is aware of the "exchange of experience and know-how that joining the OPEC would bring to SONANGOL. We support all these trends of security and improvements in the prices, but we have our own reality and we need secured revenues to reconstruct the Angolan industry, we have to put all our efforts in its development and I believe everyone understands our point of view".
After 25 years of existence Sonangol is helping the oil industry meet an increasing amount of its needs within Angola. 'Unlike in other parts of the world this is a priority which always comes up' says Mr Cosmao of ¨Petromar, admiringly commenting on his experience as a foreign investor working in partnership with Sonangol. In Luanda, Sonangol is more than just a company, it is an institution spearheading the country's development and its participation in the global economy |
