COVID-19: Capital spending cuts may spoil Angola’s plans to rebuild its declining oil production

22310024010 8140f8620d cCOVID-19-induced capital spending cuts could have slammed the country’s plan for a bright future in oil and gas

Projects that were in the pipeline have now been delayed and plans for exploration will be shelved. And Angola faces rigid competition from other deepwater markets, such as Brazil and Guyana, in the current market situation.

Last year Angola’s oil output averaged 1.38 mmbbl per day, projected to reach 1.4 mmbbl per day by 2020. Despite its robust level, the country has long realised that its existing production has been on track for years of steady decline – deepening since 2021 – and introduced a new royalty and tax regime to attract investments from the major companies.

The incentives were set to help Angola recover its decreasing output and add a peak of 750,000 new bpd in 2029, estimates Rystad Energy. Together with what remains from current production in the country, the extra barrels would have driven total output very close to the levels of 2020.

Because of the new market reality, Rystad Energy now estimates that instead of rebuilding Angola’s lost output by 2029, it is likely that the country will never again manage to produce at present levels.

As a result, the estimated peak of new cumulative output will shrink to 650,000 bpd, and will only be reached by 2032, when output from current-producing projects will have continued to fall from 2029.

In 2018 and 2019, Angola added more than half a billion barrels of recoverable volumes of crude oil to the country’s coffers. The country’s projects were among the first to be put on hold, along with many other Western African nations, since these were relatively high-cost offshore projects.

The same projects that were considered lucrative under the new tax incentives have now been put on the backburner.

Angola had grand plans, when it comes to exploration. The National Agency for Petroleum, Gas and Biofuels (ANPG) was created in 2019 as the country’s industry regulator and plans were drafted to offer 10 offshore frontier acreages in the Namibe and Benguela basins by the end of 2019. A six-year licensing strategy (2019-2025) was created in which 55 blocks were to be put on offer. Additional licensing in different modes was also in the works.

Instead, ANPG has decided to postpone the country’s 2020 licensing round, originally scheduled to be launched by May 2020. The oil price crash has caused all the majors operating in Angola to ditch or leave their drilling rigs idle, adding insult to the injury.

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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