Angola Holds an Enviable Position in the African Oil Rush
Nathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After 27 years of civil war, peace has returned to Angola, allowing several foreign companies from the energy sector to invest there. Angola ranks as the 2nd largest oil producer in Africa, with 2011 production of 1.75M bopd. BP estimates that Angola hosts 13.5 billion barrels of oil reserves. Most of these reserves are offshore, because onshore exploration was impossible during the years of the civil war. Offshore Angola is recognized as a world-class area for oil exploration and production, and Angola forecasts an increase to 2M bopd due to new offshore fields coming online by 2014, and it expects to double output by 2020.
The "Touch of the Bellies," the Bacardi and the Angolan Oil Party
Brazil means Samba, but how many folks know that Brazil shares this dance with Angola? In Angola it is just called "Semba," which means "Touch of the Bellies." Brazil and Angola may also touched their geological bellies about 150 million years ago, as they share the same geological structure. It is believed that the pre-salt geology of offshore West Africa has many similarities to that of offshore Brazil, the location of a number of recent super-giant discoveries made by Petrobras. Petrobras' pre-salt discovery in Brazil is the largest oil discovery in 30 years, and one that could propel Brazil into the major league of oil exporters. Estimates of Brazilian pre-salt reserves indicate a potential for 70 to 100 billion boe. For context, current Brazilian crude oil proven reserves are at 14.4 billion bbl.
So which are the pre-salt Angolan blocks, and which company owns them? The Blocks 38 and 39 are pre-salt, potentially high impact blocks, and Statoil (NYSE: STO) owns 55% of each of them. The Angolan continental shelf is the largest contributor to the company's production outside of Norway. Statoil's production from Angola is 180,000 bopd, which is 10% of its total production and 33% of Statoil's total international oil and gas output. Statoil expects its production to rise significantly in 2013, as it also owns between 13% and 20% of the offshore Blocks 15, 17, 22, 25, 31, and 40.
The Blocks 9, 20, and 21 of offhsore Angola are also pre-salt, and Cobalt International Energy (NYSE: CIE) has a 40% stake in each of them. It is also the operator on all three blocks that cover an area of 5,600 square miles. In 2012, it discovered Cameia in Block 21, a well with a rate of 7,400 boepd. The company believes that the full production of Cameia will produce 20,000 boepd. Cobalt will drill another test well in Block 9 by year end.
Total (NYSE: TOT) has also acquired a huge acreage in Angola lately, and is Angola's leading oil operator, owning 10% of Block 0, the highest producing block in Angola (400,000 bopd); its concession was extended to 2030 in May 2012.
Total also owns 20% and 40% of Blocks 14 and 17, respectively. The Lianzi field in Block 14 has reserves of 70 million barrels of oil, and production there begins in 2015. Pazflor, on Block 17, has an estimated 590 million barrels in reserves, and it is one of the world’s largest deepwater developments, increasing Angola's production by 220,000 bopd. Block 17 houses Total's CLOV project, which will produce 160,000 bopd in 2014 and has reserves of 500 million barrels of oil.
Total also owns from 15% up to 50% on the offshore Blocks 1, 2, 3, 25, 31, 32, 39, and 40.
In 2012 Angola starts its first LNG project, which has estimated natural gas resources amounting to 297 billion cubic meters. Both Total and Eni (NYSE: E) have 13.6% in this project. Eni's Angolan production is 95,000 bopd, and the company also has 20% and 35% ownership on Blocks 14 and 15, respectively. The LNG website notes: “An estimated 50 significant new deep-water discoveries in Blocks 14, 15, 17 and 18 are expected to come on stream in the next years. These Blocks are estimated to contain more than 10 billion barrels of recoverable oil."
Eni is set to go on a multi-billion dollar spending spree on Block 15 beginning in 2013. It plans a second floating production storage and offloading vessel for this block. In October 2012, ENI secured vital equipment and signed a $50 million contract with Aker Solutions for the Block 15 West Hub development project, which includes three fields. Eni's VP for Africa said: “We estimate peak production from the west hub of 90,000 bopd with equity 27,000 bopd and 170,000 bopd with equity 51,000 bopd from the whole Block 15.”
Eni also holds between 9.8% and 50% on the offshore Blocks 0, 1, 2, and 3.
Angolan oil isn't Bacardi to be sipped with straws; it requires special offshore rigs. Seadrill (NYSE: SDRL) has gotten the message and has ramped up its development plans lately to acquire additional special rigs that target the Angolan sea:
a) In early 2012, Seadrill ordered two new ultra-deepwater drillships. Delivery is scheduled for Q2 and Q3 2014.
b) In September 2012, it ordered another $600 million ultra-deepwater drillship. The delivery is scheduled for Q4 2014.
c) In November 2012, it acquired an ultra-deepwater semi-submersible for $590 million with delivery in December 2012. This rig operates for Total, a contract that's ending in Dec 2013. Seadrill's M.r Halvorsen said: "We are pleased to strengthen our relationship with TOTAL in Angola and increase our presence in the region, which adds scale to our operations and could further reduce our relative cost base in the region."
The supply for such special rigs is extremely tight in Angola, and this is why Seadrill has already received improved day rates for its existing rigs there. As an example, in August 2012 it secured a contract extension for the rig West Setia in Angola for $223,000/d, up from a previous $167,000/d.
Will the Angolan Sun Keep Rising?
If somebody invests in Angola, he mustn't ignore that the democratization there remains in question. Poverty, institutional reforms, corruption, and lack of infrastructure are drags. Analysts for Catholic University of Angola's research center said: "66% of Angolans live on $2 or less a day." If the government improves these issues, Angola's future, both for its people and the energy companies, will be very bright.
traderinvestor70 has no positions in the stocks mentioned above. The Motley Fool owns shares of Seadrill. Motley Fool newsletter services recommend Seadrill, Statoil (ADR), and Total SA. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!