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COVID-19 could spoil Angola’s plans to rebuild its declining oil production

The coronavirus pandemic could spoil Angola’s plans to rebuild its declining oil production, claims Rystad Energy.

Angola’s oil output averaged 1.38mn b/d last year and was forecast to reach 1.4mn b/d in 2020. Despite its robust level, the country has long realised that its existing production is on track for years of consecutive decline – deepening from 2021 – and introduced a new royalty and tax regime to attract investments from the majors. The incentives were set to help Angola recover its declining production and add a peak of 750,000 new b/d of production in 2029, according to Rystad Energy estimates. The extra barrels, together with what remains from the country’s current production, would have driven total output close to 2020 levels.

However, COVID-19-induced capital spending cuts may have thrown a wrench into the country’s plan for a bright oil and gas future. Projects which were in the pipeline have now been delayed and exploration plans are being shelved. And in the current market situation, Angola faces stiff competition from the other deepwater markets such as Brazil and Guyana.

Because of the new market reality, Rystad Energy now estimates that instead of rebuilding Angola’s lost output by 2029, the country will likely never manage to produce at current levels again. As a result, the estimated peak of new cumulative output will shrink to 650,000 b/d, and will only be reached in 2032.

Angola added over half a billion barrels of recoverable crude oil volumes to the country’s coffers in 2018 and 2019. Projects in the country, along with many other Western African nations, were among the first to be put on hold since these were relatively high-cost offshore projects. The same projects which were deemed profitable under the new tax incentives have now been put on the backburner.

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

Instead, ANPG has decided to postpone the country’s 2020 licensing round. Adding insult to injury, the oil price crash has led all the majors operating in Angola to ditch or leave their drilling rigs idle, explains Rystad Energy.

It remains to be seen how the government responds and whether it offers any additional motivation in the form of fiscal changes and operational incentives to keep investors interested.

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