By Gerard Kreeft
What can we anticipate in Angola for 2019 and beyond?
While optimism is in the air there is also a high degree of impatience. The strategy for determining the direction of Angola’s oil and gas industry—which is the piggy bank for economic diversification be that for basic education, housing, drink water and santitation, and stimulating the agricultural sector—must still be taken and implemented.
Oil and Gas Authority
Amadeu Correia de Azevedo, the Director of the Oil and Gas Authority, is quickly moving to assert it’s authority: originally the handover of Sonangol’s concessionaire role was scheduled to start in 2020; now that has moved up to January 2019 to ensure a timely handover.
The Authority is expected to be very busy from the outset:
- Overseeing and Implementing the Gas Legislation
- Monitoring and reviewing exploration plans and development plans
- Encouraging new companies to participate in Angola’s oil and gas industry.
Certainly a key sign to watch are Angola’s production figures. The Authority’s immediate goal is to ensure that oil and gas production does not stagnate at the current level of 1.4MMBOPD, but increase to at least 1.5MMBOPD as quickly as possible in order to send a positive signal to the international investment community.
Less positive has been the news that Shell did not submit a bid for the former Cobalt Blocks. The reasoning: a difficult project and the company has better opportunities elsewhere. This highlights two major problems which the industry in Angola must face and solve:
- Developing value propositions for current and new potential assets in Angola that will help stimulate production;
- International companies face internally a strong debate where they will invest their exploration and development monies…and Angola is part of this competition.
Overseeing and Implementing the Gas Legislation
At the recent Africa Energy Summit organized by EnergyWise, Maria Figueiredo, Partner (Miranda Law Firm) explained the basis of the new gas legislation:
Oil companies are entitled to prospect, explore for, appraise, develop, produce, and sell natural gas either domestically or on the international market. Originally this was the monopoly of Sonangol.
Contractual terms and conditions can be agreed upon on a case by case basis.
Concessions and contracts may set periods and terms longer than those set typically for exploration of oil.
Deductible: costs incurred with development and production of associated gas and construction of relevant pipelines.
Present concession contracts for crude oil are subject to 70% Petroleum Transaction Tax (PTT), but gas projects are exempted.
Present concession contract costs not linked with exploration, development and production of crude oil not eligible for deduction for Petroleum Income Tax (PIT); for gas contracts costs linked with associated gas and non-associated gas in the context of a crude oil project become tax deductible for PIT.
For oil concessions the Petroleum Production Tax (PPT) is 20%, possibly reduced to 10%; PIT is 65.75% and for PSCs the PIT is 50%.
For gas projects the PTT is 5%; PIT is 25%, and possibly reduced to 15% for projects with certified with reserves greater than 2Tcf.
The gas legislation has been welcomed by the industry as a good start to incentivize a potential gas energy. As the industry moves forward it is anticipated that the necessary amendments and challenges will be addressed. Will the incentives extended to explore for natural gas be done at the expense of oil projects? Can the industry also anticipate that current and future oil agreements will also possibly be amended?
Nonetheless, as Qi Chen of Chiron AlkaTrans Technology outlined at Africa Energy, a gas roadmap should entail:
- Long-term planning for gas development and Monetization
- Guiding strategy document for national development in the gas sector
- Well to wheel: reservoir to end users
- Gas production, infrastructure, movement, and Monetization plants
- Fit into the national energy development strategy
Monitoring and reviewing exploration and development plans
Speaking at the Energy Africa Summit, Ken Seymour, of African Oilfield Solutions(AOS) stated that if project development was to move forward it is paramount that the following criteria be addressed:
- Opening licencing systems with rapid churn of acreage;
- Making data freely available;
- All stakeholders must be aligned to solely profit from production of hydocarbons.
While exploration has been done in the pre-salt basins, the results to date have been left wanting…yet there is optimism that with additional geological modeling and exploration, hydrocarbons can be found. For example, Sebastian Kroczka, Industry Solutions Advisor, Halliburton, visualized the following:
- Application of smart connectivity between subsurface and surface data from field/FPSO to the office with automated and optimized workflows;
- Faster data visualization, data analytics, machine learning, pre-processing and data integration.
Angola’s largest cash cows, the offshore Blocks 15 and 17, are fast becoming mature and innovation is needed to ensure that the life cycle of these projects can be extended. The majors involved here—BP, Chevron, ENI, ExxonMobil, Statoil and TOTAL, are interested in further developing their businesses and open to innovative ideas and business propositions, varying from enhanced oil recovery to natural gas production.
Encouraging new companies to participate in Angola’s oil and gas industry
More regional international co-operation can lead to more increased activity. For example at Energy Africa, Namcor presented its Kudu Gas to Power Project. An example of how a small dedicated gas project can be developed and monetized. A precedent for Angola and also a stimulus to establish more regional co-operation.
With the majors taking up more stakes in Nambia, additional co-operation will be sought. For example rig-sharing. A major exploration cost. With increased exploration in both Angola and Nambia time-sharing of rigs is one example of co-operation.
Certainly it should not be ruled out that new players will start to look at the regional developments in South-West Africa. New players can be engines of change and can help speed along new business developments.
Gerard Kreeft, MA (Carleton University, Ottawa, Ontario, Canada) is founder and owner of EnergyWise. The company has since 2001 managed and implemented oil and gas conferences, seminars and master classes in Angola on an annual basis.
Mr. Kreeft wrote this specifically for Africa Oil+Gas Report and the piece was earlier published in the November 2019 edition of the magazine.
