July 23, 2024
The Foundation Underpinning Angola’s Oil and Gas Investment Frenzy
– By Godswill Odiong

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There’s a smart management concept that says, “catch people in the act of doing something right.”
The idea is that by reinforcing positive behavior, leaders can motivate their team members to live up to high expectations and to routinely do their best.

There may not be an exact parallel on a national level, but there’s no shortage of African countries “doing something right” when it comes to monetizing their energy resources to drive GDP and benefit their citizens.

In many ways, though, Angola is the standard bearer. The country, under the leadership of President João Lourenço and the Minister of Mineral Resources, Oil, and Gas, Diamantino Azevedo, has built a nearly peerless agenda for making the most of its massive oil and gas reserves (9 billion barrels of oil and 11 trillion cubic feet of natural gas confirmed). Angola also has earned a reputation for making it easy for international companies to do business there. Not only is it doing things right, Angola is serving as a model for other African nations who want to do things even better.

Surging Investor Interest

Combining resource wealth and an enabling environment with a post-COVID uptick in oil prices has set off what can best be described as an investment frenzy in Angolan exploration and production. In May, Germany’s Deutsche Bank, which is financing the EN230 road project that will improve access to the port of Luanda and the Luanda Railway, said new oil and gas discoveries were accelerating the already brisk pace of foreign capital flows into Angola. The bank also credited Angola’s status as an oil exporter with helping to support currency appreciation and to reduce inflationary pressure amid global recession fears.

One of the most notable new financing deals is the seven-year USD2.5 billion third-party funding arrangement that helped create Angola’s largest independent equity producer of oil and gas, Azule Energy. The company is a 50/50 joint venture between the Angolan operations of multinationals BP and Eni. Azule Energy has a stake in 16 licenses, including six exploration blocks. It also participates in the Angola Liquefied Natural Gas (LNG) operation, a USD12 billion project that is the world’s first LNG plant supplied with associated gas, and has invested USD7 billion in the 36-well Agogo Integrated West Hub project.

While Azule Energy is making headlines, it’s not the only Angolan development attracting significant capital flows. It also points to Eni’s Quiluma/Maboqueiro gas project, which includes two offshore wellhead platforms, an onshore gas processing plant, and a connection to the Angola LNG plant; the Sanha Lean Gas project, an offshore subsea gas pipeline system developed by Chevron’s Angolan subsidiary, Cabinda Gulf Oil Company (CABGOC); and TotalEnergies’ CLOV Phase 3 project. In 2022, the French energy major and its partners made a final investment decision of USD850 million on CLOV 3, which will add production by extending its subsea network and connecting it to the CLOV floating production storage and offloading vessel (FPSO). The project is part of TotalEnergies’ decision to invest USD3 billion in Angolan oil exploration.

Exploration campaigns resulting from Angola’s eight-block 2021/22 licensing round to lead to additional investment in the country’s hydrocarbons.

Angola’s Success is No Accident

Unlike Uganda, Mozambique, and Namibia — all promising newcomers in the African oil and gas landscape — Angola has considerable experience under its belt, meaning its current successes can’t really be considered a surprise. Over the past three decades, Angola’s oil and gas ministry has worked hard to position the republic as the “main destination for large-scale investments in the oil and gas sector” — an effort that has resulted in the country becoming sub-Saharan Africa’s largest oil producer. The country pumps out nearly 2 billion barrels of oil and about 17.9 billion cubic feet of natural gas per day. National oil company (NOC) Sonangol has been around since 1976 and employs 12,000 people.

But it’s clear that Angola isn’t content to rest on its laurels. The government is as tenacious when it comes to keeping its top producer status as it was about getting there. Diversification, infrastructure development, and fiscal policy improvements are how Angola is working to create an even more attractive investment environment for oil and gas production, infrastructure, and monetization.

For example, to reverse declining output, in 2019, the government’s regulatory body, the National Agency of Petroleum, Gas, and Biofuels (ANPG) — which replaced Sonangol as the agency responsible for energy concessions — introduced a six-year licensing round that will cover 50 blocks in the Namibe and Benguela basins by 2025.

Although that kind of competitive bidding process typically results in production-sharing agreements that define how much oil or gas the host country and producer will receive, in 2020, Angola introduced a risk-reducing alternative. The country’s Petroleum Activities Law allows Angola to award risk service contracts when the public bid process is unlikely to succeed (or has already failed). Global law firm Mayer Brown said the regulatory flexibility “allows the Country to attract investors, and possibly secure production, that otherwise might never materialize.”

Moving a step further, in 2021, ANPG initiated a permanent offer program that enables it to negotiate new contracts with block operators without having to offer a new bidding round. The goal is to reduce time to production.

Currently, legislators are weighing the effect of tax reforms on oil exploration and production in the Cabinda maritime zone. This follows the 2022 enactment of the Tax Benefits Code, which streamlines foreign exchange procedures and facilitates private investment, according to Bloomberg Tax. The law also creates tax incentives for job creation and for workforce training, especially for young people and women. In that sense, it dovetails with a 2020 Presidential Decree intended to ensure that oil and gas development creates opportunities for Angolans. The law covers all companies in the hydrocarbon value chain, not just those involved in exploration and production. Among other things, it mandates local content and human resource plans, including frameworks for professional development.

Angola’s Growing Energy Infrastructure

With the promise of increased energy production comes the need for more infrastructure and better supply chains. Although Angola has a significant head start in that regard — the Luanda Refinery, Angola LNG facility, and domestic and cross-border pipelines all help energy companies keep costs and time in line — new facilities are in the works. That includes three more refineries; the Barra do Dande Ocean Terminal, which provides floating storage for oil products and will increase regional supply and import/export capacity; and the strategic and potentially transformative Lobito Corridor. Among other things, the route will facilitate oil exports from Angola to Zambia and the Democratic Republic of the Congo.

There’s no question that oil will remain part of Angola’s economic future, even from mature fields. Consider that late in 2022, ExxonMobil made a new discovery in the Angola 15 redevelopment block — the first there in nearly 20 years. It is expected to produce 40,000 barrels of oil per day.

However, the country also recognizes both the volatility associated with an oil-dependent economy and the need for decarbonization even as electricity demand grows.

Leveraging its vast proven natural gas reserves — some 11 trillion cubic feet — will help Angola participate in the energy transition while also promoting socio-economic stability. In addition, the country anticipates additional investment in its renewables sector (hydropower already accounts for half of its electricity generation, and there’s a laundry list of international and domestic players hoping to profit from the country’s 100+ hydro locations). Much of the investment will come from the same international oil companies that already have a presence in Angola, companies such as TotalEnergies that are trying to “green” their portfolios. In fact, TotalEnergies holds a 51% interest in Angola’s first solar power project, in the town of Quilemba. Its partners are Greentech – Angola Environment Technology and affiliates of Sonangol.

“We applaud Angola’s leaders for their foresight, hard work, and outside-of-the-box thinking. We’re excited about the fruit their strategic actions have been yielding, and we’re optimistic about seeing similar scenarios play out throughout the continent as other African countries follow Angola’s example”. Stated Tomás C. Gerbasio, Strategy and Business Development Director of the African Energy Chamber.

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