12 November 2016, Houston — The recently announced gas discovery in Angola’s offshore Kwanza basin won’t be developed before the end of the next decade, Readul Islam said, a senior oil and gas analyst at Rystad Energy.
Angolan state oil company Sonangol revealed the find at the end of June, stating that the discovery in Block 20/11 held an estimated 313 million barrels of condensate and 2.8 trillion cubic feet of gas.
The reason for the delay in the development of this discovery is partially due to problems surrounding the ownership of the block in which the find is located, Islam said.
The sale of Cobalt International Energy’s operated stake in Blocks 20 and 21 to Sonangol, for a total price of $1.75 billion, was originally announced Aug. 24, 2015. After the Angolan government withheld its approval for the deal for over a year, however, the transaction was eventually automatically terminated.
Shedding some light on why the deal was never approved, Islam implied that the oil price environment was largely to blame.
“It’s widely expected that if the transaction … [went] ahead to completion, Sonangol would try to sell on some or all of the acquired properties to another international oil company (IOC) capable of taking the projects through development to production,” he told Rigzone.
“After the transaction was announced in the third quarter of 2015, the oil price continued to drop until midway through the first quarter of 2016. In that environment, it was unlikely any IOC was prepared to make an offer … for the assets Sonangol wished to sell … [which] Sonangol and the Angolan government would have found satisfactory,” Islam added.
As a result of the termination of the deal, Cobalt now retains an asset it originally wanted to sell. This development isn’t good news for the progression of the discovery, according to Jane Morley, The Economist Intelligence Unit’s regional manager for the Middle East and Africa.
Morley told Rigzone that Cobalt is currently facing pressures of its own, “at least vis a vis its share price”, and implied the company’s appointment of a new chief executive could potentially delay future development.
Even when the ownership issues at Block 20/21 are sorted out, the recently announced discovery would be at the end of the development line, Islam said.
“During its operatorship, Cobalt Energy International (CIE) had been quite successful in racking up a number of prior discoveries at these blocks: Cameia, Mavinga and Bicuar in Block 21 and Orca and Lontra in Block 20,” Islam told Rigzone.
“CIE had already taken Cameia to a high level of development readiness at the time of the announcement of the sale to Sonangol, having reportedly started development well drilling during the first half of 2015,” he added.
Development plans for Block 20 are also expected to focus on monetizing the liquids content of existing discoveries first, for which there’s a ready market, Islam added.
“The development of the discovered gas resources will first require the identification of and signing of gas sales agreements with potential gas markets,” Islam said.
“The local and immediate regional demand for gas is minuscule compared to what has been discovered, so most likely an LNG export project will be the way to unlock the development of these resources. Unfortunately for Angola, its location, scope of discovered resources and current development maturity compared to much larger, as well as further along the development pipeline, projects in Eastern Africa, Eastern Mediterranean or even the emerging gas hub in Mauritania/Senegal, means Angolan gas is at the end of the commercialization queue,” he added.
Blocks, Skills Shortage, High Costs Standing in the Way of Development
Supporting Islam’s prediction, Morley highlighted several other aspects which could slow down the development of the discovery in Angola.
“Operators will face all the usual problems – bureaucratic blocks, the shortage of skilled employees, high onshore expenditure for workers’ accommodation and local services – at a time when oil and gas price prospects aren’t exactly spectacular, particularly post-Brexit vote,” Morley said.
Morley also highlighted the negative effect of continuous restructuring processes within the Angolan oil and gas sector, such as the recent management changes at Sonangol, suggesting that such changes aren’t helpful for the development of discoveries in the country.
“The situation is likely to be further complicated by ongoing restructuring at Sonangol and the re-organization of the oil ministry,” Morley told Rigzone.
Morley did admit however that the Angolan authorities will be keen to see progress on the discovery, stating that this development would help the country achieve its oft-stated output target of 2 million barrels per day and give a much-needed boost to its hydrocarbons sector.
*Andreas Exarheas – Rigzone