New auction of oil blocks in Angola is opportunity for smaller Angolan and foreign companies

25 February 2014

The next auction of oil blocks in Angola, recently announced by Angolan state oil company Sonangol, is an opportunity mainly for smaller companies to enter or increase their position in the country, according to the Economist Intelligence Unit.

In a recent report on the Angolan economy, the EIU noted that, whilst the previous auction was for oil blocks in the pre-salt layer, which required large investment, and most Angolan oil is extracted at sea, the new auction is “significant” because it is selling off onshore blocks.

Onshore “operations are cheaper,” and therefore are a “gateway for smaller, national and international companies,” said the EIU.

Sonangol announced that it would soon be open to bids for oil concessions in ten blocks, three in the Congo basin and seven in the Kwanza River basin.

This month Sonangol will make technical presentations in the United Kingdom and the United States, of the geological potential of the blocks, which are open to bids from all national and international companies.

The process, which has been under preparation for a year, will end in the first auction since 2011 when blocks in the pre-slat layer were granted and the EIU welcomes the signs of “transparency” given by the state oil company.

“This is a positive step for Angola, which should attract growing interest from investors,” said the EIU economists, noting that their projections remain unchanged as these blocks will take a long time to go into operation and had yet to undergo prospecting.

The EIU forecasts that Angolan oil production will grow continuously over the next few years, from 1.8 million barrels per day to 2.01 million barrels per day next year and 2.158 million in 2018, supporting growth of around 6 percent.

China is currently the main destination for oil from Angola, which has vied with Saudi Arabia to be China’s main supplier for over a decade.

However, the weight of China in the acquisition of Angolan oil is not reflected in its production, which is dominated by US oil companies such as Chevron, Britain’s BP and France’s Total.

At the end of last year, Chinese oil company Sinopec announced that it planned to invest US$20 billion in Africa, including in Angola and Sao Tome and Principe over the next five years.

In Angola, Sinopec has so far invested US$6 billion and “has boosted strategic cooperation with Angola’s national oil company, Sonangol,” according to the China Daily.

Via a partnership with Portuguese group Galp Energia, Sinopec is also in Brazil.

In June of last year the China National Petroleum Corp (Sinopec) reached an agreement to buy a stake in an offshore oil block in Angola from US group Marathon Oil Corp for US$1.52 billion.

Sonangol Sinopec International, a partnership between Angolan state oil company Sociedade Nacional de Combustíveis de Angola (Sonangol) and Chinese group Sinopec, acquired the 10 percent stake owned by the US group in Block 31.

China has been increasing its purchase of oil from Angola, which in the first half of this year was Beijing’s main supplier, but the assets owned by Chinese oil companies in the country are still modest.

After giving up on the “Sonaref project,” which brought together oil companies from both countries to build a large refinery, Sinopec started adopting “more market-focused strategies” in expanding its assets in the country, according to analyst Ana Cristina Alves.

In May 2006, Sonangol Sinopec International was granted three stakes in some of the most disputed deep water blocks: 20 percent of block 15/06, 27.5 percent of 17/06 and 40 percent of 18/06.

In 2004, it was granted half of block 18, an equal stake to the operator, BP. (macauhub)