Business in Ghana

We Understand the issues that make the News

Rival to Nigeria as Prodigious Source of Crude

Posted by Business in Ghana on July 18, 2012

By Tom Burgis, www.ft.com

On the morning of Friday February 10, the oil world was abuzz. Cobalt International Energy, a midsized explorer backed by Goldman Sachs, had announced what was potentially one of the biggest discoveries of recent years.

The find in Angola’s Kwanza basin was a “game changer”, in the words of one veteran oilman. Cobalt’s well, drilled to a depth of 4.9km through a thick layer of salt, had found a reservoir the Texan explorer estimates to contain 1.5bn barrels of crude.

It confirmed a new energy frontier. If the so-called “pre-salt” region proves as rich as early indications suggest, it would set Angola on course to join the big league oil producers over the coming decade.

Cobalt’s discovery, which followed another strike nearby by Maersk, has added momentum to an industry scramble for Angolan oil rights. Tens of billions of dollars of investment had turned the country into a rival to Nigeria as Africa’s most prodigious source of crude long before geological similarities between the Kwanza basin and the oil-rich Brazilian coast prompted a rush to secure territory in last year’s bid round.

“The Kwanza basin is the new frontier for us,” says Jacques Marraud des Grottes, head of African exploration and production for France’s Total, which secured rights in three blocks in the bid round to add to its prolific assets to the north.

Mr Marraud des Grottes says Total paid “competitive” signature bonuses but, like the other oil groups that won blocks, declines to put a number on them. In a more transparent 2006 round, the bonuses ran into billions of dollars and set records.

Such bonuses are a measure both of the febrile interest in Angolan oil and also the state’s penchant for secrecy. Angola guards the confidentiality of these payments closely and the nearest any group came to disclosure last year wasStatoil. The Norwegian company said its “financial commitment” for stakes in five of the 11 blocks auctioned came to $1.4bn, “including signature bonuses and a minimum work commitment”. BP, Cobalt and China Sonangol – a joint venture between the state oil company and a group of Hong Kong-based investors – agreed to pay $550m over four years to the government’s “social projects” as part of their deal on one block, without saying whether that constituted a signature bonus.

Analysts caution against premature exuberance. The depth of Cobalt’s pre-salt well is equivalent to half the height of Mount Everest. The price of crude, which has dipped in recent weeks, will need to stay above $80 a barrel to make the $100bn of investment required commercially viable, executives and analysts estimate.

But Manuel Vicente, who recently swapped the leadership of Sonangol for a top ministerial post overseeing the entire economy, reckons that, if all goes to plan, production should “easily” rise from 1.8m barrels a day last year to 3.5m b/d by the end of the decade. He is not alone in his optimism. “We have hope for very significant discoveries,” says Didier Lluch, exploration director for east and west Africa at Spain’s Repsol, which has secured stakes in three blocks.

The government aims to capitalise on Cobalt’s find with a second pre-salt bid round next year, this time for the onshore section of the Kwanza basin, where analysts have quadrupled their estimates.

Meanwhile, a new natural gas plant at Soyo is poised to add still more hydrocarbon exports and will, according to analysts at Ecobank, boost to 13 per cent the share of world liquefied natural gas output contributed by sub-Saharan Africa, excluding South Africa.

Alan Martin, BP Angola’s chief financial officer, offered an indication of oil groups’ spending plans for Angola in May when he told an investment conference in London that the UK company plans to spend $15bn over the next 10 years there.

Angola is keen to foster a role for homegrown groups in the industry.

Foreign companies speak highly of their Angolan suppliers but the government wants to go further, nurturing indigenous oil groups by assigning them stakes in ventures with the majors from overseas.

Yet even the best informed industry experts in Angola say it can be difficult to tell the difference between genuine entrepreneurs and front companies that serve to enrich officials illicitly or as money-laundering vehicles. “Many of those local partners are or were part of government,” says Melvin Glapion, head of business intelligence at Kroll, the US corporate investigation and private security group. “The lack of transparency around these partners only exacerbates the risks.”

US authorities are investigating whether the political connections of Cobalt’s local partner broke anti-corruption laws. The company has strongly denied wrongdoing and said it was not aware of the connections. But with the government insistent that the local partners are here to stay, many industry experts predict that Cobalt will not be the last foreign group whose thirst for Angolan oil leaves it facing awkward questions at home.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: