Huge BP Writedown Points to Angolan Malaise

Angola’s oil and gas sector could be slower than its African neighbours to attract fresh investment, despite state-owned Sonangol’s July 3 report that it returned to profit in 2016.

BP last week said it had decided to relinquish its 50% stake in block 24/11 offshore southern Angola: “Katambi, a gas discovery made in the block in 2014, has not been determined to be commercial. As a result of this and other exploration write-offs in Angola, BP expects to include in its 2Q2017 results a non-cash exploration write-off in Angola of around $750mn which will not attract tax relief.”

BP exploration chief Bernard Looney said June 27: “We are choosing not to pursue activities that we don’t think will deliver maximum value for our shareholders.” The UK major however stressed how it is investing in gas elsewhere such as Senegal, Egypt, Oman, Trinidad and Azerbaijan.

Katambi contained “in place resources” of 8 trillion ft³ gas plus 280mn barrels condensate, for a grand total of 1.7bn barrels of oil equivalent, said Sonangol in April 2016 which holds the other 50% in the block with the discovery.

BP did not elaborate on why the find was deemed non commercial, but there are pointers. Sonangol has scarce capital for new oil developments, let alone gas, and investor confidence in Angola has been recently shaken which would have made a farmdown by BP difficult.

Sonangol backed out of a binding agreement to pay $1.75bn for Cobalt International’s interests in offshore blocks 20/11 and 21, including oil and gas finds, prompting Cobalt this May to initiate arbitration proceedings for over $2bn damages from the Angolan state company.

BP's statement did not mention other Angolan write-offs, besides 24/11-Katambi. However BP has a 30% interest in Cobalt-operated block 20/11 where Sonangol last June announced another major find called Zalophus, with 2.8 trillion ft³ gas and 313mn bbls condensate in place, totalling 813mn boe.

This May too, Sonangol cancelled an auction of eight onshore exploration licences, possibly for lack of interest.

Sonangol was reported last year to have got into arrears with oil majors and contractors active in Angola, according to a recent report by the Oxford Institute for Energy Studies which noted "the issue does not seem to have been conclusively resolved."

There is also concern over governance, and the ease with which President Eduardo dos Santos a year ago placed his daughter in charge of Sonangol.

Despite this, Sonangol chair Isabel dos Santos put on a brave face at the oil firm’s board meeting July 3 in Luanda to report a 36% rise in 2016 operating earnings (Ebitda) to kwanza 525bn ($3.15bn), yielding a net profit of kwanza 13bn ($78mn) that reversed its losses in both 2014 and 2015.

Belt-tightening, higher world oil prices, and partial (rather than 2015’s zero) output from Angola LNG contributed to the profit. Also, Angolan 2016 oil production exceeded 1.7mn b/d, making it still the continent’s largest oil producer, Sonangol said.

Mark Smedley