CC BY
29EARTH SCIENCES
THE IMPACT OF COVID-19 ON THE OIL AND GAS SECTORS IN ANGOLA
Adulai Baldé
Astrakhan state technical university (AGTU), Russia
Abstract
Angola is the second largest oil producer in Africa, after Nigeria. Angola's economy depends heavily in the production of hydrocarbons, making its economy vulnerable to fluctuations in oil prices. According to the World Bank Group, the crude oil sector is responsible for about a third of the country's gross domestic product (GDP) and more than 90% of total exports. Latest estimates of Oxford Economics, an economic research consultancy firm, projects real GDP to contract by 9.3% in 2020. The company attributes the contraction to a general deterioration in global trade and investment caused by the outbreak of the new coronavirus (COVID-19) and crude oil investment caused by the outbreak of the new coronavirus (COVID-19) and crude oil production cuts stipulated in an agreement between the member countries of the Petroleum Exporting Countries (OPEC) and selected non-member countries (OPEC +).
Keywords: deterioration, stipulated, crisis
Exploration and production
The acute economic crisis caused by COVID-19 and its impact on the energy markets has led Angola seek debt relief measures to alleviate economic difficulties. In September 2020, the executive International Monetary Fund (IMF) board conducted a third review of Angola's three-year report extended agreement for the country's extended financing with the IMF. When the review is concluded, Angola may receive an increase of $ 765 million until the end of the agreement and can receive an immediate disbursement of $ 1 billion. The extended fund mechanism is an IMF assistance program that allows countries with significant payment imbalances receive support and funding to correct imbalances over a long period of time. Angola also received a suspension of debt repayment under the Group of 20 Debt Service (G-20)
Suspension initiative in September 2020, which will allow Angola to postpone debt service payments due between May and December 2020. Angola is also currently involved in negotiations on the debt service burden with China. A significant amount of its external debt is due to Chinese government entities in the form of oil-backed loans and direct repayments.
In November 2017, President Joao Lourengo replaced Isabel dos Santos at the head of Sonangol with Carlos Saturnino, previously removed from the board of directors of Sonangol by Isabel dos Santos. Lourengo also merged the Ministry of Petroleum and the Ministry of Mines and appointed Diamantino Azevedo as head of the newly merged Ministry of Petroleum and Mining.
Lourengo issued a series of decrees in May 2018 to attract investors and develop upstream Resources. The decree on marginal fields reduced the oil production tax rate of two 20% to 10% and expanded the definition of a marginal field to include deep water fields with reserves exceeding 300 million barrels if the project's internal rate of return (TIR) is lower 15%. A marginal field was previously defined as a field with reserves of less than 300 million barrels.4 A decree on exploitation allows the limits of the development zone
to be redefined if a new discovery extends outside the area and does not invade another contract area border. Another decree that establishes the Natural Gas Framework allows foreign investors ownership rights of associated and non-associated gas reserves. Previously, Sonangol was the only entity that owned the natural gas property rights. Sonangol, the national oil company, is undergoing an organizational restructuring to streamline operations and reduce costs in order to cope with the growing burden of the Sonangol Group is to be divided into three new holding companies to improve operational and strategic efficiency focus, and also ceded its regulatory and operational functions to a new regulator, the
National Oil and Gas Agency (ANPG) in mid 2019. Sales of assets are also part of the Sonangol project restructuring strategy, and plans to dispose of a number of non-essential assets and reduce its participation in the several upstream blocks to streamline your operations and raise money to service your debt. O divestment strategy raised $ 77 billion from the sale of five non-core businesses, and Sonangol's most recent financial disclosure indicates that the company has not made a profit from its core activities in 2019 as a result of its debt service obligations. Against the backdrop of the current investment climate and lower oil prices, Sonangol's ability to overcome these challenges is uncertain. Sonangol was planning an initial public offering (IPO) of approximately 30% of its equity participation in the domestic stock exchange for 2022, although it is likely to delay this offer.
The IPO is a proposal for the company to diversify its financing and is part of a broader effort to increase privatization of state-owned companies and increase additional revenue for the government. A number of significant issues, such as Sonangol's lack of transparency in relation to its corporate structure and governance, as well as an environment of less interest to foreign investors may have a negative effect on the successful launch of the IPO. A number of significant issues as Sonangol's lack of transparency in relation to
its corporate structure and governance also how an environment of less interest to foreign investors can have a negative effect on the successful launch of the IPO.
Angola holds 8.2 billion barrels of proven crude oil reserves in early 2020, according to the latest estimates from the Oil & Gas Journal (OGJ), below 8.4 billion barrels the previous year. Angola's total production of liquid fuels has steadily declined over the past decade. At the 2019, the total production of liquid fuels was around 1.51 million barrels per day (b / d), compared to 1.92 million b / d in 2010. The downward trend in total liquid fuel production is the result of the lack of investment in upstream development. Rapid tank depletion and lack of enriched oil recovery investments (EOR) to extend the useful life of fields currently in production also contributed to sharp decline rates in some fields. The Angolan government has been looking for attract new investments and develop its hydrocarbon resources, making changes in the legal and regulatory framework for the sector, such as the restructuring of Sonangol and partial privatization the company through a share offering. It is unclear when these changes will occur, as well as whether will be enough to attract the interest of investors.
As a member of OPEC, Angola has agreed to limit its monthly crude oil production as part of the April 15, 2020, agreement, which was in response to the sharp fall in economic activity and global demand for crude oil caused by the outbreak of COVID-19. Angola was able to progressively reduce its crude oil production, reaching a low of 1.2 million b / d in July. EIA expects that Angola's production will increase in the following months, as the production cuts stipulated in the agreement began to gradually decline over the duration of the agreement. The global outbreak of COVID-19 and the resulting slowdown in global economic activity Angola's plans significantly affected to attract investment for upstream exploration and development. Drilling in Angola's offshore fields was halted because oil companies
cut capital expenditures on exploration and development in relatively higher cost and backward fields final investment decisions on projects that should be approved in the short term. Although Drilling fully restarted in August, lack of upstream development will accelerate decline in Angola's offshore fields and lead to lower production levels in the future, unless this trend is reversed with the increase in investment in the development of new fields. The global outbreak of COVID-19 also delayed a series of projects in Angola that were should go online in the near future.
The Angolan National Agency for Oil, Gas and Biofuels is planning to launch a bidding round for upstream exploration of three blocks in the Lower Congo Basin and six blocks in Kwanza Basin in January 2021. The bidding round was originally scheduled for May 2020, but was delayed due to the outbreak of COVID-19. The Angolan government is providing taxes breaks and other incentives to encourage local companies to participate in the bidding round.
CONCLUSION
The COVID-19 pandemic has forced the oil and gas industry to activate dedicated emergency response and business continuity protocols to ensure the safety and health of employees and to improve development.
REFERENCES:
1. The World Bank Group, Angola: Country Overview, updated July 1, 2020. Gerrit van Rooyan, "Country Economic Forecast: Angola," July 6, 2020.
2. "Angola: Confronting the COVID-19 Pandemic and the Oil Price Shock," International Monetary Fund, IMF Country Focus, September 21, 2020.
3. "Sonangol: Government Drivers," IHS Mar-kit, April 2018.
4. Stephan Eisenhammer. "Angola cuts tax rates for development of marginal oil fields," Reuters, May 21, 2018. "Angola Oil: Presidential decrees further brighten growth prospects offshore," IHS Markit Strategic Horizons, July 12, 2018
