Closing In On Top Africa Producer Spot

BMI View: Over our forecast period new projects in Angola will drive oil production levels to challenge Africa's top producer, Nigeria, as Angola's oil industry is becoming an increasingly attractive investment destination. Total's decision to invest in the 200,000b/d ultra-deepwater Kaombo project supports our view that oil production growth from Angola will outperform that of Nigeria.

French major Total has reportedly taken the final investment decision (FID) on its Kaombo oil project in ultra-deepwater Angola. The 200,000 barrel per day (b/d) capacity development will be a key project in Angola's oil production growth profile over the coming 10 years, and will help it challenge Nigeria as Africa's top oil producer before the end of our forecast.

The Kaombo project will be a technically challenging development due to its location in waters 1,500 metres to 2,000 metres deep. The project also requires the linking two oil field clusters within the confines of Block 32, tying each one back to one of two floating storage production and offloading (FPSO) vessels. Under the current development plans, the North FPSO will receive oil from 35 wells, while the South FPSO will be connected to 29 wells. A subsea gas pipeline will be installed linking Block 32 with the liquefied natural gas (LNG) plant at Soyo.

Angola Taking The Lead
Nigeria and Angola Oil Production and Net Exports (000b/d)

Closing In On Top Africa Producer Spot

BMI View: Over our forecast period new projects in Angola will drive oil production levels to challenge Africa's top producer, Nigeria, as Angola's oil industry is becoming an increasingly attractive investment destination. Total's decision to invest in the 200,000b/d ultra-deepwater Kaombo project supports our view that oil production growth from Angola will outperform that of Nigeria.

French major Total has reportedly taken the final investment decision (FID) on its Kaombo oil project in ultra-deepwater Angola. The 200,000 barrel per day (b/d) capacity development will be a key project in Angola's oil production growth profile over the coming 10 years, and will help it challenge Nigeria as Africa's top oil producer before the end of our forecast.

The Kaombo project will be a technically challenging development due to its location in waters 1,500 metres to 2,000 metres deep. The project also requires the linking two oil field clusters within the confines of Block 32, tying each one back to one of two floating storage production and offloading (FPSO) vessels. Under the current development plans, the North FPSO will receive oil from 35 wells, while the South FPSO will be connected to 29 wells. A subsea gas pipeline will be installed linking Block 32 with the liquefied natural gas (LNG) plant at Soyo.

The estimated initial cost of the Kaombo project was put at USD20bn. However, after over a year of investigating cost cutting possibilities, Total CEO Christophe de Margerie announced the company has managed to reduce the cost to USD16bn. The source of these cost savings has not been made clear, though part of the USD4bn reduction is thought to be linked to the lower bids made on the project that do not include local content offers. Local content requirements are not obligatory in Angola though they do carry a levy if insufficient local services are used. There has been alleged pressure from 30% partner Sonangol on the Kaombo consortium to accept the higher cost bids which include more local firms. The threat of indefinite delay to the project may have been a key driver in the main stakeholders reassessing contract bids and arriving at the lower cost solution needed to take the FID. This is a positive development for Angola as major oil and gas companies continue to struggle with growing costs.

Angola Looking To Power Ahead

With oil output from Total's 160,000b/d CLOV project due to commence in Q2 2014, Total is now able to focus its recently reigned-in capital expenditure programme on the more expensive Kaombo project. The company is expecting production from the first of the two FPSOs in Block 32 by 2017, with the second coming online around nine months later. Our forecast permits for project delays and anticipates a 2018 start up.

Even so, we expect the increasingly strong oil production profile in Angola supported by major offshore projects to challenge Nigerian output levels over our forecast period. We also see Angola exporting greater volumes of oil than Nigeria by 2016.

Angola Taking The Lead
Nigeria and Angola Oil Production and Net Exports (000b/d)

Angola has around 1.3mn b/d worth of production potential from offshore projects expected to come on-stream between now and 2020. Further adding to the country's upside is the increasingly positive below-ground results with regards to the pre-salt potential of the offshore basins ( see 'Pre-Salt Promise Driving Oil Potential' February 28).

Nigeria's oil production outlook is facing considerable challenges as the onshore above-ground operating environment continues to deteriorate. The divestment of a number of oil majors from the onshore could weigh-down on potential output, while delays in implementing the long awaited Petroleum Bill are postponing decisions on major new projects. We still see Nigerian oil output increasing, though the stronger growth picture emanating from Angola, supported by Total's investment decision on the Kaombo project, will see Angola challenge Nigeria for number one producer status in Africa before the end of our forecast.

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