Tom Nicholls: To pump or not to pump

Angola’s Opec cap is a headache for oil majors active in the country’s costly deep-water areas and will do no favours to the world oil-supply picture. By Tom Nicholls Earlier this month, ExxonMobil started production from the giant Kizomba C development, offshore Angola. The 0.6 billion barrel oil project – which has the capacity to produce 200,000 barrels of oil a day – is a milestone for the US supermajor, the operator, and for the country. In technical terms, the development is a major achievement: located in more than 800 metres of water, over 145 km offshore, the resource is being produced with two floating production, storage, and offloading vessels and 36 subsea wells, making it ExxonMobil’s biggest subsea development. It is significant financially too: with its 40% equity share, even a company the size of ExxonMobil can expect some material uplift to its upstream profile. 20angola-2-650.jpg Desidério da Costa, Angola’s oil minister. Angola’s new Opec production quota is incompatible with the major upstream investment plans under way

For Angola, the success story continues: in December, Angola pumped an average of 1.7 million barrels a day, according to the International Energy Agency. The addition of Kizomba C, in theory, pushes the total to about 1.9m barrels a day. That means output capacity has roughly doubled in five years: in 2002, production was around 0.9 million barrels a day.The snag is that, from this month, Angola is supposed to limit production to 1.9m barrels a day in line with its new Opec commitments.Yet there is more upside to come. BP’s Greater Plutonio field started production in October at 45,000 barrels a day, is currently pumping around 80,000 barrels a day and will ramp up to a plateau rate of 200,000 barrels a day some time this year. Combined with full capacity from Kizomba C, that would push Angola beyond its quota. In addition, Chevron’s Tombua-Landana project is expected to reach peak production of 100,000 barrels a day in 2010. Several other high-profile and expensive projects – run by Total, BP and ExxonMobil, among others — are in the development phase. Their future will be thrown into doubt by the quota issue.Having invested billions of dollars in offshore ventures, this presents the oil majors – the only companies with the financial and technical muscle capable of tackling Angola’s very costly deep water areas – with a significant problem. The 1.9 million limit – much lower than the 2.5 million barrels Angolan officials had indicated the country would seek – is likely to result in a tail-off in investment in the country’s deep-water areas, which have seen huge investments in production facilities. ExxonMobil and its partners, for example, have pumped around $8bn in Block 15, where Kizomba is located. The cap is particularly worrying for companies that have already sunk substantial investments into projects that are yet to produce.By the end of this year, Angolan production capacity should be at least 2 million barrels a day. But projects in the planning phase have the potential to raise output to more than 2.5 million barrels a day by 2012 and 2.7 million barrels a day within 10 years. In addition, there are numerous deep-water discoveries awaiting appraisal, which could add further to this total.Declining production rates at some of Angola’s older, shallow-water fields should make some room for incremental deep-water production. But, unless Angola can negotiate a substantial increase in its Opec limit or unless it decides to produce above its quota, this will not be enough.In addition, Angola is now likely to play a lesser role in keeping world supply ticking up ahead of demand growth. A slow-down in supply growth raises concerns for consuming nations, including the two biggest: Angola became the sixth largest crude supplier to the US in 2006 and the largest supplier to China last year.