Foreign oil drillers sour on Angola’ regulation, Total says

Angola risks losing investment from foreign oil companies as costly government regulations and low world prices make the country, vying to be Africa’s largest producer, less attractive to operate in, an industry executive said.

A series of measures introduced by Angola’s government in recent years has pushed production costs up as much as $500 million annually, said Jean-Michel Lavergne, general manager for Total E&P Angola, the country’s biggest driller.

Oil companies want talks with the Angolan government to press home the threat posed by regulatory costs, Lavergne told reporters on Friday at a monthly business forum in Luanda.

With crude oil prices below $60 a barrel, “if there is no significant reduction in costs, everything will stop,” Lavergne said. Angola’s oil industry “will disappear,” he added.

Angola passed Nigeria in June to become the continent’s largest producer of oil, with 1.8 million barrels a day to Nigeria’s 1.77 million, according to International Energy Agency figures. For all of 2014, Angola’s average daily production was 1.66 million barrels a day, compared with Nigeria’s 1.9 million.

Total E&P, part of France’s Total SA, is Angola’s largest oil producer with about 700,000 barrels a day, or about 42 percent of the country’s output.

Deep-water oilfields off Angola’s coast are expensive to develop, and the industry needs oil prices of $60 to $80 a barrel to “make sense,” Lavergne said.

Brent crude oil is currently near $50 a barrel and the US benchmark West Texas Intermediate is about $46. Modest price increases are forecast for 2016.

Strict new regulations on emissions and waste, coupled with low prices, mean some companies are considering pulling the plug on Angola, which became OPEC’s newest member in 2007, said Pedro Godinho, managing director of the US-Angola Chamber of Commerce.

“There are companies pondering exiting the country if the world scenario doesn’t change,” Godinho said in a joint appearance with the Total official.

Oil is the primary source of Angola’s wealth, according to the International Monetary Fund, generating about 75 percent of government revenue and more than 95 percent of exports. The country’s GDP tends to move in lockstep with crude oil prices.

“The solution is not to kill the goose that lays the golden eggs,” Godinho said.

Angolan central bank governor Jose Pedro de Morais Jr. said September 2 that the country needs to find other ways to boost economic growth to cope with the oil-price shock, after the IMF said in a report in August that liquidity strains might force Angola to seek external support.