After the Boom: Angola’s Recurring Oil Challenges in a New Context

Angolan oil production hit a peak of 2 million b/d in 2010 and averages around 1.85 million b/d since 2012, allowing the country to vie with Nigeria to be Sub-Saharan Africa’s largest crude producer. Sonangol is currently arguably one of the most powerful national oil companies on the continent, with regular access to the international capital markets and a network of subsidiaries involving all aspects of the lucrative oil services industry.

But the global financial crisis of 2008-2009 and the resultant collapse of oil prices has revealed vulnerability in Angola’s oil industry. While most oil majors remain heavily invested in the country, a sustained low oil price is placing severe pressure on the industry to scale back exploration activities. The industry also faces heightened event risk, given the recent regulatory changes and the government-mandated structural overhaul of Sonangol in reaction to the weak price of crude. Further uncertainty is introduced by the national elections looming in August 2017 and the absence of a clear succession plan for President Eduardo dos Santos, who has been head of state since 1979.

The paper will trace the rise and development of Angola’s oil industry, as well as the formation of Sonangol and its central role in this context. It will analyse the government’s regulatory and policy changes in the face of the sustained low oil price environment since late 2014, and the tensions that exist between competing agendas of Angolan ministries, as the country’s government alternately attempts to attract further foreign investment through incentives whilst increasing industry taxes to alleviate its fiscal pressure. The paper will also outline the nature of the risks posed to oil majors and prospects for the oil industry as a whole going forward. These include regulatory risks, given the changing landscape of state and parastatal participation in the industry; political risks in the face of upcoming national elections and the potential for political instability, and operational risks in terms of the impact of the low oil price environment on prospects for further exploration.

By: Lucy Corkin

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