ANGOLA’S OIL ECONOMY: PAST, ANGOLA’S OIL ECONOMY: PAST, PRESENT & FUTUREPRESENT & FUTURE

Presentation to Development Presentation to Development Workshop Workshop

Luanda - AngolaLuanda - AngolaAugust 2, 2013August 2, 2013

Tako Koning, Tako Koning, Senior Petroleum GeologistSenior Petroleum Geologist

Publications on Angola Oil FieldsPublications on Angola Oil FieldsTHIS PRESENTATION IS BASED ON PUBLISHED PUBLIC THIS PRESENTATION IS BASED ON PUBLISHED PUBLIC DOMAIN INFORMATION, INCLUDING:DOMAIN INFORMATION, INCLUDING:• Sonangol-Chevron publications on the Soyo LNG ProjectSonangol-Chevron publications on the Soyo LNG Project

• Presentation by Earthmoves on Brazil vis-a-vis Angola (Ian Davinson)Presentation by Earthmoves on Brazil vis-a-vis Angola (Ian Davinson)

• “ “Plutonia Discovery, Angola Block 18”, SEG Leading Edge MagazinePlutonia Discovery, Angola Block 18”, SEG Leading Edge Magazine

• Chevron-Sonangol: “Lower Congo Basin” AAPG Memoir 74 Chevron-Sonangol: “Lower Congo Basin” AAPG Memoir 74

• Schlumberger: 1983 and 1991 WEC Conference BooksSchlumberger: 1983 and 1991 WEC Conference Books

• Total: “Tertiary Turbidte Channels, Angola”, August 2001 AAPG BulletinTotal: “Tertiary Turbidte Channels, Angola”, August 2001 AAPG Bulletin

• Van Dyk Energy (Vanco): “West Africa Salt Tectonics”, Oil and Gas Journal, Van Dyk Energy (Vanco): “West Africa Salt Tectonics”, Oil and Gas Journal, December, 2001December, 2001

• Texaco-Sonangol: “Exploraton & Development of the Lombo East Oil Field, Block 2, Texaco-Sonangol: “Exploraton & Development of the Lombo East Oil Field, Block 2, Angola”, AAPG Hedberg Research Symposium, AAPG ConventionAngola”, AAPG Hedberg Research Symposium, AAPG Convention

• SADC Energy Sector Seminars, 1986 & 1993, Presentations on Angola’s Oil SADC Energy Sector Seminars, 1986 & 1993, Presentations on Angola’s Oil Development History, Oil Fields, Exploration Play TrendsDevelopment History, Oil Fields, Exploration Play Trends

A Brief History of the A Brief History of the Angola EconomyAngola Economy

Angola economyAngola economy

• 1500’s – 1700’s: 1500’s – 1700’s: Slavery Slavery

• 1800’s – 1950: Coffee1800’s – 1950: Coffee

• 1950 to present: Oil1950 to present: Oil

Angola - A Petro-EconomyAngola - A Petro-Economy

Next 2 slides will Next 2 slides will discuss:discuss:

•AdvantagesAdvantages

•DisadvantagesDisadvantages

Angola – A Petro-Angola – A Petro-EconomyEconomy Advantages:Advantages:• With current oil prices & With current oil prices &

current oil production is current oil production is providing a huge flow of providing a huge flow of cash for the government. cash for the government.

• Oil has enabled the Oil has enabled the government in rebuilding government in rebuilding the civil war destroyed the civil war destroyed infrastructureinfrastructure

Angola – A Petro-Angola – A Petro-EconomyEconomy

Disadvantages:Disadvantages:

• The huge oil revenue The huge oil revenue provides little incentive for provides little incentive for the government to the government to diversify its economydiversify its economy

• Oil revenue is highly Oil revenue is highly inflationary (Angola is inflationary (Angola is expensive….like Norway!!!)expensive….like Norway!!!)

Global Oil Exporters – Angola is #7 Exporter

Angola Petro-Economy

Problem: An oil company can announce that they

are investing $10 billion in an oil project in Angola but 90% of the money is spent outside (drill rigs in Korea, tankers in Japan, drill pipe made in USA, etc etc

For that reason it is very important for the government to foster industries in Angola like rigs fabrication, pipe welding facilities like Angloflex since it employs Angolans and is technology transfer

Petro-EconomiesPetro-EconomiesExamples of Petro-Examples of Petro-

Economies:Economies:• Saudi ArabiaSaudi Arabia

• Qatar, KuwaitQatar, Kuwait

• RussiaRussia

• NorwayNorway

• NigeriaNigeria

• AngolaAngola

• Texas, USA Texas, USA

• Alberta, CanadaAlberta, Canada

Petro-EconomiesPetro-Economies

Angola Oil ConcessionsAngola Oil Concessions

Presentation OutlinePresentation Outline

• GeologyGeology

• Conventional Oil FieldsConventional Oil Fields

• LNG ProjectLNG Project

• Pre-Salt Oil PlayPre-Salt Oil Play

• GeopoliticsGeopolitics

• Angola’s Oil FutureAngola’s Oil Future

West Africa Oil Production – West Africa Oil Production – Current Production in BOPD Current Production in BOPD ((Barrels Oil Per Day)Barrels Oil Per Day)

NigeriaNigeria 2,200,000 BOPD2,200,000 BOPD Angola Angola 1,750,0001,750,000 Congo Brazzaville 340,000Congo Brazzaville 340,000

Equatorial GuineaEquatorial Guinea 320,000 320,000GabonGabon 240,000 240,000ChadChad 110,000 110,000

GhanaGhana 100,000 100,000CameroonCameroon 75,000 75,000Ivory CoastIvory Coast 30,000 30,000Congo DRCCongo DRC 25,000 25,000

MauritaniaMauritania 10,000 10,000 Total 5,200,000 BOPDTotal 5,200,000 BOPD From: Oil & Gas Journals, SPE JPT, USA EIAFrom: Oil & Gas Journals, SPE JPT, USA EIA

GLOBAL OIL GLOBAL OIL PRODUCTIONPRODUCTION

QUESTIONS!!!!QUESTIONS!!!!•Which country is the biggest oil Which country is the biggest oil

producer in the world???producer in the world???

•Which country is the 2Which country is the 2ndnd biggest biggest oil producer in the world???oil producer in the world???

•Which country is the 3Which country is the 3rdrd biggest oil biggest oil producer in the world???producer in the world???

Global Oil Production – Top Global Oil Production – Top 2020

1.) Russia 10,500,000 BOPD2.) Saudi Arabia 9,500,0003.) USA 7,400,0004.) China 4,200,0005.) Canada 2,900,0006.) Mexico 2,500,0007.) UAE 2,400,0008.) Iraq 2,400,0009.) Kuwait 2,400,00010.) Nigeria 2,200,000

Global Oil Production – Top Global Oil Production – Top 2020

11.) Venezuela 11.) Venezuela 2,100,000 BOPD2,100,000 BOPD

12.) Brazil12.) Brazil 2,100,0002,100,00013.) Iran 13.) Iran 2,000,000 2,000,000 -reduced due to sanctions-reduced due to sanctions

14.) Norway 14.) Norway 1,800,0001,800,000

15.) 15.) Angola 1,750,000Angola 1,750,000

16.) Algeria 16.) Algeria 1,700,0001,700,000

17.) Kazakhstan17.) Kazakhstan 1,600,0001,600,000

18.) Libya18.) Libya 1,300,0001,300,000

19.) UK19.) UK 1,200,0001,200,000

20.) Qatar 20.) Qatar 1,200,0001,200,000

GEOLOGY – GEOLOGY – WHERE IT ALL STARTSWHERE IT ALL STARTS

We begin with an We begin with an introduction to the introduction to the basic types of oil and basic types of oil and gas fieldsgas fields

GeologyGeology

GeologyGeology

GeologyGeology

GeologyGeology

GeologyGeology

GeologyGeology

Geology SectionGeology Section

•Any questions so far???Any questions so far???

Major Oil & Gas Fields Major Oil & Gas Fields Continue to be Continue to be discovered in Angola in discovered in Angola in Past Three YearsPast Three Years•ENI has drilled 8 oil discovery wells on ENI has drilled 8 oil discovery wells on Block 15/06 (9 wells, 8 discoveries)Block 15/06 (9 wells, 8 discoveries)

•MAERSK has drilled 1 oil discovery on MAERSK has drilled 1 oil discovery on Block 16Block 16

•TOTAL has drilled 3 oil discoveries on TOTAL has drilled 3 oil discoveries on Block 17/06 (3 wells, 3 discoveries)Block 17/06 (3 wells, 3 discoveries)

•PETROBRAS has drilled 1 oil discovery on PETROBRAS has drilled 1 oil discovery on Block 18/06Block 18/06

•PLUSPETROL has drilled 1 oil discovery PLUSPETROL has drilled 1 oil discovery on Cabinda South Block on Cabinda South Block

Major Oil & Gas Fields Major Oil & Gas Fields Continue to be Continue to be discovered in Angoladiscovered in Angola•As an example, BP drilled its 19As an example, BP drilled its 19thth oil oil

discovery, Tebe oil field, in Deep discovery, Tebe oil field, in Deep Water Block 31 in the Lower Congo Water Block 31 in the Lower Congo sedimentary basinsedimentary basin

•Tebe-1 drilled in 5700 feet water Tebe-1 drilled in 5700 feet water depth, drill depth of 11,400 feet, depth, drill depth of 11,400 feet, flowed >5,000 BOPDflowed >5,000 BOPD

•Partners are BP, Sonangol, Partners are BP, Sonangol, ExxonMobil, Statoil, Total and ExxonMobil, Statoil, Total and MarathonMarathon

Lower Congo Basin, Lower Congo Basin, AngolaAngola

Drilling in the Lower Congo Basin Drilling in the Lower Congo Basin has an 85% success rate. Why is has an 85% success rate. Why is it so successful?it so successful?

1.) Highly favorable geology1.) Highly favorable geology

2.) Seismic is very effective at 2.) Seismic is very effective at highlighting oil and gas deposits highlighting oil and gas deposits so there is an expression in the so there is an expression in the Angola oil business which is Angola oil business which is ““honor your geophysicists”honor your geophysicists”

The Golden Triangle for Deepwater The Golden Triangle for Deepwater Oil & Gas Exploration: Oil & Gas Exploration:

The Gulf of Mexico – Brazil & West The Gulf of Mexico – Brazil & West AfricaAfrica

OIL COMPANIES PRESENT in ANGOLA: OPERATORS of BLOCKS• Chevron American • Esso American• Vaalco American• Cobalt American• ConocoPhilips American• Total French• BP British • ENI Italian• Repsol Spanish• Petrobras Brazilian• Pluspetrol Argentinean • Statoil Norwegian• Maersk Danish• Sonangol P&P Angolan (state oil company)

OIL COMPANIES PRESENT IN ANGOLA: NON-OPERATORS

•Naftagas Prodoil Initial Oil•Partex SOCO Marathon•Odebrecht Svenska Ajoco

•Teikokou Falcon Petrogal

•Sonangol Sinopec China

Sonangol•ACR Somoil Grupo Gema•Force Interoil Galp Enegia•Partex Etc etc

CURRENTCURRENT ANGOLA OIL PRODUCTION ANGOLA OIL PRODUCTION – – BY OPERATOR in BOPD - barrels oil BY OPERATOR in BOPD - barrels oil per day – Data From MinFin Websiteper day – Data From MinFin Website

•TOTAL TOTAL 640,000 – 640,000 – French companyFrench company

•CHEVRONCHEVRON 430,000 – 430,000 – USA USA company company

•ESSOESSO 390,000 – 390,000 – USA USA companycompany

•BPBP 24O,000 – 24O,000 – British British companycompany

•SONANGOL P&P 77,000 - SONANGOL P&P 77,000 - Angolan Angolan companycompany

Total Production 1,780,000 BOPDTotal Production 1,780,000 BOPDNote: Aprox 3/4’s of the oil production is from deep water fields, Note: Aprox 3/4’s of the oil production is from deep water fields,

1/4 of the oil production is from shallow water fields & onshore1/4 of the oil production is from shallow water fields & onshore

SUMMARY OF CURRENT OIL PRODUCTIONSUMMARY OF CURRENT OIL PRODUCTION

• Of Angola’s current oil production of 1,780,000 Of Angola’s current oil production of 1,780,000 bopd, USA oil companies (Chevron & Esso) bopd, USA oil companies (Chevron & Esso) produce 820,000 bopd which equals 46% of produce 820,000 bopd which equals 46% of Angola’s oil productionAngola’s oil production

• Aprox 80% of the oil production is from deep Aprox 80% of the oil production is from deep water fields (water depths > 500 meters); water fields (water depths > 500 meters); accordingly Angola is a country typified by deep accordingly Angola is a country typified by deep water oil production which involves:water oil production which involves:

- high costs – expensive oil!!!- high costs – expensive oil!!!

- leading edge technology comparable to - leading edge technology comparable to deepwater Gulf of Mexicodeepwater Gulf of Mexico

- no room for mistakes like BP deep water - no room for mistakes like BP deep water Macondo blow-outMacondo blow-out

Review of Angola’s Deep Review of Angola’s Deep Water Oil FieldsWater Oil Fields

•Chevron Block 14Chevron Block 14

•Esso Block 15Esso Block 15

•Total Block 17Total Block 17

•BP Block 18BP Block 18

CHEVRON Deepwater Block 14 Kuito Oil Field

ESSO Deepwater Block 15 Kizomba Field

ESSO Deepwater Block 15 Kizomba “A” FPSO

TOTAL Deepwater Block 17,

Girassol Oil Field

TOTAL Deepwater Block 17,

Dalia Oil Field

BP BLOCK 18 DEEPWATER BP BLOCK 18 DEEPWATER BLOCK: BLOCK:

•Block operator is BP (50%); Block operator is BP (50%); partner is Sonangol Sinopec partner is Sonangol Sinopec (50%)(50%)

•Area of block is 4,900 sq kmArea of block is 4,900 sq km

•On production in 2008, has On production in 2008, has produced up to 220,000 BOPD, produced up to 220,000 BOPD, currently about 160,000 BOPDcurrently about 160,000 BOPD

Information source: GeoLuanda Conference, 2000 & SEG & other publicationsInformation source: GeoLuanda Conference, 2000 & SEG & other publications

BP Blk 18, Greater BP Blk 18, Greater PlutonioPlutonio

ANGOLA LNG PROJECTANGOLA LNG PROJECT•$10 billion project being constructed $10 billion project being constructed

at Soyo, northern Angolaat Soyo, northern Angola

•Purpose is to monetize gas currently Purpose is to monetize gas currently being flaredbeing flared

•Partners are Sonangol, Chevron, BP, Partners are Sonangol, Chevron, BP, Total and ENITotal and ENI

•Commenced production in June 2013, Commenced production in June 2013, first shipment to Brazil, producing 5.2 first shipment to Brazil, producing 5.2 million tons per year LNG mainly for million tons per year LNG mainly for Asian markets, also 125 MMSCFG/D Asian markets, also 125 MMSCFG/D for industrial development in Soyofor industrial development in Soyo

LNG Plant at SoyoLNG Plant at Soyo

LNG Plant at SoyoLNG Plant at Soyo

ANGOLA LNG PROJECTANGOLA LNG PROJECT

•SIGNIFICANT ECONOMIC IMPACT!SIGNIFICANT ECONOMIC IMPACT!

•5.2 MMTonnes/year LNG is energy 5.2 MMTonnes/year LNG is energy equivalent to 200,000 barrels of oil equivalent to 200,000 barrels of oil per dayper day

•Angola currently producing Angola currently producing 1,800,000 barrels of oil per day but 1,800,000 barrels of oil per day but with LNG it will be total of with LNG it will be total of 2,000,000 barrels of oil equivalent 2,000,000 barrels of oil equivalent per day (BOEPD)per day (BOEPD)

ANGOLA LNG PROJECTANGOLA LNG PROJECT

•A “win-win” mega-projectA “win-win” mega-project

•Commercializes natural gas Commercializes natural gas which previously was flared offwhich previously was flared off

•Creates significant job Creates significant job opportunities for Angolansopportunities for Angolans

•Creates secondary industries in Creates secondary industries in the Soyo area such as possible the Soyo area such as possible fertilizer plants, petrochemicalsfertilizer plants, petrochemicals

ANGOLA LNG PROJECTANGOLA LNG PROJECT

•Winter of 2009 – Russia shuts of Winter of 2009 – Russia shuts of natural gas supplies to Ukraine and natural gas supplies to Ukraine and gas is also turned off in Bulgaria, gas is also turned off in Bulgaria, Romania, Turkey, Austria, Czech Romania, Turkey, Austria, Czech Republic & Greece and greatly Republic & Greece and greatly reduced in other countriesreduced in other countries

•Angola LNG is an opportunity for Angola LNG is an opportunity for diversification of natural gas supplies diversification of natural gas supplies for Europefor Europe

PRE-SALT!!!PRE-SALT!!!

•BRAZILBRAZIL

•ANGOLAANGOLA

Impact of Brazil’s Recent Impact of Brazil’s Recent Pre-Salt Mega- Oil Pre-Salt Mega- Oil Discoveries on Angola’s Oil Discoveries on Angola’s Oil & Gas Potential& Gas Potential

• Major world class pre-salt (sub-salt) oil and Major world class pre-salt (sub-salt) oil and gas discoveries have been made since 2007 gas discoveries have been made since 2007 in the deepwater of Brazilin the deepwater of Brazil

• Petrobras believe the pre-salt fields could be Petrobras believe the pre-salt fields could be producing 2.0 MM BOPD by 2020 thereby producing 2.0 MM BOPD by 2020 thereby doubling Brazil’s oil production to about 4 MM doubling Brazil’s oil production to about 4 MM BOPDBOPD

• Brazil and Angola were contiguous (joined up) Brazil and Angola were contiguous (joined up) in Cretaceous timein Cretaceous time

• This play has been minimally evaluated in the This play has been minimally evaluated in the deepwater of Angoladeepwater of Angola

Back to geologyBack to geology

•Plate tectonics, Plate tectonics, continental separation, continental separation, rifting & driftingrifting & drifting

GeologyGeology

GeologyGeology

CGGVeritas Seismic in Dec 2008 Offshore CGGVeritas Seismic in Dec 2008 Offshore Engineer magazineEngineer magazine

ANGOLA 2011 BID ROUND – AWARD OF PRE-SALT BLOCKS

•All blocks are located in the deepwater Kwanza Basin

•Bid round was described as “a historic event in Angola’s oil industry”

•Operators include BP, ENI, Total, Statoil ConocoPhillips, Cobalt, Repsol, Total

ANGOLA 2011 BID ROUND: ANGOLA 2011 BID ROUND: PRE-SALT BLOCKSPRE-SALT BLOCKS

•11 blocks officially awarded in 11 blocks officially awarded in December, 2011December, 2011

•Blocks presumably would include Blocks presumably would include significant social bonus significant social bonus obligationsobligations

•Should be opportunities for Should be opportunities for NGO’s like DW to carry out social NGO’s like DW to carry out social projects for these oil companiesprojects for these oil companies

LATEST PUBLICALLY ANNOUNCED LATEST PUBLICALLY ANNOUNCED INFO ON PRE-SALT DRILLINGINFO ON PRE-SALT DRILLING• January 14, 2012 January 14, 2012 MAERSK OIL MAERSK OIL

announced that their first well on announced that their first well on deepwater Block 23, Azul-1 was “mini-deepwater Block 23, Azul-1 was “mini-tested” indicting a flow capacity of tested” indicting a flow capacity of greater than 3,000 BOPD; Maersk greater than 3,000 BOPD; Maersk viewed the results as “encouraging”viewed the results as “encouraging”

•Azul-1 was the first ever deep water Azul-1 was the first ever deep water well targeting pre-salt reservoirs in the well targeting pre-salt reservoirs in the Kwanza BasinKwanza Basin

•Drilled in 920 meters water to a depth Drilled in 920 meters water to a depth of 5,330 metersof 5,330 meters

LATEST PUBLICALLY ANNOUNCED LATEST PUBLICALLY ANNOUNCED INFO ON PRE-SALT DRILLINGINFO ON PRE-SALT DRILLING•February 9, 2012 February 9, 2012 COBALT COBALT announced announced

that Cameia-1 drilled on Block 21 in that Cameia-1 drilled on Block 21 in 1,680 meters (5,500 feet) of water 1,680 meters (5,500 feet) of water tested at 5,010 barrels of oil per day tested at 5,010 barrels of oil per day from pre-salt carbonatesfrom pre-salt carbonates

•360 meters (1,180 feet) of gross pay of 360 meters (1,180 feet) of gross pay of which 75% is net paywhich 75% is net pay

•No gas/oil or oil/water contacts No gas/oil or oil/water contacts encounteredencountered

•Well has potential to produce at excess Well has potential to produce at excess of 20,000 barrels of oil per dayof 20,000 barrels of oil per day

Cobalt websiteCobalt website

ECONOMICS & ECONOMICS & GEOPOLITICSGEOPOLITICS

•Will be presented if time Will be presented if time allows!!!allows!!!

THE OIL & GAS BUSINESS – THE OIL & GAS BUSINESS – ECONOMICALLY VOLATILE!!ECONOMICALLY VOLATILE!!

•July 11, 2008July 11, 2008:: oil prices peaked at oil prices peaked at $147 per barrel and plummeted $147 per barrel and plummeted down to $35 per barrel by down to $35 per barrel by December, 2008, now back to December, 2008, now back to about $110 per barrelabout $110 per barrel

Oil Prices – Highly Unpredictable!!!

April 20, 2010 BP Macondo DisasterApril 20, 2010 BP Macondo Disaster

THE OIL & GAS BUSINESS THE OIL & GAS BUSINESS –SOMETIMES –SOMETIMES DANGEROUS!!DANGEROUS!!

•April 20, 2010April 20, 2010: BP’s Macondo well : BP’s Macondo well blows out in 5,000 feet water blows out in 5,000 feet water depth and TransOcean’s depth and TransOcean’s Deepwater Horizon rig sinks with Deepwater Horizon rig sinks with the loss of 11 lives and results in the loss of 11 lives and results in largest environmental disaster largest environmental disaster ever in USA with 4.9 million barrels ever in USA with 4.9 million barrels oil spilled into the Gulf of Mexicooil spilled into the Gulf of Mexico

Global Oil Supply & Global Oil Supply & DemandDemand

• Oil supply and demand is dangerously Oil supply and demand is dangerously close in this post-recession eraclose in this post-recession era

• March 11, 2011 earthquake, tsunami March 11, 2011 earthquake, tsunami and Fukushima nuclear disaster and Fukushima nuclear disaster will will result in decreased use of nuclear result in decreased use of nuclear power and increased usage of fossil power and increased usage of fossil fuels especially natural gas (LNG)fuels especially natural gas (LNG)

• World is excessively dependent on oilWorld is excessively dependent on oil

• Situation is non-sustainableSituation is non-sustainable

SHALE OIL & SHALE GAS!!!SHALE OIL & SHALE GAS!!!•Recent technology of hydraulic Recent technology of hydraulic

fracturing is having an enormous fracturing is having an enormous impact on the oil industryimpact on the oil industry

•This technology could, for example, This technology could, for example, make the USA independent of oil make the USA independent of oil importsimports

•Potential for shale gas exists also in Potential for shale gas exists also in Canada, Argentina, China, Russia, South Canada, Argentina, China, Russia, South AfricaAfrica

•Conceivably it could lead to oil prices Conceivably it could lead to oil prices dropping hugely due to so much oil on dropping hugely due to so much oil on the marketthe market

•Could hurt high cost producers like Could hurt high cost producers like AngolaAngola

USA Oil Production & Consumption

USA OIL PRODUCTION, USA OIL PRODUCTION, LASTEST ESTIMATES BY US EIALASTEST ESTIMATES BY US EIA

India – Competing for Crude India – Competing for Crude Oil from West AfricaOil from West Africa

WORLD POPULATIONWORLD POPULATIONTOP 10 COUNTRIESTOP 10 COUNTRIES

1)1)China 1.3 billion China 1.3 billion 6)6) Pakistan 175 Pakistan 175 millionmillion

2)2)India 1.2 billionIndia 1.2 billion 7)7) Nigeria 160 Nigeria 160 millionmillion

3)3)USA 310 millionUSA 310 million 8)8) Bangladesh 150 Bangladesh 150 millmill

4)4)Indonesia 240 millionIndonesia 240 million 9) 9) Russia 145 Russia 145 millionmillion

5)5)Brazil 195 millionBrazil 195 million 10)10) Japan 125 Japan 125 millionmillion

Source: Time magazine, Oct 31, 2011Source: Time magazine, Oct 31, 2011

But there will be But there will be competition for the oil & competition for the oil & gas from West Africa….gas from West Africa….•CHINA…..the hungry dragonCHINA…..the hungry dragon-World population reached 7.0 billion in -World population reached 7.0 billion in

2011, China’s population is 1.3 billion2011, China’s population is 1.3 billion- China’s oil production has plateaued at 4.2 - China’s oil production has plateaued at 4.2

MM BOPDMM BOPD-China’s oil consumption has increased to -China’s oil consumption has increased to

9.8 MM BOPD making China the world’s 9.8 MM BOPD making China the world’s second largest consumer of oil after the second largest consumer of oil after the USAUSA

-China imported 5.6 MM BOPD in December, -China imported 5.6 MM BOPD in December, 20122012

Source of information: Oil & Gas Journal, May 24, 2010, April , 2011 SPE Journal of Source of information: Oil & Gas Journal, May 24, 2010, April , 2011 SPE Journal of Technology, updated to December 2012Technology, updated to December 2012

Economies of China & Economies of China & JapanJapan

China’s Crude Oil China’s Crude Oil BalanceBalance

Source of Chinese oil Source of Chinese oil importsimports

Top 5 suppliersTop 5 suppliers#1 Supplier : SAUDI ARABIA 1,140,000 #1 Supplier : SAUDI ARABIA 1,140,000

BPODBPOD

#2 Supplier: ANGOLA 660,000 #2 Supplier: ANGOLA 660,000 BOPD BOPD

#3 Supplier –RUSSIA?? 320,000 #3 Supplier –RUSSIA?? 320,000 BOPDBOPD

#4 Supplier –SUDAN?? 290,000 #4 Supplier –SUDAN?? 290,000 BOPDBOPD

#5 Supplier –IRAN?? 270,000 #5 Supplier –IRAN?? 270,000 BOPDBOPD

Note: Numbers need to be updated; limited specific data, mostly from Note: Numbers need to be updated; limited specific data, mostly from Chinaoilweb.com , Hong Kong March 11, 2010, also Journal de Angola Chinaoilweb.com , Hong Kong March 11, 2010, also Journal de Angola article March 24, 2012article March 24, 2012

China in AfricaChina in Africa

China in AfricaChina in Africa

China in AngolaChina in Angola•An important and strategic An important and strategic

relationshiprelationship

•Angola provides China with Angola provides China with oil and China has helped oil and China has helped Angola in rapidly repairing Angola in rapidly repairing war-damaged roads, war-damaged roads, railroads, electrical system railroads, electrical system as well as new housing as well as new housing developmentsdevelopments

The Blessings of Oil for The Blessings of Oil for AngolaAngola•Current production of 1.8 MMBOPDCurrent production of 1.8 MMBOPD

x 365 days/yearx 365 days/year

=0.660 billion barrels oil=0.660 billion barrels oil

x $100/barrelx $100/barrel

=$66 billion=$66 billion

x 70% net to the statex 70% net to the state

= $46 billion for 15 million = $46 billion for 15 million peoplepeople

= $3,000/person= $3,000/person

= $15,000 for a family of 5 = $15,000 for a family of 5

The Blessings of Oil for The Blessings of Oil for AngolaAngola• Previous slide showed oil brings in Previous slide showed oil brings in

$3,000/person/year$3,000/person/year

•However, the UN 2011 report However, the UN 2011 report indicates 54% of Angola’s indicates 54% of Angola’s population lives on $1.25/day (= population lives on $1.25/day (= approx $450/year)approx $450/year)

•So we have a distribution problem, So we have a distribution problem, although in fairness to the although in fairness to the government a lot of the money is government a lot of the money is spent on roads, railroads, spent on roads, railroads, improving the electrical system, improving the electrical system, building new schools, etc, etc building new schools, etc, etc

But Oil Can Also Create But Oil Can Also Create Problems for a Country Like Problems for a Country Like AngolaAngola

•Angola needs to avoid being too Angola needs to avoid being too focused on oil (“petro-economy”) focused on oil (“petro-economy”) and neglecting other parts of the and neglecting other parts of the economy including agriculture, economy including agriculture, fishing, tourism.fishing, tourism.

•Angola needs to avoid falling into Angola needs to avoid falling into the trap of the “Dutch disease”, the the trap of the “Dutch disease”, the “curse of oil”, etc which includes “curse of oil”, etc which includes building up of big beauracracies building up of big beauracracies and hyperinflationand hyperinflation

But Oil Can Also Create But Oil Can Also Create Problems for a Country Like Problems for a Country Like AngolaAngola

• Big problem!Big problem!: for example in 2013 : for example in 2013 Mercer rated Luanda as the most Mercer rated Luanda as the most expensive city in the world for expatriates expensive city in the world for expatriates due to the effect of Angola being a “petro-due to the effect of Angola being a “petro-economy”economy”

• Big problem!Big problem!: oil provides 95% of : oil provides 95% of Angola’s export revenues but employs less Angola’s export revenues but employs less that 1% of the population; hence need for that 1% of the population; hence need for more Angolanization of jobs including more Angolanization of jobs including manufacturing of rigs, drill pipe, oil manufacturing of rigs, drill pipe, oil platformsplatforms

The “Angola Advantage” The “Angola Advantage” – – Oil & Gas IndustryOil & Gas Industry•World class geologyWorld class geology

•Benign operating environment (no Benign operating environment (no ice bergs, hurricanes, high seas)ice bergs, hurricanes, high seas)

•Subsurface drilling is not difficult, Subsurface drilling is not difficult, e.g. no major over-pressuring e.g. no major over-pressuring problems, etcproblems, etc

•Contractual stability due to political Contractual stability due to political stability (government has been led stability (government has been led by MPLA since independence in by MPLA since independence in 1975)1975)

ANGOLA OIL & GAS – THE ANGOLA OIL & GAS – THE PROBABLEPROBABLE FUTURE FUTURE•The Angola oil & gas industry is The Angola oil & gas industry is

here for the long term, not the here for the long term, not the short termshort term

•Globally demand for oil and gas Globally demand for oil and gas will stay strong for many years will stay strong for many years since there are no viable since there are no viable alternatives to oil and gas in the alternatives to oil and gas in the short to medium termshort to medium term