Industry Trend Analysis - Sonangol's Muddles To Weigh On Production Potential - APR 2017

BMI View : Payment disputes with IOC s will undermine Sonangol's ability to draw in much needed investment to arrest a declining production profile post-2018 . W e have downgraded Angola's production forecast d ue to heavier than anticipated decline rates and a revision of historical figures.

We have downgraded Angola's crude production on account of full year data, which came in below estimates. We now forecast Angola to average 1.76mn barrels per day (b/d) in 2017, which includes a 40,000 b/d reduction in compliance with the OPEC cuts over H117. This is down from our original forecast of 1.809mn b/d. Angola's production will peak in 2018 as Total's 230,000 b/d Kaombo project ramps up production from its expected start date at the tail end of 2017. After 2017, there are no new project sanctioned to come online, leading to a steady erosion in output post 2018.

Strong Chinese demand for Angola's oil has enabled Angola's crude cargos to clear quickly with total exports up 13% in 2016. Angola even briefly became China's number one supplier in July 2016. This trend has continued into Q117 with China purchasing the majority of Angola's March trading programme in less than 10 days. However, despite the strong appetite for Angolan crudes, China's involvement in the Angolan crude sector is also weighing on Sonangol. Angola is paying off sizable debts to China though crude sales, with China holding tendering rights. The result of a high debt load and low oil prices means that more crude in volume terms is required to pay off the same amount in value terms. This is one the reasons that Sonangol has been experiencing such severe cash flow problems even with exports holding up. It was reported that Sonangol might not tender a single cargo in January as a result.

After A Brief Surge Angola's Crude Production Will Fall Steeply
Angola's Crude Production Forecast
f= BMI forecast. Source:BMI, EIA, OPEC

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