TOTAL is investing heavily in Angola’s oil with the Girassol rig, which has won numerous prizes for advanced technology

HE bulk of Angola’s revenues comes from two sources – oil and diamonds. These are both enclave sectors, with minimal linkages to the rest of the economy, a situation that President dos Santos and his administration are intent on modifying.

The government aims to gradually integrate the sectors into the mainstream economy, whether through the increase in the provision of Angolan products and services in the oil industry, or through the reduction of the informal market, as is the case of the diamond industry. Revenues from these sectors will continue to play a fundamental part in rebuilding the country, and major international players in Angola are also contributing to the new peace agenda of reconstruction and rehabilitation.
In the meantime, the country’s main sectors continue to flourish. Angola currently produces an estimated 1 million barrels per day of crude oil. Block Zero, located in the province of Cabinda, provides the majority of Angola's oil, but production from these fields will be eclipsed by deepwater production further south in the Kwanza Basin scheduled to come on-line by 2007.

As the purchaser of more than half of Angola's petroleum, the United States is by far the largest importer, but Angola also exports to markets in Europe, Latin America, and Asia, where exports have grown rapidly in recent years, particularly to China. In the diamond industry, which currently generates some US$800 million per year in revenues, the recapture of mining sites formerly under UNITA control and the launching of a new mine are expected to increase official production substantially in the near future.

Oil and gas
International operators supporting local companies

Angola is the second largest oil producer in sub-Saharan Africa after Nigeria, with reserves estimated at 12.4 billion barrels. Oil currently accounts for 90% of Angolan exports, 50% of its GDP, and 80% of its tax revenues. Crude oil production has increased 600% since 1980.

Total production is expected to reach two million bpd by 2010 as new production from ultra-deepwater blocks comes onstream. The industry is also set to benefit from an estimated US$23 billion that will be invested in Angola’s oil sector over the next five years.

DESIDERIO COSTA Minister of Petroleum

Block Zero, located off shore the enclave of Cabinda, accounts for the majority of Angola’s crude oil production, although large new reserves have also been discovered at other offshore sites.

Minister of Petroleum Desiderio Costa elaborates, “During the last six years, Angola has had a huge volume of discoveries in deep and ultra-deep water blocks. This caused approximately 30 huge commercial discoveries that are in the development phase at the moment, which are set to provoke a substantial production increase in the country.”

One company to benefit from a recent new deepwater discovery is TOTAL. Until now, TOTAL’s most important site has been the award-winning Girassol platform, but according to Deputy General Manager Arnaud Breulliac, the new deepwater discoveries are exciting new developments.

Cabinda Gulf Oil Company (CABGOC), ChevronTexaco’s operating unit in Angola, has been in the country since the 1930s	James Blackwell, Managing Director of ChevronTexaco, meets with Anibal Rocha, Governor of Cabinda Province

He comments, “Today’s technology can quite accurately determine the amounts that are below the seabed and with my 10 years experience at the top end of the oil industry, I am quite confident that these discoveries will be tapped and production will proceed. It is very promising.”

Competing with the larger international oil companies in the country is Sonangol P&P, an Angolan company dedicated to exploration and production. Sonangol P&P, which was created in 1991, is the production arm of the state-owned oil giant, Sonangol. The company’s superior understanding of the local market and the region’s geology, as well its knowledge of the ins and outs of Angolan bureaucracy, makes it an ideal partner for investors looking to enter the sector.

State-owned Sonangol oversees the country’s offshore and onshore oil operations

Sonangol P&P President Sebastião Gaspar Martins says, “Our vision is to become an operator based on efficiency and competence and we intend to have a competitive position in Angola as an active producer. Over time, we aim to be a big influence throughout the region.”

At the moment, there is only one major oil refinery in Angola, but plans for a second are moving forward. The new refinery will be located in the central coastal city of Lobito and will be primarily for regional exports. Commencement of the project is expected as early as the end of 2003, with the refinery coming onstream by 2007. Sonangol is seeking financing for the venture, which has an estimated cost of US$3 billion, but the government is looking for other partners as well.

Minister Costa explains, “The upstream sector in our country is quite developed, but we have large loopholes in the downstream sector. Due to this fact, the need to build a new refinery in the central zone of the country emerged, which will treat 200,000 barrels per day. The refinery in Angola is important within the context of the South African Development Community.”

The Angolan government is also committed to developing the country’s abundant natural gas reserves. Although the majority of the gas is flared, the government is developing strategies to reduce this and increase commercial usage.

Sonangol President and CEO Manuel Vicente remarks, “We are working with the main operators in Angola to implement natural gas projects and we are convinced that this will consume a good part of the gas reserves that are being burnt.”

ChevronTexaco and Sonangol have agreed to build a LNG (liquefied natural gas) plant at Soyo that will convert natural gas from offshore oil fields to LNG for export. According to Managing Director James Blackwell, ChevronTexaco has invested US$600 million to date in the project, which is now 70% complete. He says, “The Soyo Gas Condensate project is one we started with a view to getting Block Zero extended and it is a big investment for the future.”

ChevronTexaco has had a presence in Angola since the 1930s and is now the country’s largest petroleum producer, with a combined yield of approximately 600,000 barrels per day. In addition to a recent initiative between ChevronTexaco, the United Nations Development Program, and the U.S. Agency for International Development aimed at stimulating small enterprise growth in the agricultural sector, the company has also led the way in oil sector social contributions through its policy of employing Angolan staff, an effort that has been well received by local government authorities.

Governor of Cabinda Anibal Rocha comments, “There is an ‘Angolanization’ policy in some companies to train Angolan staff. Sometimes I visit ChevronTexaco and I am moved to see Angolans there handling high technology oil equipment.”

Deputy Prime Minister Aguinaldo Jaime adds that ChevronTexaco has also been one of the largest investors in local services. He states, “Chevron is one of the companies that is really investing, that is really giving some credit to the local companies.”

Diamonds
Peace helps to create a transparent industry

SAMUEL TITO ARMANDO Vice Minister of Geology and Mines

Angola is the world’s fifth largest diamond producer, with an estimated 8% share of world export value. Although the exploration of alluvial reserves has traditionally dominated the sector, this is only the tip of the iceberg in terms of Angola’s diamond mining potential, as only 1% of diamond zones in the country have been explored.
According to the Vice Minister of Geology and Mines, Samuel Tito Armando, diamond mining is one of the sectors in the Angolan economy with the most growth potential and new exploration projects in the planning and development stages are spread throughout the country. The Minister also states that exploration of other mineral reserves will be increased.

He says, “We have a new perspective now in the area of mining development in Angola. In addition to diamonds, we also have other minerals, such as iron ore, copper, and gold. One of the priorities that the Ministry has established at the moment is the reactivation of the mining sector in an interlacing program for the exploration of all these minerals.”

Catoca Project accounted for 69% of Angola’s total diamond production in 2002

The onset of peace in Angola has benefited the diamond sector considerably, as witnessed by the sector’s 6.6% growth in 2002. With the recapture of mining sites formerly under UNITA control, official production is expected to increase substantially.

However, the government is still dealing with the problem of illegal diamond smuggling. Despite increased corporate ownership of diamond fields, much production is currently in the hands of small-scale prospectors, who often operate outside the legal channels. In response, the government has made an increased effort to register and license these prospectors and now legal sales of rough diamonds may occur only through the government's diamond-buying parastatal, Sodiam.

An export certification scheme consistent with the Kimberley Process has also been established to identify legitimate production and sales, and the initiative has been well received internationally. Managing Director of the External Intelligence Service, Brigadier General Fernando Garcia Miala remarks, “The diamond issue is still a national security matter but it is a problem that will be resolved soon.”

Dr. Manuel de Sousa Calado, President of the state-owned National Diamond Company of Angola, Endiama, is concerned with the international image of Angolan diamonds, which have often been associated with the war in the country resulting in the lowered success of the Angolan diamond on international markets.

The Vice Minister of Geology and Mines, Samuel Tito Armando, sees an enormous potential for growth in the country’s diamonds and minerals such as iron ore, copper, and gold

Consequently, Endiama intends to launch a promotional campaign in the United States so that Americans begin to associate the diamonds with peace, harmony, development, and prosperity. Dr. de Sousa Calado elaborates, “Historically, our diamonds have been referred to as ‘blood diamonds’, but this is the past. The diamonds will never again be used to finance the destruction of Angola. They will be used for rebuilding and developing the country.”

Endiama Group has also recently created Endiama P&P as its new production arm. President and Chairman Manuel Watangua is in charge of doubling Angola’s diamond production in the next few years and Endiama P&P is currently looking for interested investors to participate in the expansion of the diamond mining sector.

JOSÉ MANUEL AUGUSTO GANGA JUNIOR General Manager of Catoca

In the short term, however, the established Catoca mine, which is operated by a private company of the same name, looks set to continue to be Angola’s main revenue earner in diamonds. Catoca currently has a 60% share of the market in Angolan diamond production and General Manager José Manuel Augusto Ganga Junior, who says that the diamond sector is set to experience a boom, expects revenues to reach US$1 billion by 2007.

He states, “Catoca not only represents 70% of formal production volume in the country, but 40% of Angola’s global earnings as well. However, Angola is an unexplored country. There are at least 800 species of kimberlite of which only one is currently being explored. We think that by the end of 2004, we shall be the fourth largest diamond producer in the world.”