FUELING ANGOLA'S PROSPERITY
Sonangol

SONANGOL
ANGOLA IS SUB-SAHARAN AFRICA'S LARGEST OIL PRODUCER AFTER NIGERIA, AND OIL IN ANGOLA MEANS SONANGOL. THE STATE MONOPOLY HAS BEEN THE DRIVING FORCE OF SUSTAINED GROWTH IN ANGOLA SINCE 1976, A PERIOD IN WHICH OIL OUTPUT HAS QUADRUPLED TO 750,000 BARRELS PER DAY. A STEADY STREAM OF NEW DISCOVERIES OF HIGH-QUALITY CRUDE MEANS ANGOLA'S UPSTREAM POTENTIAL IS NOW MORE POSITIVE THAN EVER

FOR DECADES, Angola has been walking a thin line between economic fragility and success. Its position as one of the world's most oil-rich nations outside the market- controlling cartel of the Organization of Petroleum Exporting Countries (OPEC) wasn't such a big deal when a barrel of crude was going for US$10. But with today's prices, Angola is now poised to take that long-desired step towards prosperity.

For too long the Angolan government has had to use its oil revenues, scarce as they were until the recent price increases, to finance a seemingly unending civil war to the detriment of economic and social development. Recently, however, military gains by government forces have wrested the nation's prosperous diamond industry from the control of rebel group UNITA, forcing the rebels to resort to small-scale guerrilla warfare as their ability to purchase weapons diminished. And as peace makes gains in Angola, sub-Saharan Africa's largest oil producer after Nigeria, the government has been able to increase production and concentrate on developing the nation with funds channeled through the state oil monopoly Sonangol.

Revenue from Angola's off-shore oil sector, which accounts for more than 40% of total GDP and some 90% (US$3.5 billion per year) of government earnings, is expected to rise substantially as output increases from existing wells and from the steady discovery of new ones. And that is also good news for the United States, which last year imported nearly half of Angola's output of 766,000 barrels per day (bbl/d), making the southwestern African nation the largest non-OPEC supplier of quality low-sulfur crude to the U.S. and the seventh overall.

Angola's national oil company Sonangol was established in 1976, and a hydrocarbon law passed in 1978 made the company the sole concessionaire for exploration and production. Since then, oil out-put has more than quadrupled and Sonangol is confident about boosting the country's production to more than one million bbl/d by the end of next year and to 1.4 million bbl/d by 2003. In 1999, Angola rated third in the world for new oil discoveries, some 1.3 billion barrels, and first in reserve replacement, finding nearly 600% more oil than it has produced since 1995.

The company also expects to double gross oil revenues to between US$6.5 billion and US$10 billion a year by 2005. Yields from the new deep-water blocks have shown promising results during test drillings, especially in offshore exploration of the oil-rich northern enclave of Cabinda with its potential recoverable yield of 5 to 8 billion barrels. Recovery, however, depends on certain levels of investment. Sonangol's main strategy is to enter into joint-venture projects with major oil companies for both upstream and down-stream operations.

Three of the largest players are Chevron, Texaco, and TotalFinaElf, says Sonangol CEO Manuel Vicente. The most significant recent development through these joint ventures was Chevron's announcement in January that it had begun production in Angola's first ever deep-water oil field, Kuito, which lies off-shore of the province of Cabinda. Production was promising at around 100,000 bbl/d. Besides upstream operations, Sonangol also oversees domestic downstream operations such as refining, distribution and marketing through joint ventures and subsidiaries.

Sonangol has played an important role in getting more and more Angolans to enter the oil industry at skilled and management levels through extensive training programs. Plans are underway to develop a new 200,000 bbl/d refinery in the central coastal city of Lobito at a cost of US$2 billion. The refinery is expected to create jobs for 400 workers and provide indirect employment for 2,500 more. A majority of the products refined at the new facility would be exported regionally to Angola's neighbors in the S o u t h e r n A f r i c a n D e v e l o p ment Com-m u n i t y (SADC). Sonangol has also hooked up with Texaco to develop a US$3 billion liquefied natural gas (LNG) project to convert natural gas extracted from offshore oil fields to LNG for domestic consumption. Both companies have a 50% interest in the project, which is expected to be implemented in 2005.

Sonangol Facts & Figures

Full name Sociedade Nacional de Combustiveis de Angola (Sonangol).

Established In 1976 as the national oil company of Angola. Fully owned by the state and serves as the business arm of the Angolan government. Sonangol is the sole concessionaire for oil exploration and production in Angola.

Main businesses The company's prime activities include exploration and production, petroleum product supply to the domestic market, petroleum product and crude oil external marketing and an airline industry to support the petroleum operations. Petroleum output Just over 750,000 barrels per day.

Exports This year Sonangol is expected to export US$2 billion worth of oil, mostly to the U.S. (70%), as well as to Asia and Europe. Angola is the largest non-OPEC supplier of quality low-sulfur crude to the U.S. and the seventh overall.

Work force Employs 5,500 people directly and creates jobs for more than 10,000 Angolans indirectly.

Earnings Accounts for as much as 90%, or US$3.5 billion, of the government's annual revenues.

Foreign operators There are more than 30 foreign companies operating within the Angolan oil industry, including BP, Chevron, Texaco, TotalFinaElf and Exxon Mobil. Angola earned close to US$900 million in 1999 from bonuses paid by foreign operators for offshore concessions.

Natural gas Texaco recently signed an agreement with Sonangol to develop a liquefied natural gas project south of the Congo River. Angola has estimated reserves of 1.6 trillion cubic feet of natural gas, according to the U.S. Department of Energy.