A Look At Angola’s Pre-Salt Oilfield Services Market

March 11th, 2014 by Trefis Team
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Global offshore drilling activity has picked up over the last few years, aided by higher oil prices as well as improving technology. While the North Sea, the U.S. Gulf of Mexico and Brazil remain some of the most prominent locations for offshore drilling, markets such as Africa have been showing encouraging growth, with the offshore rig count rising by over 30% in the last two years. In this note, we take a look at the market for offshore drilling services in Angola, and why we believe the west African nation could prove to be a promising market for services companies such as Halliburton (NYSE:HAL) in the near to medium term.

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Background of The Industry In Angola

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Angola is the second largest oil producer in Sub-Saharan Africa, with most of its production coming from offshore fields. The country hold holds about 9 billion barrels of proven crude oil reserves, most of which are located offshore in the Lower Congo and Kwanza basins. [1] The country’s oil production grew significantly over the last decade,  peaking at close to 2 million barrels per day in 2008 as production commenced from several deepwater fields that were discovered during the 1990s. However, there has been a decline of late, and production has fallen to around 1.8 million barrels per day due to the depletion of several reservoirs as well as due to technical and maintenance related issues in some projects. [1] Despite the technical setbacks, exploration has been on the uptrend in the country, with the offshore rig count rising from around 8 units in January 2013 to about 14 currently, according to data from Baker Hughes. Operators such as ExxonMobil, BP and Total have many new deepwater and ultra-deepwater projects coming online in the country within the next three years or so. ((ref:1))

Pre-Salt Exploration And Opportunities For Oilfield Service Companies

Much of the country’s current exploration activity is directed at the pre-salt blocks, which are located in parts of the Lower Congo and Kwanza basins. Pre-salt formations hold hydrocarbon reserves under thick layers of rocks and salt.  The geology of Angola’s pre-salt formation is believed to be similar to Brazil’s, since Africa and South America were joined together into a single plate nearly 200 million years ago. While the pre-salt exploration activity is still in relatively early stages, some operators such as Cobalt International have seen significant success, with as many as four deepwater discoveries in the region. [2] Licensing activity has also been reasonably robust, as the country licensed about 11 pre-salt blocks in the Kwanza basin to a group of integrated oil companies and is expected to auction another 10 blocks sometime this year.

There are several technical issues that need to be addressed in producing from pre-salt oil deposits considering the large water depths, extreme pressures and the nature of the rocks that need to be drilled through in order to access the reserves.  This could translate into higher service intensity and better business for large oil field services companies operating in these fields. Halliburton and Schlumberger are likely to be better positioned in Angola’s pre-salt services market given that they already have several years of experience in Brazil’s pre-salt oil fields. In the near term, demand could be strong for seismic, testing, as well as drilling services. Halliburton, for instance, has been witnessing strong demand for its subsea testing and wireline services in Angola of late. ((Halliburton Q3 2013 Earnings Call Transcripts, Seeking Alpha, October 2013))

Notes:
  1. Angola Analysis Brief, U.S. EIA [↩] [↩]
  2. Cobalt makes deepwater presalt discovery offshore Angola, Oil and Gas Journal, January 2014  [↩]