Angola Oil and Gas Report Q1 2013

BMI View: In spite of repeated delays in project development, several productions sites are expected to comeon-stream in the next few years offering large prospect for the oil and gas production to rise substantially inthe coming decade. This is the case for the PSVM field (150,000b/d and 2.5bcm) and several fields in BP'sBlock 31(150,000b/d). Attempts to cut gas flaring and the opening of the Angola LNG plant also boost theoutlook for gas production and export. Nevertheless, OPEC quotas, the risk of further project delays and theAngolan political environment still imply a significant amount of uncertainty.

Main trends and developments we highlight for Angola's oil and gas sector are as follows:

We expect oil production to increase from approximately 1.84mn b/d in 2011 to 2.48mn b/d in2021 with a 2.8mn b/d peak in 2016. This is the result of projects that have recently comeonstream, such as Pazflor (220,000b/d), or that are scheduled to come onstream in the comingyears, such as PSVM (150,000b/d).

Consumption of crude is likely to rise at an average rate of 10.75% from 2011 to 2021. This veryhigh rate of growth is boosted by the country's double-digit GDP growth, as the economyexperiences a catching up phenomenon following nearly three decades of civil war. We thereforeanticipate that consumption will rise from an estimated 88,000b/d in 2011 to hit 226,000b/d by2021

We forecast that gas production will increase from 0.73bn cubic metres (bcm) in 2011 to 7.4bcmby 2021, as the authorities and companies reduce the practice of flaring and start tomonetise/associated gas resources. The 2012 Angola LNG export hub will further incentivise gasproduction, leveraging on associated gas production from massive fields such as Pazflor(1.5bcm) and PSVM (2.5bcm).

Gas demand is set to rise at an average rate of 2.23% although this hides a somewhat irregularpace. Relatively low demand growth when compared to growth in gas production and oilconsumption can be explained by the fact that gas plays virtually no role in the country'selectricity generation and that there are no plans to expand its share in the energy mix. As aresult, we see gas consumption rising from 0.74bcm in 2011 to 0.93bcm by 2021.

Non-subsalt Angolan oil reserves are likely to reach a peak in the coming decade, although theyare set to increase at first thanks to exploration potential; not only in the well known LowerCongo and Kwanza basin, but also in the southern Namibe basin. Exploration and recentdiscoveries in recently allocated subsalt acreages create a serious upside risk to our forecast.

However, with still limited information on the commercial viability and speed at which theseresources can be monetised, we have decided not to include them in our forecast until moreinformation is made available. Oil reserves are forecast to peak at about 11.5bn bbl in 2016before stabilising throughout the end of the decade. Gas reserves are expected to rise above320bcm in 2012 and to remain above that threshold through to 2020.

In terms of infrastructure, the authorities have ambitious plans in LNG and refining. The AngolaLNG project appears to be on target to meet the 2012 completion deadline. However, the65,000b/d Luanda refinery is still struggling and has low utilisation rates. The 200,000b/dSonaRef project is stalling but we still expect it to come onstream in the next 10 years, albeitwith some delays. The 200,000b/d Soyo plant is still in its early stages and we deem it unlikelyto be completed before 2021.

Angola's dependence on oil prices leads to high volatility in the country's export revenues. Boomingdemand in emerging markets clearly represents an opportunity for the company and we assume tightsupply as a consequence. As a result, we forecast OPEC basket oil prices to remain elevated and averageUS$107.05 per barrel (bbl) in 2012, a figure similar to the 2011 average of US$107.52/bbl.