Angola’s Oil & Gas Revenue: Past, Present & Future

Agenda Background to Wood Mackenzie Setting the background - Angola’s upstream industry in context Historical and possible future government revenues A brief international context Petroleum Revenue Management Workshops, Luanda, May 2006

Background to Wood Mackenzie Providing information and analysis on the upstream industry for over 30 years Asset level information - field by field or block by block Started West African coverage in 1990 Research and analysis held in proprietary databases and economic models Asset data, field profiles, contract terms etc derived from many sources Public information Government information Company information Conversations with operators, partners… Ultimately all asset profiles and values are WM own best estimates Data here comes from Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

Angola has seen spectacular growth in its deepwater resource base… Historically Chevron’s Cabinda has underpinned Angola’s reserve base The deepwater blocks 14-18 awarded in the 1990s resulted in a massive string of discoveries. Block 17 has 14 discoveries Block 15 has 17 discoveries, Block 14 has 12, Block 18 has etc. More recently have seen large number of discoveries in ultra-deep, but not of the same size as the massive early deepwater discoveries such as Girassol, Dalia and the Kizombas. Ultra-deep water operators Total & BP planning aggressive exploration programme 5-6 more wells on each of its ultra-deep blocks so may see increase in reserves from that sector. Also recent exploration acreage awards from licensing round should see more discoveries e.g Block 15 (recently won by Eni) expected to contain a further 1.5 billion barrels. Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

…resulting in ongoing upward revision of production profiles… In 1990 only production was from Blocks 1, 2 and 3, Offshore Cabinda and Onshore In 1995 Cabinda Areas B & C started to contribute The deepwater blocks 14-18 awarded in the 1990s The first of many major deepwater developments in Blocks 14-18 began in late 1999 when Kuito, on Chevron operated Block 14, came onstream. Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

…driven by deepwater developments Historically Chevron’s Cabinda area has underpinned Angolan production Cabinda still accounts for around 36% of the country's output and production from these fields is expected to reach around 426,000 b/d during 2006. Now that the Cabinda Area licences have been extended to 2030, the operator and partners will invest nearly US$3 billion over the next few years on existing and new developments, helping to stem future production decline At the end of 2001, the Block 17 Girassol project was successfully brought onstream contributing 250,000 b/d which really boosted the countries production shortly followed by the Kizomba A and B projects both also 250,000 b/d. There are now seven deepwater projects onstream and production is expected to average 1.5 million b/d in 2006. Production is forecast to reach over 2 million b/d by 2008 with Dalia, Rosa and Greater Plutonio due onstream in the next few years. Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

Lead times from discovery to development sanction have been increasing… Each of the major operators where quick to receive project sanction for their early discoveries and were able to bring onstream rapidly Kuito project was fast tracked and onstream less than three years after discovery. Similarly with Xikomba which was brought onstream with a genric leased FPSO, which meant there was no hanging around for an FPSO to be built. Girassol which is a world class project was brought onstream with no delays and very quickly after discovery. Lead times have since increased slightly but down to sheer no. of projects Sonangol has to sanction and constrained by resources. Also haggling over whether FPSOs should be bought or leased Sonangol probably wants to maintain this momentum of sanctioning projects otherwise delays will start imparting future production profiles in the past there was mounting speculation that development approval for commercial discoveries in Angola was occurring at a very slow rate and that the government may have been staggering deepwater developments to create a longer, flatter production profile. This probably wasn’t the case and that it was more likely to be a combination of factors including human resource constraints within Sonangol and capacity limitations of the Soyo and Lobito construction yards. Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

…and need to be accelerated to stem decline from the first tranche of developments Quite a few of the probables still awaiting development approval from Sonangol. (i.e all the ones with no green box). If don’t receive sanctioning in next year or two could start to impact when we forecast they start up Operators obviously keen for them to get approval asap. Managing lead times will be a key element of controlling the production decline 6/7 years out. Depletion policy? Basically, each company had a development approved pretty quickly to keep them happy - after that there's been much haggling over lease / buy for FPSOs - hence a delay to devt sanction for the next tranche of developments.  We are currently assuming that lead times will be accelerated to get the probables onstream quicker - however, that may not be realistic or even the ideal soloution for Angola.  One for discussion in the seminar?   Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

Huge investment required to generate massive revenues… Huge capex needed - dwarfed by even bigger revenues Massive revenues forecast all from deepwater Big hump in 6/7 years time Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

…which will transform the revenues received by the state… Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

…dominated by profit share from deepwater PSCs… Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

…with total state revenue at least 50% of gross revenue and could be as high as 80% Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

UK comparison Source: Wood Mackenzie’s Global Economic Model (GEM) Formation of BNOC - 76? Flotation of Britoil - 84? Also Wytch Farm, Ebterprise Oil, BG… Take-over of Britiol - 86? No oil fund Lots of tax changes Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

UK comparison Source: Wood Mackenzie’s Global Economic Model (GEM) Tax take rises to 70% mid-80s owing to tax payments lagging prices falling Mid-90s to today tax take 20-30% with high investment and opex Rising to 30-40% with high oil prices (marginal rate for most fields 50% of profits) Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

Norway comparison Source: Wood Mackenzie’s Global Economic Model (GEM) Statoil formed 1972 SDFI set up 1985 Statoil partially privatised late 1990s - at the same time the SDFI management transferred to Petoro SDFI annual valuation - WM - see SDFI website Oil fund set un 1996 Fewer tax changes than the UK Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

Norway comparison Source: Wood Mackenzie’s Global Economic Model (GEM) Nig investments (gas, deep water…) 85-2000 depressed tax take to around 30% With higher oil prices, this should settle more in the 50% area (marginal take of profits c80%) Source: Wood Mackenzie’s Global Economic Model (GEM) Petroleum Revenue Management Workshops, Luanda, May 2006

Conclusions What are the upsides? High prices – progressive government take Further discoveries Spectacular bonuses for some deepwater licences What are the downsides or risks? Low prices Very high cost inflation throughout industry Very steep production decline without further discoveries Disappointment in ultra-deep water Small number of partners Petroleum Revenue Management Workshops, Luanda, May 2006

Thank you for your attention David Morrison Chairman, Energy T: +44 207 877 0570 E: david.morrison@woodmac.com Catriona O’Rourke Senior Angola Analyst T: +44 131 243 4250 E: catriona.o’rourke@woodmac.com Wood Mackenzie Head Office Kintore House 74-77 Queens Street Edinburgh EH2 4NS Global Contact Details Europe +44 (0)131 243 4400 Americas +1 713 470 1600 Asia Pacific +65 6549 7107 Email energy@woodmac.com Global Offices Beijing - Boston - Dubai - Edinburgh - Houston - Kuala Lumpur - London - Moscow - New Jersey - New York - Singapore - Sydney - Tokyo Wood Mackenzie has been providing its unique range of consulting services and research products to the Energy and Life Sciences industries for over 30 years. Wood Mackenzie’s market proposition is based on its ability to provide forward-looking commercial insight that enables clients to make better business decisions. For more information visit: www.woodmac.com Petroleum Revenue Management Workshops, Luanda, May 2006