Angolan state oil company Sonangol's unveiling last week of a plan to fast-track the sale of key stakes in eight tantalising offshore blocks will be a litmus test of the type of assets that cautious, cash flow-conscious upstream investors are willing to spend money on.

Ten years ago and more, a barrel-load of bidders would have battled to enter these blocks, which offer exploration, development and production opportunities aplenty in a country once considered the oil world’s El Dorado.

Admittedly, under the regime of former president Jose Eduardo dos Santos, few companies apart from incumbent supermajors — or those close to Sonangol, the ruling clan and its running dogs — would have had a realistic chance of acquiring these assets.

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Many deals would have been agreed behind closed doors, with only those in the know and with strong Angolan relationships standing a chance of being successful.

The 2006 licensing round was an outlier and, despite a rather chaotic organisation and a tendency towards secrecy, it resulted in new players entering Angola, including Eni.

But times have changed. Angola’s President Joao Lourenco genuinely seems to want things done by the book, with increased transparency the order of the day — as reflected in the formal bid agenda for this Sonangol farm-out process covering deep-water and shallow-water blocks.

While these "open book" efforts are laudable, they coincide with the energy transition, so it will be a challenging time for any competitive acreage bid process.

Octet offered: stakes in eight blocks have been offered by Angolan state oil company Sonangol in a farm-out process Photo: Map SONANGOL

Despite current high oil prices, the uncertain future for oil and gas markets will probably dampen expectations of a bumper payday for Sonangol, which is in desperate need of funds to shore up a beleaguered balance sheet.

Nevertheless, the farm-out plan will help reduce its outgoing expenses and bring in funds to help stabilise its books.

Launching the divestment process in Luanda last week, Angola’s Minister of Petroleum, Diamantine Azevedo, admitted its significance: “It’s of great importance to the Angolan state, the national oil company and the development of the oil sector.”

He said the sales process will help improve Sonangol’s “sustainability” and its “financial commitments to banking institutions”.

But the impact on the state-owned player’s financial situation is likely to be limited. Sonangol’s liabilities are $36 billion with annual debt payments of $1.8 billion after decades of financial abuse under the tenure of Dos Santos.

Eskil Jersing, a 36-year veteran of Africa’s E&P sector, says the speed at which Sonangol is pushing ahead with its farm-out strategy — bids are due to be submitted by 6 August — indicates the severity of its financial predicament.

“The balance sheet dramas are clearly driving this accelerated divestment exercise. (The schedule) is ridiculously compressed, but tells you how distressed they are in terms of finding funding solutions,” he told Upstream.

One senior oil executive based in Luanda with a major oil company wholeheartedly agreed.

“The timeline is almost impossible,” he said, highlighting that Luanda wants this farm-out process done and dusted by the end of this year.

The executive added that suitors would have had more time to evaluate the acreage if the government had launched the farm-out process in April, as originally planned.

So, with no sign of schedule flexibility, bidders will have to move fast to access data rooms (they opened on 14 June) and pull together commercial offers, either individually or as part of a consortium.

Angola is very keen to attract new companies to the country to help drive fresh E&P activities.

Helder Lisboa, Sonangol’s strategy director, told delegates at the farm-out event in Luanda: “We want new bidders.”

The most sought-after assets are prolific oil producers: Eni’s Block 15/06 and BP-operated blocks 18 and 31, where stakes of up to 10%, 8.28% and 10%, respectively, are available.

On blocks 15/06 and 18, however, new bidders will have to contend with preferential rights from existing partners in these assets.

Also available are interests in shallow-water producing blocks 3/05 and 4/05, and holdings in three exploration tracts: shallow-water Block 5/06 in the Kwanza basin, deep-water Block 23 in the Kwanza and Block 27 in the Namibe basin.

In Eni’s block, Sonangol has a 36.84% stake — the same as the Italian major — while Sinopec holds 26.32%. In Block 18, BP has a 46% stake with Sinopec on 37.22% and Sonangol controlling 16.28%.

Jersing, currently business development advisor to privately owned exploration start-up Eburon Resources, described these three blocks as “heartland” plays with significant producing fields plus development and exploration upside.

“They will go for hundreds of millions (of dollars) because they are extraordinary assets,” he said.

Eni and TotalEnergies could be interested, Jersing suggested, but wondered if BP wants to grow in Angola after signing a deal with Eni to combine their in-country assets.

Another block with promise is 3/05, where operator Sonangol wants to reduce its 50% stake.

A non-operating stake in this asset could be in the sweet spot for acquisitive Afentra, the investment vehicle of former Tullow Oil chief executive Paul McDade, and also Vaalco Energy, Jersing said.

Across all the blocks, other potential farminees could include Africa Oil, Boru Energy, Maurel & Prom, Perenco, Assala Energy, Trident Energy, Qatar Petroleum and Sinopec, he speculated.

Jersing also name-checked oil traders Vitol, Trafigura and Mercuria as potential interested parties alongside indigenous players.

The Luanda-based oil executive said the exercise “will attract interest from new companies,” but warned, “we’re not in the golden age of the oil industry”.

Jersing suggested bids could be based on future oil prices of $55 to $60 per barrel.

The farm-out results will be unveiled on 24 August, with deals to be signed by 24 September for all blocks apart from 15/06 and 18, which will be concluded on 26 October. Decrees will be published by the end of December 2021.