The Joe Biden administration is eager to start discussing how it can apply its ‘build back better’ mantra to commerce with Africa when it ... virtually hosts the continent’s trade ministers this week. For their part, America's African partners want to make sure that Washington doesn’t bulldoze their two-decade-old, duty-free access to the US market in the process.
Oil giants Eni (Ente Nazionale Idrocaburi) and BP (British Petroleum) announced on 19 May that they are in discussions to combine their oil, gas and liquefied natural gas (LNG) portfolios in Angola.
If these negotiations prove successful, this partnership will take the form of a joint venture, which will bring together their interests in Angola – the continent’s second-largest oil producer, behind Nigeria.
What is the deal between the two major oil companies about?
Eni holds 37% of and operates block 15/06. It also has shares in half a dozen permits under development. In 2020, the Italian group was designated operator with a 60% stake in offshore block 28, in the Namibe basin, and obtained a 42.5% stake in the onshore Cabinda Central block. Eni is also the operator of the New Gas Consortium, a joint venture between Chevron, Eni, Total, BP and Sonangol for natural gas production in Angola.
BP operates blocks 18 and 31, which are located in the Angolan offshore, and has interests in blocks 15, 17, 20 and soon 29.
According to analysts, this rapprochement between these European producers was predictable. Faced with the increased fluctuation of oil prices in recent years, particularly in 2020 due to the Covid-19 pandemic, companies are now more determined than ever to closely monitor their operations.
“It’s not surprising, given that Eni and BP are big operators in Angola. They are looking for greater efficiency in their operations and for a synergy that would reduce costs,” says oil specialist Francis Perrin, an associate researcher at the Policy Centre for the New South.
As a matter of fact, in 2020, the Italian company saw its turnover fall by 37%, from €70bn ($83.5bn ) in 2019 to €44bn in 2020, a drop of almost €26bn. As for BP, its turnover fell from €232bn in 2019 to €151bn in 2020, a drop of €81bn (-35%).
Beyond cost reduction, these discussions are part of the oil companies’ strategy to invest in and switch to green energy. However, before they can do so, these companies have to sell off some of their assets.
According to analyst firm Rystad Energy, the high cost of deepwater projects in Angola makes the country a prime candidate for companies to reduce debt and finance the shift to low-carbon energy.
The article continues below
Get your free PDF: Top 200 banks 2019
The race to transform
Complete the form and download, for free, the highlights from The Africa Report’s Exclusive Ranking of Africa’s top 200 banks from last year. Get your free PDF by completing the following form
In addition, these companies, once they reviewed their long-term strategies and price forecasts, reduced the value of their assets in Angola. In 2020, “$316m worth of impairment charges were recognised on certain assets in Angola, primarily due to changes in the group’s long-term price assumptions,” said BP.
In Angola, Eni produced 100,000 barrels per day (bpd) in 2020, compared to the 108,000 bpd churned out by the British giant. As a result, the two companies accounted for around 16% of Angola’s oil production in 2020 – a total of 1.3m bpd.
Carbon neutrality as a goal
“They want to become energy companies. They are not going to abandon their hydrocarbon activities, but they want to switch to electricity and renewable energy,” says Perrin. This ‘green shift’, which began a few years ago, has been accelerated by the pandemic.
Moreover, according to Reuters, BP would like to sell its assets to Eni in Algeria so that it can focus on renewable energy. However, neither group has – to date – confirmed this information.
In fact, the British company has decided to reduce its oil production by 40% and increase its investments in renewable energy by a factor of 10, i.e. nearly $5bn per year by 2030.
Eni, for its part, has set itself the goal of both becoming carbon neutral and increasing its renewable energy capacity to 60GW by 2050, compared to the current 1GW.
The two major oil companies are also present in Egypt, Côte d’Ivoire and Libya. Therefore, the current discussions could pave the way for other partnerships. “We can expect other discussions of this type to take place, with decarbonisation and cost reduction as the main motivators,” explained Rystad Energy.
What about the other big oil companies?
Other oil companies, including TotalEnergies and ExxonMobil, are also making the switch to renewable energy.
The French company Total has changed its name to TotalEnergies as it hopes to become ‘the responsible energy major’. The group, led by Paptric Pouyanné, is aiming to be carbon neutral by 2050 and wants to invest between $1.5 and $2bn each year in low-carbon electricity. TotalEnergies’ oil production fell from 65% of it energy mix in 2005 to 48% in 2019, compared with 52% for natural gas.
In May 2021, US oil giant ExxonMobil announced its surprise withdrawal from Ghana and although the reasons for this departure were not revealed, its decision seems to be in line with the oil companies’ strategy to shift to green energy.
Understand Africa's tomorrow... today
We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.View subscription options