IOCs went cold, most choosing to spend their limited capital where the risk/reward ratio was better.
The final investment decision (FID) on Total’s Zinia-2 project in Angola on May 25th is a sign that the industry there at least is starting to move out of the trough. Adam Pollard, Senior Analyst, Sub-Sahara Africa Upstream, reckons this streamlined, fast-tracked incremental oil development may be emblematic of a new investment phase in Angola.
Zinia-2 holds just 80 million bbls, will be tied-back to an existing FPSO extending the life of the infrastructure, and production will start inside two years. The economics are attractive – our model indicates a 25% a post-tax IRR at Brent US$65/bbl.
A critical factor behind this FID has been fiscal flexibility. Projects with low IRRs can qualify for marginal field terms. Angola’s new government, elected last year, raised the threshold from below 10% to below 15% on May 18, 2018, for fields of up to 300 million bbls.