UK player to enter Angola following deal for two offshore blocks with Sonangol
As part of its strategy of ensuring repositioning and sustainability of its investment portfolio, Angola’s state-owned oil and gas company Sonangol has inked a deal with the UK-headquartered and AIM-listed company Afentra plc for a partial sale of its stake in two blocks offshore Angola.
Earlier this month, Sonangol informed that it had evaluated the received proposals within the scope of its public tender for the partial sale of its participating interests in blocks 3/05, 4/05, 5/06, 15/06, 18, 23, 27 and 31, and selected the winning bids submitted by 10 companies. At the time, Afentra’s proposal for a 20 per cent stake in Block 3/05 was among the winning bids.
In an update on Thursday, Afentra revealed that its wholly-owned subsidiary, Afentra (Angola), had signed a Sale and Purchase Agreement (SPA) with Sonangol to acquire a 20 per cent non-operated interest in Block 3/05 and a 40 per cent non-operated interest in Block 23 for a total consideration of up to $130 million.
Afentra explained that the total sum was comprised of $80 million cash upfront – subject to customary completion adjustments – up to $50 million in contingent payments – payable in respect of each of the ten calendar years starting on 1 January 2023 and subject to certain oil price and production hurdles – and $0.5 million in respect of Block 23. The effective date of the acquisition is 20 April 2022.
Paul McDade, CEO of Afentra, remarked: “This transformative deal marks our first acquisition since launch last year, and sees the company enter Angola, a major oil and gas jurisdiction with significant opportunities ahead to build a material business and positively impact the energy transition in Africa.
“The assets, containing over 3 billion barrels of oil in place, provide significant scope for further value creation from production optimisation, infill drilling and incremental developments.”
Furthermore, the company explains that this represents a strategic entry into a West African jurisdiction with an implied acquisition cost of ~$4/boe, based on 2P reserves. The firm intends to fund this acquisition with new debt facilities and existing cash on the balance sheet. To this end, Afentra is engaged in discussions with prospective providers of debt finance, which are expected to be finalised in due course.
The completion of the transaction is expected in the third quarter of 2022. In the meantime, government approvals and a license extension for Block 3/05 are anticipated to be granted, with the publication of the AIM re-admission document and the resumption of trading anticipated to occur mid-year. Aside from regulatory consents, right of first offer, license extension, and due diligence, this acquisition is subject to the receipt of shareholder approval pursuant to an ordinary resolution to be proposed at a general meeting and re-admission of the enlarged group to trading on AIM.
Afentra claims that this deal is consistent with its strategic objective to build a balanced cash flow generative portfolio of assets where the company can contribute to emissions reduction to drive a sustainable transition. The firm further adds that a key outcome of the due diligence work to date has been to identify the opportunity to work with the joint venture (JV) partners to enhance the environmental performance of Block 3/05 through emission reductions.
Block 3/05 to be extended to 2040
Located in the Lower Congo Basin, Block 3/05 consists of eight mature producing fields discovered by Elf Petroleum – now part of TotalEnergies – in the early 1980s. The fields were developed with shallow-water – 40-100 m – platforms that included successful waterflood activities with the first oil in 1985.
Angola’s state-owned Sonangol assumed operatorship in 2005, however, no infill drilling campaigns have taken place in the last 15 years. Based on Afentra’s statement, this block has a diverse portfolio of over 100 wells and currently produces from around 40 production wells and has nine active water injectors. The facilities include 17 well-head and support platforms and four processing platforms, with oil exported via the FSO Palanca.
The average daily gross production in 2021 was 17,000 bopd, with an exit rate of 21,000 bopd, and gross 2P reserves of approximately 100 million barrels at year-end 2021.
While the current Production Sharing Agreement (PSA) for Block 3/05 is set to expire in 2025, it is expected that this will be extended to 2040, which is a condition for completing the acquisition. To date, the asset decommissioning costs have been pre-funded and Afentra will work with Sonangol to determine action plans to further reduce future emissions.
Following the completion of this deal, the JV will include Sonangol as the operator with a 30 per cent stake and six additional partners. These partners are Afentra (20 per cent), M&P (20 per cent), Eni (12 per cent), Somoil (10 per cent), NIS-Naftagas (4 per cent) and INA (4 per cent).
Unlocking the potential of Block 23
Located in the Kwanza basin in water depths from 600 to 1,600 metres, Block 23 is a 5,000 km2 exploration and appraisal block with a working petroleum system. Even though the block is covered by modern 3D and 2D seismic data sets, with no outstanding work commitments remaining, Afentra believes the majority of the block remains underexplored.
The first deepwater pre-salt discovery in the Kwanza basin, the Azul oil discovery, is located within this block. This discovery – made in carbonate reservoirs – has oil in place of around 150 mmbo and tested at flow rates of around 3,000 – 4,000 bopd of light oil.
Upon completion of the acquisition, the JV is expected to include Namcor, Sequa and Petrolog (operator with a 40 per cent stake); Afentra (40 per cent) and Sonangol (20 per cent).
“The entry into Block 23 provides us the opportunity to work with Sonangol to better understand and unlock the potential of this exciting and highly prospective exploration area,” concluded McDade.