Why is Chevron Worried About Angola?

Chevron (NYSE:CVX) has reported that its subsidiary Cabinda Gulf Oil Company has declared force majeure at the Kuito oil terminal off the coast of Angola. The declaration suspends contractual obligations and liability in the face of extraordinary circumstances, such as weather-related disasters, or political events like war or riot. So far, no reason has been given.

Angola is a member of OPEC and one of the largest oil producing countries in Africa. The country exports around 1.8 million barrels per day on average, although November exports have trended lower at around 1.67 million bpd.

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According to Reuters, and emailed statement from the company says that, “The Kuito operation is currently undergoing a planned turnaround, and we do not anticipate any resulting production impacts from this action.”

The report indicates that technical problems could be the cause of the declaration, but little is known. It is notoriously difficult to gather good information on the Angolan oil industry. The country attracts companies looking for high margins due to the high-risk, high-reward nature of the region.

Other major operators in the country include Exxon Mobil (NYSE:XOM) and British Petroleum (NYSE:BP). In the most recent quarter, Exxon Mobil began production from the Kizomba Satellite project off the coast of Angola, expected to produce 100,000 bpd. BP announced in its last quarterly earnings call a series of major project startups in Angola. Improved operating performance in the country also helped offset production declines in other regions.

At the end of October, Chevron announced General Electric (NYSE:GE) will be building the sub-sea production system for a new project off the coast of Africa between Angola and the Republic of Congo. The Lianzi project will cost $2 billion, and aims to be operational by 2015.

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