Total Cuts Angolan Oil Project Costs by a Fifth to $16 Billion

Total SA, Europe’s third-largest oil company, cut the cost of its Kaombo project off Angola by about a fifth to $16 billion as it decided to proceed with the development.

The company and partners including Exxon Mobil Corp. and Galp Energia SGPC SA made a final investment decision to build the project due to start pumping oil in 2017, Total said today in a statement. It will be able to produce 230,000 barrels of oil equivalent a day.

“While continuing our commitment to develop the Angolan oil industry, Total has significantly optimized the project’s design and contracting strategy in recent months,” Yves-Louis Darricarrere, head of production, said in the statement. “Kaombo illustrates both the group’s capital discipline and objective to reduce” capital expenditure.

The development of Kaombo and Total’s plan to start pumping from Angola’s CLOV fields may help the country overtake Nigeria as Africa’s largest crude producer. International oil companies have been reducing investment plans to cuts costs, expand free cash flow and win investor confidence with bigger payouts.

Kaombo proves oil companies “are able to cut capital expenditure by delaying projects and redesigning development plans,” Oswald Clint, a Sanford C. Bernstein & Co. analyst in London, said in a report. “We have seen a sharp increase in the number of projects being canceled or deferred equating to a reduction of $170 billion total capital expenditure” since the start of last year.

The Total-led venture plans to develop 650 million barrels off reserves located in Block 32 about 260 kilometers (162 miles) off Luanda. Angola’s state-owned Sonangol EP and China Petrochemical Group are also partners.

All “projects in Total’s production targets are now under construction,” Bertrand Hodee, an analyst at Raymond James in Paris, said in a report. “Kaombo was the only project not yet under construction built into Total’s target” of 3 million barrels of oil equivalent a day capacity by 2017.

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