Angola may renegotiate project costs with contractors

Mar 16, 2009 01:00 AM

Angola may cut project costs by renegotiating with contractors following a drop in oil prices, the country's oil minister said, the first evidence that producers may be able to mitigate the impact of lower crude prices.
Jose Botelho de Vasconcelos said, "The spirit of contracts usually has clauses that permit some kind of negotiation."
"At any moment, if there is an economic risk to the project, it is analyzed... It's possible" contracts with oil-services companies will be renegotiated, he said. However, he warned that in some cases, "contract clauses... don't permit negotiation. It's always a risk," said de Vasconcelos, who is also president of the Organization of Petroleum Exporting Countries, or OPEC.

The statements come as oil prices have dropped by $ 100 a barrel since a peak of $ 147 a barrel in July last year, challenging the economic rationale of many planned oil and gas projects. Though de Vasconcelos' statements suggest there could be a silver lining to the drop of oil prices after years of cost inflation, OPEC has already warned that 35 projects were set to be delayed or cancelled in its member countries.
"It's an identical situation... fundamentally for Angola," de Vasconcelos said.

Asked if Angola could delay projects, de Vasconcelos said "yes, that is a risk."
But, he added, this risk, "resulting from the financial and economic crisis, will be fought, so that some projects will have the economic equilibrium that is necessary for their development."

As another response to falling global oil demand and lower prices, countries such as Iran have opted to store part of their production on floating vessels.
Asked if Angola could develop its storage capabilities as a solution to oversupply, de Vasconcelos said that "although at this moment, we still are not in that situation [that would force storage. It] could be analyzed, and after that, we will take pertinent decisions."

Regarding future foreign investments, de Vasconcelos said state concessionary Sonangol wasstudying resources still undeveloped because of a civil war that ended in 2002.
"We have a program to continue research studies in Angolan onshore exploration" before finding partners later, he said. "We are in the area of Cabinda, in the area of Kwanza. But there are other basins where access wasn't possible during the war, and at this moment in fact it is possible," the minister added.

Source / Dow Jones Newswires
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