If energy bulls are correct about the long-term challenges the industry faces in producing enough oil to meet demand, then Angola will become one of the most important countries the industry must explore and develop if there is any chance at all. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer.)

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In the last few years, Angola has emerged as an important source of new supply for energy consumers. It has seen its production increase from about 700,000 barrels per day to 1.9 million at its peak in mid-2008. The country has since ratcheted back production due to lower demand.

Angola And OPEC
Angola joined the Organization of Petroleum Exporting Countries (OPEC) in January 2007 and the world community has recognized its importance to oil production.

Recently, Angola has had a difficult time complying with the quota OPEC established for the country. In April 2009, the country produced 1.69 million barrels per day, above its 1.52 million barrel per day quota. This makes the country only 29% compliant with its quota, the second worst rate of compliance after Iran.

Proved reserves for Angola were estimated at 9.0 billion barrels as of January 2008, but this almost assuredly understates the country's potential, as virtually every major international oil company is exploring offshore Angola.

Discoveries On Block 31
The latest discovery was for a well, operated by (NYSE:BP), which located oil on block 31 - the eighteenth discovery on this block, which is located more than 200 miles offshore. In addition, Exxon Mobil (NYSE:XOM), Marathon Oil (NYSE:MRO) and Total (NYSE:TOT) are part owners on block 31.

In October 2008, Marathon Oil made its own discovery on block 31, at an area called the Dione prospect.

Although both these prospects were oil, Angola also has substantial reserves of natural gas, estimated at 9.5 Tcf as of January 2008. Since there is little demand in the area for natural gas, Angola and its partners must build a liquefied natural gas (LNG) facility to export the gas to where it is needed. (Take a look at our article How Does Crude Oil Affect Gas Prices? to learn about their relationship.)

Chevron (NYSE:CVX) is one of the companies involved in this project and recently estimated that it would cost $10 billion to construct the LNG facility. The first part of the facility, if it is built, would be able to handle 5.2 million tons per year.

While this higher cost is not great news for Angola, it is certainly great news for the capital equipment companies that supply subsea equipment and other infrastructure.

FMC Technologies (NYSE:FTI) has received several contracts for work related to offshore projects near Angola. Recently, the company signed two contracts totaling approximately $220 million to supply BP with equipment, including subsea trees, control systems and wellheads.

Bottom Line
Angola has emerged as a major player in world oil markets as increased exploration by the major integrated oil companies has more than doubled production over the last ten years. Even more growth will be needed if the most bullish scenarios on world oil demand come true.

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