Mon Apr 14, 2014 6:00am EDT
* Decision made after costs cut from $20 bln
* Project to pump 230,000 barrels/day, start in 2017
* Project seen as key for Angola to replace older fields (Adds quotes, analysts, details on cuts, background on Angola targets)
By Natalie Huet and Shrikesh Laxmidas
PARIS/LUANDA, April 14 (Reuters) - France's Total said it had decided to go ahead with the Kaombo oil project offshore Angola after reducing its cost by $4 billion to $16 billion, an advance that could help Angola keep up oil output over the long run.
The decision to invest in the ultra-deep sea project, which has been repeatedly delayed because of its cost, is seen as important for Africa's No. 2 oil producer to replace older fields and hit its production targets.
In recent years, a number of other large-scale projects around the world have fallen victim as oil companies have reduced global investment and returned cash to shareholders.
"Total has significantly optimized the project's design and contracting strategy in recent months. Kaombo illustrates both the group's capital discipline and objective to reduce capex," Yves-Louis Darricarrere, Total's president for upstream, said in a statement on Monday.
Half of the cuts came from a reassessment of the project's specifications, using a "'just good enough' approach rather than 'the best possible'," Arnaud Breuillac, the company's exploration and production chief, told Platts on Friday.
The company decided, for example, to build its two 115,000 barrels-per-day (bpd) floating production storage and offloading units by making alterations to two very large crude carriers (VLCCs) instead of building them from scratch, he added.
These units will have a shorter lifespan than purpose-built ones, which could last up to 35 years, but using the converted VLCCs and other less bespoke equipment could save $2 billion.
It is saving another $1 billion by agreeing with the government to cut the number of work hours done on the project locally, because the rates are more expensive in Angola than elsewhere.
The project in Block 32 is scheduled to start up in 2017, when it will have a production capacity of 230,000 bpd, the French oil company said.
"Globally, deep water costs are rising - this year by almost 20 percent, so the fact that Total could find slack in its capex to continue with its Angola project shows how investors view Angola's longer-term offshore prospects," said Rolake Akinkugbe, head of energy and natural resources coverage at FBN Capital.
"By and large, they are bullish."
In a similar move last year, Britain's BP scrapped bespoke plans to develop its Mad Dog 2 project in the Gulf of Mexico, opting instead for a repeatable model it had used before. BP said it thought the old model could recover 90 percent as much oil at a fraction of the cost.
Total is already the top operator in Angola, with equity production of 186,000 bpd, mainly due to its Girassol, Dalia and Pazflor deepwater fields in the huge Block 17. The blocks it operates produce a total of 600,000 bpd, over a third of the country's output.
Total also confirmed on Monday that it was on track to start output at the CLOV project in Block 17, which will have a production capacity of 160,000 bpd in mid-2014.
REPLACING OLDER FIELDS
"With the investments it is making in Blocks 17 and 32, it will be very difficult for any other oil company to overtake Total as the leading operator in Angola," said Jose de Oliveira, head of the Energy Nucleus at Luanda's Catholic University.
Angola wants to increase production to 2 million bpd next year from 1.73 million bpd in 2013 and then maintain that level for five years.
Still, analysts say the country's plans to ramp up production have proven more challenging than expected due to technical problems and declines at older fields.
Credit rating agency Fitch on Thursday revised Angola's outlook to stable from positive, citing challenges to the oil sector as one of the main drivers behind the decision.
"Kaombo is very important if Angola wants to put production at 2 million bpd, because output at some of the older fields, namely in blocks 14 and 15, is declining," Oliveira said.
Total and Angolan state-owned firm Sonangol each hold 30 percent stakes in Block 32, while Angolan-Chinese joint venture Sonangol Sinopec International has 20 percent, Exxon Mobil's Esso unit 15 percent and Portugal's Galp 5 percent.
The Kaombo project is located about 260 km (162 miles) off Luanda in water depths of 1,400 to 1,900 metres (4,600-6,200 ft).
Total shares were up slightly at 47.835 euros at 1000 GMT. (Additional reporting by Michel Rose; editing by Andrew Callus and Jane Baird)
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