Angola's economy is highly dependent on the oil sector, which accounts for 40% of GDP and 80% of government revenues. There has been massive investment from international oil companies. Production increased to over 740,000 bpd in 2001 and estimates are that production will reach 1 billion bpd by 2003. Its oil reserves are estimated at 5.4 billion barrels and its gas reserves at 700 billion cubic meters. Excellent discoveries in the late 1990's and early 200's in deepwater make Angola's upstream potential very positive. There is promising geology, a good record of exploration success, low operating costs and relatively attractive fiscal terms.

Angola's economy and infrastructure have, however, been ravaged by civil war since 1974 which, after a brief period of political stability after 1994, was resumed in 1998. The areas most affected are in the north and northeast and the Central Highlands. To date the upstream oil industry has remained relatively untouched by the war that now appears to have ended.

The main oil producing areas in Angola are Block Zero (70% of Angolan crude) situated off the Cabinda enclave, Block 3 off the northern coast, and Blocks 1 and 2 off Soyo. There have been significant discoveries of major oilfields in Blocks 14 (Kuito), 17 (Girassol, Rosa, Dalia, Lirio) and 15 (Kissanje, Marimba, Hungo). These off shore discoveries have stimulated interest in Angola's deepwater concessions

Angola has estimated reserves of 1.6 Tcf of natural gas. Approximately 85% of the gas is flared although some is re-injected to enhance recovery. The government is implementing strategies to reduce flaring and to increase the commercial use of natural gas including its conversion to LPG for domestic consumption. There are plans for a liquified natural gas (LNG) project.

In contrast to the country's promising upstream prospects that have guaranteed interest and substantial investment from foreign oil companies, its downstream industry has been ravaged by the civil war and has never had a sufficient period of stability to recover. .

The Fina Petroleos de Angola refinery at Luanda is old and in need of funds to finance a programme to upgrade and de-bottleneck the plant. It has a capacity of 39,000 bpd, which is mostly domestically consumed although a small amount of products are exported. Sonangol has plans to build a new refinery, which will be based in Lobito.

The Angolan oil industry, both upstream and downstream, is dominated by the state oil company Sonangol established in 1976. Since 1978, it has been sole concessionaire in Angola. Foreign companies participate in Angola through joint ventures (JVs) and production sharing agreements (PSAs).

Key foreign companies active in the upstream area have invested more than $US 8 billion in Angola. They include Energy Africa, Agip, Chevron, Elf, and Texaco, which manage the operation of Angola's producing oilfields. In addition, over thirty oil companies have interests in the various oil fields. Three companies Sonangol, Fina and Sonangalp provide product distribution and marketing in Angola. The small market and the poor infrastructure are hindering foreign investment in the downstream. The Belgian oil company, Petrofina, plays an active role both in the upstream area as a major producer, as well as in the downstream area in partnership with Sonangol.

The Ministry of Petroleum regulates the oil industry in Angola. The current Minister of Petroleum is HE José Maria Botelho Vasconcelhos.

The petroleum industry is almost fifty years old. Initial exploration and success was onshore in Kwanza area. The industry expanded in the 1960's when oil was discovered offshore Cabinda. In 1973, oil became Angola's principal export.

Sonangol was established in 1976 and manages all fuel production and distribution in Angola. A number of licensing rounds have been held. By the beginning of 2000, there were 29 offshore and onshore blocks under licence. There were more than thirty companies operating.

Angola's largest producer is Block Zero, followed by Block3. Blocks 1, 2 and 4 are also oil producers. Although there have been encouraging discoveries in the deep offshore, production has been delayed owing to the high costs involved in deep sea completion and production.

Significant discoveries have been made in Blocks 14, 15, 17 and 18 since the mid 1990's. Companies are focussing on ways to reduce the costs and improve the cost-efficiency of producing from the high risk deep-water areas.

Although Angola has large reserves of natural gas, most of this is flared and some is reinjected. There are government initiatives under way to increase domestic consumption of gas and to reduce the flaring of associated gas. The year 2010 has been chosen as the target for zero gas flaring.