Assessing the Market
How does Deloitte see the evolution of the Angolan oil sector since the crisis in 2014?
All countries have suffered from the crude oil downturn. Since then, and with price recovery, traditional oil companies have looked at their portfolios and tried to identify what or how they could get back to progress. In Angola, the new government in place, the creation of the National Agency of Oil, Gas and Biofuels and the Sonangol Regeneration Program has raised the credibility of the country higher.
This is encouraging international oil companies (IOCs) to examine tax and legal terminals, to see what options there are to extend the field life cycle, including water re-injection and what the gains would be for Brownfield versus Greenfield developments. The current objective of the government and of all stakeholders engaged in the sector is to keep production at least the level of 1.5 million barrels per day (bpd).
But if the new bids succeed, and with some level of luck, which is needed when talking about geology and development phases, we have some expectations that in ten years, we could set a goal of around 1.8 million bpd.
In five years, development phases will be completed, re-injections will be put in place and the life cycle of the Brownfields will already be in production, the combination of which could further ramp up production. That ramp up would be in effect in 2024 or 2025.
The significant change between 2014-2015 and today is that the government is taking the necessary actions to take advantage of looking at the value chain as an integrated whole.
At the same time that Angola is involved in the upstream sector, the country is not forgetting that it needs to make significant investments in midstream, and in regulation to allow the downstream process to work as efficiently as possible.
What sets Angola apart from other countries on the continent, in relation to the current developments in the oil sector?
Seeing it from an international perspective, Angola is different than other markets, in terms of size, geographic positioning, and the natural resources that it possesses. The government is stable, which fosters conditions to invest, and it is promoting international roadshows regarding large-scale investments that Angola, although needing, cannot make by itself.
In terms of the oil and gas sector, there is substantial opportunity for IOCs in the upstream, as well as a new level of empowerment for national companies. Private entities are trying to gather international partners to work in the market together. In any oil-rich country, whenever there are new developments and new concessions, it is always good news for everyone, including for the industry support services.
In terms of oil, the creation of the National Agency brings an extra level of independence to the analysis, in talking with the IOCs on a one-on-one basis, analyzing the terms that could be arranged to expand production and enlarging the time frame of exploration. This is now being executed on a block-by-block basis, which provides extra comfort to the international operators in the country, compared to other countries that are applying a framework independently of the stage of the block.
Secondly, there is now a link between oil and power. If you look at the neighboring countries around Angola, most of them do not yet have a sector and unbundling for power. Angola already unbundled companies for handling production, transmission, and distribution of power between 2011 and 2013.
Today, we have three companies in place. When investors look at Angola, they see the oil and gas sub-sector being treated, regulated and supervised by an agency, with a stronger national oil company (second in Africa) and a firm government compromise to restructure the sector. We have a purely regulated power sector.
If we look at the fact that we are facing an energy transition globally – from using more carbon to using less carbon – the gas-to-power initiative represents a significant chunk of the next big energy projects around the world. This puts foreign investors in a position where they are keen to analyze the opportunities not only in upstream, but also in the linkage of the upstream to the downstream in liquid derivatives, including refineries, fuel storage and so on, and through a better, cleaner matrix of energy production in the country.
Gas will have a very relevant footprint within the energy matrix of Angola in the next 20 years. The small steps being taken by the government and public institutions are creating a more hospitable environment to enable the consistent development of the sector as a whole.
How conducive is Angola’s current tax and regulatory framework to attracting outside investment?
Angola’s tax and regulatory framework has undergone significant transformations in recent years, which aim to promote the attractiveness and sustainability of its economy. We can highlight a few key examples, such as the natural gas law passed in 2018 that allows operators to manage the associated gas reserves to improve their profitability and sustainability. Another example is the recent exploration contract reviews that affect the length and tax a royalty’s framework to increase economic attractiveness and profitability. Finally, within the downstream sector of the oil and gas market, the liberalization of the fuel import market allows other players to import fuel.
With an amended private investment law and the country’s first comprehensive competition law, how effective will these legislative changes be in driving investment?
Angola‘s government implemented a different approach in 2017, chiefly to re-establish the credibility of the country. Two years after the new government took office, we have more international companies in the country as well as the formal assistance of the International Monetary Fund (IMF), which indicates that some degree of restructuring was needed in different areas for investors to come.
The tax system will be transformed, the way that the country approaches public debt is changing and there will be new legislation to ease the creation of foreign companies. There is also a strong commitment from the government and authorities to increase the country’s position in the “doing business” rankings.
What are the primary challenges faced by the clients that Deloitte services?
The primary challenges for a client entering the Angolan market are associated with understanding the local macro and microeconomic context and being able to navigate the regulatory and government reality, understanding the roles and responsibilities of each entity.
As for clients expanding existing portfolios, the main challenges are the reliability and access to foreign currency, as well as the ability to make payments abroad to support their investment plans, such as the import of critical equipment or materials. Finally, for those clients looking for suitable partners, the primary challenge exists in regard to international credibility, although this factor has been mitigated by the implementation of the IMF assistance program.
Where does Deloitte see its operations in Angola, and in sub-Saharan Africa, going in the coming 3-5 years?
Angola has been a strong and pilot market for Deloitte in Africa. It is one of the countries that has unbundled the power sector and others intend to follow suit (e.g. Gabon and Republic of Congo). We are responsible for helping those local offices develop those relevant strategies. Deloitte’s footprint in oil and gas is important. We participated in several projects in the upstream, some in refining and many in downstream, and we can use this knowledge in other (Francophone, Anglophone) African countries.
Outside of oil and gas, what are the most promising sectors for investment in Angola?
There are several attractive sectors for investment outside of oil and gas in Angola. The mining sector has increased its openness to investors with the recent attribution exploration licenses, as well as new tenders started. In the energy and utilities sector, there are several major electricity distribution projects underway, for example, the central and south Angolan high voltage lines connection project.
As for the renewables sector, the recent investment by Eni in a significant solar energy project in the South of Angola is a clear sign of the renewables strategy for the Angolan government. Finally, we see major restructuring and consolidation opportunities in the primary and secondary sectors (agriculture, manufacturing, consumer business).