An Angolan major sees strength in agilityJanuary 14, 2021
Edson Rodrigues Dos Santos, CEO of Somoil, talks to The Energy Year about the company’s focus areas for business growth, the opportunities it sees upstream in mature basins and how it plans to support local players. Somoil is active in E&P, crude oil marketing, R&D, distribution of derivatives, consultancy services and alternative energies.
How would you introduce Somoil and its position in Angola?
Somoil is the largest private Angolan oil company. The company is the operator of two blocks in the Lower Congo Basin: offshore Block 2/05 (under a production-sharing agreement) and onshore blocks FS and FST (under a concession contract). Somoil is partner or co-investor on blocks 3/05, 3/05A and 4/05 (operated by Sonangol) and 17/06 (operated by Total). We have a sizeable workforce of 270 employees and 500-plus contractors. We also have a very small presence in the downstream sector.
What have been the company’s focus areas for business growth in 2020 and 2021?
2020 has been a challenging year as the industry faces a unique challenge that combines lower oil prices with significant lower demand associated with Covid-19. These forced us all to be more creative and innovative to maintain activities and successful operations.
We have had to focus on five key areas to help us get through these difficult times. The first area of focus includes safety and integrity. Both our operated blocks are mature assets and have been in operation for more than 40 years. Based on past experience, we have had to make sure that we learn from incidents, to avoid repeats. Our goal is to first of all eliminate serious incidents that can affect the safety of our people or the integrity of our assets. Having an onshore operation close to people makes it paramount.
Our second area of focus is efficiency. We launched a programme called EMAGRECE (“losing weight” in Portuguese) to embrace cost reduction and optimisations. We are aggressively renegotiating contracts with all our service providers to get better rates. It’s a lot of work via an open-book approach, making sure that both parties can benefit. We have had great results so far.
Internally we are also changing the way we work without forgetting the required MOC (“management of change”) to ensure efficient execution. For example, we revised the rotation frequency of our operations personnel from 14-day rotations to 28-day rotations, consistent with other operators reducing costs and increasing productivity.
We also reduced our transportation costs (leveraging the improvement in road quality), travelling to Soyo by car instead of plane. The majority of our meetings are done online now and we are going paperless (minimal printing). Therefore, our cost reduction efforts involve both our service suppliers and our company personnel.
The third area of focus is increasing production, but particularly profitable barrels. It’s all about selectivity of the investments. This involves a significant effort in upgrading our artificial lift systems from old hydraulic pumps to jet pumps, improving our uptime and getting the most out of our existing wells and infrastructure. Only in 2021 we will be looking at bigger investments.
The last two areas are internal; one is to improve our execution capacity despite Covid and working remotely. The last one is to expand and grow our external relationships in Angola and abroad. Somoil needs to be more visible and ensure that we are indeed an ideal partner for the energy sector in Angola.
What steps is Somoil taking to optimise the performance of its producing assets?
Somoil is more than doubling investments in 2021. Our target is to at least double our production in the next 18 months – once again, focusing on producing profitable barrels.
On blocks FS and FST, we have already increased production by around 20% over the past six months, reaching 6,000 bopd. Most of the reserves of blocks FS and FST are held in carbonate reservoirs, with close to 1,000 wells drilled in these blocks.
A lot of our efforts have gone into improving the facilities and topsides as well as optimising our artificial lift system. We are moving away from old industry techniques to more modern technology, using jet pumps for example instead of hydraulic pumps, which is yielding very good results as it requires less maintenance and it is highly efficient. We are also evaluating the possibility of installing ESPs [electrical submersible pumps].
In 2021, Somoil will restart drilling activities, bringing in a drilling rig in Q2, which will include an exploration well. So, a lot of effort is being made to increase the production on our onshore blocks.
On the other hand, Block 2/05 is a different challenge. It’s our crown jewel and we are really optimistic about this block. Our goal is to double production over the next 12-18 months. Our challenge is to improve the topsides, or infrastructure. The oil is there, the wells have been drilled and are capable of producing, but the platforms have a few integrity issues. Our primary focus on Block 2/05 is to get the facilities/topsides back up to international standards.
How quickly do you hope to achieve these improvements amid the current crisis?
With the support of our partners and the concessionaire, our work plans have been approved, and we are going through the procurement and contracting phase, but a portion of the work has already started; particularly parts that we can do in-house. Somoil’s workforce is quite experienced; some have come from the days of Fina Petroleos de Angola.
However, we are still feeling the impact of Covid-19. Mobilising people and equipment is taking longer because of the quarantine and Covid-19 restrictions. We rely on our service providers to help us quite a bit here, but we will capture most of the benefits starting at the end of the first quarter of 2021. Our suppliers, such as Schlumberger, Friedlander, EPPM, Stapem, Sondagens de Angola, to name a few, have been really supportive and we are working well together, more as partners versus simple suppliers.
Improving our surface facilities in Block 2/05 is a big challenge. That is where we are focusing. We expect to have a few platforms back up and running in 2021 and to increase production in 2021.
How do you view the importance of partnerships to unlocking the full potential of the company’s blocks?
This is absolutely critical. Somoil has a good team, experienced and able to manage what we have today, but to take the company to the next level we need strong partnerships. However, they must be win-win. Internally, we treat some of our suppliers as partners as well. For example as part of our EMAGRECE programme, we were able to capture many synergies with them in transportation and sharing equipment as examples that brought benefits to everyone.
We are actively working to close some partnerships primarily for greenfield projects, not only with the big IOCs such as Shell, but also with medium-sized oil companies that are strong technically and financially robust such as Amni.
Somoil is the largest Angolan private oil company, with a growing portfolio of opportunities and a dynamic workforce, proudly Angolan but working under international standards. We believe we are an ideal partner for anyone wishing to enter or grow their presence in Angola.
How difficult has it been to raise financing and deploy new technologies for upstream oil and gas projects?
We see significant challenges when it comes to financing. The risk appetite of financial institutions has decreased significantly because of the pandemic.
However, the current situation also creates a new niche for companies like ours. We are smaller, agile and willing to take risks. Whereas some companies are reducing their footprint in the industry, even downsizing, we see some great opportunities that were not available five years ago. We see this with people too – in a number of highly experienced, well-trained Angolans becoming available in the market.
We inherited mature assets. Somoil is making the transition from old 1940s technologies to 21st-century oilfield technology. One area of particular interest for us is integrity. There are new technologies in the market that allow you to monitor the integrity of your pipelines, vessels and infrastructure without having to deploy as many people inside your facility. We are working hard with our suppliers and we allocated a certain amount of funds in our business plan to test new technologies.
How do you assess opportunities associated with revitalising Angola’s mature oilfields?
In the early 2000s, Angola was known for being an oil and gas investment hotspot and everybody wanted to invest in the country’s exploration and development sector. Angola’s Congo Basin is now mature. So in recent years, the government has done a wonderful job in updating the laws, introducing reforms and trying to adjust the industry and the mature basins’ potential to the current market conditions.
At Somoil, we see these mature basins as a huge opportunity as we can operate more efficiently in the mature space than some of the well-established companies out there today. We hope to capitalise on more opportunities in the next few years as we continue to become more efficient and robust as an operator. Angola is our country. Being an Angolan company, Somoil will be here forever, providing employment and helping to develop other national oil companies.
How do you view the importance of the new legislation promoting the monetisation of the country’s gas reserves?
We see that as a positive step from the Angolan government. We are not part of the New Gas Consortium that was formed in 2019 to develop non-associated gas offshore Angola. Most of the gas that we produce is associated gas; we don’t have dedicated gas wells but that’s something we will be evaluating in the midterm. Somoil’s operations are the closest to the ALNG plant.
The focus on reducing greenhouse gases continues to increase and our goal is to continuously reduce gas flaring. We started a project to convert most of our generators from diesel to gas to reduce costs and protect the environment. Our exploration programme is also evaluating gas resources. We are optimistic about benefiting from the new gas laws that will allow players to better monetise gas.
How can the new legal regime for local content development help the domestic energy industry prosper in the years to come?
Somoil is a product of local content and Angolanisation. We really want to work with Angolan companies. We want them to succeed and be competitive. However, Angolan companies should not feel entitled to get the jobs just because they are Angolan. There needs to be genuine willingness to do well and grow with the industry.
For instance, we do not necessarily need Schlumberger or Halliburton to provide slickline units for our onshore operations in the next 20 years. There is no reason that an Angolan company should not be able to buy one or two slickline units and offer that service to an operator in-country.
We will be challenging the more experienced international service companies to invest in local content. At first, I envision having some sort of partnership model between local and international contractors, but eventually we hope the big international suppliers will move away from some operations and leave them to the local companies. It is easy and comfortable for Somoil to collaborate with Angolan companies that have the right principles, are focused on doing their job well and want to grow.
I think the government has done its part well and it is now down to Angolan companies to seize this opportunity. We are willing to take a bit more risk with local companies, particularly on the onshore operations. However, profit margins of 40% or 50% are not realistic for any company these days. If an Angolan company wants to be working in that range, it’s not going to work out. Somoil is supporting local content and we are willing to give them a bit more leeway, but they need to be willing to have competitive rates too and grow their business along with that of their clients.
How do you plan to strengthen the company’s presence in the downstream sector?
We currently have a rather small presence in the downstream sector. We operate two gas stations under the brand of Sonangol, which has been a nice partner. However, we feel like it is time to have our own brand out there to improve and grow our external presence. We want to launch our own Somoil brand over the next 18 months. We will start in Luanda and then expand to other provinces, particularly in Zaire, which is an area where we already have a significant presence.
From there, we expect to continue to grow. Some of the growth will be through new financing and some will be organic over the next few years. We would like to grow beyond being a simple retail station operator. Once we have matured enough and identified a few partners to work with, we will move forward with cementing our presence in the lubricants sector. We see a lot of potential in this particular sector. We are also evaluating a few other areas, such as storage and bunkering.
Where would you like to see the company in the next five years?
In upstream, our focus will remain on becoming an efficient onshore and shallow-water operator. We are one of the few operators that will be drilling exploration wells in 2021 and we will actively participate in the upcoming tenders for the onshore blocks. We are willing to invest to grow.
Specific to the onshore tenders coming up, we’d love to participate. We understand there are quite a few blocks offered onshore in Soyo, very close to where we operate and in the Kwanza Basin. We are also keen on partnering with IOCs that we can learn from to improve our capabilities as an operator. We continue to look for opportunities to join existing or brand-new blocks. We will be progressing with greenfield developments and becoming more efficient in our existing operations.
Downstream is part of our growth plan and this includes new Somoil petrol stations throughout Angola.
We also want to take some concrete steps to grow our business in the renewables sector. Angola is blessed with sunlight and we see a lot of potential for solar photovoltaic plants. Renewables will play an important part in our journey to become the premier integrated energy company in Angola, but first we will focus on consolidating our presence in oil and gas.
What is your message to investors looking to enter the Angolan energy market?
Do not hesitate to come and invest. Angola has a lot to offer in the oil and gas industry, especially when it comes to the sanctity of contracts. There has never been a serious dispute around the PSA framework. This provides stability and security. The government has been very friendly and flexible, and is willing to listen to local and international companies, as demonstrated by the recent positive changes in the law.
Availability of qualified Angolans continues to grow and the infrastructure is also improving. The energy industry is probably the most important industry in Angola and we expect it to play a fundamental role in the country’s economic growth over the next few years. Angola is a good place for oil and gas investors and Somoil is more than happy to partner with new entrants in the country’s energy sector.