Deloitte facilitates business in Angola

Angola

Frederico Martins Correia, energy, resources and industrials partner at Deloitte, talks to The Energy Year about trends in the Angolan economy, how opex can be decreased in the country’s oil and gas sector, and the challenges and opportunities in natural gas. Deloitte provides operational, technology and financial advisory services to major players in the country’s hydrocarbons sector.

What have been the key drivers of national economic growth and sustainable development in 2022?
The government budget was defined when the price of Brent was around USD 55-60 per barrel, while for months now it has been higher than USD 100. This has created a positive gap that enabled authorities to develop more initiatives. As an example, they were able to invest more in health and infrastructures, which were two of the government’s main areas of focus in 2021. These investments are overall positive signs for the country.
Although the Angolan currency had been depreciating since 2018 until the start of the pandemic situation, in 2022 the forex has been more stable and the kwanza has grown in value when we compare it to the euro or dollar, underlining much more stability.
If we look at commodity prices – food, for example – we still have many imports, and people still struggle to afford some products. When we look at a family’s primary food products, the price has decreased from the beginning of 2022 until now [June 2022] by 20%. That is caused by the level of depreciation of the national currency compared to the international currency, which has been caused mainly by the oil price increase and the government budget’s dependence on it.

To what extent has the pandemic affected the level of opex in Angola?
Opex in Angola’s oil and gas operations is lower than in other African countries, such as Nigeria, thanks to the relatively low number of expats involved in the sector. The pandemic played a significant role in reshuffling things, as people have figured out that for key positions locals were skilled enough to drive the operations, which affected the level of opex.
The only factor today that keeps Angola from having a very good opex level is that production is lower than we would like it to be. If we could increase the production level and if that increase would not require too many people to drive the business, the level of opex would be even more attractive.
The production rate of most infrastructures in Angola can be increased. If Saipem, for instance, were to produce double in Block 4 – which belongs to Sonangol and is rented to Saipem – its opex would be cut by 50%.

What is your assessment of the main challenges and opportunities for Angola in the development of natural gas?
Angola today doesn’t flare gas. All the gas we have is piped to Angola LNG, which is then sold to generate revenues for the Angola LNG joint venture. As for the associated gas, we reinject it to recover more crude, or we pipe it to Angola LNG and then they export it. So, when we see this integration, the level of carbon emitted compared to the value generated is low.
On average, the carbon footprint of production in Angola is lower than the global average and much lower compared to Nigeria, while Ghana doesn’t have LNG. That is why they have to flare or reinject it.
If we had more fields today, even oil developments, with additional capacity at Angola LNG, the associated gas could put Angola in a position to replace part of the Russian supply to Europe. However, most of the gas produced in Nigeria and Angola is sold with long-term contracts, leaving us with no flexibility for redirecting supply.

How do you think the relationship between Deloitte, international banks and local investors can be useful for boosting energy opportunities in the country?
Once a company decides to make an investment in Angola, they will find several opportunities in the energy sector and Deloitte’s footprint and our service portfolio related to the energy, resources and industrials sector across the African continent represents a stamp of confidence for any new investor coming into the Angolan market and neighbours’ countries – for example, from the SADC [South African Development Community].

What would you say are the main challenges and opportunities for local banks in financing oil and gas projects?
Local E&P companies which have driven production in brownfields received projects from Chevron and TotalEnergies that were already in the production phase. The problem is that all the geological exploration work has been granted to international oil companies for the last 60 years. These companies have had relationships with big banks such as Standard Chartered to support their business. The knowledge of how to finance big E&P projects was concentrated in big foreign banks, while national banks were linked to different projects: logistics, farming and agriculture and rarely deep downstream small gas stations in the province. Therefore, local banks haven’t had the opportunity to develop the skills needed to carry out E&P business.
Companies like us could contribute a bit to leveraging not only the knowledge but also the relationships between those seeking investments and the banks seeking business-to-business clients. Nonetheless, new opportunities are coming for local banks with the new onshore licences awarded by the ANPG [National Oil, Gas and Biofuels Agency], as some of the biggest institutions will have enough capacity to support, for example, a full drilling plan or a full exploration phase because onshore business compared to offshore has fewer capital expenses. It will take local banks time, and they will face issues and make errors, but they will grow with the daily routine.

Can you provide us with an example of the challenges that local service providers face in accessing credit from local banks?
Access to credit and the procedures for obtaining bank loans are two of the main barriers for local companies, and these are cross-sectoral issues. If we take the example of a fuel storage point, in other countries, once you sell all your feedstock, you can take out a loan to refill your storage point, but here it is not easy because granting loans in the Angolan market is almost brand new. The interest that is applied to buy a flat or house here is very high. In four to five years, Angola will reach an LTV [loan-to-value] ratio of 80%. Once there is a contract, banks will potentially loan 75% or 80% for an oil and gas company to buy a support vessel, for example, but reaching 100% like in Singapore will take a long time.

What is the likelihood of local financial institutions offering syndicated services with foreign banks?
To create syndicated services with foreign banks, the country needs to improve its credibility and reliability in conducting business and the confidence that people have in the system. Syndicated services will be created in the very near future because some of the companies that have been awarded with onshore projects already have some international footprint.
Regarding those companies, an international bank will look at them differently because at least they already have some experience on the continent. That is very relevant because doing business in Africa is challenging, as processes usually take a while. The levels of awareness, knowledge, accountability and risks are not the same as they are in Europe, but I would say that syndication services will be available before 2025.

Can you provide us with an outline of how Deloitte plans to facilitate business in the country?
Firstly, we plan to assure figures and data about the country. We want to answer questions such as demand, operational and financial key indicators, tax and regulatory. We can do a proper market assessment in several sectors, not only in energy.
Secondly, thanks to our vast network of offices in the continent, we can bring not only an Angolan perspective but also a regional perspective. For example, we can assess what the opportunities are in the refining and exporting processes, not only in Angola but in the neighbouring SADC countries.
Lastly, we are training professionals that energy-related companies may later recruit. For example, in the past we had a large contract with Angola LNG, but five years later the contract has been reduced in scope and some of our professionals that were working on this project are now working for Angola LNG. This generates for us the need to constantly invest in training a new local workforce.

Read our latest insights on:

• Angola
• Ghana
• Nigeria