Great ambitions in AngolaApril 13, 2022
Edson Rodrigues Dos Santos, CEO of Somoil, talks to The Energy Year about the outlook for Angola’s upstream sector, the company’s goal of operating deepwater assets and the latest on its drilling and redevelopment campaigns. Somoil is active in E&P, crude oil marketing, R&D, distribution of derivatives, consultancy services and alternative energies.
How have key indicators for the Angolan upstream sector evolved, and what is the outlook for 2022?
We’re very excited as a company. The government made a step change in terms of policies two to three years ago to allow for the development of marginal fields, gas projects and other new developments. The number of tenders that have been launched by the ANPG [National Oil, Gas and Biofuels Agency] over the last few years has been tremendous. Combined with the higher oil prices, we’re looking at a very active 2022 for the upstream sector worldwide and in Angola in particular, and Somoil is going to be part of it.
Despite Covid, we launched quite a few new initiatives to redevelop assets and grow our production and we’ve been lucky that some of those are coming on stream at the same time that oil prices are also increasing. This combination has been critical in allowing Somoil to expand its business beyond the assets we have today.
How could a USD 100 oil price impact upstream activity in Angola?
We hope the oil price reaches USD 100. This is going to help not just Somoil’s projects and growth but the industry as a whole. We’ve seen that the number of rigs in Angola going up, along with the activity levels and the number of projects. In the meantime Somoil continues to evaluate projects at a lower price. We do our economics and make our decisions at a price significantly lower than USD 100 per barrel. In the oil and gas industry most projects are medium to long term – you cannot plan around the peaks only.
What updates do you have from the ongoing drilling campaign at the FST block?
During 2021, we brought a new drilling rig to our onshore FST asset. We’ve done four or five interventions that went very well and are helping to mitigate the production decline. Our goal is to start infill drilling in 2022.
Here I would also like to take the opportunity to emphasise the positive social impact that our operations have in the areas where we operate. Indeed, as we do these projects we tend to forget the impact on the people and the community. Bringing in an onshore rig is totally different from bringing in an offshore rig. In addition to the normal operations contracts associated with any rig such as logistics, catering, hotels for expats and so on – all of which have an impact in Soyo/Zaire – it also helps farmers. Since our fields are spread out, every time we have to move a rig we need to fix the roads – the same roads used by farmers. As a result, they can get their crops to the market easier and faster.
How has Block 2/05’s redevelopment impacted its production?
In 2020 we were producing approximately 2,500 bopd and today we produce 10,000 bopd. So it’s a step change in production, which is providing a much more solid outlook for Block 2/05.
Technology is really helping here. We are going through a process of repairing platforms to resolve our topside issues. After installing new equipment and doing upgrades, we are reopening wells and facilities that had been shut in for more than 10 years. Remember that all assets operated by Somoil were started up in the ‘70s and ‘80s. So we’re now changing to 21st-century technology. And with that we’ve been able to more than triple production on Block 2/05.
What are the key takeaways of Somoil’s recent move to acquire shares in deepwater blocks 14 and 14K?
One of our objectives in our long-term strategy is to increase our reserves replacement ratio by focusing on mature assets. Block 14 was the first deepwater asset in production in Angola. It has a very strong operator and contractor group, and we want to be part of it. We want to learn from all these great companies, and we aspire to over time become operators of deepwater assets similar to Block 14.
Somoil is the largest Angolan private oil company and we plan to remain in that position. Increasing our reserves base is absolutely critical for our future. Today we operate mature assets onshore and in shallow water, but we are still learning, and assets such as Block 14 provide a tremendous opportunity to develop our people, processes and overall skillset.
How is the company planning to acquire the know-how to operate deepwater assets?
We want to be close to operators that have a long history and a strong reputation – companies that have been around for 100 years like Chevron, TotalEnergies and ExxonMobil. So Block 14 is a perfect match for our strategy.
Our biggest asset is our people, but many of us come from backgrounds in onshore or very shallow water. Block 2/05, Block 3, blocks FS/FST – that’s where our experience base is.
So being involved as a non-operating partner in assets such as Block 14 will allow knowledge transfer and understanding of what deepwater operations are all about. We’re not there yet.
What key trends are affecting upstream companies’ ability to gather the finances to acquire an asset like Block 14?
It is essential to have a solid company with a good project. And despite what you hear or read in the press, there are still funds available for investments in oil and gas, even internationally. The key is to have strong projects for which you can clearly lay out a robust plan over different price ranges. That’s something we’ve found to be very important. No one will be willing to finance a project that only works at USD 100 per barrel.
I believe Somoil is the ideal partner for any company entering the oil and gas business in Angola. We are private and relatively small, but more importantly – agile… with a clear plan to grow and expand our presence in Angola and beyond. In addition, our workforce is relatively young and experienced – quite a unique combination.
What advantages do medium-sized operators have over IOCs in running mature assets?
Mature assets is an area where I think Somoil can offer significant advantages to governments or partners as an operator. This is because we are more agile, with quicker decision making, as well as being a lower-cost company.
I’ll give you two quick examples. Regarding our agility, making a decision in Somoil takes a week, whereas a similar decision in larger companies or IOCs will take months (merely because of the standard approval structure). Another advantage is our cost structure, which is simply lower, with fewer than 300 employees. We are a relatively efficient company, with lean processes. In other words our big focus on efficiency combined with agility allows us to be more competitive.
How do you assess the ANPG’s 2021 onshore bid round?
Overall, the ANPG did well. It was a transparent and well communicated process. Somoil focused on the Congo Basin and bid for CON-1 and CON-6 with successful results. Somoil is now the operator of CON-1 with a 40% working interest and a partner in CON-6 with a 35% working interest. Both blocks are very close to our existing FST operations, which provides significant synergies. We have a drilling rig in place and a history of seismic in the area, so we know its geology. We are fully engaged with the ANPG to sign the contracts so that we can start working.
This is the first time that Somoil is going to take an asset from exploration and development all the way to production. So it’s a tremendous opportunity for our young workforce to get involved in something that starts from zero.
How is Somoil’s plan to have a greater downstream presence unfolding?
In the development of downstream activities, we’ve had great progress. As of February 2022, we are already the owners of three properties where we are in the process of building petrol stations under the Somoil brand. These three are located in Luanda and we have another one in Bengo almost closed, as well as one in Soyo, where we have our upstream operations. As construction work begins we are being innovative in the design and services being provided, and also thinking about the energy transition; for example, electricity in Somoil Petrol stations will be generated via solar panels.
What are the company’s priorities in developing renewable energies in the country?
Our goal is to become the premier integrated energy company in Angola and the region. We don’t want to miss this train, of course. Angola is blessed with significant sunlight exposure, so we want to prioritise solar energy. We have a very strong partnership signed with one of the largest solar-renewables companies in the Iberian Peninsula.
We have already done some solar installations within our social responsibility area in remote schools and health centres. However, we are now working hard to expand the business. Somoil is also progressing in reducing emissions; all of our power in FS/FST is generated by natural gas instead of diesel and we’ll do a similar project in Block 2/05. Solar is being considered not just for the petrol stations, but for the upstream operations also.
How can operators best develop local content?
Somoil is local content. We are a private, fully Angolan-owned company. A lot of us are a product of the “Angolanisation” programmes that were launched by our predecessors back in the ‘80s and ‘90s. So we encourage it and are driving it.
It comes with challenges though. Some of the local companies are still developing their capabilities. But it’s our job as the operator to help them make that journey. We’re doing quite a bit in our onshore operations, which is slightly lower risk and where we are willing to take a bigger risk. But we want to make that transition to the offshore operations as well.
How is Angola different from other African oil-producing countries?
For potential investors, getting to know Angola is a key first step. And for our part, we need to expose the country and its companies. A lot of foreign investors look at Africa as a country. They label it as simply “going to Africa,” whereas within Africa there are differences.
Angola is not the same as Nigeria or Gabon or any other oil-producing country. A few things are unique to Angola’s industry. Because of its political stability, long-term economic strategy and openness to investors and business, it offers a near-sanctity of contracts. No PSA has been revoked and most licences are extended. Infrastructure and human resources have also improved significantly over the last few years.
Recent changes in legislation have made the industry even more attractive and the creation of the ANPG as the national concessionaire gives it the focus and attention required. Come and invest in Angola with perseverance and focus, and you are bound to succeed.