Investment likely even at lower prices

Angola

TOGY talks to Pedro Godinho, the president of Aker Solutions Enterprises (Aksel), about the direction oil prices are moving and the impact of production cuts as well as the role of partnerships and the Angola investment law.

Aker Solutions Enterprises (Aksel) is an Angolan company formed as a joint venture between Norwegian Aker Solutions and the Angolan Prodiaman Oil Services. Aksel does subsea design, manufacturing, installation and deepwater well intervention in Angola’s offshore sector.
In April 2014, Aker Solutions Enterprises signed a USD 2.3-billion deal with Total E&P Angola to supply oil production equipment to the company at its Kaombo project, 145 kilometres offshore Angola, also known as Block 32. Aker Solutions Enterprises is to build subsea oil equipment for the site. The deal stipulates that the company will build 20 subsea manifolds and 65 vertical subsea wellsets. The development has a scheduled completion date of 2018. The work is being undertaken at the Sonils base.

• On oil prices: “Angola should feel blessed if the price stabilises at USD 50, because I believe that over the next five years it will drop to around USD 15.”

• On production cuts: “The business community is very excited about OPEC’s decision to cut production levels, but it is important to note that the organisation only controls 30% of the market. The reality is that every country will want to maximise its production and pump as much oil as possible.”

• On partnerships: “The Angolan oil market poses numerous obstacles to smaller local companies that lack the financial resources of foreign corporations. For a local company to start investing, it is crucial to find a partner that can share its knowledge base, including technology, best practices and information related to international standards.”

• On the investment law: “Angola’s investment law has to be seen as an instrument that allows local companies to get involved in the Angolan market. In the past many Angolan companies saw investors coming in, taking their initial profits and leaving the country within a relatively short period of time and without benefiting the local economy.”

TOGY goes in depth with Godinho about future shifts in the supply and demand of hydrocarbons, Sonangol’s restructuring and areas for investment in the Angolan market. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Godinho below.

If the oil price stabilises at around USD 50, how will the Angolan market evolve?
Angola should feel blessed if the price stabilises at USD 50, because I believe that over the next five years it will drop to around USD 15.
The explanation simply concerns supply and demand. The business community is very excited about OPEC’s decision to cut production levels, but it is important to note that the organisation only controls 30% of the market. The reality is that every country will want to maximise its production and pump as much oil as possible.
In this context, one of the most relevant countries is the USA. US daily consumption is 18 million-19 million barrels. Around 2006-2007, the US was producing 5 million-6 million barrels per day. As a consequence of the shale oil revolution in 2011, production in US hit 10.5 million barrels per day. After decades of struggle, the USA finally achieved an important milestone in its national energy strategy, and this is already having an impact in the Persian Gulf, particularly on Saudi Arabia’s economy.
At the same time, technological advances will also force prices down. For all of these reasons, particularly the USA’s pivotal importance to the equilibrium of the global market, I believe the price of the barrel will drop to USD 15.
As for the Angolan market, it should be remembered that the price was USD 30 two decades ago. Companies came, invested and developed the country’s offshore fields during very tough times, made even worse by Angola’s lengthy civil war. After the peace agreements in 2002, the political situation improved, and the same applied to the economy.
The key is to adapt the market to the new pricing reality and create more conditions for foreign and private investment.

What are your thoughts on Sonangol’s restructuring?
The restructuring was driven by the crisis in the Angolan oil industry. Every company is re-adjusting, and I believe that Sonangol’s process should be seen as a positive sign.
There are many capable and experienced people on the board of directors, one of whom is Jorge de Abreu, with more than 40 years of experience in the industry, much of it in multinational companies such as Total. Another such member is Eunice de Carvalho, who came from Chevron.
They will bring a new mindset to Sonangol and facilitate communication with other operators. This alone can create additional points of view at Sonangol and will be beneficial to the decision making process

What are the benefits of local and international companies partnering in the Angolan market?
The Angolan oil market poses numerous obstacles to smaller local companies that lack the financial resources of foreign corporations. For a local company to start investing, it is crucial to find a partner that can share its knowledge base, including technology, best practices and information related to international standards.
Fostering a good partnership helps to create jobs and improves the economy as a whole. In this context, Angola’s investment law has to be seen as an instrument that allows local companies to get involved in the Angolan market. In the past many Angolan companies saw investors coming in, taking their initial profits and leaving the country within a relatively short period of time and without benefiting the local economy or the country in general through reinvestment of profits and knowledge transfer. In response to this, the law states that foreign companies should have a local partner to invest in the country.

What areas is the company investing in?
Through Aksel we are looking for new business opportunities. We plan to invest USD 30 million in new technology facilities outside the Sonils [Sonangol Integrated Logistic Services] base, where it has become extremely costly to maintain operations. A new site has been found and construction is progressing.

For more information on Aksel, Prodiaman Oil Services and Aker Solutions, as well as the Kaombo project see our business intelligence platform TOGYiN.
TOGYiN features profiles on companies and institutions active in Angola’s oil and gas industry, and provides access to all our coverage and content, including our interviews with key players and industry leaders.
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