The road ahead in AngolaMarch 18, 2021
Alfredo Fortunato, managing director of Certex Angola, talks to The Energy Year about the pandemic’s impact on the Angolan lifting equipment market and the road ahead for contract negotiations in the domestic oil and gas industry. Certex Angola provides supply, rental, inspection, testing and certification services for the oil and gas industry.
How has the Covid-19 crisis affected the lifting equipment market in Angola?
There are two ways to look at how the crisis has affected the industry. We have to remember that we are in the middle of a financial crisis, so prices will tend to drop because many projects have been called off.
Additionally, Angola faces a particular issue with its financial system not being able to support payments to the outside world. If we can’t pay for things outside that are urgently needed for operations in the country, we automatically end up facing a lower demand for activities. If you need to get equipment from outside the country, the prices go up a little bit. So, in some places we saw a decrease in prices, but in others we saw an increase.
There’s a lot of competition for all the active projects right now. Therefore, anything needed for those projects must be supplied as soon as possible. If you cannot move foreign exchange quickly, by the time you actually buy the equipment, it’s worth a lot less. The lack of foreign exchange has also meant an increase in inflation and exchange rates. The impact has been negative overall and prices have obviously gone up slightly, but this mainly hurts the subcontractors.
During a financial crisis, every single oil major is trying to cut costs and reduce the rates with their subcontractors. If you have a lower rate agreed on a contract and suddenly you still need to supply that same equipment, you end up taking a loss. The loss for most companies has been around 10-15%, which is at the moment still bearable.
What changes has Certex Angola made to its purchasing practices to adapt to the new normal?
When you have a market that is very heated, you may not be careful or efficient with what you buy. Because we were already in a financial crisis, we had to streamline our purchasing procedures to make sure that we had only what was needed in-country. We can’t have too much or too little stock. When you avoid that, you save cash, and cash is what is needed right now.
A small company like ours doesn’t normally have purchasing processes similar to those of the huge companies. Big companies have one trading company to buy and consolidate everything here. We try to emulate that. By doing that, even though we have different clients with different necessities, we try to make our purchasing more efficient and consolidate more in-country. We’re always thinking ahead six to eight months. Planning for right now is not enough.
How do you view the opportunities in marginal fields for a local company such as yours?
If done properly, the marginal field tenders will allow smaller indigenous companies to become operators. Of course, these small companies will still need the services of the subcontractors like us.
Smaller companies simply need to be given a chance, but a lot will depend on how the market evolves going forward. We know that marginal fields in a climate of low oil prices aren’t really viable, so smaller companies must wait until the price improves slightly. We are experienced and our personnel are trained and certified. So, we could easily offer our services to smaller operators too, especially after having worked with oil majors.
How did business activity evolve onshore and offshore throughout 2020?
Our business is divided equally between onshore and offshore, and we pretty much have the same amount of staff onshore and offshore. Lifting equipment is not only needed to get equipment and food to the oil rigs and FPSOs, but oil rigs are using lifting equipment to take everything out of supply boats at the same time.
Offshore, the demand has gone down considerably. The main issue we faced was that due to travel restrictions and the need to isolate offshore facilities from the pandemic, the staff has been spending more time offshore than they should. Instead of four to five weeks, crews ended up staying 10 weeks offshore during the pandemic.
We also saw a slight decrease in demand onshore, as there was a reduction in personnel required at onshore facilities. So, we reduced our manpower by 30-45%. However, operations need to go on. As long as there are people offshore, you need to move equipment and supplies no matter what happens. Thanks to that, we’ve been fortunate enough in our core business.
What level of competition do you witness in the Angolan services market?
The market is very competitive. Obviously, many companies went down, so the number of companies available to work has decreased. However, there’s a lot of competition among those companies who are left and a lot of competition for the projects that need to be done.
If there is a benefit of the current financial and economic crisis, it would be that it has taken the white elephant out of the game. When the price goes down, certain companies that cannot cope with the new normal have to leave the market. Once they move out, the opportunity is there and whoever is better prepared will grab them.
How do you see the road ahead for contract negotiations in the domestic oil and gas industry?
Our old contract on Block 15 has just been renewed. The new contract is in the same framework, but it’s a lower cost across the board. Such contracts help the growth of local, indigenous companies and will ultimately keep the money in the country. That helps transfer of technology and knowledge.
I think the market is a bit sceptical about new contracts and the industry has stagnated. As a result of the lack of predictability, a lot that was normally done via long-term contracts – three to four years – is now being done on a short-term basis via temporary, three-month contracts. This will keep things going without involving major commitments.
The reason most oil majors take advantage of renegotiating those contracts is because of the price. They are capping rates at current market prices. If market prices go up in the next two years, the oil majors are not going to feel it that badly – only the smaller companies will. That is interesting in terms of management, when you have to be inventive and creative. You are going in with a low rate and low price, but oil is cyclical. It goes up and down. If it suddenly starts going up and prices go up, then you need to find a way to mitigate the risks and losses that come with it.
What plans do you have in place to improve the company’s assets and offerings?
We already have what we really need in terms of facilities and we are planning to expand the current facilities as the situation improves. The financial crisis has taken a toll on a number of companies in Angola across all kinds of services. We’ve identified a couple of services that we are interested in doing, but right now is not a good time for diversification.
We had to close our office in Soyo, but we’re not the only ones moving out of Soyo. The Kwanda base has become a pretty desolate place. But if people moved, the business has to be somewhere else. Something must be up for grabs within our skillset and technical ability. We are comfortable making investment decisions and diversifying services that will give our company longevity. We’ve identified two business opportunities that are very interesting and the skillsets needed are not very different from what we already have. Our personnel with those skillsets have already been identified. So, we’re going to move forward with that. The market is there for everybody. We need to remember that one can still make money in a bad economy.
We are currently doing test runs, which have gone extremely well so far. There are a lot of technical services available in the market, but there are not many companies that are either available to provide them or have people in the country to do them. We have positioned ourselves in such a way that we have both expats and locals here who can do these things.
We didn’t go bankrupt or cease operations, so we have to think of ways to expand the business and make sure that we are self-sufficient. If you look at the international companies we were associated with in the past seven years, a lot of them have actually pulled out of Angola. So, that work is now up for grabs. We must look at these opportunities and take advantage of them.
How do you view the importance of the new legal regime for local content development in the oil and gas industry?
The decree isn’t a new idea but it certainly brings a fresh perspective. Implementation will be challenging, because the Angolan oil industry has been very slow to enhance local content. This is at all levels, from the big oil majors to support companies. The demand is going to be higher for nationals, but I don’t know if we have enough nationals in the country ready to take up those jobs at the current prices. I think we have the capacity now, but do we have enough of the skillsets that are needed? That is going to take a while.
If the new decree is implemented very strictly, it will hurt a lot of companies. However, it is going to create a culture of transferring technology and knowledge. That is imperative for the industry going forward.
The old local content decree [Decree-Law 17/09 on vocational training] has been in place for more than 10 years. For Angolans, the biggest problem is having the right skillsets in place. It’s a serious challenge that the government is putting before us and I’m a bit concerned. Our company is ready because we always plan for the long term. That’s why we can diversify our business portfolio and get away from our core business. There are a lot of opportunities even if you are risk averse.
What else can be done to accelerate local skillset development?
The new decree will separate qualified and experienced companies from others. Certain types of jobs need a lot of qualified people, but are lower-skilled. On the other hand, there are very high-skilled jobs without enough people to do them. In Angola, we’ve never had a training facility for many of these skills. We’ve been sending people to the UK and it has not been cheap.
If we had the chance to do those courses in Angola at a competitive price, we would be training at least 10 people every year. That would be on another level. This is just a small fraction of what is needed in the industry, but if we start small, eventually we’re going to get far. However, we need those facilities to train people here in Angola. It’s not cost efficient to send people outside of the country for training.
The nature of our business requires that technicians have certain international certifications. In the past, companies didn’t follow Angolanisation and tried to avoid spending a lot of money on training. We’ve been working with the Lifting Equipment Engineers Association (LEEA), the leading trade organisation for the global lifting industry, and we did a lot to increase the level of training and improve qualifications of our local staff.
Today, our locals outnumber our expats four-to-one. In the past, it was almost a one-to-one ratio. Many of the local employees also possess specialised skills and certifications, which we need to take advantage of. The issue is that if you are charging lower rates, you cannot do certain expensive jobs with locals.
What key objectives has the company set for 2021?
The year ahead will be highly influenced by the negative impacts of the pandemic. The decrease in manpower has caused every company’s revenues to suffer. In 2021, we will make sure that we are stable in terms of revenues, but also in manpower needed for the industry. We do not foresee a huge increase in investment because it’s going to be very risky.
We are coming out of a very difficult situation, but we will strive to keep providing the best service that we can for our clients. We will offer the most competitive price possible and execute our work safely. 2021 is not going to be a very good year for anybody. Over the next year, we will see who survived. And as for us, we’re looking more towards the long term.