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Spotlight

Angola

Wed, 01/22/2014 - 15:49

At first glance, the surface distinctions between Mexico and Angola seem to trump their similarities. While it is true they are both former colonies and are both considered emerging economies and developing countries, their general historic backgrounds are completely different; for example, Mexico gained its independence from Spain in the early 19th century while Angola gained its independence from Portugal in the late 20th century. Their constitutions, however, have more in common than one would think; according to Derek Woodhouse, Partner of law firm Woodhouse Lorente Ludlow and previous advisor to BP in its ultra-deepwater exploration efforts in Angola, both documents share similar backgrounds, especially since they both specify that oil and gas resources are owned by the state for the benefit of the nation. In Woodhouse’s opinion, “Angola has evolved impressively, implementing an open legal framework that has allowed it to triple its oil production in the last decade.”

Angola gained its independence in 1975 after the Carnation Revolution ended the Portuguese colonial regime known as the “Estado Novo”. This eventually brought forth a democratic government that ceased and withdrew all military | COUNTRY SPOTLIGHT: ANGOLA presence from the colonies and guaranteed their immediate independence. On the eve of this historical moment, a subsidiary company of what used to be one of Portugal’s first oil companies, SONACOR (now a part of what is known as Galp Energia Group) called ANGOL was nationalized through the passing of “Decree 52/76” in 1976. Said decree proscribed the creation of two new entities through the parting of ANGOL: Sonangol U.E.E. and the Direcção Nacional de Petróleos (National Directorate of Petroleum). Sonangol was instituted as state owned company in charge of managing all hydrocarbon resources in Angola. Using what remained of oil and gas infrastructure from companies such as Mobil, Shell, Total, and Texaco, and with the support of companies such as Italian oil and gas multinational Eni and Algerian NOC Sonatrach, Sonangol began its evolution towards the deepwater and ultra-deepwater expert that it is today. Although its precise legal capabilities would change as Angola went through 27 years of civil war from 1975 to 2002 (which included a new constitution in 1992), Sonangol managed to maintain steady growth which led to the establishment of deepwater and ultra-deepwater interest in the late 1990s and early 2000s. Deepwater production officially began in 1999 when Chevron’s Kuito field entered its production phase. This led to an explosion of deepwater and ultra-deepwater activity during the following 15 years, which resulted in the production of 1.8 million b/d in 2013.

The real change that defined this success came when Angola reformed its oil and gas industry significantly two years after the end of the civil war, through the 2004 Petroleum Activities Law. While establishing that all oil rights belong to the state and that Sonangol remained the sole concessionaire of rights to all exploration and production activities, this legislation opened the market to both foreign and domestic companies through association agreements with Sonangol. This participation also allowed Sonangol to participate directly in the exploitation of the each oil block in question, either as an operator or as a partner entitled to a share of the profits. This legal framework has allowed Sonangol to develop its capital-intensive and technologically challenging deepwater and ultra-deepwater projects through the participation of oil majors while at the same time taking advantage of that IOC involvement to acquire invaluable operational and technological expertise from them. After almost ten years of participating in deepwater and ultra-deepwater, Sonangol is now not only capable of exploring and exploiting projects of this nature on its own within Angola’s boundaries, but it is also more than competitive enough to accomplish these same tasks and undergo these same projects in other African countries. These results reflect the expectations that PEMEX holds of the effects that the Energy Reform will have on its deepwater capabilities; it is not unreasonable to assume that this success can be replicated in Mexico.

Woodhouse believes that most of the lessons learned working for BP in the Angolan environment can be applied to the Mexican landscape. “The lesson we can learn from Angola is how to do the things we cannot do on our own. For that, we have to strip away all the paradigms surrounding the oil industry and begin to think responsibly about the future we want for PEMEX. The other lesson learned from Angola is to make it attractive enough for international companies to invest in Mexico while making sure the benefits generated by these resources are felt by Mexico too. To achieve this, we need proper regulation and proper regulatory institutions, authorities, and instruments.”