Angola National Oil Company (CNO) Sonangol has responded to the changing global financial landscape by accelerating its restructuring program and exploring new financial solutions that meet the demands of today’s international debt market. The current market is strongly impacted by considerations relating to the energy transition, which has become a determining factor for most of the major lenders in the oil and gas sector.
As the international community seeks consensus on how to drive the energy transition on a global scale, the major international banks – many of which are heavily involved in financing oil and gas projects – have responded by concluding several agreements, including committing to finance only projects that will achieve net results. -zero emissions between 2030 and 2050. One of these agreements is the Net-Zero Banking Alliance, supported by the United Nations, which represents some of the largest banks in the world of 27 countries with assets of more than 37 trillion. dollars. The Net-Zero Banking Alliance is demanding that its members reduce lending to the oil and gas sector over the next 36 months, ultimately limiting access to finance for companies like Sonangol.
Funding issues are not unique to Sonangol, especially since the entire sector emerges from a position COVID-19 collapse in 2020 which saw demand and oil prices hit all-time lows, including falling below USD$ 20 / barrel in April 2020. In the United States, for example, more than 107 oil and gas companies have filed for bankruptcy, forcing courts to oversee debt restructuring totaling USD$ 98 billion under Chapter 11 bankruptcy rules.
Restructuring for the future
Under the leadership of its President and CEOIndustry veteran Sebastião Gaspar Martins Sonangol has stepped up its divestment program which will hopefully bring billions of dollars in much needed funding through the sale of non-core assets. The proceeds from the sale should strengthen the balance sheet of a much smaller and more focused exploration and production entity. More than 70 stakes held by sonangol in companies around the world, including real estate, oil and gas services, financial services, tourism, logistics, telecommunications, aviation and certain operating blocks are at to sell.
The vision of a “Sonangol of the future”, as articulated by the management of the company, is one that will refocus its efforts on collaboration with its international partners and its current operating assets in the most efficient manner. possible, while at the same time investing in new exploration projects on land and in Angola’s traditionally prolific offshore basins.
The restructuring of Sonangol also includes increasing investments in the production of renewable energy. With the oil majors ENI and TotalEnergies, Angola CNO has embarked on solar power projects that are expected to come online in 2022, with an initial production target of over 60 MW. The first studies to access the potential of green hydrogen production in Angola are also underway.
Funding for the future
Sonangol’s solar projects represent an opportunity for the company to structure carbon neutral financing agreements. We see more and more often large oil companies embarking on the structuring of such deals, by combining their request for financing for traditional oil and gas projects with that of associated carbon offset initiatives. In many cases, companies are simply buying carbon credits under a recognized program such as the UN sponsored program. CORSICA. CORSICA uses the proceeds from the sale of these credits to mass plant trees or develop solar farms with the aim of reducing greenhouse gas emissions. Such a new structuring is likely to continue to develop, as more and more banks sign commitments pledging to achieve net zero targets.
Access to financing and refinancing of existing debt at competitive market rates is a priority for the current management of Sonangol. To this end, many changes in the way funding is obtained have taken place. For example, the much criticized pre-financing of discounted crude sales is a practice of the past. Sonangol now relies mainly on calls for tenders authentic cash buyers for the sale of its crude. This not only ensured better prices per barrel, but also ushered in much needed transparency and broadened the base of potential buyers of Angolan crude.
Energy transition in Africa
The energy transition has already brought about major changes in the African oil and gas sector. The push towards decarbonization and rebalancing of CIO Global portfolios have led many investment firms to abandon assets in Africa. It is likely that we will see more oil and gas assets sold by IOCs in the coming years. According to Verner Ayukegba, Senior Vice President of the African Energy Chamber (AEC), “This, however, represents an excellent opportunity for indigenous African actors and other non-traditional operators based in Africa to enter the sector and generate returns beyond the market. ” The AEC continues to advocate for a pace of energy transition in Africa different from that of other regions.
Africa is responsible for barely 3% of global greenhouse gas emissions with 17% of the world’s population. According to AEC, over 700 million Africans do not have access to electricity and the world should therefore focus more on providing them access rather than cutting much needed funding for projects that will lead to increased access.
“It is unreasonable to demand that the transition from Lagos or Luanda be done in the same way as New York or London,” Ayukegba continued.
Funding for oil and gas deals in the era of transition and many other key topics affecting the sector are expected to be high on the agenda at this year’s Africa Energy Week event in Cape Town on 9e-12e November 2021.
Distributed by APO Group on behalf of the African Chamber of Energy.
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