Sonangol Preliminary Results for the Year Ended 15 January 2015

Focused on business efficiency, productivity and capital discipline

LUANDA, Angola--(BUSINESS WIRE)--Sonangol, the state-owned Angolan energy company that is the sole concessionaire for oil and gas exploration on the subsoil and continental shelf of Angola, announces its preliminary results for the year ended 15 January 2015.

Highlights

• Sales of $36,476 million (-11.6%)
• EBITDA of $6,270 million (-12.5%)
• Total assets of $51,498 million (+3.0%)
• Total production of crude oil of 1,67 million barrels per day (-2.6%)
• Sonangol’s share of crude oil production in Angola was 222,269 barrels per day (+22.3%)
• Sonangol’s total share of production rose to 13% from 9% in 2013
• Total production of refined products of 2,161 million metric tonnes (+2.0%)

Commenting on the results, Francisco de Lemos José Maria, President of Sonangol, said:

“Whilst 2014 was a difficult year, marked by sharp falls in global oil prices in the second half of the year, we have taken firm action to adjust to the changed environment. Sonangol continues to benefit from its evolution into an integrated energy company with a diverse portfolio, a strong natural gas business and growing downstream operations. We are implementing a comprehensive business efficiency strategy, focused on process improvement, cost reduction and capital discipline. However, Sonangol is also a long-term business and we will continue to invest through the cycle to maintain our market share and deliver against our operational, commercial and financial objectives.”

Consolidated results (US$)	2013 (m)	2014 (m)	Variance (%)
Sales	41,250	36,476	-11.6
Gross margin	11,920	11,463	-3.8
EBITDA	7,169	6,270	-12.5
Pre-tax profit	4,377	1,577	-64.0
Taxes	-1,289	-867	-32.7
Net profit	3,089	710	-77.0

BUSINESS REVIEW

Operating results

Sonangol’s share of Angola’s crude oil production in 2014 rose to 13.0%, up 4.0% on the previous year. The company produced an average of 1,671,673 barrels of oil per day, a reduction of 2.6% from 2013. There were two periods that proved critical to this performance. In the first half of the year we saw a sustained reduction in oil production that reached its lowest daily level of 1,474,066 barrels per day in March 2014. The effects of this production decrease were partially offset by a positive variation in the price of petroleum. Then, from June onwards, with the entry into production of the CLOV and POLO WEST fields, and maintenance work to fix operational constraints on existing fields, production recovered to about 1,800,000 barrels per day by December. Over the same period, we observed a sharp decrease in the sale price for oil, from a peak of $110.64 per barrel in June to $57.91 per barrel in December.

Sonangol’s total production of natural gas in Angola was 864,401 metric tons, down 28.5% on 2013. This was impacted by the shutdown of Angola LNG in April 2014 following operational difficulties in the gas-processing unit. However, the LNG section has been run successfully and the plant is scheduled to restart full production by the end of 2015, once all issues have been rectified.

Our downstream business, which includes the trading, refining, storage and transportation, and the marketing of petroleum derivatives and petrochemicals, enjoyed a strong operational performance. The production of refined products increased to 2,161,687 metric tons, up 2.0% on 2013. Imports of refined products increased by 7.2% compared to 2013 to 4,653,403 metric tons and exports of refined products increased by 3.3% to 1,012,180 metric tons.

Operational production	2013 (m)	2014 (m)	Variance (%)
Production of crude oil (bbl/d)
Total production in Angola (bbl/d)	1,715,552	1,671,673	-2.6
Rights of concessionaires (bbl/d)	613,195	531,646	-13.3
Sonangol production (bbl/d)	181,746	222,269	+22.3
Production of gas (MT)
Total production in Angola (MT)	1,208,809	864,401	-28.5
Sonangol production (MT)	421,924	300,316	-28.8
LPG (MT)	298,002	213,244	-28.4
Gas Condensate (MT)	10,744	17,474	+62.6
LNG (MT)	113,178	69,598	-38.5
Production of refined products (MT)	2,118,966	2,161,687	+2.0

2014 also saw increased sales of products into Asia particularly China, India and Taiwan, and South America, including Brazil, Chile and Uruguay. In late October, we signed a new deal with Pertamina, Indonesia’s state energy firm, to import crude oil from Angola. In August, we signed an agreement with Chile to provide crude oil to local oil company ENAP, making Angola Chile’s largest supplier. Our five major clients for exports are now China (47%), India (13%), Spain (6%), Canada (6%) and Taiwan (6%).

Business efficiency

Sonangol has implemented a comprehensive strategy to improve business efficiency, increase productivity and deliver tighter capital discipline. Improving the functions of our processes and systems and reducing non-essential costs has resulted in a significant rebalancing of our capital expenditure, with investment in 2014 of $5,555 million, down 45% compared to 2013. The balance sheet remains strong, with total assets of $51,498 million, up 3.0% on the previous year. This gives us the flexibility we need to continue to invest for the medium and long term.

Consolidated balance sheet	2013 (m)	2014 (m)	Variance (%)
Non-current assets	31,418	35,642	+13.4
Current assets	18,586	15,856	-14.7
Total assets	50,004	51,498	+3.0
Equity	18,155	20,480	+12.8
Current liabilities	15,776	12,204	-22.6
Non-current liabilities	16,072	18,814	+17.1
Total liabilities and equity	50,004	51,498	+3.0

Planning for the future

Improving the quality of capital expenditure on maintaining market share and focusing on customer delivery will help us deliver our operational, commercial and financial objectives. The most important component of the business efficiency programme will be to continue investment in Sonangol’s core business activities. The company’s priorities for 2015 and subsequent years are:

• Investment in human capital to prepare and train the technicians, managers and leaders of the company to meet the challenges that the business will face in the years ahead.
• Recruitment and selection of talent to reduce the substantial costs spent on technical assistance, consulting and subcontracting by recruiting skilled personnel.
• Investment in fixed capital in every segment of exploration, production, refining, marketing, distribution and sale of crude oil, natural gas and petroleum derivatives in order to:
  • Achieve and sustain a production level of 2,000,000 barrels of oil per day by the beginning of 2016;
  • Achieve and sustain an annual Reserve-Replacement Ratio of over 100%;
  • Achieve in future a Reserves to Production Ratio of at least 20 years;
  • Reach a 20% share of national petroleum production by 2020;
  • Maintain leadership in the market for refined crude oil and gas, with a market share not less than 65%.
• Focused investment in the exploration and production of hydrocarbons. In 2015, Sonangol plans to:
  • Complete the auctions of 10 blocks in the on-shore basins of Congo and Kwanza, and bid for 15 new concessions in the Congo basin (ultra-deep water) and Namibe basin;
  • Develop multi-client seismic acquisition campaigns, including in the interior basins of the country;
  • Complete the ongoing projects that enable us to achieve the goal of 2,000,000 barrels of oil per day by the beginning of 2016;
  • Give continuity to large-scale projects which will enable the stabilisation of production in the period 2017-2020 (Kaombo – Block 32, Cameia – Block 21, Polo East – Block 15/06, Orca – Block 20);
  • Propose executive legal measures, contracts and taxes which promote commercial flexibility;
    • Introduce marginal fields in the commercial matrix
    • Develop discovered resources totalling 3,300 million barrels of crude oil;
  • Complete the pre-feasibility studies for the development of natural gas discoveries in the Polo Cabinda, the Congo Basin Natural Gas System, and the Cuanza Basin Natural Gas System;
  • Complete feasibility studies for the construction of the new Quinfunquena Petroleum Terminal in Soyo. At the same time, Sonangol will evaluate the options for the construction of a new South Luanda Petroleum Terminal, enabling the industrial processing of natural gas on land and the creation of a diversified industrial park for petrochemicals;
  • Construction of the third logistics base to support the petroleum operations at Quicombo – Cuanza Sul, in parallel with the expansion and modernisation of Base do Kwanda, Soyo - Zaire.
• Investment in the integration of the Sonangol logistics chain:
  • The construction of the Lobito refinery will begin in 2015;
  • The construction of Terminal Oceânico da Barra do Dande, with a capacity of 640,000m3 of fuel and butane gas, will conclude in 2016;
  • Complete the fuel parks at Soyo, Lubango, and Namibe;
  • Propose joint initiatives with the railway companies of Luanda, Benguela and Moçamedes, to invest in the construction of extensions to our facilities, as well as the acquisition of railway equipment for the transportation of fuel, butane gas and lubricants;
  • Increase Sonangol’s capacity to transport crude oil with four new Suezmax vessels, of which two are already under construction.
• Investment in facilities and working conditions, which will include the construction of the Sonangol headquarters buildings in the cities of Cabinda, Soyo, Malange, Lobito and Huambo and Lubango.

CSR projects

Sonangol is committed to acting both as a responsible corporate citizen and a good employer.

Sonangol’s concern for and its awareness of the needs of the local community in which it operates is an integral part of our presence throughout Angola. As part of the company’s extensive CSR programme, Sonangol supported and contributed to a number of initiatives in 2014:

• Sonangol’s housing subsidiary, Sonip, is committed to providing a better quality of life for Angolans and has been involved in a number of housing projects throughout Luanda. These include Angola’s largest housing project ever built, in Kilamba. The Kilamba development will eventually become home to as many as 485,000 people and includes housing, green areas, schools, clinics, bars and restaurants. Throughout 2014, growing numbers of residents moved to the Sonip-supported developments, transforming them into thriving communities;
• Paenal, a joint venture between Sonangol, SBM Offshore and DSME, which is responsible for the development of FPSOs (floating production, storage and offloading vessels), sponsored the construction of a local school in Porto Amboim that will accommodate 350 local children;
• Through its healthcare subsidiary, Girassol Clinic, Sonangol held its second Congress in Luanda in October 2014 focused on steering Angolan healthcare towards ‘Excellence, Technology and Humanisation’;
• Sonangol’s scholarship support company, WAMS, continued to sponsor the placement of Angolan students in US and Canadian higher educational colleges;
• In February 2014, Sonangol officially opened its $80m Angola Maritime Training Centre at Sumbe, 350km south of Luanda. The centre aims to vigorously support the ‘Angolanisation’ of Sonangol and the wider maritime industry in the region.

Health & Safety

Sonangol recognises the paramount importance of safety and the protection of the environment in its activities and, in 2014, through it’s rigorous QHSE (Quality, Health, Safety, Environment) policy, the company continued to design practices and procedures aimed at reducing and eliminating risks in the workplace and their impacts on the wider environment.

Since 2004, Sonangol has been guided by DNV of Norway, a world leader in QHSE. Independent auditors from DNV have subsequently verified the achievement of high standards throughout the company. More recently, DNV has also performed HSE audits on various assets both onshore and offshore and provided Risk Management Training as well as training in Sustainability and Corporate Social Responsibility.

People

Sonangol invests heavily in supporting the professional development of its employees and enhancing talent at the company. In 2014, Sonangol spent $1,100m on staff-related costs and hopes to support 5000 employees through its scholarship programme until 2020. In 2014, Sonangol had 8,473 full-time employees, down 4% on 2013.

NOTES TO EDITORS:

About Sonangol

Sonangol — Sociedade Nacional de Combustíveis de Angola, E.P. — is the sole concessionaire for oil and gas exploration on the subsoil an d continental shelf of Angola. It is one of the largest oil producers in Africa and exports significant amounts to countries in Europe, the Americas and Asia. With over 13,000 employees and revenues of $36.5 billion in 2014, it is pivotal in transforming Angola's largest source of natural wealth into economic and social development opportunities for its population.

Established in 1976 from the nationalisation of Angol, Sonangol was instituted as a state-owned company whose mission is the management of hydrocarbon resource exploration in Angola. Sonangol's activities include exploration, development, marketing, production, transportation and refining of hydrocarbons and its derivatives. These activities can be performed independently or in association with other companies — national or international.

Sonangol’s aim is to become a major presence in both the international and African markets. To this end, it is firmly focused on investing in technology, outstanding customer service, strict ethical conduct, engagement with the communities in which it operates and a clear commitment to health, safety and the environment.

The company’s main strategic priorities are to:

• Become a fully integrated energy company with international reach and the highest standards of corporate governance
• Promote the sustainable growth of the Angolan national oil industry
• Diversify the business to reduce dependence on oil price fluctuations
• Work closely with Angolan businesses and communities to ensure benefits are widely shared
• Operate safely, sustainably and in a socially responsible way at all times