Rua Rainha Ginga n. 29-31 Caixa Postal 1316 Luanda – República de Angola Tel.: (002442) 226642010 · Fax: (002442) 332578|396496 E-mail: [email protected] MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016
Sociedade Nacional de Combustíveis de Angola SUMMARY OF GENERAL INDEX
1 LETTER TO THE SHAREHOLDERS 6 00 2 SONANGOL E.P. 10 2.1 BUSINESS MODEL OF SONANGOL, E.P. 12 2.2 CORPORATE BODIES 15 SUMMARY 3 STRATEGIC FRAMEWORK 18 3.1 INTERNATIONAL FRAMEWORK 20 OF GENERAL 3.2 NATIONAL CONTEXT 20 3.3 SONANGOL CONTEXT 21 INDEX 3.4 SONANGOL STRATEGY 21 4 SUMMARY OF RESULTS 24 4.1 EXECUTIVE SUMMARY 26 4.2 OPERATING PERFORMANCE – EBITDA 26 4.3 OPERATING PERFORMANCE – NET INCOME 27 4.4 INVESTMENTS 27 5 PERFORMANCE BY BUSINESS SECTOR 30 5.1 CONCESSIONAIRE 32 5.2 PRIMARY VALUE CHAIN – UPSTREAM SEGMENT 48 5.3 PRIMARY VALUE CHAIN – MIDSTREAM SEGMENT 51 5.4 PRIMARY CHAIN - DOWNSTREAM SEGMENT 56 5.5 NON-NUCLEAR BUSINESS 64 5.6 WORKFORCE BY BUSINESS SEGMENT 70 6 COMMITMENT TO SOCIETY 74 7 PROSPECTS FOR THE FUTURE 78 7.1 EVOLUTION OF THE NATIONAL AND INTERNATIONAL CONTEXT 80 7.2 NEW PRODUCTION 81 7.3 IMPLEMENTATION OF THE TRANSFORMATION PROGRAM 81 8 PROPOSAL FOR THE APPLICATION OF THE RESULTS 82 9 ANNEX 86 9.1 CONSOLIDATED FINANCIAL STATEMENTS AS AT 31ST DECEMBER 2016 88 9.2 REPORT OF THE INDEPENDENT AUDITOR ON THE CONSOLIDATED ACCOUNTS AS OF DECEMBER 31, 2016 90 9.3 OPINION OF THE FISCAL COUNCIL ON THE CONSOLIDATED ACCOUNTS AS AT 31ST DECEMBER 2016 93
4 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 5 01 LETTER TO THE SHAREHOLDERS
6 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 7 01 In turn, the Process Redesign initiative is contributing to execute more and better control while the Organizational Optimization effort has been creating LETTER better structured and more agile organizations, both in the various corporate divisions and in the Sonangol subsidiaries. At the same time, the Change TO THE Management Program has created the conditions for building a more capable, motivated and mobilized SHAREHOLDER workforce for the Group's priority objectives. In total alignment with these global strategic pillars, each company and subsidiary are also undergoing a thorough restructuring process, reviewing business It was with a great sense of mission and responsibility models, increasing their efficiency and effectiveness, that I assumed in June 2016 one of the greatest optimizing their investments and thus transforming challenges of my professional life when I started my itself organizationally. term as Chairwoman of Sonangol E.P. The restructuring is being carried out together with the Since then, Executive and Non-Executive Directors, reinforcement of our commitment to Safety, Quality with the support of the Employees of the company, in and Environment. I emphasize the reduction in the cooperation with the Business Partners and in number of accidents and accident indicators in 2016, coordination with the State Shareholder, they have which motivates us to continue the implementation of been carrying out a demanding and challenging the best safety practices throughout the group. process of transformation of the Group Sonangol. It is also important to highlight that one of the priorities in 2016 was the development of our human capital, It is important to keep in mind that this transformation investing in training, promoting high potential internal process takes place in a complex external context staff and externally recruiting professionals, where characterized by high market volatility, low oil prices, a necessary, for critical positions whose profiles were decrease in the international appetite for investment in nonexistent in the Group. exploration and by lower domestic demand on many businesses of Group Sonangol. Simultaneously, the Much has already been done in 2016. Much more than internal analysis of the company's situation revealed some believed was possible. But the most stimulating financial, organizational, cultural and procedural is how much is possible and what is being done to make challenges that surpassed what was initially expected. Sonangol a profitable Business Group, which is a In these circumstances, the immediate priority was the reference in terms of economic development and financial restructuring, the improvement of efficiency human capital. I am, like the entire Board of Directors, in its various operations, focus on the oil and natural deeply committed to returning to this symbol of our gas value chain, and creation of the foundations for an country's wealth and potential for the respect it organizational and sustainable cultural change. This deserves from business partners, customers, other effort to restructure the company has been based on national and international companies, its employees five fundamental values - Rigor, Profitability, and of all Angolans. Transparency, Excellence and Commitment - through which the urgent changes were reconciled with the I reinforce, one year after this Board of Directors took necessary stability. up office, that we are more than ever committed to the implementation of a culture of excellence, because this In 2016, the bases of several programs were launched will allow us to successfully face the great challenges whose progressive implementation will allow to create that the oil sector's situation places on Sonangol and a competitive group worldwide. Among these the Country. programs, we highlight Sonalight, which is already contributing to the increase of efficiency, elimination of waste and cost reduction, and Sonaplus, which has allowed to increase revenues and monetize the company's assets. Both have been key programs to ISABEL DOS SANTOS BOARD OF DIRECTORS CHAIRWOMAN ensure the results presented in 2016 and project their future improvement.
8 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 9 02 SONANGOL E. P.
10 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 11 02 FIGURE 1 SONANGOL, E.P. AS AN INTEGRATED OIL AND GAS COMPANY
EXPLORATION TRANSPORTATION MARKETING AND PRODUCTION AND STORAGE LNG / REFINERY DISTRIBUTION AND TRADING
SONANGOL UPSTREAM UPSTREAM MIDSTREAM DOWNSTREAM
PRIMARY LOGISTICS SECONDARY LOGISTIC
E. P. SONANGOL TRADING COMERCIALIZAÇÃO INTERNACIONAL SONANGOL
OTHER OPERATORS
TRAINS AVIATION
2.1 BUSINESS MODEL OF SONANGOL, E.P. TERMINALS NAVY AND STORAGE FACILITIES B2B SHIPS
Sonangol develops its activities through 18 • Logistics and Distribution (Downstream): PLATAFORMAS SHIPS REFINERY LUBRICANTS subsidiaries, being generally responsible for defining which are engaged in the supply, storage, TANK TRUCKS strategic lines, providing guidance, supervision and distribution and marketing of refined crude oil SONANGOL GÁS NATURAL GPL PIPELINES management support, especially in the decision- and gas products, namely: SONANGOL PESQUISA E PRODUÇÃO SONANGOL SONANGOL SONANGOL making process. These companies operate on the REFINAÇÃO DISTRIBUIDORA DISTRIBUIDORA .. Sonangol Logística; SONANGOL market in a three-dimensional form, namely: HIDROCARBONETOS SONANGOL SONANGOL SONANGOL SONANGOL SONANGOL .. Sonangol Distribuidora; INTERNACIONAL SHIPPING GÁS NATURAL LOGÍSTICA GÁS NATURAL GÁS NATURAL .. Sonangol Comercialização Internacional. • Sonangol, E.P., exercises the function of national CORPORATE AND FINANCE SONANGOL FINANCE SONANGOL E.P. Concessionaire, having been granted by the State CRUDE the mining rights for the exploration, research, OIL BY-PRODUCTS development and production of liquid or gaseous hydrocarbons. As a national Concessionaire, it is authorized to associate with foreign or national entities to carry out oil operations in the national • In addition, Sonangol operates in two other social nature and related to the development territory, which can now be carried out in the form business segments, namely: of human capital, or whose priority is support of association agreements, production sharing • Corporate & Financing: constituted by for economic development support for the agreements and contracts of risky services; companies that ensure the development of country’s development: • In addition, Sonangol E.P. acts as an integrated the concessionary function, corporate cross- .. Sonair, MS Telcom, Sonangol Holdings, oil and gas company, acting as a centralized cutting functions, support and monitoring of Sonangol Investimentos Industriais operating holding company, constituted by the companies, specifically: (SIIND), Sonangol Imobiliária e following companies in its primary value chain: .. Sonangol E.P. (Concessionaire) e Sonangol Propriedades (SONIP), Clínica Girassol, • Exploration and Production (Upstream): Finance. Academia Sonangol and Sonangol Vida. consists of a group of subsidiary companies • Non-core activities: consisting of the group of whose main activity is the exploration, subsidiary companies whose main activity is to development and production of hydrocarbons support the core business of Sonangol E.P., as (crude oil and natural gas), namely: well as companies that conduct business of a .. Sonangol Exploration e Production; .. Sonangol Hidrocarbonetos Internacional; .. Sonangol Gas Natural. • Refining and Transport (Midstream): gather refining and shipping companies for crude oil and refined products, namely: .. Sonangol Shipping Holdings Limited; .. Sonangol Refinação; .. Refinação.
12 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 13 2.2 CORPORATE BODIES FIGURE 2 CORPORATE MATRIX OF SONANGOL E.P. AND OVERVIEW OF ITS SUBSIDIARIES
CORPORATE ILUSTRATIVE – AFFILIATED EXPLORATION ILUSTRATIVE – AFFILIATED ENTITIES OF SONANGOL E.P. AND PRODUCTION AND FINANCE ENTITIES OF SONANGOL E.P. IN PRIMARY VALUE CHAIN IN NON-CORE BUSINESSES SONANGOL E.P. SONANGOL FINANCE · PUMA ENERGY SONANGOL P&P · SONASING SAXI-BATUQUE · SONASURF · SONASING KUITO SONANGOL HIDROCAC. INTL. NON-CORE · ANGOFLEX · LOBINAVE SONANGÁS ACTIVITIES · SONATIDE MARINE ISABEL DOS SANTOS · ALM - ANGOLA LNG · TECHNIP ANGOLA MARKETING · ESTALEIRO NAVAL BOARD OF · SONASING XIKOMBA REFINING DE PORTO AMBOIM DIRECTORS · SONASING SANHA AND TRANSPORTATION · SONADIETS CHAIRWOMAN · SONASING MONDO · SONAID · LOBITO REFINERY · MOTA ENGIL ANGOLA · JASMIN (JOINT VENTURE) UPSTREAM · MIDSTREAM · DOWNSTREAM SONANGOL SHIPPING · BCGA · ALNG S. SERVICES SONANGOL REFINAÇÃO · UNITEL · ALNG SUPPLY LTD · BAI · SONANGOL SÃO TOMÉ · ANGOLA CABLES OFFSHORE · BIOCOM · SONANGOL STARFISH LOGISTIC · MILLENNIUM BCP OIL & GAS AND DISTRIBUTION SONAIR · BANCO ECONÓMICO · SONANGOL HIDROCARB. MS TELCOM · GENIUS INTERNACIONAL SONANGOL HOLDING · E.I.H · SONANGOL ASIA SIIND · PDA PAULINOJERÓNIMO . SONANGOL USA COMPANY SONIP · BAUXITE ANGOLA · SONANGOL CABO VERDE · SODIMO SONANGOL LOGÍSTICA CLINICA GIRASSOL CHIEF · SONANGOL LIMITED · KWANDA EXECUTIVE · SOMG SONANGOL DISTRIBUIDORA ACADEMIA SONANGOL · SONAMEMT INDUSTRIAL · OPCO SONANGOL COMERC. INTL. SONANGOL VIDA · BAYVIEW OFFICER PRIMARY VALUE CHAIN VALUE PRIMARY
DIRECTORS
CÉSAR EDSON EUNICE JOÃO JORGE PAXI PEDRO DOS SANTOS DE CARVALHO DOS SANTOS DE ABREU
MANUEL SARJU ANDRÉ JOSÉ LEMOS RAIKUNDALIA LELO GIME
14 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 15 BOARD OF DIRECTORS CHAIRWOMAN 02 ISABEL DOS SANTOS
SONANGOL COMERCIALIZAÇÃO INTERNACIONAL (SONACI) LUÍS PEDRO MANUEL INTERNAL AUDIT DEPARTMENT NELSON EFEINGE BERNARDO CENTRAL LOGISTICS DEPARTMENT (DCL) ROSSANA MARILIA LAURESTINHO CORPORATE SONANGOL FINANCE LIMITED ISABEL DOS SANTOS BODIES SOCIAL FUND CHIEF EXECUTIVE OFFICER PAULINO JERÓNIMO
PRODUCTION DEPARTMENT NEGOTIATIONS DEPARTMENT (DNEG) SONANGOL, E.P. BELARMINO CHITAGUELENCA SUZEL CARDOSO ALVES
CENTRAL LABORATORY DEPARTMENT BOARD OF DIRECTORS CHINA SONANGOL INTERNACIONAL ALLOCATION/ROLE ANTÓNIO AUGUSTO MORAIS GARCIA
BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER SARJU RAIKUNDALIA MANUEL LEMOS EDSON DOS SANTOS EUNICE CARVALHO CÉSAR PAXI PEDRO JOÃO DOS SANTOS JORGE DE ABREU
CORPORATE SOCIAL DIRECTORATE OF THE CONCESSIONS FINANCE DEPARTMENT RESPONSABILITY DEPARTMENT SONANGOL PESQUISA E PRODUÇÃO, S.A. PMO LEADERSHIP AND IMPLEMENTATION LEGAL SERVICES DEPARTMENT PROJECT MANAGEMENT DEPARTMENT CONTROL COMMITEE VANESSA COSTA ARLETE BORGES ISABEL DOS SANTOS OF TRANSFORMATION TIAGO ALEXANDRE COSTA NETO JOAQUIM SOARES KITECULO PEDRO MANUEL ALEXANDRE
COORDINATION COMMITEE OF SOYO SONANGOL HIDROCARBONETOS CONCESSIONS ECONOMY PLANNING DEPARTMENT SOCIAL PROJECTS INTERNACIONAL HUMAN RESOURCES DEPARTMENT CORPORATE SECURITY DEPARTMENT SONANGOL HOLDINGS, LDA DIRECTORATE KID DOS SANTOS CARVALHO HELDER JOAQUIM DOS SANTOS FREDERICO FERRAZ DOMINGOS MARIA DO ROSÁRIO VIEGAS MANUEL DA SILVA JOSINA BAIÃO MAGALHÃES NATACHA MASSANO
CLINICA GIRASSOL SONANGOL GÁS NATURAL, LDA COMMUNICATION AND CORPORATE ADMINISTRATION DEPARTMENT ESSA, LDA IT DEPARTMENT ANTÓNIO FILIPE JÚNIOR (SONAGÁS) IMAGE DEPARTMENT AND INFRASTRUCTURES FERNANDO ALBERTO LEMOS SOARES EXPLORATION DIRECTORATE ALBERTO RIBEIRO RUBEN DA COSTA MATEUS CRISTOVÃO BENZA CÉSAR PAXI PEDRO DA FONSECA DOMINGOS CUNHA
SONANGOL SERVIÇO AÉREO, S.A DATA ARCHIVE AND DATA SYSTEMS INFORMATION DEPARTMENT SONANGOL SHIPPING HOLDINGS LIMITED (SSHL) ACADEMIA SONANGOL, S.A RISK MANAGEMENT DEPARTMENT SONANGOL INVESTIMENTOS INDUSTRIAIS (SONAIR) BALTAZAR AGOSTINHO GONÇALVES MIGUEL MANAGEMENT DEPARTMENT ANDRE PITRA MANUEL LEMOS CARLOS ALBERTO VICENTE ANTÓNIO ALBERTO CARDOSO PEREIRA EUGÉNIO BRAVO DA ROSA ISABEL POLICARPO DA SILVA
DEPARTMENT OF STATE RELATIONS MSTELCOM, LDA SONANGOL REFINAÇÃO, S.A SONANGOL INTEGRATED LOGISTIC RECREATION CENTRE PAZ FLOR SONANGOL IMOBILIÁRIA E PROPRIEDADE, LDA AND TAXATION (MERCURY) (SONAREF) SONANGOL VIDA SERVICES VANESSA GODINHO DIOGO DA SILVA MANUEL JOÃO RAMOS ADALBERTO SENA JOÃO SARAIVA DOS SANTOS HELDER SOUSA
PROCESS MANAGEMENT UNIT SONANGOL LOGÍSTICA BUSINESS SUPPORT CENTRE SONANGOL TRUST FUND COOPERATIVA CAJUEIRO QUICOMBO SUPORTE LOGÍSTICO S.A. DANIELA MATOS LUÍS MARIA MARIA AMÉLIA VAN-DÚNEM
SONANGOL DISTRIBUIDORA, S.A. ABANDONMENT FUND FILOMENA ROSA
HEALTH, SAFETY AND ENVIRONMENT DIRECTORATE DANIELA MATOS
LUXERVIZA, LDA (ELECTRIC POWER GENERATION) JOÃO DA SILVA
PETROCHEMICAL INDUSTRY RODOLFO AGUIAR
BOARD MEMBER BOARD MEMBER André Lelo José Gime
16 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 17 03 STRATEGIC FRAMEWORK
18 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 19 03 GRAPHIC 3 over 1,100 non-active employees, representing an EVOLUTION OF THE INFLATION RATE 2010 – 2016 (%) annual cost of more than 40 million dollars; • In the organizational component, it was concluded 40 that the current model needs to be aligned with 32.4 national and international best practices. In STRATEGIC 30 particular, there is a high number of hierarchical layers which hampers decision making and FRAMEWORK 20 reduces the speed of response to market 14.5 13.5 10.3 10.3 challenges; 10 8.8 7.3 % • Regarding the processes, a misalignment with 0 good practices, non-compliance with internal 3.1 INTERNATIONAL FRAMEWORK US dollar), which increased the cost of imports 2010 2011 2012 2013 2014 2015 2016 procedures and standards and lack of control of equipment, raw materials and services in local Source: EIU; FMI mechanisms were identified. The result is currency. inefficient processes, often executed manually; Although the beginning of 2016 was marked by instability, the course of the year showed signs of • The IT systems were also the target of a diagnosis, recovery that were reflected in a moderate growth 3.3 SONANGOL CONTEXT with a lack of reliability of information and deep of the world economy. The latest estimates from the 3.2 NATIONAL CONTEXT weaknesses in the accounting system (SAP), with International Monetary Fund (IMF) indicate that in 2016 a high risk for business and decision making. In the current context of the structural reduction of the world economy grew by 3.1%, still lower than in The continuation of the challenging international oil prices, Sonangol, like all companies in the sector, 2015, with a growth of 3.2%. context had a natural impact in the national context. faced enormous financial challenges due to the From the analysis carried out, it became clear that This impact results from the country’s well-known GRAPHIC 1 reduction of revenues, especially in foreign currency. the challenges facing the company result not only BRENT PRICE EVOLUTION BETWEEN 2014 AND 2016 strong dependence on the sale of hydrocarbons both from the fall in the oil price but, fundamentally, from This scenario of Sonangol’s sharp reduction in for the generation of wealth as for the generation of management and financial policies that are not in BRENT PRICE revenues was not followed in 2015 or in the first foreign exchange for the country and for revenues for line with the best international practices and that half of 2016, by a cost reduction or by a review of -73% the State. needs a deep revision in order to ensure the future 120 the company’s investment strategy. This inaction 112 $96.7 OIL GRADES sustainability of the company. 110 S N L´1 4 Thus, the decline in the oil price had an impact on led to a difficult situation facing international the deceleration of GDP growth and, together with 100 creditors, reducing the ability to obtain new financing, the depreciation of the Kwanza, contributed to the fundamental for the sustainability of the operations 90 increase in inflation. and for the maintenance of the levels of production. 80 3.4 SONANGOL STRATEGY $49.9 OIL GRADES GRAPHIC 2 The situation of the oil sector has created the need for 70 S N L´15 (-48% vs ‘14) EVOLUTION OF GDP GROWTH 2010 – 2016 (%) the new Board of Directors to ensure full knowledge of The new Board of Directors of Sonangol E.P. has 60 the company status. For this, Sonangol’s situation was embraced this challenging context with enthusiasm 50 8 assessed in five dimensions: the company’s financial and commitment to improve efficiency, increase 40 6.9 and tax situation, organization, human resources, profitability, management transparency and prepare $41.9 OIL GRADES 30 6 processes and information systems. the company for the new model of the Angolan oil 31 S N L´16 5.2 (-16% vs ‘15) 4.8 sector. 20 This assessment revealed a more serious situation 3.8 2014 2015 2016 4 3.4 3.1 than initially expected with a number of operational, organizational and procedural shortcomings which Source: Thomson Reuters; FMI 2
% GDP growth were reflected in a critical financial situation which 3.4.1 INITIATIVES OF RESPONSE TO THE EMERGENCY 0.5 needed to be corrected, such as: 0 SITUATION In the oil sector, it was observed a sharp decline in 2010 2011 2012 2013 2014 2015 2016 • From a financial point of view, inconsistencies the oil price during the first half of 2016, with a price were detected in the financial information, In the first months of its term, the Board of Directors Source: EIU; FMI recovery in the second half of the year. However, the with lack of control over several financial launched a set of initiatives in response to the urgent recovery was insufficient, with the average price of participations, and it was also evident the need situation, highlighting measures to make Sonangol a crude oil and gas in 2016 decreasing compared to for the financial restructuring of the company more efficient and effective company, reducing costs, The national context naturally affected the demand 2015. This decrease was reflected in a decrease in the to be able to comply with the debt commitments streamlining resources and optimizing processes for products and services marketed by Sonangol, in average price in 2016 of the Sonangol branches by 16% previously assumed; through: compared to the 2015 annual average, which not only particular in the refined products distribution business • Cost containment and efficiency measures to created important challenges to Sonangol E.P. but also segment and in various non-nuclear chain businesses. • At the Human Resources level, there was an increase profitability in the Oil & Gas business, to the international operators operating in Angola. over-dimensioning of the structure, with some 22,000 employees linked to the Sonangol Group, such as: In addition, Kwanza depreciated against the main with approximately 8,000 active employees and international currencies (around 23% against the
20 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 21 • Cancellation of non-priority contracts; Finally, to strengthen confidence and a climate The renovation of Sonangol has also gone through of cooperation with its partners, Sonangol has Organizational Optimization and Process Redesign, • Start of the distribution of oil derivatives by established a practice of transparency and dialogue with organizational simplification (eg. Sonaci, P&P, railway, between Lobito and Luena. through frequent and open meetings. These meetings Sonaref and all functions of the concessionaire), • Measures to contain costs and increase efficiency aimed to explain the main changes in the sector decentralization of decisions (eg. Implementation of in the central areas of Sonangol E.P. and support and present the ongoing initiatives to improve the Management Committees), recruitment of profiles services: efficiency of the company, reflecting in: in key areas (eg. with the Talent Management program), redesign of critical processes (eg. Contract • Negotiation or cancellation of contracts; • Meetings with investors to strengthen the strong Formalization and Payment Execution) and increased base of confidence that ensures the sources of • Rationalization of various expenses and control in key processes (eg. Use of the SAP system to financing for the priority investments that are superfluous consumption. control the purchasing process and creation of a new intended to be made in the coming years; • Revaluation of investments focused on management information system). • sustainability and value creation for the Angolan Meetings with operators and service providers economy: in the sector to improve the climate and working methods; Finally, the Transformation Program intends to • Revaluation of investments in the Lobito instill in the Group a Culture of Rigor, Profitability, • refinery and the Dande ocean terminal to Frequent communication of economic-financial Transparency, Excellence and Commitment, being ensure long-term viability; results and institutional coordination with MINFIN, implemented initiatives of change, communication MINPET and BNA. and capacity management in various corporate and • Continuation of the strong investment effort in subsidiary directions. the Exploration, Development and Production of Sonangol P & P and operating partners in Angola. 3.4.2 RELEASE OF NEW SONANGOL STRATEGY 2016 was the start year. 2017 will surely be the year of growth and consolidation of the impacts in the 5 • Review of critical Sonangol processes, such as the major initiatives of the Sonangol Group Transformation definition of the business plan and the budgeting In parallel, and more structurally, the Board of Program. process; purchasing process and contracting of Directors defined a new medium-term strategy services, observing the new law of public contracting based on five fundamental pillars, which embody the and the best practices; Sonangol Transformation Program and which they have absorbed and leveraged as initiatives among the • Reinforcement of competences, with the launched ones. identification of areas of the company for reinforcement of competences and start of internal and external recruitment effort, to fill the identified At the level of cost reduction, it is underway an gaps. ambitious program - the Sonalight Program - focused on reducing expenditure on External Supplies and Services through negotiation of contracts (eg. P&P), In addition, the Board of Directors established volume centralization (eg. Maintenance of Buildings), a new management practice that values open and Rationalization of expenses (eg. Insurance); and communication, involves organization in decision reduction of costs with human resources, through making and encourages employees to participate in correct sizing of operations (eg. Shipping) and review the transformation of Sonangol. The following are of compensation policy (eg. reduction of subsidies). highlighted: The Sonalight program has already identified 1,2 • The creation of 10 management committees by billion dollars and has allowed the implementation of area of action, involving Directors and Directors more than 315 million dollars of annual savings, part to jointly define, evaluate and monitor the of which in 2016. implementation of initiatives that contribute to increase profitability, production and safety of the Regarding the increase in revenues, the Sonaplus company; Program was launched, which has identified and implemented opportunities to increase volumes • The organization of more than 40 meetings sold (eg. Bitumen), to optimize the mixs produced between Management and Employees, not only (eg. refining), price revision (eg. Lubricants ), review to clarify doubts about the actions underway and of trade policies (eg. cabotage operations) and present the new model of the oil sector, but also to reinforcement of revenue assurance actions listen to suggestions from the workforce. (eg. Clinica Girassol).
22 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 23 04 SUMMARY OF RESULTS
24 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 25 04 23% compared to 50%. Total production had a positive 4.3 OPERATING PERFORMANCE – NET INCOME year-on-year change of 3% resulting in an average daily production of 234 thousand bbls. Regarding gas production, Sonangol recorded a 24% increase in LPG GRAPHIC 5 production, which increased from 223 thousand metric 2016 NET INCOME BY SEGMENT SUMMARY tons to 277 thousand metrics tons. Millions of Kwanzas In 2016, EBITDA attributed to the Midstream (Refining OF RESULTS and Transportation) segment accounted for 3% of 200,000 Sonangol’s total EBITDA. The improvement in the 13,061 - 111,881 134,219 stability of the Luanda refinery led to a 2% increase 68,772 - 138,649 in the amount of the crude oil supplied, being that the 100,000 utilization of installed capacity stood at 83%, showing in adjustments concerning other corrections from 4.1 EXECUTIVE SUMMARY an increase of 1.5% compared to the previous year. 13,282 previous years’ accounts. 0 With regard to the transport of crude oil, we saw a 47,760 The sharp and prolonged decline in the price of The most relevant impairment losses correspond to 6% increase in the quantities transported, however, Crude Oil on the international market affected mining assets and financial investments of AOA 551 the transport of by-products decreased by 32%, due -100,000 Sonangol’s financial performance, although the billion related with corrections of previous years’ to the macroeconomic context and the cooling of the launch of a rigorous transformation program focused errors. economy. on Transparency, Rigor, Excellence and Profitability EBITDA in the Downstream (Logistics and and Commitment, enabled the start of the phase of CORPORATE FINANCING AND UPSTREAM MIDSTREAM DOWNTREAM NON-CORE CONSOLIDATION ADJUSTMENTS TOTAL Distribution) segment reached AOA 234 billion, releasing Sonangol’s potential. 4.2 OPERATING PERFORMANCE – EBITDA representing 45% of the total for the year and an Consolidated net income was AOA 13 billion, a Consolidated EBITDA amounted to AOA 525,266 increase of 29% compared to the previous year, mainly decrease of 72% compared to the year 2015. For this million, an increase of AOA 139.601 million compared due to the reduction in the cost of the goods sold. result, the Downstream activity and the Corporate to the previous fiscal year, due to the growth in GRAPHIC 4 Supply and storage activities declined by 18% and 8%, and Financing segment contributed significantly, 2016 EBITDA BY SEGMENT services rendered and the reduction in cost of Millions of Kwanzas respectively, due to the retraction in consumption of which incorporates around AOA 142 million of financial inventories. derivatives. The commercialization of refined products results, results of subsidiaries and associates and 600.000 also declined by 12% as a result of the contraction of 20.384 525.266 non-operating results. Consolidated Net Income amounted to AOA 13,282 234.723 1.723 500.000 demand as a result of the national economic situation million, a decrease of 72% compared to the 2015 Despite the effort made in the execution of the and the increase in the prices of refined products as fiscal year, as a result of the reduction in the financial, 400.000 Sonalight program, the non-core segment presented a consequence of the elimination of subsidies on the subsidiaries and associates results. 300.000 14.185 negative results of about AOA 138,649 million. 262.854 price of the main refined products. The Sonangol E.P. Investment Program for the 2016 200.000 The EBITDA attributed to Non-Nuclear Business fiscal year presented a value of USD 3 billion, with 97% 100.000 in 2016 was AOA 1,376 million, representing a 64% of the total invested in Exploration and Production, reduction compared to 2015. The indicator was 4.4 INVESTMENTS which corresponded to a decrease of 35% compared 0 -8.255 strongly affected by the reduction in the number to the previous fiscal year. This reduction is due to the -100.000 of hours flown by Sonair and the reduction in the Due to the implementation of investment revaluation need to re-valuate investment decisions in the light of activity of Clínica Girassol. However, launching measures, with a focus on sustainability and value the new macroeconomic context and the evolution of the implementation of a rigorous cost-control and creation, in order to make the company more efficient the crude oil prices.
CORPORATE FINANCING AND UPSTREAM MIDSTREAM DOWNTREAM NON-CORE CONSOLIDATION ADJUSTMENTS TOTAL efficiency-enhancing program as well as revenue- and effective, the investments made amounted to USD Sonangol reached a net position of AOA 3,136 billion, raising initiatives within the Sonalight and Sonaplus 2,922 million, a decrease of 35% compared to the year an increase of AOA 607 billion compared to the programs has alleviated the effect of these reductions 2015, and representing a 57% compliance with the previous fiscal year. This improvement was greatly Consolidated EBITDA amounted to AOA 525,266 target set for the period. influenced by the funds injection by the shareholder, million, a growth of 36%, driven, in large extent, by the Priority was given to productive investments, by the review carried out of the accounting policies performance of Upstream and Downstream. These preferably those with a direct impact on the according to the best understanding of the technical two segments represent, respectively, 50% and 45% of improvement and growth. Thus, the Exploration and legal framework of the concessionaire’s assets, the total 2016 EBITDA. and Production segment contributed the most to by the increase in the consolidation perimeter and EBITDA in the Corporate and Financing segment in the execution of the Investments program, with by the registration of assets that were omitted from the fiscal year of 2016 was negative at around AOA approximately 95.5% of the value, with USD 2,792 the accounts. Contrary to these effects, and due 8,255 million, due to the fact that this segment of the million, concentrated in the oil concessions of Block to the effort that the Board of Directors developed group aggregates some of the support activities to the 0 (Mafumeira Sul), where Sonangol E.P. holds a 41% to carry out a more transparent report in line with activity of the other segment. stake; in Blocks 15/06, where Sonangol P&P holds a the best accounting practices, Sonangol recorded 36.84% stake; in Block 31 and in the Kaombo project adjustments of approximately AOA 830 billion related The Upstream (Exploration and Production) segment (Block 32), where Sonangol P&P holds 45% and 30%, to impairments and also approximately AOA 298 billion represents approximately 50% of the EBITDA recorded in the year and had a positive variation of respectively.
26 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 27 Other smaller investments were made in refining and logistics and distribution to meet operational and business growth challenges.
TABLE 1 SONANGOL E.P.’S 2016 INVESTMENTS PROGRAM
M.U.: MIL USD Designação Execution 2016
Variance 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Execution
Corporate and Finance - 139 - - 139 -99% Sonangol E.P. - 139 - - 139 -99% Exploration and Production 877,125 665,816 663,226 585,830 2,791,996 -31% Sonangol E.P. - Block 0 154,568 94,313 123,107 44,543 416,531 -60% Sonangol Exploration e Production 718,059 548,309 516,361 557,894 2,340,623 -19% Sonangol Hidrocarbonetos Internacionais ------100% SonaGas 558 19,099 20,076 -18,178 21,555 -64% ESSA (Perfuração) 3,939 4,095 3,682 1,571 13,287 -23% Refining and Transportation 40,168 5,766 53,176 23,025 122,135 40% Sonangol Shipping 86 259 259 - 604 n.a Sonangol Refinação 40,082 5.,507 52,917 23,025 121,531 40% Sonarel - 722 52,917 23,025 76,664 389% Sonaref 40,082 4,785 - - 44,867 -37% Logistics and Distribution 1,588 1,984 - 1,433 5,005 -97% Sonangol Logística ------100% Sonangol Distribuidora 1,588 1,984 - 1,433 5,005 -69% Projecto Bases Logísticas ------Non-core Business 3,237 190 - - 3,427 -98% Sonair 85 - - - 85 n.a Sonangol MSTelcom 530 - - - 530 -91% Sonangol Holdings - - - - - n.a Sonangol Investimentos Industriais (SIIND) - - - - - n.a Sonangol Imobiliária e Propriedades (SONIP) 2,622 190 - - 2,812 -92% Clínica Girassol - - - - - n.a Academia Sonangol - - - - - n.a ACADEMIA’S FUTURE FACILITIES - - - - - n.a CFMA - - - - - n.a ISPTEC - - - - - n.a TOTAL 922,118 673,895 716,401 610,287 2,922,702 -35%
GRAPHIC 6 EXECUTION OF INVESTMENTS BY SEGMENT
Exploration 95,53% and Production
Refining 4,18% and transportation
Logístics 0,17% and Distribution
Non Core 0,12%
Corporate 0,005% and Finance
0.000% 20.000% 40.000% 60.000% 80.000% 100.000% 120.000%
28 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 29 05 PERFORMANCE BY BUSINESS SECTOR
30 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 31 05 PERFORMANCE 5.1.1 EXPLORATION 5.1.1.1 BIDS BY BUSINESS SECTOR In 2016, there were no oil block biddings. However, in the framework of the Tender Program carried over from 2015, the following activities were carried out: • Elaboration of the Map of the entry shares of the national companies, as well as the revision of the 5.1 CONCESSIONAIRE Production Sharing Contracts and the insertion of the KON 9 concession, in order to allow the The slowdown in exploration activity in the global oil 2016, the Concessionaire, together with SonaGas negotiation process of the contracts to begin; sector was reflected in the Concessionaire’s activity and ENI, carried out several works with the objective during 2016. Thus, in a context of demand reduction, of preparing the terms of gas supply. Lastly, the • Revision of the proposals of the Production no oil block biddings were carried out, seismic activity reactivation of the ALNG was also reflected in the Sharing Contracts based on the terms of decreased significantly over the same period (2D and increase in the production of LNG and condensate reference and results of the tender; 4D seismic activity did not exist and 3D decreased by products. • Meetings between the Negotiations Committee 80%) and only 3 exploration wells were drilled (7 wells The international scenario of reducing the oil barrel (constituted the National Concessionaire, MINPET drilled in the homologous period). price reinforced the need to increase efficiency, and and MINFIN) and the Operators of Blocks CON 1, In general, in 2016 it was discovered less 669 million of Sonangol has been actively working with the Operators CON 5, CON 6, KON 5, KON 9, KON 17, related to BOE compared to the same period of last year, due to a to reduce operating costs. This effort was already the Bids 2014/2015 , with the main objective of significant decrease in gas discoveries, which was not reflected in 2016, with a 6% reduction in operating initiating the Production Sharing Agreements of compensated by the increase of 300 million barrels of costs compared to 2015 and a reduction in the average the blocks, as well as informing the Operators crude oil. cost of production per barrel of 18%. about the authorization of the payment in Kwanzas, equivalent to one million dollars, by the Although the expected production is relatively stable As a National Concessionaire, Crude Oil exports Angolan companies, at the effective date of the (an average of 622 Mbbl/year produced annually until corresponded to 89% of the collected rights, a Contract, by way of entry quota. 2019, excluding the impact of ANLG), in a medium- reduction of 15% compared to the previous year, term perspective it will be necessary to invest in new contributing negatively to the total exports registered production. In this sense, the Concessionaire has by the group (reduction of 9% compared to 2015), 5.1.1.2 SEISMIC ACQUISITION been developing key projects - Mafumeira Sul (Block including Sonangol E.P. and Sonangol Exploration e 0), Polo Este (Block 15/06), Dália Phase 1 (Block 17) Production. TABLE 2 and Kaombo (Block 32) - with prospects of beginning EXPLORATION ACTIVITY [SEISMIC ACQUISITION] In 2016, Sonangol was able to recover 12B dollars production between 2016 and 2018 and which foresee Seismic 2D Seismic 3D Seismic 4D from the total of 43B dollars of recoverable costs Km Km Km an estimated production that exceeds 1,000 Mbbl. Seismic Acquisition in the concessions in production. Of the total costs 2015 2016 2015 2016 2015 2016 The early entry into production of two of these projects recovered, more than 50% result from Block 31 and FS/FST (Soyo 557.17 ‑ ‑ ‑ ‑ ‑ in 2016, Block 0 and Block 15/06, has attenuated Block 17, respectively representing 31% and 22%. Block 15/06 (3D‑15/06NW‑PGS) ‑ ‑ ‑ 992.42 ‑ ‑ the reduction in production, essentially maintaining Finally, it should be noted that in 2016, Sonangol took Blocks 11, 27,28 e 29 (3DMC‑BNPGS) ‑ ‑ 5,126.64 ‑ ‑ ‑ production in 2016 at the level of 2015. Thus, in an important step by creating robust escrow accounts, Block 32 (3DHR 32CGG15) ‑ ‑ 171.65 ‑ ‑ ‑ 2016, the volume of crude oil production decreased which guarantee the comfort of the Angolan State and FS/FST (CGG2016) ‑ ‑ ‑ 59.65 ‑ ‑ by 3% compared to 2015, while Concessionaires’ its partners, and the preservation of funds necessary Block 17 (4DHR‑17WGC14GJDR) ‑ ‑ ‑ ‑ 480.88 ‑ Rights registered a decrease of 11%. Regarding the for the proper abandonment of the oil fields. At the end Totals 557.17 ‑ 5,298.29 1,052.07 480.88 ‑ production of Associated Natural Gas, production of the year, accounts were created for Blocks 15 and decreased by 5% compared to 2015. 17, with respective funds deposited. In turn, LPG production registered a substantial increase, 45% in relation to the previous year, justified by the restart of the ALNG factory. Also within the scope of the ALNG, the Concessionaire has a project that aims to reinforce gas supply to the factory, guaranteeing the compensation of the deficit that is expected to register from 2021. In
32 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 33 During the year, 1,052.07 km2 of 3D seismic were 40, 41, 42, 43, 44, 46, 47 and 48 and 3D reprocessing of Twelve seismic processing programs were also acquired in Angola resulting from the seismic Block 0 and the multiclient program of Blocks 46, 47 concluded, totaling 12,642 km of 2D seismic and 18,773 acquisition program in Block 15/06, located in the and 48 (Phase VII & VIII) are underway. km2 of 3D seismic. Congo Offshore Basin and the conclusion of seismic Compared to 2015, there was a considerable decrease At the end of 2016, fourteen seismic processing data acquisition works in the “Cabeça de Cobra”, in in seismic activity, there was no 2D and 4D seismic programs were underway, as in the table below: FST association. In the reference period there was no acquisition and 3D seismic reduced by 80%, as a result production of 2D and 4D seismic. of the slowdown in exploration activity in the world oil TABLE 4 SEISMIC PROCESSING IN PROGRESS Works on 3D seismic data processing of blocks 15/06 sector, in a context of oversupply of crude oil. and 32, 2D multiclient seismic data of Blocks 37, 38, 39, Seismic Block Programme Beginning Conclusion Extension 2D 37, 38, 39, 40, 41, 2D‑MCWGAngolaUDA PSDM 4º Quarter /2016 24% 3,250 Km 42,43, 44, 46, 47 & 48 Total 2D 3,250 Km 5.1.1.3 SEISMIC PROCESSING 3D‑0 Area A S.Limba al inversion & AVO 2º Quarter /2016 98% 398 Km 3D‑0 Area A Mafumeira Sul Extension/PMDC 2º Quarter /2016 99% 469 Km TABLE 3 0 3D‑0‑Area A Mafumeira Sul Reproc.107‑C 2º Quarter /2015 99% 125 Km SEISMIC PROCESSING COMPLETED 3D‑0 Area A Erva/Bucomazi Study 4º Quarter /2016 98% 350 Km 3D‑0‑Area A Mafumeira sul Reproc.MCP 2º Quarter /2015 99% 344 Km Seismic Block Programme Beginning Conclusion Extension 3D‑15/06‑PSDM‑NW‑PGS‑2016 2º Quarter /2016 98% 1,000 Km 2D 46, 47, 48, 49 & 50 2D‑MCWG99 LowerCongo 4º Quarter /2014 2º Quarter /2016 12,642 Km 15/06 3D 3D‑15/06‑PSDM‑NW‑PGS‑2016 2º Quarter /2016 67% 1,000 Km Total 2D 12,642 Km 3D‑32Bi‑WATS ‑CNE PSDM 3º Quarter /2014 99% 1,484 Km 0 3D‑0‑Area A Malongo High All Inversion 2º Quarter /2015 1º Quarter /2016 350 Km 3D‑32LO2007 C12SW PSDM 3º Quarter /2015 99% 520 Km 3D‑20GreaterOrca/Lontra 3º Quarter /2015 2º Quarter /2016 2,000 Km 20 32 3D‑32B22N&B10N 4º Quarter /2013 99% 1,100 Km 3D‑20Zalophus Addition 2º Quarter /2015 2º Quarter /2016 1,440 Km 3D‑32HDGIC2006 PSDM 2º Quarter /2016 99% 520 Km 21 3D‑21Cameia Feasibility Study 3º Quarter /2015 1º Quarter /2016 500 Km 3D‑32 Colorau South dedicated imaging 4º Quarter /2016 54% 520 Km 27, 28 & 29 3D‑27,28,29BNAMCPGS14 4º Quarter /2014 2º Quarter /2016 11,150 Km 46, 47 & 48 3D‑MCWG99 Phase VII/VIII 2º Quarter /2015 94% 8,000 Km 3D 3D‑32LO2007 C12SW PSTM 1º Quarter /2015 4º Quarter /2016 520 Km Total 3D 15,830 Km 3D‑32PSDM13SW AreaC22 2º Quarter /2015 3º Quarter /2016 600 Km 3D‑32CNEBi‑Wats FT 4º Quarter /2013 2º Quarter /2016 1,484 Km 32 3D‑32Gengibre ElasticInversion 2º Quarter /2016 3º Quarter /2016 45 Km 5.1.1.4 SURVEY-EXPLORATION ACTIVITY AND EVALUATION 3D‑32Gengibre HD HR Broadband 2º Quarter /2015 3º Quarter /2016 164 Km 3D‑32HDGIC2006 PSTM 4º Quarter /2015 2º Quarter /2016 520 Km TABLE 5 Total 3D 18,773 Km EXPLORATION WELLS
Exploration wells Blocks Well Objective 2015 2016
Block 5/06 KINDELE‑1 Mucanzo 1 ‑ Block 15/06 BAVUGU‑1 Miocénio 1 ‑ Block 19/11 PANDORA‑1 Pré‑Sal 1 ‑ Block 20/11 ZALOPHUS‑1 Pré‑Sal - 1 Block 20/11 GOLFINHO‑1 Pré‑Sal 2 1 Block 22/11 CATCHIMANHA‑1 Pré‑Sal 1 ‑ Block 35/11 OHANGA‑1 Carbonetos - 1 Block 37/11 VALI‑1 Pré‑Sal 1 ‑ TOTAL 5 3
In 2016, three exploration wells were concluded in the Angolan oil concessions, namely: ZOLUPHOS-1 and GOLFINHO-1 wells, in Block 20/11 and OHANGA 1 well, in Block 35/11, with the first result in gas discovery with very low porosity, the second in discovery of condensates and gas and the third in discovery of condensates and water.
34 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 35 TABLE 6 5.1.1.5 RESOURCES DISCOVERED EVALUATION WELLS
Exploration drilling activity over the period has Exploration wells resulted in discoveries of 831 million oil resources and Blocks Well Objective 3,067 billion cubic feet of gas, making an equivalent 2015 2016 total of 1,507 million oil barrels in discovered Block 21/09 CAMEIA‑4ST1 Pré‑Sal‑Sag 1 ‑ resources. Block 31 LEDA‑3 Miocênio‑Inferior 1 ‑ TOTAL 2 ‑ TABLE 8 HYDROCARBON RESOURCES DISCOVERED Oil Gas Total Block/Fiel Regarding the evaluation activity, in 2016 no drilling (MMBO) (BSCF) (BOE) well was completed. Block 20/11 (Zalophus‑1) 313 2,085 813 During the period in question, fifty-two producers’ Block 20/11 (Golfinho‑1) 518 982 694 development wells and twenty injection wells were TOTAL 831 3,067 1,507 completed. The development drilling operations were In relation to 2015, there was an increase of 300 concentrated in area A of Block A, where twenty million barrels of crude oil discovered and a decrease producing wells and six injecting wells were concluded of 6,425 billion cubic feet of gas, less 669 million in Block 15, where nine producing wells and seven equivalent oil barrels, in discovered resources. injecting wells were finalized, and in Block 15/06, where six producing wells and four injecting wells were completed. 5.1.1.6 DEVELOPMENT PROJECTS
TABLE 7 To support the crude oil production targets, the DEVELOPMENT WELLS projects listed below have been developed, for which Development wells/ Development wells/ the status is presented as at 31 December 2016. Blocks /Producer /Injector 2015 2016 2015 2016 TABLE 9 STATUS OF OIL PROJECTS Block 0 Area A 4 20 1 6 Beginning of Current Block 3/05 2 ‑ ‑ ‑ Order Project Blocks Status point as at December 2016 Production Progress(%) 7 1 3 1 Block 14 The connection and commissioning offshore campaign took Block 15 3 9 4 7 1 Mafumeira Sul Block 0 2017 98.22% place for the platforms CPC, and WHPs Centro e Sul. The final document is ongoing Block 15/06 1 6 5 4 The anchorage offshore campaign as continued of FPSO and the Block 17 5 8 ‑ ‑ 2 Polo Oeste Block 15/06 2017 99.70% installation of the submarine system 2 ‑ 3 ‑ Block 18 3 Dália Fase 1A Block 17 2017 100.00% The manufacture of the last christmas tree number 7 of production Block 31 3 4 4 2 The construction of the FPSOs Norte and Sul and the manufacture 4 Kaombo Block 32 2018 73.30% Block 32 1 4 5 ‑ os submeraine equipments as continued TOTAL 28 52 25 20 Note that the early entry into production of the Mafumeira fields in Block 0, Mpungi and Mpungi Norte in Block 15/06, and the execution of projects aim at increasing recovery rates in Block 17, optimising the use of existing facilities. For this purpose, the first pump of the loop P70 was started in the Rosa MPP project during the month of September, and the integration of the loop P80 is still in progress.
36 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 37 It should be also noted the cutting ceremonies of The increase resulting from the entry into production the first steel in the Heerema (Porto Amboim) and of the Mpungi and Mpungi Norte fields in Block 15/06 Petromar (Ambriz) yards, which marked the beginning and Mafumeira Sul in Block 0 did not represent of the construction of the Kaombo project modules in sufficient magnitude to compensate the losses caused Block 32, to be executed in Angola. by the factors mentioned above. Despite the drop in production, Block 17 was the one that contributed most to production, followed by 5.1.2 CRUDE OIL & GAS PRODUCTION Blocks 15, 0, 31 and 18, representing an aggregate share of 85.8% of Angola’s crude oil production.
5.1.2.1 CRUDE OIL PRODUCTION GRAPHIC 7 CRUDE OIL PRODUCTION IN ANGOLA BY BLOCK TABLE 10 CRUDE OIL PRODUCTION IN ANGOLA BLOCK 17 36.4%
M.U.: Bbls BLOCK 15 18.3% Execution 2016 BLOCK 0 13.6% Associations & Blocks BLOCK 31 9.4% 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Variance BLOCK 18 8.1% Offshore 162,022,098 158.568.900 158.919.601 147.317.663 626.828.262 ‑3% BLOCK 14 6.3% 4.5% Block 0 22,201,472 21,097,778 21,236,278 21,335,346 85,870,874 ‑7% BLOCK 15/06 BLOCK 3/05 2.2% Area A 14,131,678 13,333,835 13,630,925 14,073,750 55,170,188 ‑6% BLOCK 3/05 0.4% Area B 8,069,794 7,763,943 7,605,353 7,261,596 30,700,686 ‑8% ASSOCIATION FST 0.4% Block 2/05 81,023 86,076 83,903 80,583 331,585 n.a BLOCK 3/05 A 0.2% CABINDA SUL 0.1% Block 3/05 3,597,755 3,485,047 3,332,094 3,176,483 13,591,379 ‑14% BLOCK 2 0.1%
Block 3/05A 260,778 247,324 239,860 239,416 987,378 15% ASSOCIATION FS 36.4% Block 4/05 742,089 612,518 727,852 691,900 2,774,359 ‑19% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% Block 14 9,340,803 8,629,088 8,953,007 8,302,589 35,225,487 ‑10% Block 14K 1,284,102 1,191,479 1,081,727 1,023,038 4,580,346 n.a Block 15 28,687,156 29,335,062 28,876,675 28,548,775 115,447,668 1% Block 15/06 6,840,978 7,678,105 7,330,647 6,572,161 28,421,891 63% Block 17 59,885,198 59,273,486 59,962,528 50,237,137 229,358,349 ‑10% Block 18 13,747,528 13,276,183 11,548,459 12,188,611 50,760,781 ‑6% Block 31 15,353,216 13,656,754 15,546,571 14,921,624 59,478,165 4% Onshore 783,220 876,508 818,845 806,195 3,284,768 181% Cabinda Sul 103,396 180,001 146,314 120,250 549,961 13% Association FS 26,923 24,971 22,604 20,746 95,244 59% Association FST 652,901 671,536 649,927 665,199 2,639,563 323% TOTAL 162,805,318 159,445,408 159,738,446 148,123,858 630,113,030 ‑3% Daily average 1,789,069 1,752,147 1,736,287 1,610,042 1,721,620 ‑3%
During 2016, 630.113.030 barrels of crude oil were produced in Angola, equivalent to a daily average of 1,721,620 barrels. Compared to the same period of the previous year, production volume decreased by 3%. This decrease is mainly explained by the stoppage of the FPSO Dália production in Block 17 for scheduled general maintenance, with a duration of 35 days, with estimated losses of 210,000 bbls/d, plus the natural decline of fields and non scheduled stoppage due to operational problems.
38 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 39 The ownership of crude oil produced in Angola is TABLE 12 shown below: CRUDE OIL PRODUCTION BY OPERATOR M.U.: Bbls TABLE 11 Execution 2016 RIGHTS OF CRUDE OIL PRODUCTION BY COMPANIES Blocks 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Variance M.U.: Bbls Total 59,885,198 59,273,486 59,962,528 50,237,137 229,358,349 ‑10% Execution 2016 Entities Chevron 32,826,377 30,918,345 31,271,012 30,660,973 125,676,707 ‑4% 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Variance ESSO 28,687,156 29,335,062 28,876,675 28,548,775 115,447,668 1% BP 28,602,194 27,984,899 27,617,663 26,062,392 110,267,147 ‑4% BP 29,100,744 26,932,937 27,095,030 27,110,235 110,238,946 ‑1% Total 28,299,207 27,783,286 28,115,586 24,093,515 108,291,594 ‑9% ENI 6,840,978 7,678,105 7,330,647 6,572,161 110,238,946 63% ESSO 23,451,902 23,588,722 23,543,176 21,466,937 92,050,737 ‑5% SNL P&P 4,600,622 4,344,889 4,299,806 4,107,799 17,353,116 ‑14% Sonangol 22,484,337 21,346,077 22,162,084 21,446,933 87,439,430 4% Somoil 760,847 782,583 756,434 766,528 3,066,392 348% Statoil 19,841,798 19,559,313 19,910,877 17,514,928 76,826,916 ‑6% Pluspetrol 103,396 180,001 146,314 120,250 549,961 13% ENI 13,021,397 13,175,206 12,992,682 12,496,836 51,686,121 8% TOTAL 162,805,318 159,445,408 159,738,446 148,123,858 630,113,030 ‑3% Chevron 11,996,698 11,314,705 11,435,389 11,254,400 46,001,191 ‑5% Daily average 1,789,069 1,752,147 1,736,287 1,610,042 1,721,620 ‑3% SSI 10,977,292 10,707,482 10,035,641 10,062,342 41,782,757 5% China Sonangol 964,633 933,093 892,988 853,975 3,644,689 ‑13% Galp 956,241 883,851 903,126 839,306 3,582,525 2% By companies, foreign oil operators in Angola Somoil 757,894 728,045 725,851 707,015 2,918,805 16% produced 96.7% of the total volume of crude oil production during the year, led by TOTAL E&P Angola Ajoco 771,707 746,474 714,391 683,180 2,915,751 ‑13% with 36.4% of total production, followed by CHEVRON INA‑NAFTA 154,341 149,295 142,878 136,636 583,150 ‑13% with 19.9% , ESSO with 18.3%, BP with 17.5%, ENI with NAFTAGAS 154,341 149,295 142,878 136,636 583,150 ‑13% 4.5% and Pluspetrol with 0.1%. The remaining 3.3% Acrep 149,270 125,607 146,960 139,804 561,640 ‑12% corresponds to the production of national operators Prodoil 102,889 87,324 101,469 96,560 388,243 ‑9% (Sonangol Pesquisa e Produção e Somoil), with 2.8% Pluspetrol 56,868 99,001 80,473 66,138 302,479 13% and 0.5%, respectively. Force Petroleum 20,679 36,000 29,263 24,050 109,992 13% Falcon Oil 16,205 17,215 16,781 16,117 66,317 ‑92% GRAPHIC 8 CRUDE OIL PRODUCTION BY OPERATOR Kotoil, S,A 10,128 10,760 10,488 10,073 41,448 n,a Poliedro Oil 10,128 10,760 10,488 10,073 41,448 n,a Cupet 5,170 9,000 7,316 6,013 27,498 13% TOTAL 36.4% TOTAL 162,805,318 159,445,408 159,738,446 148,123,858 630,113,030 ‑3% CHEVRON 19.9%
ESSO 18.3%
BP 17.5%
ENI 4.5%
SNL PP 2.8%
SOMOIL 0.5%
PLUSPETROL 0.1%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%
40 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 41 In terms of achieving the targets established by the • Block 3/05A • Block 31 operators of the concessions in production, there was The downturn in production was due to the loss of The production levels were slightly compromised, a negative deviation of 1% (minus 5,645,938 barrels), reservoir pressure and unplanned stopages in the despite the reduction in water injection caused in relation to the same period, due to technical and Buffalo field due to operational problems. by pump failure and reduced production due to operational factors described below: scheduled stoppage and late entry of the Pluto • Cabinda Concession • Block 4/05 field due to the unavailability of the gas treatment system. It should be noted that the entrance of 3 • Area A: The production was below expectations, despite the maximum opening of the well throttle. producing wells allowed to finish the year with an In this concession, despite the production of average production of 160,500 BOPD. MW-84-71 well in the Malongo Oeste field, • Block 14 production was below whats was expected due to the closure of some producing wells in Increase in the water content produced in some the Takula and Malongo reservoirs, caused by producing wells and the closing of some injectors 5.1.2.2 CRUDE OIL RIGHTS OF NATIONAL CONCESSIONAIRE excessive water production, low pressure and for reservoir pressure management. problems in water injection systems. • Block 15 TABLE 13 There was also an early production of the CONCESSIONAIRE’S GROSS OIL RIGHTS BY BLOCK Mafumeira Sul field through the temporary The production in the Block was stable, motivated U.M.: Bbls by the good management of the reservoirs and production module. Execution 2016 by the maintenance of pressure. To do this, some Blocks Total • Area B: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance wells producing excess water and gas were Withdrawals The production levels were below closed to manage the reservoir pressure and the Cabinda Onshore 8,632 14,347 11,440 9,186 43,605 -12% expectations due to the low performance production of 12 wells in the Block, 4 wells in the Block 3/05 1,430,951 1,358,760 500,943 1,622,083 4,912,737 10% Bavuca field, 7 wells in the Mondo Sul field and 1 of some wells in the Bomboco, Lomba and Block 3/05A 75,000 19,999 - 20,000 114,999 -55% N’Dola fields due to their natural decline and well in the Kakocha field. Block 4/05 - 75,250 68,750 76,323 220,323 22% the closing of some producing wells in the Block 14 1,808,446 2,219,689 2,621,763 2,295,820 8,945,717 -21% Bomboco. • Block 15/06 Block 15 9,513,156 9,366,220 10,411,500 14,697,780 43,988,656 -18% The production was affected by increased water • Cabinda Sul Block 15/06 780,931 543,797 498,623 554,192 2,377,543 100% production, especially in Sangos and Cinguvu Block 17 19,144,847 15,103,535 16,254,080 12,351,743 62,854,205 -11% Reduction of production caused by low pressure fields. The production of the Mpungi and Mpungi Block 18 3,917,685 3,903,766 3,441,295 2,961,948 14,224,694 18% Norte fields allowed production to increase by 63% in the reservoirs of the Castanha field, which Block 31 1,399,598 963,198 1,185,795 1,323,975 4,872,566 6% compared to 2015. resulted in the closure of some wells. TOTAL 38,079,246 33,568,560 34,994,188 35,913,050 142,555,045 -11% Daily average 418,453 368,885 380,372 390,359 389,495 -11% • Association FS/FST • Block 17 The production was affected by the closure of The production levels were higher than expected During the year 2016, a total of 142,555,045 barrels of some wells due to low pressure and leaks in despite the reduction compared to 2015. The start crude oil, corresponding to an average of 389,495 production lines. of production of 8 development wells, 3 wells in Bbl/day, were obtained under Concessionaire’s Law. the Dália field, 1 well in Pazflor and 4 wells in the • Block 2/05 Clov, allowed to compensate for the production Compared to 2015, there was a decrease of 11%, drops for operational problems in the Girassol largely due to the international scenario of the The fields remain closed, except for the Essungo and Dália fields and end the year with an average reduction of the oil price, the increase in the rate of oil field, which went into production with only two production of 620,000 BOPD. use, and also the natural decline of the production of wells, in order to support the FS/FST production the mature fields (14 and 15). line. • Block 18 Regarding the rights collected by block, we highlight • Block 3/05 Reduction of production resulting from excessive Block 17 and 15, representing 75% of the total volume. production of water and gas and closure of some The production has been affected by the loss wells, insufficient pressure on the lines and of pressure of some producing wells and the unplanned stoppage of 11 days due to operational unavailability of the pumps, which has contributed problems. to the low water injection and, consequently, the reduction of the rate of replacement of the fluids, which led to the closure of some wells in the Pacassa field.
42 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 43 GRAPHIC 9 5.1.2.3.2 LPG PRODUCTION CONCESSIONAIRE’S GROSS OIL RIGHTS BY BLOCK TABLE 15 Bbls LPG PRODUCTION IN ANGOLA 80,000,000 M.U.: MT 70,000,000 Execution 2016 60,000,000 Origin 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Production Variance 50,000,000 Sanha 99,618 108,387 108,986 99,519 416,510 4% 40,000,000 Butane 42,016 43,041 44,582 41,058 170,697 1% 30,000,000 Propane 57,602 65,346 64,404 58,462 245,814 7% 20,000,000 Cabinda Gas Plant 19,047 17,495 15,485 18,355 70,382 ‑11% 10,000,000 Butane 8,117 8,637 6,878 8,444 32,076 ‑12% - Block Block Block Block Block Block Block Block Block COS Propane 10,930 8,858 8,607 9,912 38,307 ‑10% 17 15 18 14 3/05 31 15/06 4/05 3/05A Refinery de Luanda 7,011 7,402 5,868 6,967 27,248 4% 2016 2015 ALNG ‑ 65,695 28,865 123,840 218,399 n,a TOTAL 125,676 198,979 159,204 248,681 732,540 45%
5.1.2.3 GAS PRODUCTION In 2016, a total of 732,540 metric tons of LPG were produced in Angola. Related to 2015 , there was a 5.1.2.3.1 PRODUCTION OF ASSOCIATED NATURAL GAS substantial increase of 45%. This increase was mainly due to the resumption of production at the Angola LNG TABLE 14 factory in May. PRODUCTION OF ASSOCIATED NATURAL GAS GRAPHIC 10 ft3 LPG PRODUCTION BY ORIGIN Execution 2016 Blocks st nd rd th 1 Quarter 2 Quarter 3 Quarter 4 Quarter Production Variance ALNG 30% Offshore 324,512 321,225 329,377 317,415 1,292,529 ‑2% SANHA 57% Block 0 118,578 121,931 124,279 116,100 480,888 ‑11% Area A 31,590 33,605 35,482 28,041 128,718 ‑48% Area B 86,988 88,326 88,797 88,059 352,170 20%
Block 2/05 ‑ ‑ 1,002 ‑ 1,002 1013% LUANDA REFINERY 4% Block 3/05 5,711 5,062 6,393 4,912 22,078 ‑4% Block 3/05A 101 182 268 267 818 n,a Block 4/05 505 234 403 358 1,500 ‑24% Block 14 14,827 13,227 11,984 11,325 51,363 ‑25%
Block 15 61,909 68,840 69,398 61,696 261,843 2% CABINDA Block 15/06 18,795 4,460 5,364 6,853 35,472 225% GAS PLANT 9% Block 17 60,865 65,032 65,103 68,787 259,787 0% Block 18 28,122 27,404 25,769 27,135 108,430 4% Block 31 15,099 14,853 19,414 19,982 69,348 45% It should be noted that after the resumption Onshore 1,019 1,882 1,679 1,058 5,638 ‑88% of activities in Angola LNG, the factory had a Cabinda Sul 784 986 827 131 2,728 ‑94% maintenance stoppage during the month of August, Association FS/FST 235 896 852 927 2,910 439% which significantly affected third quarter production. TOTAL 325,531 323,107 331,056 318,473 1,298,167 ‑5% By origin, production was distributed between the Sanha factory with 56.86%, followed by the Angola Until 31 December, 2016, 1,298,167 cubic feet of gas LNG factory with 29.81%, the Cabinda Gas factory with were produced in Angola’s oil production concessions, 9.60% and the Luanda Refinery with 3.71%. corresponding to a decrease of 5% compared to the same period of 2015
44 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 45 5.1.2.3.3 PG AND CONDENSATES PRODUCTION 5.1.4 CONCESSIONAIRE EXPORTS
During 2016, as a consequence of the resumption of TABLE 17 Angola LNG production, the production of Liquefied EXPORTS MAP OF SONANGOL CONCESSIONAIRE Natural Gas was by 896,621 metric tons, with M.U.: Bbls Condensate production reaching 75,153 metric tons. Execution 2016 Exported Types Exported 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance Quantity 5.1.3 ECONOMIC MANAGEMENT OF CONCESSIONS Dália 8,446,769 6,552,522 8,422,075 4,539,322 27,960,688 ‑20% Girassol 6,790,461 4,871,343 4,856,921 3,952,547 20,471,272 ‑1% 5.1.3.1 PRODUCTION COSTS Hungo 2,852,406 3,663,954 2,852,875 6,430,924 15,800,159 ‑20% Mondo 1,988,353 2,774,889 2,825,298 2,800,040 10,388,580 52% TABLE 16 Kissanje 2,761,681 903,602 2,719,925 3,622,685 10,007,893 ‑54% OPERATION COSTS IN PRODUCTION CONCESSIONS Nemba 1,738,821 2,139,200 2,568,676 2,233,230 8,679,927 ‑22% Coats (USD/Bbl) Pazflor 1,902,922 2,762,506 1,929,596 1,857,414 8,452,438 ‑18% Blocks Variance 2015 2016 Saxi‑Batuque 1,910,715 905,626 1,913,233 1,844,133 6,573,707 2% Block 0 16.32 11.80 ‑28% CLOV 2,004,695 30,460 1,045,489 2,002,461 5,083,105 ‑15% Block 2/05 ‑ 15.47 ‑ Plutónio 1,954,472 1,863,230 998,925 ‑ 4,816,627 66% Block 3/05 26.21 19.52 ‑26% Saturno 1,399,599 849,304 1,185,795 1,323,975 4,758,673 ‑6% Block 3/05ª 5.07 6.05 19% Sangos 780,931 408,478 498,623 554,192 2,242,224 n,a Block 4/05 39.81 32.80 ‑18% Lianzi 22,109 992,312 70,768 63,156 1,148,345 n,a Block 14 11.25 11.51 2% Gimboa ‑ 324,463 68,750 76,323 469,536 58% Block 15 7.84 4.73 ‑40% TOTAL 34,553,934 29,041,889 31,956,949 31,300,402 126,853,174 ‑15% Block 15/06 16.39 10.43 ‑36% Block 17 6.74 6.36 ‑6% During 2016, Sonangol’s crude oil exports as a Block 18 5.75 6.50 13% National Concessionaire corresponded to 89% of the Block 31 5.94 4.73 ‑20% rights collected in the period, with the remainder Cabinda Sul 22.73 14.83 ‑35% being delivered to the Luanda Refinery. Association FS 42.41 25.29 ‑40% During the period, the most exported types were Association FST 131.10 22.05 ‑83% Dahlia (22%), Sunflower (16%), Hungo (12.4%), Mondo Industry Total 9.32 7.62 ‑18% (8.2%) and Kissanje (7.9%).
The weighted average operating cost of the oil industry was USD 7.62/Bbl, excluding abandonment costs. 5.1.4.1 RECOVERY OF INVESTMENTS MADE IN PRODUCTION Compared to 2015, there was a reduction of 18%. CONCESSIONS The highest levels of efficiency were recorded in TABLE 18 RECOVERED COSTS IN PRODUCTION CONCESSIONS Blocks 15 and 31, having presented the unit cost of
USD 4.73/Bbl. U.M.: MUSD In contrast to, lower efficiency levels were observed Cost Recovered Costs to be Blocks Incurred Costs untill recovered as of in Block 4/05, at a cost of USD 32.80/Bbl and in FS and untill 2016 2016 31.12.2016 FST Associations, at a cost of USD 25.29/Bbl and USD Block 2/05 1,902,609 2,656 1,899,952 22.05/Bbl, respectively. Block 3/05 5,697,840 5,256,277 441,562 Block 3/05A 384,325 38,650 345,675 Block 4/05 2,561,064 2,334,598 226,465 Block 14 25,994,337 21,949,780 4,044,557 Block 15 42,271,782 38,618,206 3,653,575 Block 15/06 5,808,802 1,350,288 4,458,513 Block 17 68,130,952 58,567,400 9,563,552 Block 18 18,322,483 17,725,663 596,820 Block 31 25,172,706 7,949,659 17,223,047 Cabinda Onshore Sul 750,187 84,861 665,326 TOTAL 196,997,085 153,878,040 43,119,045
46 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 47 During the stated period, recovered costs pertaining to 5.2 PRIMARY VALUE CHAIN – UPSTREAM Additionally, in a scenario of oil prices drop, Sonangol oil operations in production, mostly from development also looked for solutions to reduce its exposure and expenses, amounted to M USD 153,878,040. SEGMENT improve the profitability of its investment. An example of this was the effort made in relation to drillships, Regarding the recoverable costs, in block 31, the The Exploration and Production activity is a critical in which Sonangol designed a solution that involves contractor group is still recovering development segment of Sonangol’s activity, which is reflected in negotiating with stakeholders for risk sharing and expenses from PSVM, whose production started in the the Company’s own investment strategy, with this renegotiation of funding conditions in order to make 4th quarter of 2012. segment representing 97% of the total investment the construction of two probes in a viable project. The high costs to be recovered in block 17 are due made in 2016. to the investment in PAZ FLOR project, and more Angola produced in 2016 a total of 630,113,030 recently, the CLOV project, which came on stream at barrels of Crude Oil, of which 85,682,625 are related the end of 2014. 5.2.1 PRODUCTION OF CRUDE OIL OF SONANGOL to Sonangol Pesquisa e Produção and Sonangol E.P. In block 15/06, the costs to be recovered refer to Sonangol increased its production by 3% over the same INVESTOR exploration and development in the block. It should be period last year. This increase is due to the increase emphasized that, from the start of production at the in production of Sonangol Pesquisa e Produção in TABLE 19 end of 2014, only 23% of the total incurred costs were Block 15/06 (10% increase), which in turn is adversely PRODUCTION OF GROSS OIL OF SONANGOL INVESTOR recovered. affected by Sonangol E.P’s production losses in Block M.U.: Bbls 0 (decrease of 7%). The high recoverable costs in block 14 are due to the Execution 2016 Associations & Blocks weak economicity of Tômbwa-Lândana. Regarding the production of LPG, the resumption 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Variance In block 15, the reported costs are related to of the ALNG operation where Sonangol has a 22.8% SNL E,P 9,102,604 8,650,089 8,706,874 8,747,492 35,207,058 -7% share, was reflected positively in the increase of development expenses in Kizomba Satellite Phase 2, Block 0 9,102,604 8,650,089 8,706,874 8,747,492 35,207,058 -7% production of 24% and in the reduction of imports in which came on stream in June 2015. Area A 5,793,988 5,466,872 5,588,679 5,770,238 22,619,777 -6% 58% compared to the year previous. In terms of individual contribution by block, following Area B 3,308,616 3,183,217 3,118,195 2,977,254 12,587,281 -8% the causes shown before, block 31 was the most In 2016, the Upstream primary chain recorded sales SNL P&P 12,944,493 12,248,444 13,023,318 12,259,312 50,475,567 10% significant with 40%, followed by block 17 with 22%, of USD 8,751 Million and EBITDA of USD 1,603 Million, Operated Blocks 1,335,678 1,239,352 1,256,914 1,199,925 5,031,869 -14% block 15/06 with 10%, block 14% with 9% and block 15 equivalent to 50% of the company’s total EBITDA. Block 3/05 899,439 871,262 833,023 794,121 3,397,845 -14% with 8% of the total costs to be recovered. The resumption of ALNG production represented and Block 3/05A 65,195 61,831 59,965 59,854 246,845 15% will represent a major contribution to the increase in Block 4/05 371,045 306,259 363,926 345,950 1,387,180 -19% Sonangol’s revenues. Non 11,608,815 11,009,092 11,766,404 11,059,387 45,443,698 14% Cabinda Sul 20,679 36,000 29,263 24,050 109,992 13% Associatin FS 1,346 1,249 1,130 1,037 4,762 59% Associatin FST 32,645 33,577 32,496 33,260 131,978 323% Block 14 2,124,981 1,964,113 2,006,947 1,865,125 7,961,167 2% Block 15/06 2,520,216 2,828,614 2,700,610 2,421,184 10,470,625 72% Block 31 6,908,947 6,145,539 6,995,957 6,714,731 26,765,174 4% TOTAL 22,047,096 20,898,533 21,730,192 21,006,804 85,682,625 3% Daily Average 242,276 229,654 236,198 228,335 234,106 2%
During 2016, there was a 10% increase in the production of Sonangol Pesquisa e Produção and a 7% reduction in the share of Sonangol, E.P. in Block 0, compared to the same period in 2015. The decrease of 7% in Sonangol, EP’s share in Block 0 was due to the decrease, in the same proportion, of the production in that Block due to the closing of some producing wells, due to low pressure, and the low performance of some wells that were producing intermittently.
48 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 49 The 10% increase in the production of Sonangol 5.2.2.2 LPG AND CONDENSATES PRODUCTION The shutdown was concluded on 27/08/2016, after the Research and Production was mainly due to the final test and conclusion of defrost propane circuits, as increase in production in Block 15/06, where Sonangol The Angola LNG factory restarted the production well as the final insulation of the 72’ inch filters. Since participates as an investor, in which the Mpungi and in June 2016 after an extended closure. Since the end of the fourth quarter, the factory has been Mpungi Norte fields started to be produced. then, various LNG and liquid shipments, including operating safely and continuously. The need to guarantee the increased production is pressurized butane for the Angolan domestic market, Falcão Project reflected in the investment strategy of Sonangol, have been safely and successfully marketed. LNG which in 2016 focused on the development of oil shipments are being marketed globally in line with Regarding Faclão project, the execution of the detailed concessions in Block 0 (Mafumeira Sul and Mafumeira demand mandates, and the supply of natural gas to engineering works, the acquisition and preparation Norte), as well as in Blocks 15/06, where Sonangol the domestic market is expected to start in 2017. The of the ground activities, as well as the quality of the Pesquisa e Produção has 36.84% in Block 31 and in the priority of the Project is now to reach full production technical documentation presented in the EPC are Kaombo project in Block 32, where Sonangol Pesquisa level. It is expected that in full production, up to 70 continued. e Produção holds 45% and 30%, respectively. LNG shipments will be exported annually and that the project will have an expected useful life of more On the other side, activities related to the than 30 years, creating conditions for the future environmental diagnosis of the area where the Soyo development of associated gas and non-associated encampment, dock and storage area were installed, 5.2.2 GAS PRODUCTION OF SONANGOL E.P. gas reserves. and the reception and analysis of the proposal for the installation of the second liquid gas separator in Sonangol’s share of LNG’s production amounted to 5.2.2.1 LPG PRODUCTION order to give a continuous supply of gas to the Soyo 204,430 metric tons and the condensates totaled Combined Cycle Plant - phase 1: 17,135 metric tons, all from the Angola LNG factory. TABLE 20 • Conclusion of the coating works of Fusion Bonded LPG PRODUCTION SONANGOL SHARE Epoxi (FBE); U.M.: MT • Review and approval of the proposed resources Execution 2016 5.2.2.3 STRUCTURAL PROJECTS OF THE UPSTREAM VALUE Associations & Blocks to follow the next phases of the project as an 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Production Variance CHAIN alternative to the original ones; Sanha (41%) 40,843 44,439 44,684 40,803 170,769 4% Butane 17,227 17,647 18,279 16,834 69,986 1% Drilling Rigs construction projects (Drillships) • Beginning of the topographic survey of the additional demined area; Propane 23,617 26,792 26,406 23,969 100,784 7% During the period, the construction of two drillships Cabinda Gas Plant (41%) 7,809 7,173 6,349 7,526 28,857 -11% was continued in accordance with the contract signed • Conclusion of the dismantling and mechanical Butane 3,328 3,541 2,820 3,462 13,151 -12% in October 2013. demining activities of the extra land for the Propane 4,481 3,632 3,529 4,064 15,706 -10% expansion of the Gas Reception and Distribution It should be noted that the overall progress of the Luanda Refinery (100%) 7,011 7,402 5,868 6,967 27,248 4% Unit (URDG); project with Sonangol Libongos hulls (H3620) was ALNG (22,8%) - 14,978 6,581 28,236 49,795 n.a. 99.7% and for Sonangol Quenguela (H3621) 91.8%. • Request of a gas samples to the Soyo Combined TOTAL 55,664 73,992 63,482 83,531 276,669 24% Cycle Plant for testing purposes. On the other hand, all the equipment, considered as OFE (Owner Furnished Equipment), required for the Of the total LPG Production, 276,669 metric tons were follow-up to the commissioning and mobilization produced from Sonangol, of which 62% came from works of the drillships, are already in the shipyard. 5,3, PRIMARY VALUE CHAIN – MIDSTREAM Sanha, 18% from Angola LNG and the remaining 20%, Inspections are being carried out with some distributed equally by the Cabinda Gas Plant and the equipment already on board the ship Sonangol SEGMENT Luanda Refinery. Libongos. The Refining and Transportation segment recorded Compared to 2015, Sonangol recorded a 24% increase In addition, the second phases of the navigation in LPG production. sales equivalent to USD 1,154 million in 2016 and an tests, the installation of the helideck, as well as the EBITDA of USD 86 million, corresponding to 3% of In order to meet the LPG consumption needs of the completion of the topside works were concluded. Sonangol’s total EBITDA. domestic market, since domestic production was not enough, until Angola LNG’s resumption of operations, Angola LNG Regarding the activity of the Refinery, there was an Sonangol acquired approximately 70,720 metric tons increase in raw material supply of 2% and an increase During the year, preparation work were made for the of LPG from the foreign market, minus 58% compared in the use of installed refining capacity of 1.5% in start-up of the factory with the approval of operational to the year 2015. The reduction in LPG imports results relation to the same period of the previous year. procedures and preparation of the production staff for from the effort made throughout the year to ensure This positive performance was also reflected in the the restart of the gas factory that started in the second the start of the ALNG factory. increase in the volume of crude oil processed and the quarter of 2016. In addition, the process of changing volume of refined products produced. the gas provider from Block 15 to Block 17 was concluded, being the main source of gas supply.
50 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 51 Generation of electric power through Luxervisa was Parallel to the reassessment of structuring projects, TABLE 21 another focal point. In 2016, there was a big effort important measures were implemented to improve AVERAGE INSTALLED CAPACITY UTILIZATION RATE to increase the efficiency of the combined cycle in operations in this segment. An example of this was the Luanda Refinery, resulting in a 50% increase the initiative that facilitated the processes of ad-hoc Execution 2016 Crude Oil Processing in the electric power supplied to RNT. For 2017, purchases of articles critical to the Refinery and 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Processing Variance an improvement is expected from the start up of which was reflected in the increase in the supply of Installed Capacity Utilization 83% 87% 76% 85% 83% 1.5% the vapour turbine and the start of the Soyo small raw material and consequently in the increase of the Rate (BOPD) combined cycle; utilization of the installed capacity of the Refinery.
In transport activities, there was also a 6% increase In 2016, the Refinaria de Luanda acquired 20,025,661 in the amount of crude oil transported in 2015, but, barrels of crude oil, equivalent to 2,725,811 metric given the more restricted macroeconomic context, the 5.3.1 REFINING BUSINESS tons, of which the Plutonium accounted for 51.5%, the transport of volumes of derivative products was less Palanca accounted for 46.7%, the Hungo accounted for than 32%. Sonangol keeps in operation the Refinaria de Luanda 1.3% and the Nemba, 0.5%. with a nominal installed capacity of 65,000 Bbl/d. This segment represented 2.6% of the total investment Compared to the previous year, there was a 2% increase made in 2016, the second largest after the Exploration The average utilization rate of installed capacity was in the quantities of crude oil supplied to the Refinaria de and Production segment. The investments made 83%, with an increase of 1.5% over the previous year. Luanda, as a result of the improved performance and reflect the effort to build the Centralized Control factory stability verified in 2016. Room and sign the contract for engineering studies The increase was due to the stabilization of the in the Luanda Refinery, as well as the maintenance supply of the Palanca and the use of stock Hungo TABLE 22 of mechanical equipment in the Refinaria de Lobito for blending, as well as the deferral of the general VOLUME OF CRUDE OIL PROCESSED stoppage, scheduled for June and July 2016, for project. U.M.: Bbls several reasons, among which, the unavailability of Execution 2016 Given the current context of dropping oil prices, and spare parts in a timely manner. Types despite the amount invested, the Refinaria de Lobito 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Processing Variance Despite the positive performance, there were some project was suspended for reassessment of the Plutónio 1,931,718 2,930,391 2,158,676 3,054,124 10,074,909 5% constraints with an impact on the operations, among strategic vision and economic viability. The Sonangol Palanca 2,886,091 2,088,993 2,297,066 2,049,509 9,321,659 -3% Administration is convinced that the Refinaria de which we highlight the total shutdown of the factory Hungo 93,232 - 59,521 - 152,753 483% Lobito is a strategic project for the company and for during 9 days and reduction of loads in the Distillation the Country, believing that the investments already Units (U-150 and U-600) due to lack of crude oil and Nemba - 99,850 - - 99,850 n,a made could be made profitable by the development for other technical reasons (NAFTA darkening, plate TOTAL 4,911,041 5,119,234 4,515,263 5,103,633 19,649,171 2% shifting, broken heat exchangers and unplanned of industrial projects adjacent to the refinery, namely Daily Processing 54,567 56,255 49,079 55,474 53,686 petrochemical industry projects fed by discoveries of outages due to power outages in equipment (GT35 and hydrocarbons in offshore blocks near Lobito. CCRL). With the availability of crude oil, it was possible to process 19,649,171 barrels of crude oil, equivalent to 2,633,350 metric tons.
TABLE 23 REFINED PRODUCTION U.M.: MT
Execution 2016 Products 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Production Variance Fuel Oil 266,949 250,818 198,886 254,579 971,232 6% GasOil 155,904 154,059 134,970 153,750 598,683 -1% Nafta 60,729 68,607 93,653 81,736 304,725 21% Jet A1 66,297 68,447 53,072 72,025 259,841 9% Ordoil 29,380 59,643 59,640 50,530 199,193 31% Kerosene 18,673 24,741 22,270 19,699 85,383 10% Jet B 20,026 17,185 17,474 23,213 77,898 -55% Gasoline 13,813 18,683 - 636 33,132 103% LPG 7,011 7,402 5,868 6,967 27,248 4% Others* 1,834 244 2,019 231 4,328 -87% TOTAL 640,616 669,829 587,852 663,366 2,561,663 3% (*) Asphalt and Cut‑Back
52 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 53 In 2016, Sonangol produced 2,561,663 metric tons of 5.3.2 CRUDE OIL, REFINED AND GAS TRANSPORTATION refined products, plus 70,148 metric tons compared BUSINESS to the same period last year. This increase is in line with the increase in raw material supplies and the In 2016, the quantity of crude oil transportated was increase in the use of installed refining capacity. In 8,331,825 MT, 6% above the amount transported in the the last six months of the year, the refinery’s priority previous year. was to increase the production of refined products with higher demand and more profitable, of which we TABLE 24 highlight the 103% increase in gasoline production and VOLUME OF CRUDE OIL TRANSPORTED 9% in the jet A1. U.M.: MT The production profile of the refined products did Execution 2016 Products Quantities not change much, with a higher production of Fuel 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance Oil (38%), followed by Gasoline (24%), Naphtha (12%), transported Jet A1 (10%), Jet B and Kerosene (3%) and LPG (1%), Fleet SUEZMAX 1,571,910 1,391,196 1,107,288 1,484,156 5,554,550 6% and the other remaining products with about 9% in CRUDE OIL 1,571,910 1,391,196 1,107,288 1,484,156 5,554,550 6% aggregate form. Fleet CABOTAGEM 785,955 695,598 553,644 742,078 2,777,275 6% CRUDE OIL 785,955 695,598 553,644 742,078 2,777,275 6% GRAPHIC 11 TOTAL 2,357,865 2,086,794 1,660,932 2,226,234 8,331,825 6% PRODUCTION PROFILE OF REFINED PRODUCTS
The quantity of 5,554,550 MT of crude oil was transported by the Suezmax fleet and 2,777,275 MT by OTHERS 0% FUEL OIL 38% LPG1% the cabotage fleet (supply of crude oil to the Refinaria de Luanda. NAFTA12%
TABLE 25 VOLUME OF DERIVED PRODUCTS TRANSPORTED BY SEGMENT GASOLINE1%
JET 3% U.M.: MT Execution 2016 JET A1 10% Fleet/ Product Amount 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance Provisione FLEET CABOTAGEM* 1,502,207 1,575,797 1,210,941 1,326,919 5,615,864 -35% ORDOIL 8% KEROSENE 3% DOMESTIC CONSUMPTION 1,488,473 1,556,641 1,201,060 1,312,167 5,558,341 -35% Diesel 892,229 963,892 835,510 819,221 3,510,852 -35% DIESEL 24% Gasoline 470,164 493,067 276,019 432,242 1,671,492 -37% Kerosene 1,594 - - 1,584 3,178 -58% Jet A1 25,226 9,837 785 2,234 38,082 -29% LPG 99,260 89,845 88,746 56,886 334,737 -24% EXPORT 9,441 14,407 9,881 10,352 44,081 -2% Diesel 6,319 9,474 6,748 7,013 29,554 -8% Gasoline 1,526 2,100 1,581 1,408 6,615 9% Jet A1 1,596 2,833 1,552 1,931 7,912 20% IMPORT 4,293 4,749 0 4,400 13,442 48% Lubri. & Oil 4,293 4,749 - 4,400 13,442 48% FLEET LNG - 141,730 130,537 - 272,267 100% LNG - 141,730 130,537 - - 100% TOTAL 1,502,207 1,717,527 1,341,478 1,326,919 5,888,131 -31%
In 2016, Sonangol transported 2,703,966 MT of products, compared to the same period of the previous year, amounting to 5,888,131 MT, due to adjustments resulting from the macroeconomic environment in the period under review.
54 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 55 Of the total volume of refined products transported, As mentioned above, the Sonangol Administration is 5.4.1 LOGISTICS BUSINESS 94.39% was for domestic consumption and only convinced that the Refinaria de Lobito is a strategic 0.75% for export. The remaining 4.62% and 0.23% project for the company and for the country, believing correspond to imports of base oils and the transport of that investments already made can be made 5,4.1.1 PROCUREMENT LNG, respectively. profitable by the development of industrial projects TABLE 26 adjacent to the refinery, namely, industrial projects ACQUISITION OF REFINED PRODUCTS BY ORIGIN GRAPHIC 12 petrochemicals fueled by hydrocarbon discoveries in REFINED PRODUCTS AND GAS TRANSPORTATION U.M.: MT offshore blocks near Lobito Execution 2016 Products Amount 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance Provisioned GASOLINE 28% IMPORT 1,071,228 1,100,775 853,205 1,009,122 4,034,346 -20% DIESEL 60% 5.4 PRIMARY CHAIN - DOWNSTREAM SEGMENT SONANGOL LOGISTICS The Logistics and Distribution segment recorded sales Diesel 629,191 609,005 604,150 510,324 2,352,671 -23% equivalent to USD 5,079,587,227 in 2016 and an EBITDA Gasoline 294,013 348,969 99,172 287,916 1,030,070 -17% of USD 1,431,057,301, corresponding to 45% of the total Jet A1 23,013 8,800 11,000 - 42,813 -29% LPG 6% EBITDA recorded by Sonangol. SONAGas LPG 32,012 19,670 5,987 13,051 70,720 -58% OTHERS1% The increase in the prices of refined products, as a consequence of the elimination of the price subsidy, SONANGOL DISTRIBUTION Diesel (MGO) 93,000 102,330 120,894 197,831 514,056 14% LNG 5% had a direct impact on this segment. There was a reduction of 18% and 12%, respectively, in the Asphalt - 12,000 12,000 - 24,000 -57% purchase of refined products and marketed products. AvGas - - 16 - 16 n,a REFINERY DE LUANDA 250,492 274,777 234,171 243,446 1,002,887 -12% It should be noted that, although only 21% of the Diesel 150,553 158,503 144,762 143,973 597,791 -6% Diesel was the most transportated refined product, total amount supplied is from the domestic market, gasoline from the Luanda Refinery experienced a Gasoline 12,195 13,766 2,052 - 28,013 119% representig 60% of the total volume, followed by Jet A1 54,107 58,158 51,311 60,986 224,563 -7% Gasoline with 28%, LPG with 6%, LNG with 5% and Jet growth of 119% compared to 2015, evidencing the Jet B 19,391 16,582 16,813 22,609 75,395 -55% A1, Kerosene and Lubrificants amounting to 1%. positive performance recorded in 2016. Kerosene 14,246 27,768 19,233 15,878 77,125 0% In the Logistics activity, and in line with the contraction The efficiency of the transport was prioritized TOPPING CABINDA 15,549 14,614 22,032 23,949 76,145 63% of demand, there was a general reduction in volumes maximizing the laden trips and minimizing the travel Diesel 12,455 11,578 18,469 18,660 61,163 80% time with the ships without load (“ballast”). supplied (decrease of 18%) and in storage capacity (decrease of 8%). Gasoline n. a. Jet A1 557 1,183 580 554 2,874 -12% Regarding the Distribution activity, the most traded Kerosene 2,537 1,853 2,983 4,735 12,108 28% products continue to be Gasoline and Diesel, 5,3.3 STRUCTURING PROJECTS OF THE VALUE CHAIN TOTAL 1,337,270 1,390,167 1,109,408 1,276,517 5,113,379 -18% representing more than 80% of sales, especially in the MIDSTREAM Consumer and Retail segment. The latter, although During the period, 5,113,379 MT of refined crude being the segments with the highest consumption are oil products were acquired, down 18% from the 5.3.3.1 CONSTRUCTION PROJECT OF REFINARIA DE LOBITO also the ones with the highest competition. same period of last year, due to the retraction in the For the current year, the Lobito Refinery project was Market competition in some segments is being consumption of derivatives caused by the fuel price not budgeted in the Investment Program and was watched, and reflected, in Sonangol’s effort to try to adjustment at the beginning of the year. suspended for the reassessment of its strategic improve its market position. In this context, several Of the total amount procured, only 21% came from the vision and economic viability. However, efforts have initiatives are being identified for Sonangol’s offer. domestic market, with the remainder being purchased been made to promote the project in the international Investment in the expansion and improvement of the externally, as a reflection of insufficient internal market, with a view to attracting funds or partners. derivatives trading network is an example of this refining capacity. effort. In addition, the work has been paralyzed since April, During the period there was a 23% reduction in the and only maintenance activities were carried out on In the international market, there was also a reduction quantities of imported Gasoline and an increase of mechanical equipment, including cleaning activities in in exports of Crude Oil (9% decrease) and refined 80% in the amount of Diesel purchased in Topping the crushers. products (1% decrease). Cabinda compared to 2015. It should be noted that Gasoline from the Luanda Refinery also registered an increase of more than 100% compared to the same period of 2015, due to the stabilization of the production unit.
56 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 57 TABLE 27 5.4.2 DISTRIBUTION BUSINESS REFINING PRODUCTS PROCUREMENT U.M.: MT 5.4.2.1 DISTRIBUTION Execution 2016 Products Amount 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance TABLE 29 Provisioned QUANTITIES OF DISTRIBUTED REFINED PRODUCTS Diesel 885,198 881,417 888,276 870,789 3,525,680 -16% U.M.: MT Gasoline 306,208 362,735 101,225 287,916 1,058,083 -15% Execution 2016 Jet A1 77,677 68,141 62,891 61,540 270,250 -11% Products Quantity 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance Jet B 19,391 16,582 16,813 22,609 75,395 -55% distributed
Kerosene 16,783 29,622 22,216 20,613 89,234 3% Diesel 574,800 682,242 674,455 682,552 2,614,049 -14% Asphalt - 12,000 12,000 - 24,000 -57% Gasoline 255,023 193,226 191,312 179,884 819,445 -15% Avgás - - 16 - 16 n,a Jet A1 60,540 64,443 64,995 62,503 252,481 -11% LPG 32,012 19,670 5,987 13,051 70,720 -63% LPG (Butane gas) 76,770 76,884 79,616 - 233,270 -6% TOTAL 1,337,270 1,390,167 1,109,424 1,276,517 5,113,379 -18% Fuel Extra Heavy 11,784 42,291 59,181 38,030 151,286 659% The products with the highest volume of supply were Jet B 20,347 17,849 15,420 23,783 77,400 -52% Diesel (69%) and Gasoline (21%), totaling 90%, despite Kerosene 12,535 16,290 14,327 11,618 54,770 36% a reduction in the volumes of all products supplied, Asphalt - 514 24,473 863 25,849 -40%
compared to the previous year, with the exception of Lubricants 4,269 3,411 3,323 2,966 13,969 5% Kerosene. Other 3,669 7,623 1,277 1 12,570 -57%
Fuel Oil 1500 8,035 28 - - 8,062 -50%
Aviation gas 5,352 - - 28 5,380 896643%
5.4.1.2 STORAGE Cutback 275 185 321 167 948 -56%
TABLE 28 TOTAL 1,033,399 1,104,986 1,128,700 1,002,394 4,269,479 -12% STORAGE CAPACITY U.M.: MT A total of 4,269,479 metric tons of refined products Execution 2016 were sold to final consumers during the year 2016, Products Amount corresponding to a decrease of 12% compared to the 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance Provisioned same period of 2015. Onshore 358.519 358.511 358.511 358.511 358.511 -6% This reduction is explained by the contraction of Floating 469.993 469.992 469.992 469.992 469.992 -9% demand, given the current national economic situation, TOTAL 828.512 828.503 828.503 828.503 828.503 -8% mainly due to the increase in prices of refined products, as a consequence of the elimination of price The storage capacity of refined products was around subsidies. 828,503 M3, of which 358,511 M3 were onshore and 469,992 on floating storage vessels, a decrease of 8% GRAPHIC 13 compared to the same period of the previous year. DISTRIBUTION OF REFINED PRODUCTS BY BUSINESS SEGMENT
60%
49% 50% 48%
40% 33% 31% 30%
20% 14% 11% 10% 6% 6%
0% 0.3% 0% CONSUMPTION RETAIL MARITIME AVIATION LUBRICANT
2016 2015
Diesel and gasoline remain the most traded domestically, accounting for around 80% of the quantities sold.
58 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 59 By business segment, there is a greater FIGURE 3 5.4.3 INTERNATIONAL DISTRIBUTION representativeness for the consumer sector, derived DISTRIBUTION OF REFINED PRODUCTS BY REGIONS from an increase in volumes purchased to offset the 5.4.3.1 CRUDE OIL limitations on the supply of diesel through the pipeline 5.12% (20 ) from the Luanda Refinery. On the other hand, there TABLE 30 has been an increase of 2 percentage points in the 3.99% EXPORTS OF CRUDE OIL BY TYPES (17) 0.76% retail segment compared to the previous year, due to (36) U.M.: Bbls the economic situation in the country. 0.57% Execution 2016 60.27% (8) 0.69% 1.71% Types Quantity GRAPHIC 14 (92) (21) 2.31% (16) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance MARKET SHARE BY BUSINESS SEGMENT (15) Exported 0.67% Saturno 8,409,060 6,301,107 7,416,427 7,554,607 29,681,201 4% (12) 2.34% (27) Dália 8,446,769 6,292,415 8,422,075 4,539,322 27,960,688 -20% 120% 100% 100% 100% Nemba 5,572,062 6,292,415 7,310,078 6,395,728 25,570,283 -18% 98% 1.05% 100% 88% 3.07% 86% (8) Cabinda 5,545,193 5,606,059 5,714,446 4,730,623 21,596,321 -8% 9.34% (52) 1.16% (44) (11) 80% Girassol 6,790,461 4,871,343 4,856,921 3,952,547 20,471,272 -1% 59% 58% 60% Hungo 2,852,406 3,663,954 2,852,875 6,430,924 15,800,159 -20% 4.61% (44) Sangos 3,752,529 2,580,246 2,897,515 2,721,614 11,951,904 53% 40% 1.71% (14) 0.72% (4) Mondo 1,988,353 2,774,889 2,825,298 2,800,040 10,388,580 52%
MARKET SHARE 20% 0.55% (8) Kissanje 2,761,681 903,602 2,719,925 3,622,685 10,007,893 -54%
0% Paz-flor 1,902,922 2,762,506 1,929,596 1,857,414 8,452,438 -18% MARITIME AVIATION CONSUMPTION RETAIL TOP 5 CONSUMPTION CENTERS Saxi-batuque 1,910,715 905,626 1,913,233 1,844,133 6,573,707 2% 2016 2015 INTERMEDIATE CONSUMPTION CENTERS CLOV 2,004,695 30,460 1,045,489 2,002,461 5,083,105 -15% OTHER CONSUMPTION CENTERS Plutónio 1,954,472 1,863,230 998,925 4,816,627 66% The Retail and Consumer segments are the ones that BOTTOM 5 CONSUMPTION CENTERS face the greatest competition, which means that there % MARKET SHARE Palanca - 986,577 983,790 - 1,970,367 107% (#) NUMBER OF FUEL STATIONS was a loss of market share in the consumer segment Lianzi 91,380 1,212,197 292,507 261,040 1,857,124 n,a of around 2 percentage points and an increase of Gimboa - 712,757 452,300 515,012 1,680,069 5% around 1 percentage point in the retail segment, TOTAL 53,982,698 48,019,490 52,631,400 49,228,150 203,861,738 -9% justified by less competitive pressure. The provinces of Luanda, Benguela, Cabinda, Zaire During the year 2016, 203,861,738 barrels of crude oil and Huíla continue to lead the consumption of refined were distributed, a decrease of 9% over the previous products, representing 85.70% of the total recorded in year. The decrease in the price of crude oil in the the period. international market, which favors the contractor groups to the detriment of the Concessionaire, in light of the Production Sharing Agreements combined with the decrease in production.
The scheduled 35-day stoppage in the Dália field, Block 17, which caused a significant reduction of around 20%, with estimated losses of 210,000 barrels per day i.e. approximately 7.4 million barrels during the year, is highlighted. As a consequence of these facts the Saturn type was the most distributed, accounting for 15% of the distributed volume, followed by the Dália type with 14%, the Nemba type with 13% and the Cabinda type with 11%.
60 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 61 GRAPHIC 15 5.4.3.2 PRICE OF THE ANGOLAN TYPES EXPORTS OF CRUDE OIL BY GRADE GRAPHIC 16 EVOLUTION OF THE BRENT PRICE AND ANGOLAN TYPES
SANGOS 6% OUTROS 3% CABINDA11% USD/Bbls PAZ - FLOR 4% 60.00 CLOV 3% SAXI - MONDO 5% 53.72 49.66 NEMBA13% 50.00 46.88 48.33 46.67 45.13 52.43 45.10 45.77 BATUQUE3% 41.48 48.43 45.52 45.95 38.49 45.34 44.54 40.00 42.02 44.68 KISSANJE 40.37 5% 32.48 30.69 36.16 30.00 29.45 27.98 20.00 DÁLIA 14% GIRASSOL10%
10.00
SATURNO HUNGO 8% 15% 0.00 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Taking into account that the export profile is DATED BRENT 2016 ANGOLAN OIL PRICE 2016 determined by the level of production, the largest share of crude oil exported originated in Block 17 The distribution price of the Angolan oil types (30.8%), followed by Block 15 with 21.5%, Block 0 with increased approximately 50% and was sold at a 16.5%, Block 31 with 14.6%, and the remaining blocks weighted average price of USD 41.91/Bbl, with a with a total of 16.6%. maximum price of USD 52,43/Bbl in December and a minimum of USD 27.98/Bbl in the month of January, as FIGURE 4 can be seen in the graph above. DESTINATION OF THE CRUDE OIL
5.4.3.3 EXPORT OF REFINED PRODUCTS
TABLE 31 QUANTITY OF EXPORTED REFINED PRODUCTS U.M.: MT
CANADA · 0.4% Execution 2016 Refined Quantity NETHERLANDS · 1.8% 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance FRANCE · 1.3% Exported SPAIN · 0.5% USA · 1.0% PORTUGAL · 2.9% Fuel Oil 276,563 231,035 230,126 220,840 958,564 -6% CHINA · 62.7% Nafta 65,847 57,749 98,808 66,124 288,528 12% ITALY · 0.5% BAHAMAS · 0.4% INDIA · 9.8% Propane Gas 32,913 - - - 32,913 -42% THAILAND · 0.2% TAIWAN · 6.6% Diesel 6,327 9,483 6,757 7,018 29,585 -5% COLOMBIA · 0.9% MALAYSIA · 1.8% SOUTH KOREA · 0.4% Jet A1 1,598 2,837 18,123 1,932 24,489 178% Butane Gas - - 10,058 11,011 21,069 n,a
Gasoline 1,528 2,103 1,584 1,409 6,624 -5%
URUGUAI · 0.5% SOUTH AFRICA · 2.8% TOTAL 384,775 303,207 365,456 308,333 1,361,772 -1%
The volume of exported refined products was 1,361,772 metric tons, which remained stable in relation to the China continues to be the main destination for Angolan same period of last year, varying only 1%. crude oil, having acquired 62.7% of exports, followed by India with 9.8%, with the two countries accounting for 72.5% of external trade, leaving the remainder shared by other destinations.
62 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 63 GRAPHIC 17 TABLE 32 EXPORT PROFILE OF REFINED PRODUCTS MAP OF SONAIR OPERATIONAL INDICATORS Execution 2016 80% 70%74% Operacional Indicators 70% Services 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance 60% Rendered
50% No. Hours flown 6,795 6,046 4,054 2,815 19,711 -47% 40%
30% No. Hours flown - Rotating wing 4,425 3,371 1,364 742 9,902 -55% 21%19% 20% Commercial Contracting 3,559 2,751 1,356 731 8,396 -55% 10% 2% 2% 2% 4% 2% 0% 2% 1% 0% 1% 0% Uncontractual 26 18 9 11 64 -56% E TA EO I N F
Ó L Military House and Presidency of the O L JET A1 S N A S NE GAS 840 602 0 0 1,442 -60% A FUEL OIL G A Republic G A U T B PROPANE GAS No. Hours flown - Fixed wing 2,369 2,675 2,690 2,074 9,808 -35% 2016 2015 SonaAir Fleet 111 397 518 490 1,516 -30%
Commercial Contracting 52 262 425 329 1,068 -30%
Uncontractual 59 135 93 161 449 -28% 5.5 NON-NUCLEAR BUSINESS Others (H.E., Carreira, Spots Charter) 1,758 1,802 1,659 1,435 6,653 -9% MAT and State 500 477 513 149 1,639 -71%
Houston Express (Load Factor) 35% 33% 34% 41% 36% -21%
Freight Transported (Ton) 123 57 54 26 260 -19% 5.5.1 AVIATION - SONAIR No. Passengers Transported 70,559 63,296 59,859 52,989 246,703 -15% Average Aircraft Availability 88% 79% 78% 68% 78% -18%
In 2016, Sonair flew around 20 thousand hours, of Average Aircraft Utilisation 159% 86% 106% 58% 102% 2% which 10 thousand in the Rotating Wing segment and 10 thousand in the Fixed Wing segment, corresponding to a reduction of 47% compared to the year 2015. This Also, the cost reduction efforts of the oil operators, reduction had a significant impact on revenues of which also led to the reduction of offshore operational aircraft rental, which suffered a reduction from AOA personnel as well as the search for transport solutions 74 billion to AOA 45 billion. that could replace air transport, have affected the demand for air transport services in a more structural The accident in April 2016 in Norway resulted in the way, in particular in the Rotating Wing segment. grounding of Super Puma (H225 and L2) aircraft, which represent more than 60% of Sonair’s Rotating Wing fleet. This stoppage significantly affected Sonair’s The Fixed Wing segment’s operation was also ability to provide Rotating Wing transport services impacted by the decrease in the activity of the oil to the oil operators, who depended on this means for sector, which particularly affected the operation of transporting crews to the offshore platforms. the Houston Express, where measures were taken to increase efficiency under the Sonalight Program, which made it possible to defend and minimize the impact on profitability of the operation. These measures will, moreover, have a significant impact on the 2017 financial year.
64 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 65 5.5.2 HEALTH - CLÍNICA GIRASSOL 5.5.3 TELECOMMUNICATIONS - MSTELCOM
TABLE 33 MST provides telecommunications services to MAP OF OPERATIONAL INDICATORS OF CLÍNICA GIRASSOL companies in the oil sector as well as to other
Execution 2016 companies in various sectors of activity.
Operacional Indicators Services 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance The activity of the company grew, despite the adverse Rendered economic context, with communications services Number of patients attended 52,400 58,758 44,296 42,486 197,940 5% revenues increasing by 14% to AOA 13 billion. Number of hospitalizations 2,994 2,864 1,828 1,840 9,526 -3% TABLE 34 Number of outpatient visits 26,205 29,293 27,839 26,405 109,742 1% MSTELCOM INDICATORS MAP Number of emergency visits 16,388 16,011 10,839 11,321 54,559 0% Execution 2016 Number of laboratory exams 268,491 265,516 185,073 164,366 883,446 2% Operacional Indicators Services 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Variance Number of surgical interventions performed 292 276 344 284 1,196 -17% Rendered
Number of surgical procedures in day-care center (day clinic) 167 166 218 157 708 -34% 1. Utilization of Available Capacity (%)
Average Hospital Occupancy Rate 87% 78% 85% 84% 84% 7% 1.1 Optical Fiber Network (Mbits /Seg)
Number of completed deliveries (Etococcal and dystocic) 168 167 158 170 663 -5% A. Metro Network (Mbits/seg)
Number of Imagery Tests performed 20,791 17,079 14,107 13,743 65,720 -12% Luanda 100% 100% 100% 100% 100% 10%
Total Surgeries 459 442 562 441 1,904 -24% Lobito - Benguela 21% 23% 24% 25% 25% 64%
Average Time of Stay (in days) 6 6 6 6 6 -4% B. National Networks - (Mbits/seg)
Number of specialized examinations performed 10,033 9,711 28,567 31,011 79,322 -29% Luanda Malanje 11% 11% 12% 12% 12% 15% Luanda Soyo 49% 51% 51% 81% 81% 71%
In the period under review, there was a 5% increase Lobito Lubango 19% 19% 26% 27% 27% 169%
in the general care of Clínica Girassol, which reached Luanda Lobito 41% 43% 43% 43% 43% -73% 198 thousand patients. 1.2 Satellite - VSAT (MHZ)
The number of patients hospitalized at the Clinic A. Band - C 99% 97% 100% 100% 100% 1%
decreased by 3% to 9,526, but an increase in the B. Band - Ku 100% 100% 100% 100% 100% 0% average hospital occupation rate by 7% was verified when compared to 2015. 2. Volume of Services Rendered Telephony (no. telephone lines) 34,681 34,564 34,011 34,224 34,224 -0.4% Due to the current economic context and the difficulty Voice Traffic (minutes) 22,338,984 24,714,138 23,376,294 20,670,519 91,099,935 6% in importing equipment and medicines, the increase in patient flow (5%) was not reflected in an increase 3. Customers in imaging tests, which decreased by 12%, while Average number of complaints p/ 100 Customers 4.70 4.54 4.05 4.72 4.63 8% Satisfaction Index of Costumers MST specialized examinations decreased by about 30%. 3.6 3.6 3.6 3.6 3.6 n.a. Following these factors, the surgeries had a decrease (range from 1 to 10) of 24% compared to 2015. With regard to the rendering of internet services, During the year 2016, Clínica Girassol, within the the utilization rate of fiber optic capacity in the metro framework of the Sonalight program, implemented a networks was 100% (+ 10%) for the Luanda network and rigorous efficiency program, and the set of initiatives 25% (+ 64%) for the Lobito-Benguela, during the year carried out allowed a significant gain in EBITDA. 2016. The increase in the utilization of installed capacity resulted from the activation and upgrades of several services, in response to customers’ requests. The rates of use of the C-Band and Ku-Band satellites remained practically unchanged compared to the same period of the previous year. As a result of the economic situation and efficiency measures in the sector, telephony services registered a slight reduction of 0.4% compared to 2015. Voice traffic services grew by 6% over the same period, as a result of increased interconnection to customers.
66 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 67 In spite of the overall positive trend in operating 5.5.5 TRAINING – ACADEMIA SONANGOL results, the telephony business presents significant challenges to overcome, particularly in the profitability Despite the challenging economic environment, of ongoing investments, in a context where competition Sonangol continued its effort to train human is more aggressive. The company is investing in its resources, not only of Sonangol, but also the of oil own infrastructure. sector and the economy in general. As such, 1,646 training actions were performed in 2016, representing a decrease in the order of 3% over the previous year. 5.5.4 REAL ESTATE MANAGEMENT - SONIP In terms of workload, 16,609 hours were administered in 76 courses. Compared to the same period of 2015, The year 2016 was marked by an effort to adjust there were reductions of 26% and 7%, in the hours Sonip’s activity to the reality and transformation of training and in the number of courses given, guidelines of the Sonangol Group. In this sense, respectively. the new Executive Committee has prioritized the identification and implementation of measures with TABLE 36 immediate impact on cost containment and revenue MAIN INDICATORS OF EDUCATION AND TRAINING collection, as well as the rigorous collection and Execution 2016 Operational Indicators analysis of management information essential for 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Variance decision-making. It should be noted that certain 1. TRAINING concrete measures such as the execution of due 1.1 Number of training courses (Unit) 437 458 425 326 1,646 -3% diligence (both the company and its assets), the 1.1.1 Petrotechnic and Engineering school - - 1 1 2 91% concentration of some workplaces of different 1.1.2 Leadership and management school - - - 6 6 87% subsidiaries, the release of leased premises from third 1.1.3 Safety school 437 458 424 319 1,638 1% parties, renegotiation or revocation Of several leasing 1.2 Number of training hours 4,067 4,766 4,264 3,512 16,609 -26% contracts to third parties, focusing on a greater 1.2.1 Petrotechnic and Engineering school - - 28 28 56 -97% effectiveness in the billing and collection of rentals 1.2.2 Leadership and management school - - - 144 144 -96% to the assets of Sonip or under its management 1.2.3 Safety school 4,067 4,766 4,236 3,340 16,409 -2% (both at corporate and /residential level) and the 1.3 Number of courses given 17 18 19 22 76 -7% delivery of the projects in the final phase (e.g. Largo 1.3.1 Petrotechnic and Engineering school - - 1 1 2 -89% do Ambiente) and the freezing of all projects under 1.3.2 Leadership and management school - - - 1 1 -97% 1.3.3 Safety school 17 18 18 20 73 181% way until a review of their viability in the light of the 1.4 Number of trainees 4,485 4,493 3,740 2,627 15,345 -14% macroeconomic context. 1.4.1 Petrotechnic and Engineering school - - 11 4 15 -94% Regarding the Cajueiro cooperative, a total of 28 1.4.2 Leadership and management school - - - 80 80 -88% properties were sold to the partners in the various 1.4.3 Safety school 4,485 4,493 3,729 2,543 15,250 -10% condos: M’bembo M’bote, Mazozo and Jardins 2. EDUCATION AND TEACHING Talatona. 2.1 Quality and teaching 2.1.1 Teacher's Assessment - - 24% 24% 24% -65% TABLE 35 2.1.2 Ratio student/teacher - 15% 13% 13% 14% 13% SOLD REAL ESTATE 2.1.3 Ratio Teacher with Master and Phd/Teacher 47% 49% 48% 46% 48% 11% Begining Final % per 2.1.4 Success rate - - 22% 43% 33% -26% Condominium Sales Stock 2016 Stock Condominium 2.1.5 Rate of early school leavers - 2% 10% 14% 9% -62% M’bembo M’bote 23 5 18 22% 2.2 Scientific Production Mazozo 19 14 5 74% 2.2.1 Articles published in Journals with impact - - 2 3 5 400% 2.2.2 Participation in International Scientific events - - - 4 4 100% Jardins de Talatona 9 9 - 100% 3. SCHOLARSHIP TOTAL 51 28 23 55% 3.1 Number of scholarships offered 1,917 1,943 1,879 1,859 1,859 -15% 3.1.1 Internal 525 538 537 549 549 -30% 3.1.2 External 1,392 1,405 1,342 1,310 1,310 -6% 4. RECRUITMENT 4.1 Number of available vacancies ------100% 4.1.1 Filed Jobs (Direct Access) ------100% 4.1.2 Taining through the Academy ------100%
68 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 69 Under the scholarship program, the Academy GRAPHIC 19 5.6.2.2 HR TRANSFORMARTION • Introduce greater discipline in work with time managed a total of 1,859 scholarships, of which 549 WORKFORCE BY BUSINESS SEGMENT management; In the second half of 2016 an ambitious process of were internal and 1,310 external. • Turn culture into a culture of leadership. 2016 transformation of the entire Sonangol organization The Academy is responsible for managing the CORPORATE was started. This transformation affects both the AND FINANCE 25% scholarship process, with guidelines from Sonangol, NON CORE 22% central areas and all the subsidiaries. Ambitious In order to improve the opportunities of each in 5 main geographies: USA, UK, France, Brazil and and highly complex, the transformation process employee, a review of the Performance Assessment Portugal. In 2016 no new scholarships were granted, has as main objective to align the company with Model is underway to improve on the following but the current contracts with the fellows were the best practices of the sector, with regard to its aspects: maintained. organizational design, dimensioning, as well as The Safety school continues to teach safety courses identification and motivation of the best talent in the • Gains in efficiency and results at work, and focus EXPORATION AND staff. on performance; to the oil industry, certified by international maritime PRODUCTION 19% authorities. The material of its maritime training As part of the transformation project, and in view • Less subjectivity with a focus on relevant and center is fully certified according to ISO 9000. In 2016, of the importance for the whole Group, Sonangol measurable objectives; 15,250 trainees were trained in 1,638 training courses. LOGISTICS REFINING AND started a thorough restructuring of its Corporate HR AND DISTRIBUTION28% TRANSPORTATION6% • Greater commitment and responsibility from Directorate in late 2016 to achieve seven objectives: stakeholders; • Position Human Resources as a true strategic Sonangol E.P. was the most represented company, • Promotion of meritocracy with fair career moves. 5.6 WORKFORCE BY BUSINESS SEGMENT with 25% of the active labor force, followed by partner of the business; Sonangol Distribuidora with 18%. By business • Create a more agile, fast and efficient segment, the largest portion of the workforce is organizational structure; At the same time, Sonangol began a new Competency 5.6.1 FINANCING concentrated in the Logistics and Distribution segment Assessment project to identify the potential for human (28%), followed by the Corporate and Financial • Optimize Sonangol resources to perform functions resources development at Sonangol. This ambitious segment (25%) and Non-Nuclear Business (22%). closer to their profiles; process, whose second phase will continue in 2017, During 2016, the company did not use international is critical to the Group’s human resources strategy, The labor force of Sonangol is represented mostly by • Increase process efficiency at both central and bank financing to finance its structuring capital aligning it with the ambition of excellence defined by men (61%). subsidiary levels; projects and other operating expenses, in accordance the Board of Directors. with the annual budget for the financial year. • Empower leaders to truly be managers of their GRAPHIC 20 teams; Undergoing this process of deep transformation, EFFECTIVE BY FUNCTIONAL BAND the launch of a Change Management program 5.6.2 HUMAN RESOURCES
OPERATIONAL AND MANAGERS 11% ADMINISTRATIVE SUPPORT 34% 5.6.2.1 ACTUAL COMPOSITION SPECIALISTS 7% In order to carry out the 2016 activity, the company had a total effective staff of 7,980 active employees, representing a decrease of 4% over the same period of 2015.
GRAPHIC 18 NUMBER OF SONANGOL EMPLOYEES
3,000
2,500 2,416 2,264 2,120 2,012 2,000 TECHNICAL 1,7381,751 FUNCTIONS 48%
1,500 1,486 1,481
1,000 In terms of the distribution of effective employees 481 511 500 by functional band, 48% belonged to the technical category, 34% to the Operational and Administrative 0 Support category, 11% to the Manager category and 7% to the Specialist category.
NON CORE The average age of Sonangol employees is 43 years. LOGISTICS AND DISTRIBUTION CORPORATE AND FINANCE EXPORATION AND PRODUCTION REFINING AND TRANSPORTATION 2016 2015
70 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 71 was prepared in 2016 to promote the cultural and • Reinforcement of various operational behavioral change necessary to: procedures leading to a 55% reduction in the number of fatal accidents and the reduction of • Promote a culture of excellence, profitability, spilled quantities; rigor, transparency and commitment; • Several awareness campaigns were carried • Align processes and incentives to recognize and out, such as (1) Condução Segura Campaign/ hold individual actions accountable; Sonangol 40 years, which was attended by • Strengthen company processes and policies the Direção Nacional de Viação e Trânsito, to ensure business and professional behavior workshops and exhibitions at national level. according to the highest ethical standards. Also worthy of note is the Botas no Terreno Campaign, in which visits were made to the operational areas of Sonangol E.P.. 5.6.3 ORGANIZATION AND CORPORATE PROCESSES • Environment With regard to environmental management, it 5.6.3.1 NEW QSSA POLICY was sought to safeguard the resource needs Sonangol’s QSSA Policy aims to ensure the for business continuity and mitigation and identification of operational, SSA (System Safety / or elimination of potential impacts to the Assessment) and legal risks of the organization, environment. Thus, the following programs were and, in parallel, ensure that measures are in place highlighted in 2016: to mitigate such exposure. In order to fulfill this • Program for the reduction of natural objective, a set of initiatives was carried out with a resources (water, paper and energy); transversal impact on the whole Sonangol group and • Proper waste disposal; its employees: • Recycling program for tires, oils and other • Quality: wastes; • With regard to Quality Management, the • Environmental awareness actions with business unit processes and SNL E.P.’s exhibitions and environmental campaigns. strategy were approved; • Critical business processes were reviewed and audited at SONACI, Sonagás and Shipping. Quality Management Systems were audited 5.6.4 CONSOLIDATION OF CORPORATE PROCESSES in comparison with the international quality management standard, ISO 9001: 2008; During the course of 2016, under the ongoing Transformation program, Sonangol’s Board of • At SNL Logística e Distribuidora, the QSSA Directors made a considerable effort to consolidate and Operational Areas’ compliance with the corporate processes with an emphasis on purchasing Quality requirements was evaluated. management and increased control of payments. • Safety A new centralized purchasing process has been implemented that allows leveraging efficiency gains Sonangol’s activity was centered on guaranteeing by reducing the number of interfaces and suppliers, compliance with legal requirements, reducing the favoring economies of scale and cost reductions by Rate of Accidents with Absence and the transition bundling. from the QSSA Culture Stage from level 1 to level 2.
72 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 73 06 COMMITMENT TO SOCIETY
74 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 75 06
COMMITMENT TO SOCIETY
Transform resources into social welfare • The quality of 2,7 million meals served to employees throughout the country was monitored, Sonangol is committed to the sustained development associated with the implementation of projects and stabilization of the Angolan nation. Sonangol and actions in the field of education and food works to improve the conditions for the development safety. of Angola by supporting projects in the areas of education, culture, sports, science and environment. • As part of the implementation of the Quality of Life at Sonangol Program, 1,170 employees Sonangol supervises the execution of social projects were sensitized and 250 employees followed as well as the relationship with the operators in its with opportunities for improvement of different Social Investment Plans (PIS), financed through Cost subsidiaries. In addition to the monitoring and of Oil or Subscription Bonuses. To this end, three monitoring of the 480 children who attended the priority strategic lines were defined with the following kindergartens. developments in 2016:
The External Social Responsibility is based on the Internal Social Responsibility commitment of Sonangol and its partners with the • A total of 1,620 social services were provided in communities: the most diverse areas of social intervention to the • In 2016, 54 Social Investment Projects (PIS) of various users. SONANGOL and its partners were monitored in • In its various campaigns, more than 3 thousand different oil concessions and made available to children were included by PROCIVO and the 15 PIS community of “Cost Oil. Of the more distributed by institutions in several provinces than 300 applications for Sponsorships, 37 were more than 3 tons of diverse goods, collected approved. among employees.
76 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 77 07 PROSPECTS FOR THE FUTURE
78 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 79 07 The attractiveness of the national oil sector should 7.3 IMPLEMENTATION OF THE also be ensured by its efficiency and by reducing the costs of operating in Angola. Sonangol is strongly TRANSFORMATION PROGRAM committed to this purpose, and is implementing measures and programs that will allow to reduce As mentioned above, in view of the current economic PROSPECTS FOR the cost of production in the country, in a sustained context and on the basis of the results of the diagnosis manner. made to Sonangol, its Management Board identified the need to prioritize the operational transformation of As for the national economy there are quite THE FUTURE the company and created an ambitious transformation encouraging signs in the capacity of evolution and program based on five (5) strategic pillars that aim not diversification of the national business fabric. only to deal with the challenges that the company is Development in non-oil exporting sectors and in currently facing but also to prepare it for the future, import substitution sectors (such as agriculture making it more sustainable. and manufacturing) is palpable. Sonangol will be an 7.1 EVOLUTION OF THE NATIONAL AND • Demand for oil is stable, with new production attentive and participatory agent in promoting the The strategic pillars on which this program is based sources being needed to fill the production gap; diversification of the economy whenever and wherever are: cost reduction - through the Sonalight program; INTERNATIONAL CONTEXT it can, to participate in projects of high impact and Revenue growth through the Sonaplus program; • The demand for gas is increasing but does not creation of value. Process Redesign and Organizational Optimization threaten the consumption of oil; After a five-year slowdown in economic growth, in order to evolve processes and organization in line prospects for emerging economies recovered in 2016, • Operators are diversifying gas and unconventional with best practices, and Culture Change focusing reaching a 4.6% growth in 2016 and a 4.5% forecast production portfolio. on profitability, excellence, rigor, transparency and for 2017. According to the International Monetary Fund 7.2 NEW PRODUCTION commitment. (IMF WEO Update, January 2017), this recovery, of The successful implementation of this program, Given the slight recovery in the world economy and the In the current framework, in order to maintain which Angola will be a beneficiary, can be justified by launched in 2016, is the base matrix that will guide the continued demand for oil, a new investment cycle in production levels that allow the development some factors, namely: action of the Board of Directors in 2017. industry is expected to start but under a new paradigm of Sonangol and, more critically, the release of • The stabilization of the Chinese economy and in which: resources to the State as a shareholder, Sonangol prospects for emerging from the crisis by Brazil • Despite the encouraging outlook for 2017, should continue to make an effort to maintain national and Russia; investment levels will remain well below 2014 production volumes of oil and gas at current or, if • Significant recovery of commodity prices; levels, indicating a capital constraint; appropriate, higher levels, focusing on the creation of value (not merely volumes). • The prospect of increased investment, which was • The reduction of investments from 2013 to initially encouraged by a context of low interest 2016 prevented replenishment of operators’ It is essential that Sonangol E.P. guarantees new rates in developed economies, but is currently reserves, being that a new investment cycle is production projects for both oil and gas and should reversing. expected; encourage the implementation of a range of measures that could lead to this, inter alia, without being • Operators will continue to have difficult debt exhaustive: In the world oil industry, there is a general consensus access for new projects; • Sonangol must guarantee the financial flexibilityto that, despite the expected increase in demand (largely • The level of risk will be an increasingly important match the investment demands in the blocksin driven by the recovery of emerging economies and criterion for Operators, who favor opportunities which it participates; the prospect of robust growth - although not too for fast payback and lower breakeven. fast - in developed economies), the proliferation of • Sonangol should also encourage projects in alternative sources of hydrocarbon supply has altered blocks with reduced investment or without the structure of the global supply curve. Therefore, In addition, traders have been concerned about Sonangol’s participation; it is not expected that the crude price will recover the tax regimes of producing countries, with some • It will be urgent to re-evaluate the exploration and rapidly to the levels of 2013 and 2014. As for gas, countries, notably the United Kingdom, Brazil and to plan bidrounds plans; according to data published by Rystad in 2017, despite India, already taking steps to maintain production the prospects for the future foreseeing a material and make it more profitable to attract investment. • In the current context of greater risk aversion increase in demand, this, although important, will not For producing countries this means that in order to and focus on profitability, it is critical to evaluate be enough to replace the demand for oil. In short, remain competitive and attractive to investment from opportunities for less investment and evaluate we can identify three major trends in the industry operators, they must re-analyze their tax regime and complementary models to the PSA for large worldwide: consider trade incentives. investments; • The current lack of gas matrix discourages investment in fields with high gas reserves so it is crucial that a gas matrix is defined and the exploitation of this resource encouraged.
80 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 81 08 PROPOSAL FOR THE APPLICATION OF THE RESULTS
82 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 83 08 PROPOSAL FOR THE APPLICATION OF THE RESULTS
Sonagol E.P. closed the 2016 financial year with a positive net profit of AOA 13,281,678,224 calculated in accordance with the Companies Act 1/04, of 13 February. The Board of Directors proposes, under legal terms, that the net result for the year 2016 be applied as follows: • 10% for constitution of the legal reserve, whose cumulative amount must not exceed 2% of the statutory capital; • At least 10% for the establishment of the fund for the evaluation of exploration potentials for hydrocarbon resources; • At least 5% for the other investments fund; • Up to 5% for the social fund; • The remaining amount applied to Retained Earnings.
Luanda, June 30, 2017
The Board of Directors
84 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 85 09 ANNEX
86 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 87 09 ST B) CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 DECEMBER 2016
31-12-2016 31-12-2015 ANNEX AOA AOA
9.1 CONSOLIDATED STATEMENT OF PROFIT & LOSS Sales 2,283,777,182,435 2,204,629,805,500 FOR THE YEAR ENDED 31ST DECEMBER 2016 Services rendered 153,224,082,059 125,507,581,433 Other operational income 14,892,561,009 19,548,358,800 A. FINANCIAL BALANCE SHEET 2,451,893,825,503 2,349,685,745,733 31-12-2016 31-12-2015 AOA AOA Variation in finished products 3,836,578,246 3,704,162,142 Assets Non-current Assets Concessionaire cost (sales on behalf of the State) (895,401,469,527) (896,003,230,503) Tangible fixed assets 937,802,927,657 816,000,337,114 Cost of goods sold and raw materials consumed (387,384,114,574) (470,572,686,343) Intangible assets 65,059,719,976 30,085,222,003 Oil&Gas exploration and operating costs (265,076,687,029) (241,180,301,496) Oil&Gas upstream assets 2,447,205,577,713 1,685,112,617,507 Payroll (157,888,458,184) (135,030,918,980) Reversible assets 167,395,967,501 - Exploration and evaluation assets 724,759,575,062 126,797,283,209 Depreciation (369,588,981,285) (326,668,631,760) Investments in subsidiaries and associates 470,928,863,134 684,095,454,331 Other operational costs (224,713,290,176) (224,937,544,983) Other financial assets 178,422,503,244 239,006,873,583 (2,296,216,422,529) (2,290,689,151,924) Other non-current assets 613,187,525,103 1,540,099,649,526 Bank deposits 222,410,168,298 - Total Non-current Assets 5,827,172,827,688 5,121,197,437,272 Operational Income 155,677,402,974 58,996,593,809
Current Assets Inventories 100,547,093,054 112,145,562,903 Financial income and expenses (54,032,242,686) 112,717,710,570 Accounts receivable 745,937,958,438 476,802,584,626 Result of affiliates 4,155,000,522 36,150,780,982 Cash and equivalents 826,942,310,235 612,012,426,498 Other current assets 8,080,175,562 24,601,830,659 Non-operating income and expenses (8,528,579,984) (102,571,154,705) Total Current Assets 1,681,507,537,289 1,225,562,404,685 (58,405,822,148) 46,297,336,848
Total Assets 7,508,680,364,977 6,346,759,841,957 Income before taxes 97,271,580,826 105,293,930,657 Equity and Liabilities Equity Taxation (84,068,375,918) (57,200,225,969) Capital 1,946,558,748,877 1,285,386,630,238 Reserves and retained earnings 338,098,712,393 658,012,125,318 Translation adjustments (financial statement conversion) 838,166,239,916 538,546,953,088 Current activities net income 13,203,204,908 48,093,704,688 Income for the year 13,281,678,224 47,168,755,661 Total Equity 3,136,105,379,410 2,529,114,464,306 Extraordinary income and expenses 78,473,316 (924,949,027) Non-Current Liabilities Medium and long term loans 1,144,568,504,953 1,399,951,616,146 Employee benefit liability 104,559,096,058 90,517,865,013 Net income 13,281,678,224 47,168,755,661 Provisions for other risks and charges 1,222,092,751,908 840,762,821,277 Other non-current liabilities 137,700,246,412 105,387,334,355 Total Non-Current Liabilities 2,608,920,599,331 2,436,619,636,790
Current Liabilities Accounts payable 1,151,232,809,152 844,493,052,874 Short term loans 507,473,441,589 450,746,221,639 Other current liabilities 104,948,135,494 85,786,466,348 Total Current Liabilities 1,763,654,386,236 1,381,025,740,861 Total Liabilities 4,372,574,985,567 3,817,645,377,652
Total Equity and Liabilities 7,508,680,364,977 6,346,759,841,957
88 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 89 9.1 C) STATEMENT OF CONSOLIDATED CASH FLOWS 9.2 REPORT OF THE INDEPENDENT AUDITOR ON THE CONSOLIDATED ACCOUNTS
AS OF DECEMBER 31, 2016
31-12-2016 31-12-2015 AOA AOA Cash Flows of Operational Activities Customers reimbursements 2,278,348,412,578 1,521,584,831,534 Suppliers payments (1,615,184,518,515) (861,393,859,993) Payroll payments (158,012,847,123) (136,730,464,995) Independent auditor’s report
Cash related with operations 505,151,046,940 523,460,506,546 Payment/Receivables related with taxes (124,959,795,905) (72,547,080,021) To the Board of Directors of Sonangol – Sociedade Nacional de Combustíveis de Angola, E.P. Other Payments/Receivables (93,783,699,526) (12,876,710,582) Exchange rate differences on operational activities 253,413,671 220,217,733,426 Introduction Cash Flows from Operational Activities [1] 286,660,965,181 658,254,449,368 Cash Flows of Investing Activities 1 We have audited the accompanying financial statements of Sonangol – Sociedade Nacional de Combustíveis de Angola, E.P. (“Sonangol EP”) and of the companies included in the scope of Payments related to: consolidation as defined by the Board of Directors (together “Grupo Sonangol”), comprising the consolidated balance sheet as at December 31, 2016 which shows total assets of 7,508,680,365 thousands of Tangible fixed assets (108,069,924,072) (82,546,664,592) Kwanzas (“AOA”) and total equity of AOA 3,136,105,379 thousand, including income for the year of AOA Intangible assets (29,328,130,338) (240,273,787) 13,281,678 thousand, the consolidated income statement by nature for the year then ended and the corresponding notes to the consolidated financial statements. These consolidated financial statements have Oil&Gas upstream assets (447,640,264,982) (597,748,320,382) been prepared in accordance with the accounting policies described in note 2 of the notes to the Financial Investments 0 (93,215,170,654) consolidated financial statements.
Real Estate Investments (10,900,820,321) (5,437,682,886) Directors’ responsibility for the financial statements Receivables related to: 2 The directors are responsible for the preparation and fair presentation of these financial Financial Investments 86,645,166,117 11,783,333,201 statements in accordance with the accounting policies described in note 2 of the notes to the consolidated financial statements and for such internal control, as the directors determine necessary to enable the Interest and similar income 9,553,186,272 5,443,752,865 preparation of financial statements that are free from material misstatements, whether due to fraud or Dividends 4,155,000,522 44,895,474,784 error.
Exchange rate differences on investing activities (99,735,854,512) (694,398,928,798) Auditor’s responsibility Cash Flows from Investing Activities [2] (595,321,641,315) (1,411,464,480,249) 3 Our responsibility is to express an independent opinion on the consolidated financial Cash Flows of Financing Activities statements based on our audit, which has been conducted in accordance with Technical Standards Receivables related to: issued by the Institute of Statutory Auditors ‘‘Ordem dos Contabilistas e Peritos Contabilistas de Angola”Those standards require that we comply with ethical requirements and plan and perform our Loans 0 125,783,212,871 audit to obtain reasonable assurance that the financial statements are free from material misstatement. Capital increases and other equity instruments 672,486,100,000 67,994,200,000 Payments related to: 4 An audit involves performing procedures to obtain audit evidence regarding the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s Loans (586,521,578,372) (390,853,552,219) judgement, including the assessment of the risks of material misstatement of the consolidated Ordinary Loans (414,690,054,563) (390,853,552,219) financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial Prepayments (171,831,523,810) 0 statements in order to design audit procedures that are appropriate under the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit Interest and similar charges (48,511,431,177) (71,661,833,469) also includes evaluating the appropriateness of accounting policies used and the reasonableness of Exchange rate differences on financing activities 376,551,705,769 471,410,821,814 accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements. Cash Flows from Financing Activities [3] 414,004,796,220 202,672,848,997 Changes in cash and cash equivalents [1]+[2]+[3]=[4] [4] 105,344,120,085 (547,766,808,325) 5 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. Impact of exchange rate differences 331,995,931,951 398,127,542,893 Cash and cash equivalents at the beginning of the year 612,012,426,498 699,545,177,413 Cash and cash equivalents at the end of the year 1,049,352,478,534 612,012,426,498
PricewaterhouseCoopers (Angola), Limitada Edifício Presidente - Largo 17 de Setembro, n.º 3, 1º andar – sala 137, Luanda- República de Angola T: +244 227 286 109, www.pwc.com/ao
90 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 91 Basis for qualified opinion Qualified opinion
6 Sonangol Group has several types of transactions with the State of Angola, including those 10 In our opinion, except for the possible effects of the matters described in paragraphs 6 to 9 related to its activity as National Concessionaire. This activity is reflected in the contracts with the under the section “Basis for qualified opinion”, the consolidated financial statements of Sonangol – Contractor Groups which define, amongst others, the financial terms related to bonuses, provisions for Sociedade Nacional de Combustíveis de Angola, E.P. and of the companies included in the scope of abandonment, price caps and surface rents. As disclosed in notes 9, 18 and 19 of the notes to the consolidation as defined by the Board of Directors referred to in paragraph 1 above have been prepared in consolidated financial statements, the consolidated balance sheet as at December 31, 2016 includes the all material respects in accordance with the accounting policies described in Note 2 of the Notes to the following balances resulting from those transactions which, relate to financial transactions with the consolidated financial statements. National Treasury in the Group’s role as National Concessionaire: accounts receivable amounting to AOA 25,531,093 thousand (2015: AOA 5,924,124 thousand) and accounts payable amounting to AOA 436,248,242 thousand (2015: AOA 332,742,218 thousand). We have been unable to determine if these Luanda, June 26, 2017 balances reflect adequately all underlying transactions, rights and obligations.
7 Exploration and evaluation assets as at December 31, 2016 include AOA 215,035,603 thousand For PricewaterhouseCoopers (Angola), Limitada and AOA 310,003,279 thousand of investments in Block 21.09 and Block 31, respectively. As stated in note 5A of the notes to the consolidated financial statements, the recoverability of the investment in (This is merely a free translation, not signed) Block 21.09 depends on the definition of a gas exploration regulatory framework while the recoverability of the investment in Block 31 is dependent on the implementation of more efficient exploration techniques. Given the inherent uncertainty regarding these assumptions, we are unable to conclude, with the necessary precision, on the recoverability of these investments.
8 Tangible fixed assets, other financial assets, inventories and accounts receivable in the consolidated balance sheet of Sonangol EP include AOA 44,408,188 thousand (AOA 2015: 29,703,097 thousand), AOA 81,870,578 thousand (2015: AOA 62,144,614 thousand), AOA 5,731,951 thousand (2015: AOA 7,747,097 thousand) and AOA 22,279,960 thousand (2015: AOA 10,146,190 thousand), respectively, related to non-core segments for which there is an ongoing internal reconciling process as well as several actions to enable their recoverability. As such, we are unable to conclude on these balances and on the effect that potential adjustments resulting from these processes, if any, may have on the consolidated financial statements as at December 31, 2016.
9 As stated in note 2.3 of the notes to the consolidated financial statements, Sonangol EP changed its accounting policy in respect of the recognition of physical assets acquired by Contractor Groups under the terms of Production Sharing Agreements signed with the National Concessionaire, that attribute ownership of these assets to Sonangol (“Concessionaire Assets”), being these assets now presented in the balance sheet. As such, the consolidated balance sheet item Reversible assets as at December 31, 2016 includes AOA 167,395,968 thousand related to those assets that Sonangol EP was able to identify as at that date. There is an ongoing process to value and identify all Concessionaire Assets, but Sonangol EP has not yet been able to obtain the required information from all Block operations. As such, we are unable to determine the impact, if any, that the conclusion of this exercise might have on the consolidated financial statements at December 31, 2016.
92 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 93 iii. The Management Report is sufficiently clear of the business evolution and 9.3 OPINION OF THE FISCAL COUNCIL ON THE CONSOLIDATED ACCOUNTS the position of the Company, as well as of the group of companies included in the consolidation perimeter. AS AT 31ST DECEMBER 2016 5. In this terms, taking in consideration the information received from the Board of Sociedade Nacional de Combustíveis de Angola, E.P. Directors and other departments of the Company, as well as the conclusions included within the independent auditor report, the Supervisory Board
recommends to the Board of Directors to follow with the actions that will lead to (Free Translation from the original in Portuguese) the transformation of SONANGOL, E.P., having as reference the vision of the OPINION OF THE SUPERVISORY BOARD Shareholder, as well the intention to solve the qualifications raised.
TO THE MANAGEMENT REPORT AND TO THE CONSOLIDATED FINANCIAL 6. To the Shareholder, the Supervisory Board proposes: STATEMENTS, AS OF THE ECONOMIC PERIOD ENDED AT 31 DECEMBER 2016 a) To approve the Management Report and the Group Financial
Statements of the economic year ended 31 December 2016;
Dear representatives of the shareholder (State) of the b) That the net results of the period are applied in company’s operations, taking into consideration the need to leverage the main business units Sociedade Nacional de Combustíveis de Angola, E.P. and to generate a higher cash surplus; and,
c) To keep supporting the transformation strategy of the Sonangol Group, 1. In compliance with the legal requirements in place, it is our responsibility, as having as objective a higher efficiency of the entire petroleum sector members of the Supervisory Board of Sociedade Nacional de Combustíveis de chain and a higher added value to the shareholder and remaining Angola, E.P.(SONANGOL E.P.), to issue an opinion on the Management stakeholders. Report, the annual consolidated Financial Statements and additional reporting statements, presented by the Board of Directors for the year ended 31 December 2016. Luanda, 30 of June 2017 2. The Supervisory Board, after the closure of the consolidated accounts, assessed the reporting documents, such as, the management report, balance Sheet, Profit and Loss Statement and related explanatory Notes. SUPERVISORY BOARD 3. The Supervisory Board, also reviewed the independent auditor Report and became aware of the nature of the qualifications raised.
Emílio Londa 4. From the Board of Directors and other departments we always obtained the requested clarifications, in a context of high level of cooperation. Based on the (President) work performed, we concluded that:
i. The consolidated financial statements, and the respective annexes, allow a proper comprehension of the financial situation and Company results - André Goma within the limits of the consolidation perimeter and qualifications raised by (Vowel) the independent auditor;
ii. The accounting policies and valuation methods adopted were the more suitable, having as reference the General Accounting Plan of Angola (PGC) Hélder Gourgel and the International Financial Reporting Standards (IFRS); and, (Vowel)
94 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 95
DETAILED INDEX 1 LETTER TO THE SHAREHOLDERS 6 2 SONANGOL E.P. 10 2.1 BUSINESS MODEL OF SONANGOL, E.P 12 2.2 CORPORATE BODIES 15 3 STRATEGIC FRAMEWORK 18 3.1 INTERNACIONAL FRAMEWORK 20 3.2 NATIONAL CONTEXT 20 3.3 SONANGOL CONTEXT 21 3.4 SONANGOL STRATEGY 21 3.4.1 INITIATIVES OF RESPONSE TO THE EMERGENCY SITUATION 21 3.4.2 RELEASE OF NEW SONANGOL STRATEGY 22 4 SUMMARY OF RESULTS 24 4.1 EXECUTIVE SUMMARY 26 4.2 OPERATING PERFORMANCE – EBITDA 26 4.3 OPERATING PERFORMANCE – NET INCOME 27 4.4 INVESTMENTS 27 5 PERFORMANCE BY BUSINESS SECTOR 30 5.1 CONCESSIONAIRE 32 5.1.1 EXPLORATION 33 5.1.1.1 BIDS 33 5.1.1.2 SEISMIC ACQUISTION 33 5.1.1.3 SEISMIC PROCESSING 34 5.1.1.4 SURVEY-EXPLORATION ACTIVITY AND EVALUATION 35 5.1.1.5 RESOURCES DISCOVERED 37 5.1.1.6 DEVELOPMENT PROJECTS 37 5.1.2 CRUDE OIL & GAS PRODUCTION 38 5.1.2.1 CRUDE OIL PRODUCTION 38 5.1.2.2 CRUDE OIL RIGHTS OF NATIONAL CONCESSIONAIRE 43 5.1.2.3 GAS PRODUCTION 44 5.1.2.3.1 PRODUCTION OF ASSOCIATED NATURAL GAS 44 5.1.2.3.2 LPG PRODUCTION 45 5.1.2.3.3 LPG AND CONDENSATES PRODUCTION 46 5.1.3 ECONOMIC MANAGEMENT OF CONCESSIONS 46 5.1.3.1 PRODUCTION COSTS 46 5.1.4 CONCESSIONAIRE EXPORTS 47 5.1.4.1 RECOVERY OF INVESTMENTS MADE IN PRODUCTION CONCESSIONS 47 5.2 PRIMARY VALUE CHAIN – UPSTREAM SEGMENT 48 5.2.1 PRODUCTION OF GROSS OIL OF SONANGOL INVESTOR 49 5.2.2 GAS PRODUCTION OF SONANGOL E.P 50 5.2.2.1 LPG PRODUCTION 50 5.2.2.2 LPG AND CONDENSATES PRODUCTION 51 5.2.2.3 STRUCTURAL PROJECTS OF THE UPSTREAM VALUE CHAIN 51
96 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 97 5.3 PRIMARY VALUE CHAIN – MIDSTREAM SEGMENT 51 CAPTIONS 5.3.1 REFINING BUSINESS 52 5.3.2 CRUDE OIL, REFINED AND GAS TRANSPORTATION BUSINESS 55 GRAPHICS: 5.3.3 STRUCTURING PROJECTS OF THE VALUE CHAIN MIDSTREAM 56 GRAPHIC 1 – BRENT PRICE EVOLUTION BETWEEN 2014 AND 2016 20 5.3.3.1 CONSTRUCTION PROJECT OF REFINARIA DE LOBITO 56 GRAPHIC 2 – EVOLUTION OF GDP GROWTH 2010 – 2016 (%) 20 5.4 PRIMARY CHAIN - DOWNSTREAM SEGMENT 56 GRAPHIC 3 – EVOLUTION OF THE INFLATION RATE 2010 – 2016 (%) 21 5.4.1 LOGISTICS BUSINESS 57 GRAPHIC 4 – 2016 EBITDA BY SEGMENT 26 5.4.1.1 PROCUREMENT 57 GRAPHIC 5 – 2016 NET INCOME BY SEGMENT 27 5.4.1.2 STORAGE 58 GRAPHIC 6 - EXECUTION OF INVESTMENTS BY SEGMENT 28 5.4.2 DISTRIBUTION BUSINESS 59 GRAPHIC 7 – CRUDE OIL PRODUCTION IN ANGOLA BY BLOCK 39 5.4.2.1 DISTRIBUTION 59 GRAPHIC 8 – CRUDE OIL PRODUCTION BY OPERATOR 41 5.4.3 INTERNATIONAL DISTRIBUTION 61 GRAPHIC 9 – CONCESSIONAIRE’S GROSS OIL RIGHTS BY BLOCK 44 5.4.3.1 CRUDE OIL 61 GRAPHIC 10 – LPG PRODUCTION BY ORIGIN 45 5.4.3.2 PRICE OF THE ANGOLAN TYPE 63 GRAPHIC 11 – PRODUCTION PROFILE OF REFINED PRODUCTS 54 5.4.3.3 EXPORT OF REFINED PRODUCTS 63 GRAPHIC 12 – REFINED PRODUCTS AND GAS TRANSPORTATION 56 5.5 NON-NUCLEAR BUSINESS 64 GRAPHIC 13 - DISTRIBUTION OF REFINED PRODUCTS BY BUSINESS SEGMENT 59 5.5.1 AVIATION - SONAIR 64 GRAPHIC 14 – MARKET SHARE BY BUSINESS SEGMENT 60 5.5.2 HEALTH - CLÍNICA GIRASSOL 66 GRAPHIC 15 - EXPORTS OF CRUDE OIL BY TYPE 62 5.5.3 TELECOMMUNICATIONS - MSTELCOM 67 GRAPHIC 16 - EVOLUTION OF THE BRENT PRICE AND ANGOLAN TYPES 63 5.5.4 REAL ESTATE MANAGEMENT - SONIP 68 GRAPHIC 17 - EXPORT PROFILE OF REFINED PRODUCTS 64 5.5.5 TRAINING – ACADEMIA SONANGOL 69 GRAPHIC 18 - NUMBER OF SONANGOL EMPLOYEES 70 5.6 WORKFORCE BY BUSINESS SEGMENT 70 GRAPHIC 19 – WORKFORCE BY BUSINESS SEGMENT 70 5.6.1 FINANCING 70 GRAPHIC 20 – EFFECTIVE BY FUNCTIONAL BAND 70 5.6.2 HUMAN RESOURCES 70 TABLES 5.6.2.1 ACTUAL COMPOSITION 70 TABLE 1 –SONANGOL E.P.’S 2016 INVESTMENTS PROGRAM6 28 5.6.2.2 HR TRANSFORMATION 71 TABLE 2 – EXPLORATION ACTIVITY [SEISMIC ACQUISITION] 33 5.6.3 ORGANIZATION AND CORPORATE PROCESSES 72 TABLE 3 – SEISMIC PROCESSING COMPLETED 34 5.6.3.1 NEW QSSA POLICY 72 TABLE 4 – SEISMIC PROCESSING IN PROGRESS 35 5.6.4 CONSOLIDATION OF CORPORATE PROCESSES 72 6 COMMITMENT TO SOCIETY 74 TABLE 5 –EXPLORATION WELLS 35 7 PROSPECTS FOR THE FUTURE 78 TABLE 6 – EVALUATION WELLS 36 TABLE 7 – DEVELOPMENT WELLS 36 7.1 EVOLUTION OF THE NATIONAL AND INTERNATIONAL CONTEXT 80 TABLE 8 - HYDROCARBON RESOURCES DISCOVERED 37 7.2 NEW PRODUCTION 81 TABLE 9 – STATUS OF OIL PROJECTS 37 7.3 IMPLEMENTATION OF THE TRANSFORMATION PROGRAM 81 8 PROPOSAL FOR THE APPLICATION OF THE RESULTS 82 TABLE 10 – CRUDE OIL PRODUCTION IN ANGOLA 38 9 ANNEX 86 TABLE 11 – RIGHTS OF CRUDE OIL PRODUCTION BY COMPANIES 40 TABLE 12 – CRUDE OIL PRODUCTION BY OPERATOR 41 9.1 CONSOLIDATED FINANCIAL STATEMENTS 88 TABLE 13 – CONCESSIONAIRE’S GROSS OIL RIGHTS BY BLOCK 43 A) FINANCIAL BALANCE SHEET 88 TABLE 14 – PRODUCTION OF ASSOCIATED NATURAL GAS 44 B) CONSOLIDATED FINANCIAL STATEMENTS AS AT 31ST DECEMBER 2016 89 TABLE 15 – LPG PRODUCTION IN ANGOLA 45 C) STATEMENT OF CONSOLIDATED CASH FLOWS 90 TABLE 16 – OPERATION COSTS IN PRODUCTION CONCESSIONS 46 9.2 REPORT OF THE INDEPENDENT AUDITOR ON THE CONSOLIDATED ACCOUNTS AS OF DECEMBER 31, 2016 90 9.3 OPINION OF THE FISCAL COUNCIL ON THE CONSOLIDATED ACCOUNTS AS AT 31ST DECEMBER 2016 94
98 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 99 TABLE 17 – EXPORTATIONS MAP OF SONANGOL CONCESSIONAIRE 47 TABLE 18 – RECOVERED COSTS IN PRODUCTION CONCESSIONS 47 TABLE 19 – PRODUCTION OF GROSS OIL OF SONANGOL INVESTOR 49 TABLE 20 – LPG PRODUCTION SONANGOL SHARE 50 TABLE 21 – AVERAGE INSTALLED CAPACITY UTILIZATION RATE 53 TABLE 22 - VOLUME OF CRUDE OIL PROCESSED 53 TABLE 23 – REFINED PRODUCTION 53 TABLE 24 – VOLUME OF CRUDE OIL TRANSPORTED 55 TABLE 25 – VOLUME OF DERIVED PRODUCTS TRANSPORTED BY SEGMENT 55 TABLE 26 – ACQUISITION OF REFINED PRODUCTS BY ORIGIN 57 TABLE 27 - REFINING PRODUCTS PROCUREMENT 58 TABLE 28 – STORAGE CAPACITY 58 TABLE 29 - QUANTITIES OF DISTRIBUTED REFINED PRODUCTS 59 TABLE 30 – EXPORTS OF CRUDE OIL BY TYPES 61 TABLE 31 – QUANTITY OF EXPORTED REFINED PRODUCTS 63 TABLE 32 – MAP OF SONAIR OPERATIONAL INDICATORS 65 TABLE 33 - MAP OF OPERATIONAL INDICATORS OF CLÍNICA GIRASSOL 66 TABLE 34 – MSTELCOM INDICATORS MAP 67 TABLE 35 – SOLD REAL ESTATE 68 TABLE 36 – MAIN INDICATORS OF EDUCATION AND TRAINING 69
FIGURE FIGURE 1 –SONANGOL, E.P. AS AN INTEGRATED OIL AND GAS COMPANY 13 FIGURE 2 – CORPORATE MATRIX OF SONANGOL, E.P. AND OVERVIEW OF ITS SUBSIDIARIES 14 FIGURE 3 – DISTRIBUTION OF REFINED PRODUCTS BY REGIONS 60 FIGURE 4 – DESTINATION OF THE CRUDE OIL 62
100 MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016 101 CONSOLIDATED FINANCIAL STATEMENTS 2016 15.LOANS 179 15.1 International bank loans 179 CONTENTS 17.PROVISIONS FOR PENSION PLANS 179 17.1 Pension plans and termination benefits 181 17.2 Types of benefits plans and termination benefits 181 17.3 Liabilities with defined benefits plans and termination benefits 183 17.4 Actuarial gains and losses 183 17.5 Fair value of the plan assets 184 CONSOLIDATED FINANCIAL STATEMENTS: 17.6 Sensitivity analysis 185
CONSOLIDATED BALANCE SHEET 108 18.PROVISIONS FOR OTHER RISKS AND CHARGES 185 18.1 Details of provisions for other risks and charges 185 CONSOLIDATED STATEMENT OF PROFIT & LOSS 109 18.2 Provisions for law suits 185 18.3 Provisions for tax contingencies 186 STATEMENT OF CONSOLIDATED CASH FLOWS 110 18.4 Dismantling provision – Sonangol as an investor 186 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS: 18.5 Abandonment fund (Concessionaire) 186 1.ACTIVITY AND CORPORATE INFORMATION 114 19.OTHER NON-CURRENT LIABILITIES AND ACCOUNTS PAYABLE 187 19.1 Details of other non-current liabilities and accounts payable 187 2.ACCOUNTING POLICIES USED IN THE PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS 116 19.2 Transactions with the National Concessionaire 187 2.1 Basis of preparation 116 2.2 Judgment, estimates and significant assumptions used 119 19.3 State 189 2.3 Basis of valuation adopted in preparing the Consolidated Financial Statements 124 19.4 Creditors - mining activity 189 2.4 Changes in accounting policy 146 19.5 Pension fund 189 3.OPERATIONAL SEGMENTS 146 19.6 Creditors - Over lift 189 19.7 Other creditors 190 4.TANGIBLE FIXED ASSETS 150 21.OTHER CURRENT LIABILITIES 191 4.1 Tangible fixed assets 150 4.A. Oil and gas properties 152 22.SALES 192 4.B. Reversible assets 154 23.SERVICES RENDERED 192 5. INTANGIBLE ASSETS 154 24.OTHER OPERATIONAL INCOME 193 5.1 Details by nature 154 5.2 Movements during the period in gross amount 155 25.VARIATION IN FINISHED PRODUCTS 193 5.3 Movements during the period in accumulated depreciations 155 26.CONCESSIONAIRE COST (SALES ON BEHALF OF THE STATE) 194 5.A. Exploration and evaluation assets 156 27. COST OF GOODS SOLD AND RAW MATERIALS CONSUMED 194 6.FINANCIAL INVESTMENTS 158 27.A. Oil and Gas exploration and operating costs 194 6.1 Details by type of measurement 158 6.2 Details by entity – financial investments – cost less impairment losses 158 28.PERSONNEL COSTS 195 6.3 Details by entity – financial investments – fair value 160 29.DEPRECIATIONS 196 7.OTHER FINANCIAL ASSETS 162 30.OTHER OPERATIONAL COSTS 197 7.1 Details by nature 162 31.FINANCIAL RESULTS 198 8. INVENTORIES 166 32.RESULTS FROM SUBSIDIARIES AND ASSOCIATES 199 8.1 Details of the movements in inventories 166 33.NON-OPERATIONAL RESULTS 200 9.OTHER NON-CURRENT ASSETS AND ACCOUNTS RECEIVABLE 166 9.1. Details by nature 166 34.EXTRAORDINARY RESULTS 201 9.2 Participants and affiliates 167 35. INCOME TAXES 201 9.3 Other debtors 168 9.4 Concessionaire rights - asset 170 36.LIABILITIES NOT DISCLOSED IN THE BALANCE SHEET 201 37.CONTINGENCIES 201 10.CASH AND BANKS 171 10.1 Details by nature 171 38.EVENTS AFTER BALANCE SHEET DATE 202 10.2 Details of trading securities 173 39.GOVERNMENT AND OTHER ENTITIES SUBSIDIES 202 11.OTHER CURRENT ASSETS 173 40.BALANCES AND TRANSACTIONS WITH RELATED PARTIES 202 12.CAPITAL AND SUPPLEMENTARY CAPITAL CONTRIBUTIONS 174 41. INFORMATION REQUIRED BY LOCAL LEGISLATION 202 13.RESERVES AND RETAINED EARNINGS 175 42.FINANCING GUARANTEES 202 14 CONSOLIDATED FINANCIAL STATEMENTS
106 ANNUAL REPORT 2016 107 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED 31ST DECEMBER 2016
31-12-2016 31-12-2015 AOA AOA
CONSOLIDATED BALANCE SHEET Sales 22 2,283,777,182,435 2,204,629,805,500 AS AT 31ST DECEMBER 2016 Services rendered 23 153,224,082,059 125,507,581,433 Other operational income 24 14,892,561,009 19,548,358,800 31-12-2016 31-12-2015 2,451,893,825,503 2,349,685,745,733 AOA AOA Assets Non-current Assets Variation in finished products 25 3,836,578,246 3,704,162,142 Tangible fixed assets 4 937,802,927,657 816,000,337,114 Concessionaire cost (sales on behalf of the State) 26 (895,401,469,527) (896,003,230,503) Intangible assets 5 65,059,719,976 30,085,222,003 Oil&Gas upstream assets 4A 2,447,205,577,713 1,685,112,617,507 Cost of goods sold and raw materials consumed 27 (387,384,114,574) (470,572,686,343) Reversible assets 4B 167,395,967,501 - Oil&Gas exploration and operating costs 27A (265,076,687,029) (241,180,301,496) Exploration and evaluation assets 5A 724,759,575,062 126,797,283,209 Payroll 28 (157,888,458,184) (135,030,918,980) Investments in subsidiaries and associates 6 470,928,863,134 684,095,454,331 Depreciation 29 (369,588,981,285) (326,668,631,760) Other financial assets 7 178,422,503,244 239,006,873,583 Other non-current assets 9 613,187,525,103 1,540,099,649,526 Other operational costs 30 (224,713,290,176) (224,937,544,983) Bank deposits 10 222,410,168,298 - (2,296,216,422,529) (2,290,689,151,924) Total Non-current Assets 5,827,172,827,688 5,121,197,437,272
Current Assets Operational Income 155,677,402,974 58,996,593,809 Inventories 8 100,547,093,054 112,145,562,903 Accounts receivable 9 745,937,958,438 476,802,584,626 Cash and equivalents 10 826,942,310,235 612,012,426,498 Financial income and expenses 31 (54,032,242,686) 112,717,710,570 Other current assets 11 8,080,175,562 24,601,830,659 Result of affiliates 32 4,155,000,522 36,150,780,982 Total Current Assets 1,681,507,537,289 1,225,562,404,685 Non-operating income and expenses 33 (8,528,579,984) (102,571,154,705)
Total Assets 7,508,680,364,977 6,346,759,841,957 (58,405,822,148) 46,297,336,848
Equity and Liabilities Income before taxes 97,271,580,826 105,293,930,657 Equity Capital 12 1,946,558,748,877 1,285,386,630,238 Reserves and retained earnings 13 338,098,712,393 658,012,125,318 Taxes 35 (84,068,375,918) (57,200,225,969) Forex translation (financial statement conversion) 838,166,239,916 538,546,953,088 Income for the year 13,281,678,224 47,168,755,661 Current activities net income 13,203,204,908 48,093,704,688 Total Equity 3,136,105,379,410 2,529,114,464,306
Non-Current Liabilities Medium and long term loans (Debt) 15 1,144,568,504,953 1,399,951,616,146 Extraordinary income and expenses 34 78,473,316 (924,949,027) Employee benefit liability (provisions) 17 104,559,096,058 90,517,865,013 Provisions for other risks and charges obligations 18 1,222,092,751,908 840,762,821,277 Net income 13,281,678,224 47,168,755,661 Other non-current liabilities 19 137,700,246,412 105,387,334,355 Total Non-Current Liabilities 2,608,920,599,331 2,436,619,636,790
Current Liabilities Accounts payable 19 1,151,232,809,152 844,493,052,874 Short term loans 15 507,473,441,589 450,746,221,639 Other current liabilities 21 104,948,135,494 85,786,466,348 Total Current Liabilities 1,763,654,386,236 1,381,025,740,861 Total Liabilities 4,372,574,985,567 3,817,645,377,652
Total Equity and Liabilities 7,508,680,364,977 6,346,759,841,957
108 ANNUAL REPORT 2016 109 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
STATEMENT OF CONSOLIDATED CASH FLOWS FOR THE YEAR ENDED 31ST DECEMBER 2016
31-12-2016 31-12-2015 AOA AOA Cash Flows of Operational Activities Customers reimbursements 2,278,348,412,578 1,521,584,831,534 Suppliers payments (1,615,184,518,515) (861,393,859,993) Payroll payments (158,012,847,123) (136,730,464,995) Cash related with operations 505,151,046,940 523,460,506,546 Payment/Receivables related with taxes (124,959,795,905) (72,547,080,021) Other Payments/Receivables (93,783,699,526) (12,876,710,582) Exchange rate differences on operational activities 253,413,671 220,217,733,426 Cash Flows from Operational Activities [1] 286,660,965,181 658,254,449,368 Cash Flows of Investing Activities Payments related to: Tangible fixed assets (108,069,924,072) (82,546,664,592) Intangible assets (29,328,130,338) (240,273,787) Oil&Gas upstream assets (447,640,264,982) (597,748,320,382) Financial Investments 0 (93,215,170,654) Real Estate Investments (10,900,820,321) (5,437,682,886) Receivables related to: Financial Investments 86,645,166,117 11,783,333,201 Interest and similar income 9,553,186,272 5,443,752,865 Dividends 4,155,000,522 44,895,474,784 Exchange rate differences on investing activities (99,735,854,512) (694,398,928,798) Cash Flows from Investing Activities [2] (595,321,641,315) (1,411,464,480,249) Cash Flows of Financing Activities Receivables related to: Loans 0 125,783,212,871 Capital increases and other equity instruments 672,486,100,000 67,994,200,000 Payments related to: Loans (586,521,578,372) (390,853,552,219) Ordinary Loans (414,690,054,563) (390,853,552,219) Prepayments (171,831,523,810) 0 Interest and similar charges (48,511,431,177) (71,661,833,469) Exchange rate differences on financing activities 376,551,705,769 471,410,821,814 Cash Flows from Financing Activities [3] 414,004,796,220 202,672,848,997 Changes in cash and cash equivalents [1]+[2]+[3]=[4] [4] 105,344,120,085 (547,766,808,325) Impact of exchange rate differences 331,995,931,951 398,127,542,893 Cash and cash equivalents at the beginning of the year 612,012,426,498 699,545,177,413 Cash and cash equivalents at the end of the year 1,049,352,478,534 612,012,426,498
110 ANNUAL REPORT 2016 111 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
112 ANNUAL REPORT 2016 113 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
“NON CORE” NOTES TO CONSOLIDATED FINANCIAL This segment includes all other Group activities, not related with the value chain of the oil and gas STATEMENTS AS AT business. These consolidated financial statements were approved by Board of Directors of Sonangol EP at the 31ST DECEMBER 2016 Board meeting held on 22th June 2017, being further subject to the approval of the Shareholder and supervising Government member, which has the capability to change them after the authorization of the Board of Directors of Sonangol EP.
It is the opinion of the Board of Directors of Sonangol EP that these consolidated financial statements 1. ACTIVITY AND CORPORATE INFORMATION present a true and fair view of the Sonangol Group operations and its financial position and the cash flows, in accordance with the accounting rules and principles set out in Notes 2 and 3. The Sociedade Nacional de Combustíveis de Angola E.P. (here and after “Sonangol EP” or “Company” as individual company, or “Sonangol Group” or “Group” when referred as Sonangol EP and the entities included in the consolidation perimeter) with headquarters in Rua Rainha Ginga n.º 29-31 – Luanda, Angola, has as its main activity the oil & gas industry exploration, appraisal and production of hydrocarbons (upstream), together with other Midstream and Downstream activities related to sale of related products to the final customer.
By the Law n. 10/04 (Oil Activities Law), Sonangol EP was designated as the Entity to which the Angolan State has granted the mining rights of exploration, development and production of liquid and gaseous hydrocarbons. As the National Concessionaire, Sonangol is authorized to jointly perform petroleum operations together with foreign or Angolan companies. These operations are substantiated in association contracts, production sharing agreements and service contracts with risk.
The Group is present in various activities related with Oil & Gas, divided into 5 main segments, as follows:
CORPORATE & FINANCING This segment includes the activities related with financial investments “core” and the Sonangol Group financing.
UPSTREAM This segment incorporates Oil & Gas exploration and production activities onshore and offshore as either operator or non-operator of joint arrangements.
MIDSTREAM This segment includes the activities of refining and transportation of crude oil, natural gas and by-products.
DOWNSTREAM This segment includes storage, commercialization and delivery of by-products, crude oil and natural gas to the final customer.
114 ANNUAL REPORT 2016 115 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
2. ACCOUNTING POLICIES USED IN THE PREPARATION OF THE For entities that present their financial statements in a currency other than Kwanza, the Sonangol Group has translated those financial statements to the presentation currency of the Group, using the exchange CONSOLIDATED FINANCIAL STATEMENTS rates of the National Bank of Angola as follows: (i) assets and liabilities were translated at the closing exchange rate; (ii) income and expenses were translated at the average exchange rate for the year; (iii) 2.1 BASIS OF PREPARATION equity was translated at the historical exchange rate. The resulting exchange differences are recognized within Equity in the caption “Forex translation adjustments (financial statement conversion)”. 2.1.1 BASIS OF PREPARATION AND ACCOUNTING FRAMEWORK USED The exchange rates used to translate the balances presented in a currency other than Kwanza were as The consolidated financial statements and the related notes were prepared based upon the accounting follows: policies defined by the Board of Directors. Although they were not prepared in accordance with generally accepted accounting principles, they take by reference the best practices of the national Closing Exchange Rate 2016 2015 accounting policies and the International Financial Reporting Standards (IFRS). These principles are 1 USD = 166,7280 AOA 135,9884 AOA explained throughout Notes 2 and 3. 1 EURO = 186,2820 AOA 148,5730 AOA 1 GBP = 203,9580 AOA 201,5839 AOA For the preparation of the financial statements, the Sonangol Group followed the historical cost basis, 1 ZAR = 12,2230 AOA 8,8197 AOA except as stated in Note 2.3. q), under which the assets were recognized by the amount of cash or cash Average Exchange rate 2016 2015 equivalents paid or to be paid, at the exchange rate to the presentation currency, at acquisition date, 1 USD = 164,0210 AOA 121,136 AOA and the liabilities were recognized by the amount of the products and services received in exchange for the present obligation or the amount of cash to be paid, at the exchange rate for the presentation currency, at transaction date. 2.1.3 COMPARABILITY OF THE FINANCIAL STATEMENTS
The carrying amounts of monetary items nominated in foreign currencies (when related to the The captions included in the financial statements are, as a whole, comparable with the previous period, presentation currency) are updated using the exchange rate at reporting date, on the basis of the except for: reference exchange rates published by the National Bank of Angola (“Banco Nacional de Angola”). The carrying amounts of non-monetary items nominated in foreign currencies (when related to the • As disclosed in Note 4B, in relation to the change in the accounting policy applicable to recognize presentation currency) are not updated. Favourable and unfavourable exchange rate differences the assets acquired by the Contractors groups, for the execution of the work plans and budget of are recognized in the Statement of Profit & Loss, under the caption “Financial income” or “Financial the concessions which revert by law and in accordance with the production sharing agreement to expenses”, respectively, either they are favourable or unfavourable to the Group. the concessionaire, at the end of the concession; and • As disclosed in Note 2.1.4, in relation to changes in the consolidation perimeter in 2016 and the The financial statement relate to the characteristics of relevance and reliability, were prepared on decision to integrate in the fixed assets of the Group the mining assets related with the participation the basis of going concern and accrual accounting in compliance with the accounting principles of held in FS and FST Associations (Note 4A). consistency, materiality and comparability. 2.1.4 CONSOLIDATION PERIMETER 2.1.2. BASIS OF PRESENTATION The Sonangol Group has prepared consolidated financial statements, for the first time, in 2013. The The Group consolidated financial statements and the related Notes are presented in Kwanzas, in definition of the consolidation perimeter, of the entities to be included in it and the consolidation method to be accordance with the classification, format and order outlined in the General Accounting Plan (“Plano applied, was defined by the Board of directors for the purpose of providing the relevant information required Geral de Contabilidade” or “PGC”), adjusted by introduction of specific items relating to the Group’s core by the Shareholder, the supervising Government member and the financing entities of Sonangol Group, and activity (oil and gas industry). The notes not mentioned are not applicable to the Sonangol Group, or not to provide accurate information for the purpose to which these financial statements were prepared. relevant, or as a result of the adopted he accounting policies. The exclusion criteria from consolidation were the immateriality of the subsidiary, the absence of financial The Group as also considered to what extent the currency in which the financial statements of the information timely, the existence of long and severe restrictions which, in accordance with the Board of entities included in the consolidation perimeter are prepared, differ from the currency used by directors, substantially prejudice the control exercise by the Sonangol Group of its rights over the patrimony Sonangol Group. or the management over the subsidiary, or the fact that the subsidiaries’ activities are so dissimilar that the inclusion on the consolidation would not provide relevant information over the economic situation of the Sonangol Group.
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In the consolidation process, the following procedures were followed: 2.2 JUDGMENT, ESTIMATES AND SIGNIFICANT ASSUMPTIONS USED
• Harmonisation of accounting principles and conversion of the financial statement, when the The preparation of the Consolidated Financial Statements requires judgment, estimates and principles followed and the currency of presentation differ from the used by the Group; assumptions that affect the amount of income, expenses, asset and liabilities, and the related • Sum of the financial statements of the subsidiaries included in the consolidation by the full disclosures, and the disclosure of contingent liabilities at the date of the consolidated financial consolidation method; statements. • Write off of the financial investments held in the subsidiaries and of the related equity; Estimates and judgments are continuously reviewed and are based on the management experience and • Adjustments related with the use of the acquisition method – calculation of the goodwill and of the also other factors, including expectations of future events that are believed to be reasonable according non-controlling interests; to the circumstances. However, uncertainty related to assumptions used and the estimates made, may lead to conclusions that require material adjustments to assets book values and liabilities in future • Elimination of intra group balances and transactions; periods. • Reclassification of potential exchange rate differences, incurred by the parent company with the loans obtained for the acquisition of share capital of subsidiaries translation adjustments; In particular, the Group has identified the following areas where significant judgements, estimates and • Other necessary consolidation adjustments. assumption are required. Additional information on each of these areas and how they impact the various accounting policies are described below and also in the relevant notes to the financial statements.
The entities integrating the Group, the percentage of shares held and the nature of the financial Changes in estimates are treated prospectively. investment (subsidiary, joint arrangements, associate, other) are disclosed in Note 3 for subsidiaries (held 100%) consolidated by the full consolidation method and Note 6 for the other entities. 2.2.1 JUDGEMENTS In comparison with the perimeter that was the base for the preparation of the consolidated financial statements of 2015, the following changes have occurred: (i) Joint arrangements Judgment is required to determine when the Group has joint control over an arrangement, which • Entrance: Sonils – Sonangol Integrated Logistic Services, Lda requires an assessment of the relevant activities and when the decisions in relation to those activities require unanimous consent. The Group has determined that the relevant activities for its joint • Entrance: Inloc Limited arrangements are those relating to the operating and capital decisions of the arrangement, such as • Entrance: Sonangol Asia the approval of the annual investment and operating expenditure work program and to nominate, • Entrance: Sonangol Limited remunerate and destitute the personnel responsible for the management or suppliers of the joint arrangement. See Note 2.3.b) for further details. • Entrance: Sonangol Hong Kong Limited • Entrance: Sonangol USA Judgment is also required to classify a joint arrangement. Classifying the joint arrangement requires the Group to assess their rights and obligations arising from the arrangement. Specifically, the Group • Entrance: Solo Properties considers:
The impact on the final balance resulted from inclusion of new entities are presented and disclosed in • The structure of the joint arrangement – whether it is structured through a separate vehicle the different categories of the financial statements below: • When the arrangement is structured through a separate vehicle, the Group also considers the Amounts in Thousands AOA rights and obligations arising from: Description Sonils Inloc Sonangol Sonangol S o n a n g o l Sonangol Solo ASIA LTD Hong-Kong USA Properties • The legal form of the separate vehicle; Assets (A) 116,128,366 14,912,889 333,880 1,432,362 35,464,748 8,387,179 14,311,052 • The terms of the contractual arrangement; Equity (E) 72,357,981 14,386,353 325,927 722,331 30,478,314 5,727,245 6,732,444 • Other facts and circumstances, considered on a case by case basis. Liabilities (L) 43,770,384 526,535 7,954 710,031 4,986,434 2,659,934 7,578,608 A-(E+L) ------This assessment often requires significant judgment and can affect significantly the accounting treatment.
Investments in associates and joint arrangements are measured at cost less impairment.
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(ii) Contingencies (ii) Exploration and evaluation expenditures By their nature, contingencies will be resolved only when one or more uncertain future events occur The application of the Group’s accounting policy for exploration and evaluation expenditure requires or fail to occur. The assessment of the existence, and potential amount, of contingencies inherently judgment to determine whether future economic benefits are likely, from either future use or sale, involves the exercise of significant judgment and the use of estimates regarding the outcome of future or whether activities have not reached a stage which permits a reasonable assessment of the events. existence of reserves. The determination of reserves and resources is itself an estimation process that involves several degrees of uncertainty depending on how the resources are classified. The capitalization policy requires management to make certain estimates and assumptions about future 2.2.2 ESTIMATES AND SIGNIFICANT ASSUMPTIONS events and circumstances, in particular, whether an economically viable extraction operation can be established. Such estimates and assumptions may change as new information becomes available. If, The key assumptions concerning the future and other key sources of estimation uncertainty at the after expenditure is capitalized, information becomes available suggesting that the recovery of the reporting date that have a significant risk of causing a material adjustment to the carrying amounts expenditure is unlikely, the capitalized amount is written off in the statement of profit or loss in the of assets and liabilities within the next financial year, are described below. The Group based its period when the new information becomes available (impairment). assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change (iii) Depreciation of Oil & Gas properties - Units of production method due to market change or circumstances arising beyond the control of the Group. Such changes are Oil and gas properties are depreciated using the units of production method (UOP) method over total reflected in the assumptions when they occur. proved developed and undeveloped hydrocarbon reserves. This results in a depreciation charge proportional to the depletion of the anticipated remaining production from the field. (i) Hydrocarbon reserve and resource estimates The estimation of crude oil reserves are an integral part of the decision-making process relating to the The useful life of each asset, which is assessed at least annually, has regard to both its physical life assets of upstream activities, in addition to supporting the development or implementation of assisted limitations and present assessments of economically recoverable reserves of the field at which the recovery techniques (secondary and tertiary). asset is located. The calculation of the UOP rate of depreciation will be impacted to the extent that actual production in the future is different from current forecast production based on total proved The volumes of crude oil proved reserves that the company uses for the preparation of financial reserves, or future capital expenditure estimates change. Changes to proven reserves could arise due statements, arise from external independent expert reports in the case of blocks operated by to changes in the factors or assumptions used in estimating reserves, including the effect on proved the Group an operators information in case of blocks not operated by the Group. This information reserves of differences between actual commodity prices and commodity price assumptions is updated annually and is used to calculate the depreciation of assets relating to the oil and gas production activity according to the unit of production method as well as for the annual recognition of (iv) Recoverability of oil and gas assets decommissioning costs of the blocks. For evaluation of impairment of investments in assets relating The Group assesses each asset or cash generating unit at each reporting period to determine whether to upstream activity (see Note 2.2.2 iv)), the Group uses the same source of information used for the any indication of impairment exists. For the specific situation of goodwill, it is assessed annually for calculation of depletion, however it uses both proven and probable reserves and considers the future impairment at each reporting date. investment to be made to access these reserves. Where an indicator of impairment is identified, a formal estimate of the recoverable amount is The estimation of reserves is subject to future revision, based on new information available, for made, which is considered to be the higher of the fair value less costs of disposal and value in use. In example, for development activities (drilling and projects), information on exchange rates, prices, determining the recoverable amount of an asset, and particularly the fair value less costs of disposal, contract termination dates or development plans (sanctioning development projects), the advent of new in situations where there are no recent market transactions, the Group used the discounted cash flows, technologies, etc. and the assumptions were adjusted based on the assumptions that the market participants would use to evaluate the asset, cash generating unit or a group of cash generating units. The volume of crude oil produced and the cost of the assets are known, while reserves are based on estimates subject to adjustment (increase reserves to be produced). The impact on depletion In accordance with this methodology, the cash flows and the discount rate are after taxes. and provisions for decommissioning costs resulting from changes in estimated proved reserves is treated prospectively, depleting the remaining net value of assets and adjusting the provision for Oil and gas properties decommissioning costs, respectively, depending on the expected future production. In case of a downward revision of proved reserves, net income may be adversely affected in the future by a higher The recoverable amount of the oi and gas properties was determined in accordance with the best amount of depreciation and provisions for decommissioning costs. Group Management estimation, based on the fair value less costs of disposal, as for the estimated cash flows for the period of the exploration of the blocks / fields, for the oil and natural gas prices curves
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(considering current and historical prices, price trends and related factors), discount rates, operating The real estate that were tested are disclosed in Note 7 Other financial assets – investment in real costs, future capital requirements, decommissioning costs (these based on updated information estate properties, net of any impairment loss recognized in the period. provided by the operators), exploration potential, reserves (see 2.2.2 Estimates and assumptions (i) Hydrocarbon reserves and resource estimates above) and operating performance (which includes Goodwill production and sales volumes). Sonangol Group has recognised a Goodwill related with the acquisition of Refinaria de Luanda to the Fina Petróleos and the acquisition of Inloc Limitada which holds 70% of Sonangol Integrated Logistic For the impairment tests, which were performed in USD and subsequently translated to AOA at the Services, Lda (Sonils), whose activity consists in logistical base for support of oil and gas operations in exchange rate at reporting date, the Group considered a discount rate after taxes between 9% and 11% Porto de Luanda, under a Concession Arrangement, being both of them separate cash generation units and a current oil and natural gas prices curve of $55/barrel (2016) to $85/barrel (2025 and subsequent (CGU). years). The recoverable amount of the goodwill was determined based on the best Group Management The oil and gas properties that were tested are disclosed in Note 4.A. Oil and gas properties, net of any estimate, based on the cash flows of each identified CGU, and assuming the oil and natural gas prices accumulated impairment loss recognized. curves (considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital requirements, decommissioning costs, operating performance and concession period (when applicable).
Exploration and evaluation assets For the impairment tests, the Group has considered the current oil and natural gas prices curve The Group uses the successful effort method for the capitalization of its exploration and evaluation of $55/barrel (2016) to $85/barrel (2025 and subsequent years), a nominal discount rate in AOA assets, i.e., as long as it is expected that future expenditure will result in the discovery of hydrocarbon between 18% and 21% for Refinaria de Luanda (forecasts in AOA) and a nominal discount rate in USD resources with technical, economic and commercial viability and the outcome of the evaluation between 12% and 14% for the logistic operations held by Inloc Limitada (forecasts in USD). activities, such as additional wells drilling or delineation wells would result in positive and favourable to the extraction of the discovered hydrocarbons. The goodwill tested is disclosed in Note 5 Other intangible assets, net of any impairment loss recognized in the period. When determining the recoverable amount of exploration and evaluation assets, the Group Management has used its best estimate to determine if the expected future economic benefits with the Financial investment in Angola LNG extraction of the hydrocarbons are higher than the investment performed, having considered for the The recoverable amount of the financial investment held in Angola LNG was determined based on the effect the probable reserves in the testing areas and a current oil and natural gas prices curve of best Group Management estimate, based on the fair value less costs of disposal, which was determined $55/barrel (2016) to $85/barrel (2025 and subsequent years). based on the cash flows of the business, the oil and natural gas prices curves (considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital This analysis was performed in USD and subsequently translated to AOA at the exchange rate at requirements, decommissioning costs and operating performance (including production volumes and reporting date. sales).
The exploration and evaluation assets that were tested are disclosed in Note 5.A. Exploration and For the impairment tests, which were performed in USD and subsequently translated to AOA at the evaluation assets, net of any impairment loss recognized in the period. exchange rate at reporting date, the Group considered a nominal discount rate between 9% and 11% and a current oil and natural gas prices curve of $6,1/MMBTU (2017) to $7.14/MMBTU (2025).
The tested financial investment held in Angola LNG is disclosed in Note 6.2.1 Financial investment in Real estate properties Angola LNG, net of any accumulated impairment loss recognized. The Group is the owner of several real estate properties (lands, buildings or part of a building) which are held for capital appreciation, to earn rentals or both. The estimates and assumptions related with the recoverability of the assets “Oil and gas properties”, “Exploration and evaluation assets”, “Real estate properties” and “Goodwill” and other assets are subject In determining the recoverable amount, the Group Management has considered the amounts to risk and uncertainty, therefore there is a possibility that changes in circumstances will impact these determined in accordance with the income approach method by internal and external valuers, projections, which may impact the recoverable amount of assets and/or cash generating units. considering the best use that the market would give to the asset.
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(v) Decommissioning costs from its involvement with the investee and has the potential to affect those same returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group presents: Decommissioning costs will be incurred by the Group at the end of the operating life of some of the Group’s facilities and properties. The Group assesses its decommissioning provision at each reporting • Power over the investee (existing rights confer the ability to direct the relevant activities of the date, depending its extension of the evaluation of significant changes in the key assumptions and of the investee); market information. The ultimate decommissioning costs are uncertain and cost estimates can change in response to many factors, including changes to relevant legal requirements, the emergence of new • Exposure, or rights, to variable returns resulting from its involvement with the investee; environmental restoration techniques. The expected timing, extent and amount of expenditure may also • The ability to use its power over the investee to affect its returns. change — for example, in response to changes in reserves or changes in laws and regulations or their interpretation. Consequently, there could be significant adjustments to the provisions established which When the Group has less than a majority of votes or similar rights over an investee it considers all would impact future non-operational results of the Group. relevant facts and circumstances when considering if the power over an investee, including:
External or internal valuers may be used to assist with the assessment of future decommissioning • Contracted agreements with other shareholders of the investee; costs. The involvement of independent valuers is determined on a case by case basis, taking into account factors such as the expected total cost or timing of abandonment, and is approved by the • Rights arising from other contracted agreements; Company’s Management. Selection criteria include market knowledge, reputation and independence. • Voting rights and potential voting rights of the Group.
The decommissioning provision at reporting date represents the best management’s estimate of the The Financial Statements of subsidiaries are prepared at the same reporting date, using consistent present value of the future decommissioning costs obligation. Group accounting policies. When necessary, adjustments are made to the financial statements of subsidiaries to ensure that these accounting policies are consistent with the Group’s accounting policies. All balances and transactions 2.3 BASIS OF VALUATION ADOPTED IN PREPARING THE CONSOLIDATED between Group companies are totally eliminated. FINANCIAL STATEMENTS A change in the percentage ownership in a subsidiary that does not result in a loss of control is treated as an equity transaction. When the Group loses control over a subsidiary, the Group proceeds as follows: (a) Investments in subsidiaries • Assets (including Goodwill) and the liabilities of this subsidiary are derecognized; The consolidated financial statements of Sociedade Nacional de Combustíveis de Angola – Empresa Pública (Sonangol E.P.) for the period ended on 31 December 2016, comprise the financial statements • Non-controlling interests are derecognized; of the parent company (Sonangol E.P.) and its subsidiaries described in Note 3, following the criteria set • Accumulated translation adjustments are derecognized; out in Note 2.1.4. • Fair value of the consideration received is recognized; Subsidiaries are those entities (including restructured entities) over which the Group exercises control • Fair value of the participation retained is recognized; and where the exclusion situations mentioned in Note 2.1.4 re not present. The Group controls an entity • Any difference in current year income is recognized; and when it is exposed, or has rights, to variable returns resulting from its involvement with the investee and has the potential to affect those same returns through its power over the investee. The entities that • Reclassification of the Group share of elements formerly recognized in comprehensive are taken to meet these criteria are fully consolidated since the date the control is transferred to the Group, and are income for the period. excluded when this control ceases.
Entities that are subsidiaries and include in the consolidation perimeter, are consolidated by the full consolidation method and are disclosed in Note 3.
The subsidiaries that were included in these consolidated financial statements are controlled in accordance with the requirements prescribed in IFRS 10 - Consolidated Financial Statements, which defines that control is obtained when the Group is exposed, or has rights, to variable returns resulting
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(b) Interests in Joint Arrangements If the fair value of net assets acquired is greater than the aggregate consideration transferred, before recognizing a gain, the Group reassesses whether it has correctly identified all of the assets acquired A joint arrangement is an economic activity undertaken by two or more parties, subject to joint control and all of the liabilities assumed and reviews the procedures used to measure the amounts to be through a contractual arrangement. Joint control is the contractually agreed sharing of control of recognized at the acquisition date. If the assessment still results in an excess of the fair value of an arrangement, whereby the Strategic, Finance and Operational decision of the activity requires net assets acquired over the aggregate consideration transferred, then the gain is recognized in the unanimous consent of the parties sharing control. statement of profit or loss. i) Joint operations After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the A joint operations are a type of joint arrangement whereby the parties that have joint control of purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition an economic activity have rights to the assets and obligations for the liabilities, relating to the date, allocated to each of the Group’s CGU´s that are expected to benefit from the combination, arrangement. irrespective of whether other assets or liabilities of the acquire are assigned to those units.
In relation to its interests in joint operations, the Group recognizes its: (e) Exploration and evaluation expenditures
• Assets, including its share of any assets held jointly; Exploration and evaluation expenditure are accounted for using the successful efforts method of accounting, which is detailed in Notes 4A, 5A and 27A. • Liabilities, including its share of any liabilities incurred jointly; • Revenue from the sale of its share of the output arising from the joint operation; i) Pre-license costs • Share of the revenue from the sale of the output by the joint operation; Pre-license costs are expensed in the period in which they are incurred. • Expenses, including its share of any expenses incurred jointly. ii) License and property acquisition costs Exploration license and leasehold property acquisition costs are capitalized in intangible assets under ii) Joint ventures the caption “exploration and evaluation assets”. A joint ventures are a type of joint arrangement whereby the parties that have joint control of the License costs paid in connection with a right to explore in an existing exploration area are capitalized arrangement have rights to the net assets (equity) of the joint arrangement. The Group’s investment in and amortized over the term of the permit. its joint venture is accounted for using the equity method less impairment losses, and are disclosed in Note 6.1. License and property acquisition costs are reviewed at each reporting date to confirm that there is no indication that the carrying amount exceeds the recoverable amount. This review includes confirming (c) Other financial investments that exploration drilling is still under way or firmly planned, or that it has been determined, or work Except for financial investment measured at fair value (see Note 2.3 q)) the remaining financial is under way to determine that the discovery is economically viable based on a range of technical and investments (i.e. equity instruments in third party entities) are measured at acquisition cost net of commercial considerations and that sufficient progress is being made on establishing development impairment losses (when applicable), and are disclosed in Note 6. plans and timing.
(d) Business combinations and Goodwill If no future activity is planned or the license has been relinquished or has expired, the carrying amount Business combinations are accounted for using the acquisition method. The cost of an acquisition is of the license and property acquisition costs are written off through the statement of profit or loss. measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at acquisition date. Upon recognition of proved reserves and internal approval for development, the relevant expenditure is transferred to oil and gas properties. The fair value of the identifiable assets acquired and liabilities and contingent liabilities assumed in a business concentration are initially measured at fair value at acquisition date, regardless if there are iii) Exploration and evaluation costs any non-controlling interests. The excess of the acquisition cost over the fair value of the interest held in the identified net assets is recognized as goodwill. Exploration and evaluation activity involves the search for hydrocarbon resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource. Acquisition related costs are expensed as incurred.
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Once the legal right to explore has been acquired, costs directly associated with an exploration well cost is the aggregate amount paid and the fair value of any other consideration given to acquire the are capitalized as exploration and evaluation intangible assets until the drilling of the well is complete asset. and the results have been evaluated. These costs include directly attributable employee remuneration, materials and fuel used, rig costs and payments made to contractors. Specifically, for oil and gas properties, when a development project moves into the production stage, the capitalization of certain construction/development costs ceases, and costs are either regarded as Geological and geophysical costs are recognized in the statement of profit or loss as incurred. part of the cost of inventory or expensed, except for costs which qualify for capitalization relating to oil and gas property asset additions, improvements or new developments. If no potentially commercial hydrocarbons are discovered, the exploration asset is written off through the statement of profit or loss as a dry hole (i.e. mining costs). If extractable hydrocarbons are found ii) Amortisation and, subject to further appraisal activity (e.g., the drilling of additional wells), it is probable that they Amortisations of oil and gas properties and other property, plant and equipment, start when the asset can be commercially developed, the costs continue to be carried as an intangible asset while sufficient/ has the conditions to be used, i.e., when it is located and in the necessary conditions for its intended continued progress is made in assessing the size, characteristics and commercial potential of a use, and cease when the economic benefits incorporated are extinct, for impairment or derecognition. reservoir following the initial discovery of hydrocarbons, including the costs of appraisal wells where hydrocarbons were not found, are initially capitalized as an intangible asset. OIL AND GAS PROPERTIES Oil and gas properties are amortized on a unit-of-production basis, determined in accordance with the Such capitalized costs are subject to technical, commercial and management review, as well as review ratio between the hydrocarbons production volume in each period and the total proved developed and for indicators of impairment at least once a year. This is to confirm the continued intent to develop or undeveloped hydrocarbons reserves of the field concerned (Reserves 1P), except in the case of assets otherwise extract value from the discovery. When this is no longer the case, the costs are written off whose useful life is shorter than the lifetime of the field, in which case the straight-line method is through the statement of profit or loss. applied.
When proved reserves of oil and natural gas are identified and development is sanctioned by Because it is based on current production values, and because it is a Sonangol Group policy to review management, the relevant capitalized expenditure is first assessed for impairment and (if required) periodically the volume of oil and gas reserves, the amortization method of units of production has any impairment loss is recognized, then the remaining balance is transferred to oil and gas properties. implicit a periodical review of the consumption pattern of future economic benefits embodied in the Other than license costs, no amortization is charged during the exploration and evaluation phase. asset.
iv) Development costs Rights and concessions are depreciated on the unit-of-production basis over the total proved developed Expenditure on the construction, installation or completion of infrastructure facilities such as and undeveloped reserves of the relevant area. platforms, pipelines and the drilling of development wells, including unsuccessful development or delineation wells, is capitalized within oil and gas properties as disclosed in Note 2.3 f). OTHER PROPERTY, PLANT AND EQUIPMENT Other property, plant and equipment are generally depreciated on a straight-line basis over their (f) Oil and gas properties and other property, plant and equipment estimated useful lives on a duodecimal basis. The main depreciation rates correspond to the following estimated useful life (except for refineries which is generally fifteen years and major inspection costs The Group considers as oil and gas properties, those property, plant and equipment items directly are depreciated over three to five years, which represents the estimated period before the next planned related with oil and gas fields / blocks. These assets are disclosed separately in the face of the balance major inspection): sheet under the caption “Oil and gas properties”.
i Initial recognition Class of assets Years Buildings and other constructions 50 Oil and gas properties and other property, plant and equipment are initially measured at cost, less Basic equipment accumulated depreciation and accumulated impairment losses (if and when applicable). - Construction equipment 15 – 18 - Other 6 – 10 The acquisition cost of the asset comprises its purchase price or construction cost, which includes the Transport equipment 4 – 5 acquisition costs, transportation costs, assembly and installation costs, other costs directly attributable IT equipment 3 – 7 to bringing the asset into operation, the initial estimate of the decommissioning obligation and, for Administrative equipment 3 – 7 qualifying assets, i.e., an asset that necessarily takes a substantial period of time to get ready for its intended use or sale (greater than 12 months), the borrowing costs. The purchase price or construction The asset’s residual values, useful lives and methods of amortization are reviewed at each reporting period and adjusted prospectively, if appropriate.
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iii) Derecognition made the contractors group to the National Concessionaire. The investments in reversible assets by the contractor groups contribute also to the deduction to the amounts to be paid by the State to the National OIL AND GAS PROPERTIES Concessionaire (as described in Note 2.3 p)). In accounting for a farm-out arrangement outside the exploration phase, the Group: Sonangol EP recognises these reversible assets when one of the following situation occur • Derecognises the proportion of the asset sold; • Recognises a gain or loss on the transaction for the difference between the net disposal proceeds • When the assets starts to generate economic benefits to Sonangol EP; or and the carrying amount of the asset disposed of. A gain is recognised only when the value of the • When the risks and returns of the assets are transferred to Sonangol EP (generally when consideration can be determined reliably. If not, then the Group accounts for the consideration the contractors groups invest under the Production Sharing Contracts with the National received as a reduction in the carrying amount of the underlying assets; Concessionaire). • Tests the retained interests for impairment if the terms of the arrangement indicate that the The reversible assets are measured initially at fair value, and classified as “Reversible assets” against retained interest may be impaired. Equity (on the portion that would be delivered to the State / shareholder, i.e., approximately 93% of the estimated production), and the remaining is recognised against “Other current liabilities” (under OTHER PROPERTY, PLANT AND EQUIPMENT deferred profits to be recognised in future periods) under the pace of the recovery by the contractors groups in the contribution to be made. An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain Subsequently, the reversible assets are not amortised, and are measured at fair value at each reporting or loss arising on derecognition of the asset (calculated as the difference between the net disposal date, and the fair value variations are recognised in profit and loss. proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is derecognized. At the end of the contract with the contract with the Contractor Group, the assets are reclassified to “Other tangible fixed assets” and amortised prospectively in accordance with the remaining useful life. iv) Major maintenance, inspection and repairs Expenditure on major maintenance refits, inspections or repairs comprises the cost of replacement (h) Intangible assets assets or parts of assets. When an asset, or part of an asset that was separately depreciated and is Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible now written off is replaced and it is probable that future economic benefits associated with the item will assets acquired in a business combination is their fair value at the date of acquisition. Following initial flow to the Group, the expenditure is capitalized. recognition, intangible assets with definite life are carried at cost less any accumulated amortization (calculated on a straight-line basis over their useful life) and accumulated impairment losses, if any. When part of the asset replaced was not separately considered as a component and therefore not Indefinite lived intangibles (e.g. Goodwill) are not amortized, instead they are tested for impairment depreciated separately, the replacement value is used to estimate the carrying amount of the replaced annually, at the reporting date. asset(s) and is immediately written off. Intangible assets with finite life are amortized over their useful economic life and assessed for Inspection costs associated with major maintenance programs are capitalized and amortized over the impairment whenever there is an indication that the intangible asset may be impaired. The amortization period to the next inspection. All other day-to-day repairs and maintenance costs are expensed as period and the amortization method for an intangible asset with a finite useful life is reviewed at incurred. least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the (g) Reversible assets amortization period or method, as appropriate, and are treated as changes in accounting estimates. The Under the contracts signed between Sonangol EP, as National Concessionaire of the rights to explore, amortization expense on intangible assets with finite life is recognized in the statement of profit or loss develop and produce of liquid and gaseous hydrocarbons, and the contractors groups that operate in the caption “Depreciations”. the oil blocks, there are several assets acquired by these contactors groups that, at the end of the concession arrangements, will return to Sonangol EP without compensation. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the By definition, the investments in reversible assets correspond to assets that were deducted the concept statement of profit or loss when the asset is derecognized. of Petroleum- Profit of the oil & gas operations, a therefore are deducted from the contributions to be
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(i) Impairment of assets Impairment losses of continuing operations, including impairment of inventories, are recognised in i) Non-financial assets (excluding Goodwill) the statement of profit or loss in those expense categories consistent with the function/nature of the impaired asset. The Group assesses at each reporting date whether there is an indication that an asset (or cash generating units) may be impaired. For the oil and gas properties, the Management has assessed its For assets/ cash generating units, excluding goodwill, an assessment is made at each reporting date cash generating units as being an individual field or block, which is the lowest level for which cash to determine whether there is an indication that previously recognised impairment losses may no inflows are largely independent of those of other assets. longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash generating units’ recoverable amount. A previously recognised impairment loss is reversed only if If any indication exists, or if it is the Group policy an annual impairment testing, the Group estimates there has been a change in the assumptions used to determine the asset’s/ cash generating units’ the recoverable amount of the cash generating units or of the asset. The recoverable amount of a cash recoverable amount since the last impairment loss was recognised. The reversal is limited so that the generating units or of an asset is the higher of the fair value less costs of disposal and value in use. carrying amount of the asset/ cash generating units does not exceed either its recoverable amount, The recoverable amount is determined for an individual asset, unless the asset does not generate cash or the carrying amount that would have been determined, net of depreciation/amortisation, had no inflows that are largely independent of those from other assets or groups of assets, in which case the impairment loss been recognised for the asset/ cash generating units in prior years. Such reversal is asset is tested as part of a larger cash generating unit to which it belongs. When the carrying amount of recognised in the Statement of Profit & Loss. an asset or cash generating unit exceeds its recoverable amount, the asset or the cash generating unit is considered impaired and is written down to its recoverable amount. When an impairment loss is recognised or its reversal, the amortisation of the related assets is recalculated prospectively in accordance with the recoverable amount adjusted by the impairment loss The calculation of the value in use can be based: i) on the sales price contractually agreed in a recognised. transaction between non-related parties, deducted from the costs to sell it; ii) the market price if the asset is negotiated in an active market; or (iii) in the fair value calculated as an estimative of the ii) Goodwill future cash flows that any market player would expect to obtain from the asset. In accordance with the Goodwill is tested for impairment annually at each reporting date or whenever circumstances indicate methodology in iii), the cash flows and the discount rate are after-taxes that the carrying value may be impaired. In calculating value in use, the methodology of the discounted cash flows is used, and includes the Impairment is determined for Goodwill by assessing the recoverable amount of each cash generating following elements: units (or group of cash generating units) to which the Goodwill relates. When the recoverable amount • An estimative the future cash flows that the entity expects to obtain from the asset; of the cash generating units is less than its carrying amount including Goodwill, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. • The expectations of the variations and the timing of the expected future cash flows; • The use of a pre-tax discount rate associated with the concept of the average cost of capital; and iii) Financial investments and investments in real estate • Other factors that should be considered in this analysis, such as the lack of liquidity that the market The Group as financial investments and investments in real estate (registered in other financial assets) participants might reflect in the future cash flows that the entity expects to obtain from the asset. measured at cost less impairment losses and financial investments in other financial assets measured at fair value through profit and loss. For financial investments and investments in real estate measured
at cost, the impairment is determined based on rules and a methodology similar to the used for non- The value in use does not reflect the cash flows associated with the restructuring and improvement or financial assets. enhancing of the operational performance of the asset. Rather, for the calculation of the fair value less costs of disposal, the discounted cash flows model includes the cash flows associated with the costs For financial investments in other financial assets measured at fair value through profit and loss with restructuring and improvement when it corresponds to a market expectation. the calculation is based the quotations reported by independent valuers for the funds and market information for the quoted assets. The Group bases its impairment calculation on detailed budgets and forecasts, which are prepared separately for each cash generating unit to which the individual assets are allocated. These budgets FINANCIAL INSTRUMENTS and forecasts generally cover the period of six years. For longer periods, a long-term growth rate is calculated and applied to project future cash flow after the sixth year. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity, and is recognised initially at the transaction cost.
132 ANNUAL REPORT 2016 133 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
(j) Financial assets related with the wells´ shutdown, assets dismantling and environment recovery after the exploration of the blocks of each contractor group. These deposits are measured at cost. The Group financial assets include accounts receivable (trade and others), other current and non- current assets, other non-current financial assets and cash. The purchases and sales of financial (k) Financial liabilities assets that demand delivery of goods within a certain agreed timeframe are recognised at the date in which the Group commits to purchase or sell the good. Financial liabilities include accounts payable (suppliers and other accounts payable) and medium and long term loans. ACCOUNTS RECEIVABLE AND OTHER CURRENT AND NON-CURRENT ASSETS ACCOUNTS PAYABLE This is the most significant category for the Group. Accounts receivable, other current and non-current assets are financial assets not derivatives with fixed or determinable payments that are not quoted in The trade suppliers and other current liabilities balances are stated at their nominal value. an active market. After initial mensuration, such financial assets are recorded at nominal value less any impairment loss, necessary to reflect their expected net realizable value. Losses are registered in The trade suppliers and other current liabilities balances are, as a rule, measured at historical cost. the Statement of Profit & Loss when there is objective evidence that the total debt, according with the original conditions of the account receivables, will not be received. The historical cost corresponds to the initial registered amount (nominal amount) eventually adjusted to reflect (i) accrued interests related with loans that were not paid on payment date and (ii) non-realised For the oil & gas activities, whenever the Group has performed liftings below or above its share in exchange rate differences determined by the application of the exchange rate at the reporting date to accordance with the production sharing agreements (CPP), it considered that there is “Under-lifting” the balances in foreign currencies. or “Over-lifting”, respectively, and the quantities are measured at production cost and registered as an account receivable or payable, against profit and loss. Whenever, in exceptional circumstances, the payable amount is less that the historical amount, as in the situation of a reduction or a debt forgiveness, the nominal amount is reduced, directly, for the OTHER NON-CURRENT FINANCIAL ASSETS realizable amount, and an extraordinary profit is recognized in the Statement of Profit & Loss. Financial investments in real estate The Group derecognizes a financial liability when the obligation under the liability is discharged, The Group has several real estate properties classified as financial investments in real estate. These cancelled or expires. investments in real estate are initially recognised at acquisition or construction cost, including the non-deductibles taxes (e.g. SISA), the assembly and installation costs, the other directly attributable LOANS acquisition costs to bringing the asset to the location and condition necessary for it to be capable This caption includes loans obtained from credit institutions and other entities, measured at amortised of operating in the manner intended by Management, the estimated costs of dismantling, removing cost in its current and non-current portions. or restoring items (if applicable) and the borrowing costs of qualifying assets, net of accumulate impairment losses so that the asset does not exceed its realizable value. Financial charges are generally recognized using the effective interest rate method, which corresponds to the rate that discounts the future estimated cash payments during the financial instrument life Investment funds period and that inputs the interest charges during the relevant period, in accordance with the principal The Group owns participation units in investment funds. These financial investments held by the of accrual. When determining the effective interest rate, the Group considers all commissions, Branch are measured at cost, which is the acquisition price, the charges related with the acquisition, transaction costs, premiums or discounts paid when contracting the associated financial instrument. such as brokerage commissions, fees and expenses and bank charges. Subsequently, these financial investments are measured at fair value, calculated based on the final report of the fund managers, The borrowing costs that are directly attributable to the acquisition, construction or production of a against financial results. qualifying asset, are capitalized and as part of the cost of the related asset. The capitalization of these costs commence after the beginning of the construction or development of the asset and ceases when CASH AND BANK DEPOSITS the assets is ready for its intended use or when the related project is suspense. Any financial profits The Group recognized in cash and banks the balances held in Banks (sight or term) subject to a reduced generated by loans directly relates with the specific investment are deducted to the amount of financial risk of changes in value, monetary means in transit and cash surplus applications in financial products charges eligible to be capitalized. (e.g. Angolan Treasury bonds) which are registered in Trading securities. Additionally, in the caption of loans are included the amounts of incurred research expenses totally Under the contracts between Sonangol EP and the contractors groups for each block, Sonangol EP supported by the other partners in joint agreements, under the modality “carry” in research phase, is the beneficiary of the bank deposits with restricted mobilization “escrow accounts” and which are if it is the Management expectation that its future use /reimburse will occur. This loan will be settled
134 ANNUAL REPORT 2016 135 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
through recovery of third party, recurring to the share of crude oil under the form of “cost oil”, initially d. Goods correspondent to the share of Sonangol EP for recovering theses research expenses. The acquisition cost includes the invoice price, transportation and insurance expenses, using the average weighted cost method for natural gas (liquefied petroleum gas), oil by-products e other goods (l) Inventories as the method used to determine the cost of sales. Inventories are recorded at the lower of cost and net realizable value. Raw material and subsidiaries and goods in transit, as they are not available to be consumed or sold, The acquisition or production cost is determined, in accordance with the nature of the inventories and of the are segregated from the remaining inventories and are measured at the specific acquisition cost. business involve, and the Group has recognised the following types of inventories in consolidated accounts: The net realisable value of the inventories is based on the estimated sales price on the ordinary course a. Raw materials and subsidiary products of business, deducted from the estimated costs to finalise the product and the necessary sales costs. • Crude oil - The cost of crude oil, includes the invoice price, transportation and insurance expenses, The difference between the acquisition cost and the related net realisable value, if positive, are for which the costing method is FIFO (first in first out), applied to a unique family which includes all registered as non-operational costs (see Note 33); any reversal, in situations where there is no types of crude oil. difference between the acquisition cost and the net realisable value, are recognised in the caption Non- • Other raw materials (excluding general materials) – The acquisition cost includes the invoice operational results. price, transportation and insurance expenses, for which the costing method is FIFO, applied to The variation of products and work in progress at each reporting date, when compared with the position product families which are created taking into consideration the characteristics of the several at the beginning of the period, is recognised as variation in finished products. materials.
The Group recognises as Cost of goods sold and raw materials, the inventories exists of the captions • General materials - The acquisition cost includes the invoice price, transportation and insurance goods, raw material, subsidiary and consumable goods. expenses, for which the average weighted cost method is used to determine the cost of sales.
b. Products and work in progresso (m) Leases The production cost includes materials, external supplies and services e general expenditures. The Group recognized a lease when it is a part of lease contract (until the end of the contract), which is always recognized as operational lease. The Group has, currently, leases as lessor and as lessee, which c. Finished products and intermediate goods are recognized and measured as follows: • Crude oil – Relates with crude oil produced in the oil and gas activities and which is in inventories as at 31 December each year, in the share part of the total crude oil produced in each development • Operational leases as a lessee: the rents paid are recognized as cost in the Consolidated area. These inventories are measured at production cost, which includes the direct costs of Statement of Profit & Loss, by the nominal amount; production added with amortisations and dismantling cost for the year. • Operational leases as a lessor: rents received are recognized as profit in the Consolidated • Derived petroleum products – The entrances of finished products and intermediates goods are Statement of Profit & Loss (see Note 2.3 j)) by the nominal amount. The leased assets are measured at production cost, which includes the consumables of raw materials and other products, predominantly recognised as “Other financial assets” – investments in real estate. direct labour costs and overheads. In the situation of products acquired to third parties, they are measured at acquisition cost which includes the invoice price, transportation and insurance (n) Provisions for other risks and charges expenses, for which the costing method is FIFO, applied to product families which are created Provisions are recognized when there is (i) a legal or constructive obligation as a result of past events; taking into consideration the characteristics of the several materials. (ii) it is probable that an outflow of resources will be required to settle the obligation, and (iii) a reliable estimate can be made of the amount of the obligation. • Other finished and intermediate products – The production cost includes raw materials, variable and fixed industrial products, using the average weighted cost method is used to determine the cost of No provision is recognized for future operating losses. Provisions are reviewed at each balance sheet sales. date and are adjusted to reflect the best estimate at that date.
136 ANNUAL REPORT 2016 137 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
If the temporal effect of money is material, provisions are discounted to present value using a discount (ii) Decommissioning fund (Concessionaire) rate (before tax) that reflects, where appropriate, the specific risks associated with the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as financial The amounts allocated to the decommissioning fund (Concessionaire) are the responsibility of the field costs. Except for decommissioning provisions, the cost of any provision is disclosed in the Statement of operators and are transferred to the custody of the Company, as Concessionaire. The fund is intended Profit & Loss. to cover future costs related to the closure of oil wells, removal of platforms and other facilities when reserves are exhausted, as disclosed in Note 18.4. (i) Decommissioning provisions The Group recognized a decommissioning provisions when it has an obligation (legal or constructive) (o) Taxes as a result of past events; and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. OIL TAXES The obligation generally originates when the asset is installed or the when the environment is modified. Sonangol Group companies, involved in petroleum exploration and production, are subject to Income When the liability is initially recognized, the present value of the estimated decommissioning total cost Tax on oil disclosed in Note 19.3, and are exempt from other income taxes due by other companies in is capitalized by increasing the net value of the underlying oil and gas assets. Angola. This oil taxation is defined and regulated by the Law 13/04 of December – Law of Taxation of Petroleum Activities. Changes in time or cost of the estimated decommissioning are treated prospectively by an adjustment to the provision made as well as the related asset. According to this Law, the taxable income of each block is based on the monthly estimated production, communicated to the competent tax authorities through provisional tax declarations and paid within the Any decrease in the provision for decommissioning and therefore any decrease the value of the related time limits established by law. assets, may not exceed the net book value of it. If this happens, any excess of net book value is adjusted directly in the income statement. The provisional tax returns are replaced by definitive returns at year end, corrected by “tax reference prices”, the final costs incurred in petroleum operations and actual operating costs. If changing the assessment of dismantling obligation leads to an increase in the provision for decommissioning and hence an increase to the net value of the related assets, the Group considers Taxes, duties and fees above include: whether this is an impairment indicator of the asset as a whole, and if so, tests the asset for impairment. If, for mature fields, the revised estimate of the value for the oil and gas assets net • Tax on oil production - levied on the quantities of crude oil and natural gas produced in the year, of decommissioning liabilities exceeds the recoverable amount, the proportion of the increase is valued at tax reference prices; accounted for in the income statement. • Transaction Fee of oil – applied to Concession Contracts at the rate of 70% and deductible for the purpose of determining the taxable amount of income tax on oil; The discount rates used to calculate the present value of the estimated cash flows is a free risk interest rate, considering the temporal horizon of the associate cash flows and are reviewed at each reporting date. • Income tax on oil – tax on annual profits (net of tax on oil production and oil transaction fee) applied to Concession Contracts and Production Sharing contracts. The amount of decommissioning provision is increased at the reporting date, to reflect the time value of money, and the variation is recognized as financial costs in the financial statements. DEFERRED TAXES When the decommissioning provision is adjusted to reflect changes in the discount rates, the effect of The tax computed refers exclusively to tax payable, the Group does not recognize any other deferred the change in the liability is split between i) the time value of money for one year more that has passed, tax, asset or liability, resulting from temporary differences between the accounting and tax bases. which is recognized in financial results and ii) the effect of the variation on the present value of the liability, which is recognized in the related asset for which the decommission provision was recognized). (p) Sales and services rendered
Over time, the discounted liability is increased by the change in present value based on the discount Revenue is recognized to the extent that it is probable that economic benefits will flow to the Group rate that reflects current market assessments and specific liability risks. and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of discounts, taxes and other obligations relating to their realization. The estimative of the decommissioning cost for the assets related with participating interests on the blocks that the Group operates as an investor (in its share in the participating interest) is not related with the Group acting as the National Concessionaire.
138 ANNUAL REPORT 2016 139 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
The main Group revenue categories are as follows: On the other hand, and also in accordance in the law in force, Sonangol has to deliver to the State the amount that corresponds to the sales performed as National Concessionaire deducted from its margin a) Sales of crude oil – associate; (currently 7%), determined over the sales measured at the fiscal reference price of the State’s Budget. b) Sales of crude oil – concessionaire; The law n. 23/14 of 31 December of 2015 has fixed the fiscal reference price in 45 USD/Barrel for 2016. c) Sales of refined products; The retained margin should face the expenses related with the supervision and control of its associates and of the oil and gas operations. This amount is recognized as a cost for the period in the caption d) State subsidy (subventions); “Concessionaire cost (sales on behalf of the State)”. e) Services rendered – leases; Sales of refined products f) Services rendered – shipping; g) Services rendered – logistic. Sales of refined products relate to sales of gasoline and diesel, and the revenue is recognized when the sale occurs in accordance with the price list in force.
Sales of crude oil – associate State subsidy (subventions) Revenue from the sale of crude oil and natural gas and oil products is recognized when the significant In accordance with the Executive Decree No 17/95 updated by Executive Decree 127/04 and risks and benefits of ownership have been transferred, which is considered to occur when the asset is complemented by the Executive Decree # 27/05, by Order no. º77 / 10 and by Presidential Decree 1/12, passed to the customer. This usually occurs when the product is physically transferred to the ship or the Company recognizes on basis of the defined structure of charges, margins and selling prices to other delivery mechanism. the public, a subsidy at prices resulting from the quantities of products sold in the period. During the period in which revenue from the sale of products is recognized in accordance with the table annexed to Revenue from oil and gas production where the Group has participating interests with other producers Executive Decree No. 97/12 of 26 March, the corresponding subsidy is also recognized. is recognized on the basis of the Group’s share in accordance with the production sharing contracts (PSC). The executive decree 706/15 of 30 September 2015, has defined that with the exception of the kerosene and the butane gas, all other refined products would pass to the free price regime, ceasing the State When the forward contracts (to buy or sell) on oil and natural gas are signed, the sales and purchases obligation to compensate with any subventions, and Sonangol Group would define the new price. are disclosed by the net amount. Services rendered – leases Sales of crude oil – concessionaire Revenue from leases relates mainly to leased aircrafts and real estate, including variable and fixed rent As the National Concessionaire (“NC”), Sonangol EP owns the mining rights attributed by the Angolan components, in accordance with the contracts. Rents are recognised in profit and loss in the related State (Law 10-04 article 4). The NC can create associate with other entities to execute the oil and period. gas operations or request the Government to directly give the concession, subject to approval of the Ministry and to a public tender. Services rendered – shipping
The NC decides the associates will be, so as the content of the contract to execute the oil and gas Revenue from shipping is recognised in the moment of arrival at the port of destination, when all operations (e.g. production sharing contracts), subject to approval of the Ministry in what relates to the performance obligations are fulfilled. association and the contract. Services rendered – logistic The premium for the contract signing which is paid by the associates to the NC revert to the State and Logistic activity consists mainly in the management of the logistic base of Luanda, by providing therefore are not part of the revenue. integrated business support services to the oil and gas activities and renting of premises, under the service concession contract. Receivables from NC correspond mainly to the share of Petroleum- Profit as established in each contract, which is the crude oil produced and collected and not used in the oil and gas operations, Services are rendered bearing in mind the construction and exploration of a basis for supporting the oil deducted from the crude oil to cost recovery. and gas industry, and the revenue is recognised at the moment each contracted service is rendered.
The crude oil share usually results from the application of a formula in accordance with the profitability In addition to the revenue recognised as above explained, the profits with receivable interests are of the Contractor Group in the development area and with the depth of groundwater where it was recognised on an accrual basis considering the debts amount and the effective interest rate during the obtained. period until maturity.
140 ANNUAL REPORT 2016 141 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
(q) Fair value measurement All other assets are classified as non-current. The group measures in each reporting period the investments in listed companies and investments in A liability is current when: investment funds at fair value. Additionally, for impairment testing purposes, the recoverable amount considers the highest between value in use and fair value less costs of disposal. • Expectation of payment in 12 months after the balance sheet date; • Held for negotiation; Fair value is the price that would be received to sell an asset or pay to settle a liability in an ordinary • It is due in a 12 month period after the balance sheet date: transaction between independent market participants. The fair value measurement is based on the a. As defined in the contract; or assumption that the transaction to sell an asset or a liability to pay takes place in: b. As formal request of payment from the creditor, after. • In the active market of the asset or liability; or • In the absence of an active market of an active market, in the most advantageous market for the (s) Benefit retirement and pension plan employees asset or liability. i) Short term benefits The fair value of an asset or liability is measured in the assumption that the participants of the market Short term benefits correspond to the expenses incurred with remunerations, fixed or variable, have in consideration the price of the asset or liability, assuming that these, act on base of their best other expenses directly related with employees, and other recognised responsibilities recognised in economical interest. the period associated with services rendered by employees that will be paid in the future, excluding termination benefits and post-retirement benefits and pension plans. They are usually recognised in The measurement of the fair value of a financial asset has in consideration the ability of the participant the caption Payroll when incurred. of the market to generate economic benefits for the use of the asset in its best consideration, or for its sale to other market participant. In accordance with legislation in force, Group employees are entitle annually to month of holiday and holiday subsidy, and this right is obtained in the preceding year of the payment, therefore, this responsibility is When necessary, the Group uses appropriated valuation techniques for which has enough available recognised in the period when the employee is earns this right, regardless of the related payment. information to measure the fair value, maximizing the use of relevant observable inputs and minimizing the use of non-observable inputs. ii) Termination benefits Termination benefits are recognised when the Group ceases the employment before the retirement The Group uses market prices to value the investments in quoted companies and the reports of the date, or when the employee accepts the contract termination in exchange for these benefits. Sonangol fund manager responsible for the investment funds to measure the participations in high risk capital group recognises the responsibility with termination benefits at the latest of the following dates: on investments. the date when the Group is no longer able to withdraw the benefits or when the Group recognises the restructuring costs under the scope of a provision. The benefits due in more than 12 months, after the (r) Current and non-current classification reporting period, are discounted to its present value.
The Group has assets and liabilities in its financial position based on the current / non-current iii) Retirement benefits and pension plans classification. Until the end of 2011, the Company personnel was covered by a “Defined Benefit Plan” of Sonangol that An asset is current when: was closed to new hires with effect from 1 January 2012, and the active participants were transferred into a new “Defined Contribution Plan” to be financed by the employees as from this date. The new plan • Expected realization or intended to be sold or consumed in the normal operating cycle; covers all future Sonangol employees. • Held for the main purpose of sale; • Forecasted realization in 12 months after the balance sheet date; The defined benefit plan remains in place to service the pension obligations of pensioners. This residual balance will be financed by subsidiaries included in the new plan through a management • Cash that are not restricted to be exchanged or used for the payment of a liability until 12 months entity. Nevertheless employees who retire or terminate their relationship with the company between 1 after the balance sheet date. January, 2012 and the date of legal implementation of the new plan will remain covered by the defined benefit plan.
142 ANNUAL REPORT 2016 143 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
AAA Pensões S.A. was the entity responsible for the management of the fund constituted for Sonangol (v) Mining activity related costs Pension Plan until 31 December 2013. In 2014 the responsibility was transferred to Sonangol Vida which This caption includes the share of the Sonangol Group on the costs related with joint operations that are has not yet initiated its activity. Sonangol EP being in charge during the transition. charged by the contract operators and its share on the costs incurred as a block operator.
In the future, Sonangol Vida will be responsible for the management of the fund and associated (w) Related parties responsibilities to the Sonangol Pension Plan. The entities considered related parties by Sonangol Group are (i) entities directly or indirectly controlled, REMEASUREMENTS (ACTUARIAL GAINS AND LOSSES) jointly controlled or where the Group has significant influence, regardless they are included in the Remeasurements are a consequence of experience adjustments and changes in the financial and consolidation perimeter; (ii) key-personnel of Sonangol Group, i.e., persons having authority and demographic assumptions. The Group recognises all remeasurements, of all plans in force, directly in responsibility for planning, directing and controlling the Group activities, including any Group director Equity, as statements of changes in equity. (whether executive or otherwise) and the respective close members of the family, i.e., persons with whom they live in shared economy; and (iii) entities that the close member of the family controls, jointly (t) Accrual basis method controls or has significant influence. Profits and losses are registered on an accrual basis, therefore they are recognised when they occur, Due to the public nature of Sonangol Group, other public entities owned by the shareholder “State” are regardless of the receivable or payment. Differences between amounts paid or received and the related also related parties, but the balances and the transactions with those entities are not disclosed in the costs and profits are recognised in “Other current assets” and “Other current liabilities”, respectively if financial statements when the nature of the relationship with Sonangol Group drive from sales of goods the differences correspond to a right or a liability for the Group. and rendering of services in the course of ordinary activities, at prices and market conditions.
Consequently, the captions “Deferred expenses” and “Deferred income” include expenses and income (x) Events after balance sheet date that have already incurred but which relate to future periods and that will be recognised in the profit and loss of the related periods by the correspondent amount. “Accrued income” and “Accrued The events that occur after the balance sheet date that provide additional information about conditions expenses” relate to income and expenses already incurred and that will be invoiced in the future. that existed at reporting date are recognized in the Statement of Profit & Loss of the Group. The events that occur after the balance sheet date that provide information about conditions that are disclosed (u) Results policy after the reporting date, are disclosed in the notes to the financial statements, if considered significant. a) Extraordinary and non-operational results (y) Accounting policies, accounting estimates and errors Extraordinary results include the extraordinary costs and gains from activities that are distinguishable ACCOUNTING ESTIMATES from the operational activities and, therefore, that are not expected to occur regularly and frequently. Estimation involves judgements based on the latest available, reliable information. An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result Non-operational results include the costs and gains in transactions with current nature and that do not of new information or more experience. The effect of a change in an accounting estimate, shall be occur regularly or frequently. recognised in profit and loss of the current period in the same caption used to register the accounting estimate. b) Financial results
Financial results include interests paid on loans, interests received from applications, dividends CHANGES IN ACCOUNTING POLICIES received, gains and losses from exchange rate differences, realized gains or losses, and fair value By general rule, a change in accounting policy is applied retrospectively, i.e., the new accounting policy variations related with financial instruments and fair value variations of hedge risks, when applicable. is applied to the events and transactions as if the new accounting policy had always been applied, and changes are recognised in retained earnings. Interests are recognised in an accrual basis. Dividends to be received are recognised when the right to the receivable is established. ERRORS The correction of errors, when preparing the financial statement, from one or more prior periods c) Results from affiliates and associates discovered in the current period, is corrected in the profit and loss of the current period, except if it Results from affiliates and associates include only dividends received from companies that the Group compiles the characteristics of a fundamental error, in which situation shall be recognized in retained owns as financial investment. Dividends are recognised when the right to the receivable is established. earnings.
144 ANNUAL REPORT 2016 145 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
2.4 CHANGES IN ACCOUNTING POLICY The table below shows, as mentioned above, the entities within the consolidation perimeter as defined by the Board of Sonangol EP and their operating segment:
Except for what it is stated below, there were no other changes in accounting policies from prior period. Company Segment Sonangol E.P Corporate & Financing Based on a better interpretation of laws in force and of the contractual terms that guide the oil and Sonangol Finance Limited Corporate & Financing
gas activities, the Group has recognised at its fair value, reversible assets in the amount of 167,395,968 Sonangol E.P Upstream thousands of AOA related with oil and gas operations, as explained in Note 2.3 g). Sonangol Pesquisa e Produção, S.A. Upstream Sonangol Hidrocarbonetos Internacional, S.A. Upstream As described in the policy followed from 2016 forward, reversible assets are assets that were Sonagás - Sonangol Gás Natural, S.A. Upstream deducted the concept of Petroleum- Profit of the oil & gas operations, a therefore are deducted from Sonangol Refinação S.A. Midstream Sonangol Shipping Holding, Limited Midstream the contributions to be made the contractors group to the National Concessionaire. Sonangol EP Sonangol Shipping Angola, Limited Midstream recognises these reversible assets when one of the following situation occur: Sonangol Shipping Services, Limited Midstream Sonangol Chartering Services limited Midstream • When the assets starts to generate economic benefits to Sonangol EP; or Sonangol LNG Shipping Service Limited Midstream Sonangol Marine Transportation limited Midstream Sonangol Marine Services Inc Midstream • When the risks and returns of the assets are transferred to Sonangol EP (generally when Angola LNG Fleet Managment Services LLC Midstream the contractors groups invest under the Production Sharing Contracts with the National Sonangol Shipping Angola (Luanda) Limitada Midstream Stena Sonangol Suezmax Pool Midstream Concessionaire). Sonangol Shipping Girassol Limited Midstream Sonangol Huila Limited Midstream Sonangol Shipping Kassanje Limited Midstream Sonangol Kalandula Limited Midstream Sonangol Shipping Kizomba Limited Midstream Sonangol Shipping Luanda Limited Midstream 3. OPERATIONAL SEGMENTS Sonangol Rangel Limited Midstream Sonangol Porto Amboim Limited Midstream Sonangol Shipping Namibe Limited Midstream For management purposes, the Group is organized into business units based on products and services Sonangol Cabinda Limited Midstream Sonangol Etosha Limited Midstream provided, subdivided in five reportable segments: Sonangol Benguela Limited Midstream Sonangol Sambizanga Limited Midstream • Corporate & Financing, which includes core financial investments, financing and intercompany Ngol Bengo Limited Midstream Ngol Chiloango Limited Midstream loans; Ngol Zaire Limited Midstream Ngol Cunene (Clyde) Limited Midstream • Upstream, representing research and crude oil and natural gas production; Sonangol Shipping Ngol Luena Limited Midstream Sonangol Shipping Ngol Cassai Limited Midstream • Midstream, which includes refining and transport of products based on crude oil and natural gas; Ngol Dande Limited Midstream Ngol Kwanza Limited Midstream • Downstream, which includes storage of finished products, commercialization and distribution of the Cumberland Limited (Ngol Cubango) Midstream
derived products and crude oil and natural gas to the final customer; Sonagás - Sonangol Gás Natural, S.A. Downstream Sonangol Distribuidora, S.A. Downstream • Group Non-Core Activities such as aviation services, healthcare services, training activities, real Sonangol Logística, Lda. Downstream
estate investments, telecommunications and other “non-core” financial investments. Sonangol Holdings, Lda. Actividades "non-core" SIIND – Sonangol Investimentos Industriais, S.A. Actividades "non-core" SONIP - Sonangol Imobiliária e Propriedades, Lda. Actividades "non-core" The management monitors the operating results of its business separately, with the purpose of making Sonair - Serviços Aéreos, S.A. Actividades "non-core" Clínica Girassol, Sarl. Actividades "non-core" decisions about resources allocation and performance evaluation. The performance of a segment MS TELCOM – Mercury Serviço de Telecomunicações, S.A. Actividades "non-core" is evaluated based on their operating income and expenses which are valued consistently with the Instituto Superior Politécnico de Tecnologias e Ciências (ISPTEC) Actividades "non-core" CFMA - Centro de Formação Marítima de Angola Lda Actividades "non-core" consolidated operating income and expenses. Academia Sonangol S.A. Actividades "non-core" SONACI Actividades "non-core" However, Group financing (including finance costs and income) and net income are managed from the Sonangol Vida Actividades "non-core" Sonils - Sonangol Integrated Logistic Services, Lda Actividades "non-core" perspective of the consolidated accounts and are not allocated to segments. Inloc Limited Actividades "non-core" Pessoas Desenvolvimento e Associações – PDA Actividades "non-core" Sonangol Asia Actividades "non-core" Sonangol Limited Actividades "non-core" Sonangol Hong Kong Limited Actividades "non-core" Sonangol USA Actividades "non-core" Solo Properties Actividades "non-core"
146 ANNUAL REPORT 2016 147 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
SEGMENT REPORT SEGMENT REPORT CONSOLIDATED STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED 31ST DECEMBER 2016 CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER 2016 CORPORATE & UPSTREAM MIDSTREAM DOWNSTREAM NON CORE TOTAL CORPORATE & UPSTREAM MIDSTREAM DOWNSTREAM NON CORE CONSOLIDATION TOTAL FINANCING FINANCING ADJUSTMENTS Consolidated Consolidated Consolidated Consolidated Consolidated AKZ AKZ AKZ AKZ AKZ AKZ AKZ AKZ AKZ AKZ AKZ AKZ AKZ Assets Sales 73,255,802,476 1,435,406,709,130 144,724,228,734 832,146,898,392 12,672,082,250 (214,428,538,546) 2,283,777,182,435 Non-current Assets Services rendered - - 39,719,788,531 73,763,105 135,719, 858,987 (22,289,328,564) 153,224,082,059 Tangible fixed assets - 3,955,005,660 310,343,744,342 252 021,625,387 371,482,552,268 937,802,927,657 Other operational income - 4,171,405,407 4,819,667,522 938,315,818 8,302,822,009 (3,339,649,748) 14,892,561,009 Intangible assets - 115,174,349 33,811,594,287 644,552,342 30,488,398,998 65,059,719,976 73,255,802,476 1,439,578,114,538 189,263,684,787 833,158,977,315 156,694,763,246 (240,057,516,859) 2,451,893,825,503 Oil&Gas upstream assets - 2 447,205,577,713 - - - 2,447,205,577,713 Reversible assets 167,395,967,501 - - - - 167,395,967,501 Variation in finished - (647,619,419) 332,740,810 4,835,965,367 - (684,508,511) 3,836,578,246 Exploration and evaluation assets - 724,759,575,062 - - - 724,759,575,062 products Investments in subsidiaries and 62,676,581,408 270,302,436,865 3,488,880,853 - 134,460,964,008 470,928,863 134 Concessionaire cost (sales - (895 401 469 527) - - - - (895,401,469,527) associates on behalf of the State) Other financial assets 53,045,311,857 - - - 125,377,191,386 178,422,503,244 Cost of goods sold and - (117) (123,087,387,827) (476,489,472,014) (18,508,642,563) 230,701,387,946 (387,384,114,574) Other non-current assets 560,544,594,913 17,464,326,830 - 1,043,654 35,177,559,707 613,187 525,103 raw materials Bank deposits 222,410,168,298 222,410,168,298 Oil&Gas exploration and - (267,357,942,328) - - - 2,281,255,300 (265,076,687,029) Total Non-current Assets 1,066,072,623,978 3,463,802,096,478 347,644,219,481 252,667,221,383 696 ,986,666,368 5,827,172,827,688 operating costs Payroll (45,976,280,554) (7,778,151,913) (12,225,514,251) (53,874,398,507) (46,362,118,568) 8,328,005,609 (157,888,458,184) Current Assets Depreciation - (300,232,714,106) (15,235,889,110) (16,489,513,577) (37,433,825,944) (197,038,549) (369,588,981,285) Inventories - -5,014 343,810 17,765,534,563 30,332,031,251 57,463,871,050 100,547,093,054 Other operational costs (35,534,695,356) (5,539,262,516) (40,098,937,372) (72,907,622,269) (90,447,705,448) 19,814,932,786 (224,713,290,176) Accounts receivable 1,737,342,199 350,418,683,415 14,766,097,434 238,704,828,600 140,311,006,789 745,937,958,438 (81,510,975,910) (1,476,957,159,926) (190,314,987,750) (614,925,041,000) (192,752,292,523) 260,244,034,580 (2,296,216,422,529) Cash and equivalents 584,697,454 729 27,047,561,635 48,447,326,958 82,670,334,819 84,079,632,095 826 942,310,235 Other current assets -347,973,918 1,258,887,412 725,350,337 944,539,727 5,499,372,005 8,080,175,562 Operational Income (8,255,173,434) (37,379,045,389) (1,051,302,963) 218,233,936,315 (36,057,529,277) 20,186,517,722 155,677,402,974 Total Current Assets 586,086,823,009 373,710,788,652 81,704,309,292 352,651,734,397 287,353,881,939 1,681,507,537,290
Financial income and 35,813,352,454 (153,008,051,183) 1,018,234,556 74,064,381,628 (53,869,523,283) 41,949,363,142 (54,032,242,686) Total Assets 1,652,159,446,987 3,837,512,885,130 429,348,528,773 605,318,955,780 984,340,548,307 7,508,680,364,978 expenses Result of affiliates 24,536,988,603 - - - 3 179 458 225 (23 561 446 307) 4 155 000 522 Total Equity -115,774,190,665 2,035,696,832,964 349,746,364,955 13,175,127,523 853,261,244,633 3,136,105,379,410 Non-operating income 82,123,430,189 231,618,901,412 (109,666,036,499) (172,166,884,223) (50,017,793,397) 9,579,802,533 (8,528,579,984) Non-Current Liabilities and expenses Medium and long term loans 1,123,493 003,462 21,075,501,491 - - - 1,144 568,504,953 142,473,771,247 78,610,850,230 (108,647,801,943) (98,102,502,595) (100,707,858,455) 27,967,719,368 (58,405,822,148) Employee benefit liability 28,545,511,160 8,806,750,862 8,041,678,588 47,731,826,980 11,433,328 467 104,559,096,058 Provisions for other risks and 2,940 099,917 1,132,939,617,227 19 ,36,619,039 48 620,315,507 17,956,100,219 1,222,092,751,908 Income before taxes 134,218,597,813 41,231,804,841 (109,699,104,906) 120,131,433,720 (136,765,387,732) 48,154,237,090 97,271,580,826 charges Other non-current liabilities 0 127 532 756 370 1 987 360 874 1 958 099 968 6 222 029 200 137 700 246 412 Taxation - (28,170,705,143) (2,182,214,664) (51,360,556,394) (1,960,916,069) (393,983,648) (84,068,375,918) Total Non-Current Liabilities 1,154 978,614,538 1,290,354,625,950 29,665,658,501 98,310,242,456 35,611,457,886 2,608,920,599,331 Current activities net 134,218,597,813 13,061,099,698 (111,881,319,570) 68,770,877,326 (138,726,303, 801) 47,760,253,441 13,203,204,908 income Current Liabilities Accounts payable 79,267,297,997 490,874 ,758,953 46 ,216,162,803 469,289,353,754 65,585,235,646 1,151,232,809,152 Extraordinary income - - - 869,662 77,651,450 (47,796) 78,473,316 Short term loans 506,632,740,994 - - - 840,700,596 507,473,441,589 and expenses Provisão para outros riscos e ------encargos Net income 134,218,597,813 13,061,099,698 (111,881,319 570) 68,771,746,988 (138 ,648,652,351) 47,760,205,646 13,281,678,224 Other current liabilities 27 054 984 123 20 586 667 263 3 720 342 514 24 544 232 048 29 041 909 546 104 948 135 494 Total Current Liabilities 612,955,023,113 511,461,426,216 49,936,505,317 493,833,585,802 95,467,845,788 1,763,654,386,236
Total Equity and Liabilities 1,652,159,446 987 3,837,512,885,130 429,348,528,773 605,318,955,780 984,340,548,307 7,508,680,364,978 CORPORATE & UPSTREAM MIDSTREAM DOWNSTREAM NON CORE CONSOLIDATION TOTAL FINANCING ADJUSTMENTS
CORPORATE & UPSTREAM MIDSTREAM DOWNSTREAM NON CORE TOTAL USD USD USD USD USD USD USD FINANCING Consolidated Consolidated Consolidated Consolidated Consolidated USD USD USD USD USD USD Operational Income (50,329,979) (227,891,827) (6,409,563) 1,330,524,362 (219,834,834) 123,072,763 949,130,922
Total Non-current Assets 6,394,082,721 20,775,167,317 2,085,098,001 1,515,445,644 4,180,381,618 33,946,168,971 Income before taxes 818,301,302 251,381,255 (668,811,341) 732,414,957 (833,828,520) 293,585,804 593,043,457 Total Current Assets 3,515,227,334 2,241,439,882 490,045,519 2,115,132,038 1,723,489,048 10,085,333,821
Total Assets 9,909,310,056 23,016,607,199 2,575,143,520 3,630,577,682 5,903,870,665 45,035,509,123 Current activities net 818,301,302 79,630,655 (682,115,824) 419,280,929 (845,783,795) 291,183,772 80,497,039 income Total Equity -694,389,609 12,209,687,833 2,097,706,234 79,021,685 5,117,684,160 18,809,710,303 Total Non-Current Liabilities 6,927,322,433 7,739,279,701 177,928,473 589,644,466 213,590,146 15,647,765,218 Net income 818,301,302 79,630,655 (682,115,824) 419,286,232 (845,310,371) 291,183,480 80,975,474 Total Current Liabilities 3,676,377,232 3,067,639,666 299,508,813 2,961,911,531 572,596,359 10,578,033,601 Total Equity and Liabilities 9,909,310,056 23,016,607,199 2,575,143,520 3,630,577,682 5,903,870,665 45,035,509,123
The exercise mentioned above lists the aggregated values of the companies comprising the respective operating The exercise mentioned above lists the aggregated values of the companies comprising the respective operating segments segments net of Intra-Group eliminations within each segment in order to best reflect the economic substance of net of Intra-Group eliminations within each segment in order to best reflect the economic substance of each Sonangol Group each Sonangol Group operational segment. The consolidation adjustments column reflects eliminations between operational segment. The consolidation adjustments column reflects eliminations between group companies belonging to group companies belonging to different operational activity sectors. The translation to USD follows the exchange different operational activity sectors. The translation to USD follows the exchange rate policy described in Note 2.1.2. rate policy described in Note 2.1.2.
148 ANNUAL REPORT 2016 149 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
4. TANGIBLE FIXED ASSETS The impossibility of measuring and incorporating the development and exploration potential of the industries adjacent to the refinery into the present value of the Refinery, has affected negatively the 4.1 TANGIBLE FIXED ASSETS exercise performed. The potential of the national refining production allied with the adjacent industrial projects synergies 4.1.1 DETAILS BY NATURE can demonstrate greater economic strength and results in the reversal of impairment losses recognised in the period. As at 31 December 2016 the tangible fixed assets natures are detailed as follows: DRILLING VESSELS Items Gross Value 2016 Accumulated Net Value 2016 Net Value 2015 Depreciation 2016 Sonangol is negotiating with international partners a business model to increase the profitability of the Land and natural resources 7,162,059,413 - 7,162,059,413 6,528,472,807 two drilling vessels, and the activities in progress are as follows: conclusion of the financing process, Buildings and other construction 563,481,737,724 (198,759,587,266) 364,722,150,458 206,026,165,951 final selection of technology partners and identification of new production opportunities. In accordance Basic equipment 432,334,857,106 (164,977,847,285) 267,357,009,821 223,197,100,517 with the related business model, the entry into operation of the drilling vessels will occur in compliance Transport equipment 40,973,170,744 (30,228,141,726) 10,745,029,018 5,984,335,333 with the Angolan legislation’s (Decree 48/06) and competitive daily average rates indexed to the IT equipment 33,294,026,395 (22,360,741,576) 10,933,284,820 2,896,619,241 industry reference prices will be applied. Administrative equipment 45,516,540,275 (45,798,016,709) (281,476,434) 9,352,960,467 Other tangible fixed assets 5,642,317,970 (4,505,030,278) 1,137,287,692 1,002,780,661 Tangible fixed assets in 269,865,527,420 - 269,865,527,420 342,274,129,563 4.1.2 MOVEMENTS DURING THE PERIOD IN GROSS AMOUNT progress Advanced payments for tangible 6,162,055,451 - 6,162,055,451 18,737,772,575 fixed assets During 2016 the movements occurred in the gross amount of tangible fixed asset were as follows: 1,404,432,292,497 (466,629,364,840) 937,802,927,657 816,000,337,114 Items Beginning balance Increases Decreases Transfers / Exchange rate Ending balance /write-offs differences During the year 2016, the main Group investments were related with: Land and natural 6,528,472,807 990,703,911 (584,123,266) (213,705) 227,219,666 7,162,059,413 resources • Construction of Lobito Refinery in the “midstream” segment; Buildings and other 298,846,555,946 272,748,483,119 (11,307,432,780) (5,956,517,653) 9,150,649,093 563,481,737,724 construction • Construction of 2 drilling vessels in the “upstream” segment; Basic equipment 349,631,375,647 32,343,328,560 (4,946,537,489) (85,503,956) 55,392,194,344 432,334,857,106 • Construction of logistics facilities at Barra do Dande in the “downstream” segment. Transport equipment 22,136,197,485 18,120,908,771 (434,638,558) (306,889,208) 1,457,592,254 40,973,170,744 IT equipment 28,377,795,898 784,210,338 (53,857,410) 255,849,275 3,930,028,295 33,294,026,395 Administrative 35,849,279,808 6,641,592,869 (24,007,138) 143,384,690 2,906,290,046 45,516,540,275 equipment LOBITO REFINERY Other tangible fixed 3,111,562,698 1,903,248,714 - (7,808) 627,514,366 5,642,317,970 In August 2016, Sonangol’s Management decided, among others, to suspend the construction assets Tangible fixed assets 342,148,215,031 94,176,743,205 (171,161,381,732) (35,198,287,013) 39,900,237,929 269,865,527,420 works of the Lobito Refinery, in order to re-evaluating the strategic vision of the development and in progress implementation of this project. Advanced payments 18,737,772,575 5,649,857 (15,313,622,219) - 2,732,255,237 6,162,055,451 for tangible fixed assets The applied measure foresee a careful review of the development, construction phasing and financing 1,105,367,227,894 427,714,869,344 (203,825,600,592) (41,148,185,380) 116,323,981,230 1,404,432,292,497 of the project and was a consequence not only of the current adverse economic situation, in particular in the oil and gas sector, but also because some of the original assumptions that supported its sanction The decreases amount includes impairment losses detailed in Note 13 Retained earnings in the amount were not verified. of 5,439,536 thousands of AOA and in Note 33 Non-operational results in the amount of 123,249,902 thousands of AOA with a direct impact in profit and loss. The Sonangol Administration is convinced that the Lobito Refinery project is a strategic project for the Company and for the country, given the high national deficit of production of refined products. Additionally, it intends that this new strategy incorporates all the investments already made, believing that these investments could become more profitable with the development of industrial projects adjacent to the refinery, namely petrochemical industry projects, boosted by hydrocarbon discoveries in the offshore blocks near Lobito.
150 ANNUAL REPORT 2016 151 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
4.1.3 MOVEMENTS DURING THE PERIOD IN ACCUMULATED DEPRECIATIONS 4.A.2 MOVEMENTS DURING THE PERIOD IN GROSS AMOUNT
During 2016 the movements occurred in the accumulated depreciations of tangible fixed asset were as During 2016 the movements occurred in the gross amount of oil and gas properties were as follows: follows: Item 2015 Increases Decreases Transfers / Exchange rate 2016 /write-offs differences Items Beginning balance Increases Decreases Transfers / Exchange rate Ending balance /write-offs differences Development 3,121,171,551,405 1,321,185,632,815 (510,503,229,347) - 484,623,303,656 4,416,477,258,529 expenses Buildings and other 92,820,113,495 106,397,360,583 (80,116,604) (1,895,445,887) 1,517,675,679 198,759,587,266 construction Abandonment 334,122,877,215 59,082,615,790 (113,598,563,393) - 31,080,198,233 310,687,127,845 expenses Basic equipment 126,432,666,380 27,367,188,797 (3,891,270,000) (221,461,729) 15,290,723,838 164,977,847,285 3,455,294,428,620 1,380,268,248,605 (624,101,792,740) - 515,703,501,889 4,727,164,386,374 Transport equipment 16,151,862,212 13,508,244,448 (85,806,115) (203,380,476) 857,221,657 30,228,141,726 IT equipment 17,074,915,238 1,844,197,952 (82,695,418) (1,471,422) 3,525,795,225 22,360,741,576 In addition to the regular developments, resulting from investments in the operated and non-operated Administrative 34,904,466,041 9,222,262,283 (5,785,496) (16,889,935) 1,693,963,817 45,798,016,709 equipment blocks, other specific increases are highlighted, such as: Other tangible fixed 2,108,782,037 1,953,338,718 - (7,255) 442,916,778 4,505,030,278 assets 289,492,805,403 160,292,592,781 (4,145,673,634) (2,338,656,704) 23,328,296,994 466,629,364,840 • Incorporation of mining assets relative to the participations in concessions FS and FST in the amount of 14,643,255 thousand of AOA; • Borrowing costs capitalization for the years 2013, 2014, 2015 and 2016 in the amount of 98,650,977 4.A. OIL AND GAS PROPERTIES thousand of AOA, from the medium and long term loans related with the construction of qualify assets. 4.A.1 DETAILS BY NATURE The increase in development expenses includes the reclassification of the impairment loss registered in the 2015 in Others debtors (non-current) in the amount of 355.969.743 thousand of AOA and include As at 31 December 2016 the oil and gas properties natures are detailed as follows: the decreases include the same amount related with the impairments loss recognition in Retained earnings, as disclosed in Note 13, since it was considered a fundamental error. Item Gross value 2016 Accumulated Net vale 2016 Net vale 2015 amortisations 2016 Development expenses 4,416,477,258,529 (2,100,421,076,058) 2,316,056,182,471 1,463,225,749,111 In 2016 the Group has performed new impairment tests to the mining assets in the production phase, Abandonment expenses 310,687,127,845 (179,537,732,603) 131,149,395,242 221,886,868,396 the main assumptions were reviewed in accordance with new market factors, with special focus on 4,727,164,386,374 (2,279,958,808,661) 2,447,205,577,713 1,685,112,617,507 the evolution of the oil price curve, on the business plans, and on group costs of the debt and the equity (in line with benchmarks and information sources commonly accepted by the industry). These As at 31 December 2016, the Group development expenses includes an amount of 6,763,829 thousands tests presented significant improvements regarding the mining assets recoverability, when compared of AOA related with the investment in Iraq project. with the previous period, which has resulted in an adjustment to the carrying amount of the assets of 380.912.384 thousand of AOA, which was recognized in Non operating results. Sonangol and the Government of Iraq agreed in 2015, due to the conflicts of war and political instability in the province of Nineveh, the waiver of compliance with the contractual obligation foreseen in the 4.A.3 MOVEMENTS DURING THE PERIOD IN ACCUMULATED DEPRECIATIONS Development and Production Service Contract (DPSC) and, consequently, the closure of the oil fields of Qayarah and Najmah. The Sonangol Administration is currently working on a program to reactivate and During 2016 the movements occurred in the accumulated depreciations of oil and gas properties were revitalize these oil fields, which took place during 2016 with the recovery of effective control over these as follows: assets, after the de-escalation of the conflict and the intergovernmental contacts reinforcement. Item 2015 Increases Decreases Transfers / Exchange rate 2016 /write-offs differences The Sonangol Administration considers that the current efforts to resume the operations in these Development 1,657,945,802,294 250,590,987,784 - - 191,884,285,979 2,100,421,076,058 fields and the projected financial viability of this transaction will ensure the recovery of the investments expenses performed in these mining assets. Abandonment 112,236,008,819 49,084,862,295 - - 18,216,861,489 179,537,732,603 expenses 1,770,181,811,113 299,675,850,079 - - 210,101,147,468 2,279,958,808,661
In 2016 the Group has adjusted the amortizations of the mining fixed assets (Block 0), due to the need to exclude form the basis of amortization the investments in the field in development in Mafumeira Sul,
152 ANNUAL REPORT 2016 153 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
since the effective production will only start in 2017. The impact of the retrospective adjustment in the The above Goodwill represents: mining tangible assets and in the Abandonment expenses was in the amount of 18,288,908 thousands of AOA. • Excess acquisition consideration transferred for the acquisition of “Refinaria de Luanda” by “Fina Petróleos” and the fair value of the identifiable net assets acquired and liabilities assumed; AOA 4.B. REVERSIBLE ASSETS 33,779,424 thousands. • Excess acquisition consideration transferred for the acquisition of Inloc Limitada pela Sonangol 4.B.1 DETAILS BY NATURE Holdings by Sonangol Holdings in 2011 and the fair value of the identifiable net assets acquired and liabilities assumed; AOA 27,768,098 thousands. As at 31 December 2016 the reversible assets natures are detailed as follows:
Items Fair Value Fair Value Variation Net Value Net Value 5.2 MOVEMENTS DURING THE PERIOD IN GROSS AMOUNT 2016 2016 2016 2015 Reversible Assets 167,395,967,501 - 167,395,967,501 - During 2016 the movements occurred in the accumulated depreciations of intangible assets were as follows: 167,395,967,501 - 167,395,967,501 -
Item Beginning Increases Decreases / Exchange rate Ending balance Based on a better interpretation of laws in force and of the contractual terms that guide the oil and balance write-offs differences gas activities, the Group has recognised at its fair value, reversible assets in the amount of 167,395,968 Goodwill 27,385,587,200 27,768,097,500 - 6,393,836,800 61,547,521,500 thousands of AOA related with oil and gas operations, as explained in Note 2.3 g). Rights and contracts 1,428,943,191 1,001,006,452 (64,936,375) - 2,365,013,267 Formation expenses 89,419,092 - - 14,709,887 104,128,980 Other intangible assets 17,591,895,387 1,053,865,206 (8,085,070) 2,525,923,226 21,163,598,749 4.B.2 MOVEMENTS DURING THE PERIOD IN GROSS AMOUNT 46,495,844,870 29,822,969,158 (73,021,445) 8,934,469,914 85,180,262,497
During 2016 the movements occurred in the accumulated depreciations of reversible assets were as follows: The increase in Goodwill is related with the entrance of Inloc Limited to the consolidation perimeter in 2016.
Item 2015 Increases Decreases Transfers / Exchange rate 2016 5.3 MOVEMENTS DURING THE PERIOD IN ACCUMULATED DEPRECIATIONS write-offs differences Reversible assets - 167,395,967,501 - - - 167,395,967,501 During 2016 the movements occurred in the accumulated depreciations of intangible assets were as follows: - 167,395,967,501 - - - 167,395,967,501
Item Beginning Increases Decreases Exchange rate Ending balance 5 INTANGIBLE ASSETS balance differences Goodwill - - - - - Rights and contracts 183,211,195 223,490,731 - - 406,701,925 5.1 DETAILS BY NATURE Formation Expenses 85,278,250 4,140,843 - 14,709,887 104,128,980 Other intangible assets 16,142,133,423 1,287,988,442 - 2,179,589,751 19,609,711,616 As at 31 December 2016 the intangible assets natures are detailed as follows: 16,410,622,867 1,515,620,016 - 2,194,299,638 20,120,542,520
Item Gross value 2016 Accumulated Net vale 2016 Net vale 2015 amortisations 2016 Goodwill 61,547,521,500 - 61,547,521,500 27,385,587,200 Rights and contracts 2,365,013,267 (239,973,925) 2,125,039,342 1,245,731,996 Formation expenses 104,128,980 (104,128,980) - 4,140,843 Other intangible assets 21,163,598,750 (19,776,439,616) 1,387,159,134 1,449,761,965 85,180,262,497 (20,120,542,520) 65,059,719,976 30,085,222,003
154 ANNUAL REPORT 2016 155 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
5.A. EXPLORATION AND EVALUATION ASSETS Regarding block 09.09, the amount of increase corresponds to the reclassification of the impairments losses recognized in 2015 in “Others Debtors non-current”, in amount of 23,306,064 thousands OAO, 5.A.1 DETAILS BY NATURE and the same amount was recognized as a decrease due to the recognition of the impairment loss in retained earnings as disclosed in Note 13, since it was considered a fundamental error. As at 31 December 2016 the exploration and evaluation assets natures are detailed as follows: The increases during the period include the amount of 309,436,191 thousands AOA and 215,035,603 Item Gross value 2016 Accumulated Net vale 2016 Net vale 2015 thousands AOA, related with the reclassification of the impairment losses of the blocks 31 and 21.09, amortisations 2016 respectively, recognized in 2015 in “Others Debtors non-current”. Exploration and evaluation assets 509,723,972,264 - 509,723,972,264 126,797,283,209 Advances for acquisition of 215,035,602,798 - 215,035,602,798 - BLOCK 21.09 interests in blocks Sonangol’s management believes that this block has potential of profitability due to the contingent 724,759,575,062 - 724,759,575,062 126,797,283,209 resources of oil and gas. The potential of this block is associated with the existence of a gas contractual matrix which is currently in development by a ministerial group of which Sonangol EP is a part. In the absence of a clear regulation that allows the gas resources valuation, it’s hard to perform a reasonable 5.A.2 MOVEMENTS DURING THE PERIOD IN GROSS AMOUNT evaluation, based on solid and consistent assumptions with the results of the ministerial work group. However, Sonangol’s management believes that the efforts already started by the Angola Government During 2016 the movements occurred in the accumulated depreciations of exploration and evaluation will allow the resources valuation and monetization in line with the returns’ expectations foreseen at assets were as follows: the date of the investment in the block.
Item 2015 Increases Decreases Transfers Exchange rate 2016 differences BLOCK 31 Exploration and evaluation assets: 2nd Block 15.06 26,390,016,358 31,859,439,454 - - 5,965,351,060 64,214,806,872 Sonangol’s management believes that the Hub of Block 31 block has potential of profitability due to Block 31 32,246,999,593 309,436,191,052 - (38,969,208,732) 7,289,297,240 310,003,279,154 the contingent resources of oil and gas. The related resources are split and distributed for 15 small Block 32 31,775,808,580 59,704,071,257 - - 7,182,786,524 98,662,666,362 fields, thereby increasing the development costs when compared to a conventional development. Block 02.05 2,603,290,895 550,571 (3,192,304,311) - 588,462,826 (20) However, efforts have been made find a more efficient techniques that can reduce the needs to invest Block 02.06 393,295,816 - (482,198,598) - 88,902,904 122 Block 37.11 - 3,339,506,543 (3,339,506,543) - - - in infrastructures, increasing its economic attractiveness and, therefore, recovering the investments Block 22.11 - - (162,059,827) - - (162,059,827) already made. It is Sonangol’s management judgement that there is a high degree of uncertainty to perform a financial and economic evaluation based on solid assumptions and adherent to the reality. Iraq 30,182,625,380 - - - 6,822,654,220 37,005,279,600 Venezuela 3,205,246,588 - (3,929,778,960) - 724,532,372 - 126,797,283,208 404,339,758,877 (11,105,848,238) (38,969,208,732) 28,661,987,147 509,723,972,264 Advances for acquisition of interests in blocks:
Block 09.09 - 23,306,064,477 (23,306,064,477) - - - Block 21.09 - 215,035,602,798 - - - 215,035,602,798 - 238,341,667,275 (23,306,064,477) - - 215,035,602,798 126,797,283,208 642,681,426,152 (34,411,912,715) (38,969,208,732) 28,661,987,147 724,759,575,062
The caption exploration and evaluation assets includes an amount of 37,005 thousands of AOA related to the signature bonus paid by the Group, related to the Iraq investment.
Given the uncertainty related to the mining investment recoverability in Venezuela, associated to the signature bonus specifically in Migas and Melones fields, the group recognized an impairment loss for all the investment in the amount of 3,929 thousands AOA. Due to the fact that the impairment indicators were already identified in the prior years, the impairment loss was recognized in retained earnings as disclosed in Note 13, since it was considered a fundamental error.
156 ANNUAL REPORT 2016 157 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
Item % held Gross value 2016 Accumulated Net value 2016 Net value 2015 6. FINANCIAL INVESTMENTS impairment losses 2016 Genius, Lda 10.0% 701,250,000 (701,250,000) - - 6.1 DETAILS BY TYPE OF MEASUREMENT Gesporto 70.0% 1,400,000 (1,400,000) - - Jasmin (Joint Venture) 30.0% 3,470,032,251 - 3,470,032,251 2,830,258,575 As at 31 December 2016 the financial investments by type of measurement are detailed as follows: Kicombo 60.0% 60,000,000 - 60,000,000 60,000,000 Kwanda Lda 30.0% 13,141,040 - 13,141,040 13,141,040 Lobinave 75.0% 525,647,462 (525,647,462) - - Item 2016 2015 Luanda Waterfront 26.1% 6,099,427,614 - 6,099,427,614 6,099,427,614 Financial investment – cost less impairment losses 442,906,989,553 607,406,283,398 Luxervisa 80.0% 2,000,736,000 (2,000,736,000) - - Financial investment – fair value 28,021,873,581 76,689,170,933 Mota Engil 20.0% 6,494,048,204 (1,873,689,264) 4,620,358,940 6,494,048,204 470,928,863,134 684,095,454,331 Net One 51.0% 2,219,316,408 (2,219,316,408) - - OPCO 22.8% 3,801,398 - 3,801,398 3,100,536 Orleans Invest Holding (OI OSC) 100.0% - - - 27,769,500,000 Paenal - Porto Amboim Navais 10.0% 7,500,000 - 7,500,000 7,500,000 6.2 DETAILS BY ENTITY – FINANCIAL INVESTMENTS – COST LESS Petromar 30.0% 9,198,728 - 9,198,728 9,198,728 Puaça 100.0% 4,230,868,867 (4,292,745,816) (61,876,949) 4,230,868,867 IMPAIRMENT LOSSES Puma Energy 27.9% 101,387,608,141 - 101,387,608,141 101,387,608,141 S. Tomé e Principe Offshore 51.0% 765,000 (765,000) - - As at 31 December 2016 the detail of the financial investments measured at cost less impairment loss Sodimo 30.0% - - - - is as follows: Somg 0.0% 3,801,398 - 3,801,398 3,100,536 Sonacergy 40.0% 304,168,263 - 304,168,263 - Sonadiets 60.0% 6,439,470 - 6,439,470 6,439,470 Item % held Gross value 2016 Accumulated Net value 2016 Net value 2015 impairment Sonaid 30.0% 11,705,107 - 11,705,107 - losses 2016 Sonair USA 50.0% 1,875,000 - 1,875,000 1,875,000 ACS 100.0% 796,688,890 - 796,688,890 650,614,310 Sonamet 40.0% 356,351,721 - 356,351,721 - AGOLE 80.0% 2,295,769 (2,295,769) - - Sonangalp 51.0% 501,880,661 - 501,880,661 501,880,661 ALM 50.0% 129,893 - 129,893 105,944 Sonangol Asia 100.0% - - - 40,184,150 AMA 33.0% 15,427,500 (15,427,500) - - Sonangol Cabo-Verde 99.0% 2,162,710,815 - 2,162,710,815 2,162,710,815 Angoflex 30.0% 1,084,724,391 (1,084,724,391) - - Sonangol Hidrocarbonetos USA, Ltd. 100.0% 21,287,491,915 (21,287,491,915) - - Angola Cables 9.0% 2,248,548,662 - 2,248,548,662 1,626,929,317 Sonangol Holdings USA 100.0% 399,528,106 (399,528,106) - - Angola LNG Supply Ltd 22.8% 428,686,304,175 (158,391,600,000) 270,294,704,175 284,527,128,081 Sonangol Limited 100.0% - - - 244,319,315 Angola LNG Supply Services 72.8% 28,518,658 (10,003,680) 18,514,978 3,660,156,964 Sonangol SA (Solo Properties,Ltd) 100.0% - - - 8,791,902,366 BAI 8.5% 1,275,840,744 - 1,275,840,744 1,275,840,744 Sonangol São Tomé e Príncipe 92.0% 1,091,487,601 (511,717,279) 579,770,322 579,708,843 Banco Caixa Geral Angola 25.0% 5,657,563,888 - 5,657,563,888 5,657,563,888 Sonangol Starfish Oil & Gas, S.A. 100.0% 28,399,740,260 (28,399,740,260) - - Banco Economico, S.A. 39.4% 28,368,000,000 (10,294,953,816) 18,073,046,184 28,368,000,000 Sonangol USA Company 100.0% - - - 970,886,917 Banco Millennium Angola 14.3% 5,333,568,082 - 5,333,568,082 5,333,568,082 Sonasing Kuito 30.0% 233,922,597 (233,922,597) - - Bauxite 20.0% 491,250,000 (491,250,000) - - Sonasing Mondo 10.0% 107,545 - 107,545 107,545 Bayview 16.0% 136,000 (136,000) - - Sonasing OPS 50.0% 537,726 - 537,726 537,726 BCI - Banco de Comércio e Indústria, 1.1% 79,147,425 (79,147,425) - - SARL Sonasing Sanha 30.0% 270,000 - 270,000 270,000 Biocom 20.0% 1,051,800,000 - 1,051,800,000 1,051,800,000 Sonasing Saxi - Batuque 10.0% 107,545 (107,545) - - BPA Europa 20.0% 359,299,116 (359,299,116) - - Sonasing Xicomba 30.0% 270,000 - 270,000 - Bricomil 15.0% 39,343,274 (39,343,274) - - Sonasurf International 49.0% 401,360,038 - 401,360,038 - Cardlane Limited 100.0% 16,000,300 - 16,000,300 16,000,300 Sonatide Mar - SMS 51.0% 52,460 - 52,460 - China Sonangol International 30.0% 73,992,592,422 (73,992,592,422) - 73,992,592,422 Sonatide SML 51.0% 43,786 - 43,786 43,786 Cobalt Angola - Adiantamento 100.0% - - - 34,000,000,000 Sonils 30.0% - - - 6,439,161 Cogesform - Comércio Gestão e 100.0% 6,259,750 - 6,259,750 6,259,750 Spal 50.0% 48,932,001 - 48,932,001 48,932,000 Formação Technip 40.0% 1,042,720 - 1,042,720 1,042,719 Diranis 100.0% 145,621,667 (145,621,667) - - Sonasurf Angola 50.0% 187,500 - 187,500 - E.I.H. - Energia Inovação Holding, SA 30.0% 2,701,890 (2,701,890) - - Miramar Empreendimentos 40.0% 75,600,000 - 75,600,000 - Embal 30.0% 305,363,246 (305,363,246) - - Sonimechi, Lda. 30.0% 25,009,200 - 25,009,200 - Enco, SARL 77.6% 2,579,284,614 (598,833,757) 1,980,450,857 1,980,451,613 Sonils Limited 100.0% 560,206 - 560,206 - Esperaza Holding B.V. 60.0% 12,397,138,198 - 12,397,138,198 1,622,417 Unitel 25.0% 3,646,196,557 - 3,646,199,199 2,973,948,202 ESSA 100.0% 18,668,650 - 18,668,650 18,668,651 751,168,338,515 (308,261,351,605) 442,906,989,553 607,406,283,398
158 ANNUAL REPORT 2016 159 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
The investments held in Sonils, Inloc limited, Sonangol USA, Sonangol ASIA, Sonangol HK, Sonangol holding of 14.87% (17.84% in 2015) and valued at market price (fair value), based in market quotations as LTD and Solo Properties were excluded from the table above, when compared to 2015, since they enter at 31 December 2016. The table below details the position in the balance sheet of the company: into the consolidation perimeter in 2016, as disclosed in Note 2.1.4. The advance payment made to the Cobalt Angola (2015: 33,997,000,000 AOA) was transferred to the caption “Other non-current assets and Year Fair value accounts receivable”, as disclosed in Note 9.2.1, due to the ongoing negotiations to recover the amount Number of shares Number of shares after EUR AOA before conversion conversion advanced. 31/12/2007 180,000,000 - 525,600,000 58,030,181,977 6.2.1 FINANCIAL INVESTMENT IN ANGOLA LNG 31/12/2008 469,000,000 - 379,890,000 42,032,258,380 31/12/2009 469,000,000 - 397,008,500 51,025,914,471 The financial investments in Angola LNG Supply Services, Angola LNG Ltd, OPCO and SOMG 31/12/2010 685,138,638 - 398,750,687 48,676,293,902 correspond to a share of 22.8% in companies responsible for refining natural gas in Angola, on which 31/12/2011 794,933,620 - 108,110,564 13,671,878,185 31/12/2012 3,803,587,403 - 285,268,647 13,671,878,185 Sonangol Gás Natural participates together with other operators, in particular Chevron with 36.4% and 31/12/2013 3,803,587,403 - 635,877,509 85,245,738,843 Total, BP Amoco and ENI, all with 13.6%. 31/12/2014 10,534,115,358 - 695,251,614 86,982,929,381 31/12/2015 10,534,115,358 - 516,171,653 76,689,170,933 The LNG Ltd. is the gas refinery and is the main focus of the consortium investment. LNG Supply Market fair value as at 140,454,871 150,427,167 28,021,873,581 Services is the company responsible for cargo dispatch from the refinery to the final customer. SOMG 31/12/2016 is the company responsible for the maintenance and repair of the refinery infrastructure and OPCO is the company responsible for providing technical expertise to operate the refinery. Finally ALM is Movements in fair value were as follows: responsible for the product distribution in Europe and was created to replace ALNG SS. Beginning balance Acquisitions Gains / losses Ending balance During 2016 the movement occurred in the financial investment in Angola LNG Supply Ltd was as Value in EUR 516,171,653 - (365,744,486) 150.427.167 follows: Value in AOA 76,689,170,933 - (48,667,297,352) 28.021.873.581
Entity Net value 2015 Amounts paid Amounts Impairments Exchange rate Net value 2016 received differences Angola LNG 284,527,128,081 19,235,075,904 (40,218,795,072) (58,354,800,000) 65,106,095,263 270,294,704,175 Sonangol participation in BCP is a strategic investment since it is a support for diversification of Supply Ltd investment in geographies as Africa and Europe and emphasizes the company internationalization. 284,527,128,081 19,235,075,904 (40,218,795,072) (58,354,800,000) 65,106,095,263 270,294,704,175 Despite the long devaluation on the stock exchange, BCP is progressing on the implementation of New impairment tests were made in 2015 to the investment in Angola LNG Supply Ltd, and an additional their Restructuring Plane and has become the most efficient bank in Portugal due to the financial impairment loss of 58,354,800 thousands AOA was recognised in “Non-operating results” (see Note 33). deleveraging. Regarding the impairment losses recognised in 2015in the amount of 82,237,344 thousands AOA, which were deferred on “Other non-current debtors” (see Note 31), they were transferred to retain earnings These shares are in the custody of “Banco BIG – Banco de Investimento Global” under a contract signed since they were considered a fundamental error. between this bank and SONANGOL EP.
6.3 DETAILS BY ENTITY – FINANCIAL INVESTMENTS – FAIR VALUE
As at 31 December 2016 the detail of the financial investments measured at fair value is as follows:
Item % held Gross value 2016 Accumulated Net value 2016 Net value 2015 impairment losses 2016 Banco Millennium BCP 14.87% 28,021,873,581 - 28,021,873,581 76,689,170,933 28,021,873,581 - 28,021,873,581 76,689,170,933
Due to the share capital increase and a share regrouping, where each lot of 75 shares was converted to one share of Millennium BCP, Sonangol EP owns now 140.454.871 shares, representing a qualifying
160 ANNUAL REPORT 2016 161 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
7. OTHER FINANCIAL ASSETS The decrease in the caption Buildings: Sonangol Group is related with the reclassification of these assets to tangible fixed assets, due to the fact that these assets used for our operations and not held for 7.1 DETAILS BY NATURE investment. The caption Real estate investments in progress includes ongoing projects related mainly with the As at 31 December 2016 the other financial assets natures are detailed as follows: investments in Intercontinental – Hotel & Casino and Hotel Riomar, in the amounts of 74,675 thousands of AOA and 11,457 thousands of AOA, respectively. Item 2016 2015 Real estate investment 125,377,191,386 190,470,847,767 At 31 December 2016, the investment in “Hotel Intercontinental” is valued at historic cost. At the Energy Fund II & III 10,955,402,605 14,901,675,499 reporting date the profitability model of this asset is under review, therefore we were not able to Gateway Fund I 42,089,909,252 33,634,350,318 determine if any impairment loss should be recognised in the period. Never the less, the Group 178,422,503,244 239,006,873,583 considers that the contractual terms ensure the recoverability of the investment.
7.1.2 ENERGY FUND II & III AND GATEWAY FUND I 7.1.1 REAL ESTATE INVESTMENTS During 2016 the movements occurred in the Energy Fund II & III and Gateway Fund I was as follows: As at 31 December 2016 the detail of investments in real estate is as follows: Gross amounts Item Opening Balance Increases Decreases Exchange rate Closing Balance Item 2016 2015 differences Real estate investment: Energy Fund II 1,881,066,095 - (1,241,201,376) 410,751,932 1,050,616,652 - Hotels 13,405,428,410 32,695,141,744 Energy Fund III 13,020,609,403 - (6,021,084,557) 2,905,261,108 9,904,785,954 - Buildings: Sonangol Group - 71,184,514,730 14,901,675,498 - (7,262,285,933) 3,316,013,040 10,955,402,605 - Overseas property 13,930,331,400 - Gateway Fund 33,634,350,317 852,656,959 - 7,602,901,976 42,089,909,252 - Other properties 14,310,124,529 11,978,588,762 Amount in AOA 48,536,025,816 852,656,959 (7,262,285,933) 10,918,915,016 53,045,311,857 41,645,884,338 115,858,245,236 Amount in USD 356,912,985 5,114,060 (43,557,686) (314,569) 318,154,790 Real estate investment in progress:
- Hotels 79,731,936,681 71,489,441,878 7.2.1 DETAILS OF THE MOVEMENTS OF THE FUNDS - Other properties 3,999,370,367 3,123,160,653 83,731,307,048 74,612,602,531 The table below details the movements occurred in the funds since its constitution: 125.377.191.386 190.470.847.767 Item Energy II Energy III Ending balance 2016 Ending balance 2015 Original cost 20,164,105,995 63,273,104,604 83,437,210,598 67,022,952,353 The caption Hotels includes investments in Hotels, such as, HCTA (32,459,175 millions of AOA), Maianga Gains/Losses of realized capital 22,267,639,310 27,019,900,332 49,287,539,642 45,620,616,698 (3,725 million of AOA), Florença (2,601 million of AOA) and Base do Kwanda (396 million of AOA). The Other investment profit 3,071,250,805 10,500,152,468 13,571,403,273 11,069,247,018 operations of these Hotels are managed by third parties under exploration contracts and the Group Distributions (gross) (41,216,753,852) (80,032,377,080) (121,249,130,933) (95,718,830,970) receives rents from the exploration (Note 24). The caption “Overseas property” relates to the building Remaining Cost 4,286,242,257 20,760,780,323 25,047,022,580 27,993,985,098 owned outside the country which is explored by the group entity Grupo Solo Properties. Unrealized gains/losses (4,030,670,408) (15,508,413,497) (19,539,083,904) (20,378,443,906) Others 2,646,279,639 6,338,933,870 8,985,213,509 7,147,349,033 The group made impairment tests due to the uncertainty about the recoverability of the investments Administrative Cost (1,851,234,837) (1,686,514,743) (3,537,749,580) 138,785,273 in the hotels units. These tests result in the recognition of impairment losses in HCTA (22,531,955 Investment Value 1,050,616,651 9,904,785,953 10,955,402,605 14,901,675,498 thousands of AOA), Hotel Riomar (6,494,889 thousands of AOA), Hotel Maianga (2,751,679 thousands of AOA) and Hotel Florença (493,348 thousands of AOA). These impairment losses were recognised under the caption “Non-operating results”.
162 ANNUAL REPORT 2016 163 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
The amount reported for the capital risk investment - Energy Fund II and Energy Fund III – represent 7.2.3 COMMITMENTS UNDERTAKEN the market fair value, according with their final reports as at 31 December 2016. The table below details the commitments undertaken by Sonangol EP with the fund management company of Energy Fund II and III: 7.2.2 DETAILS OF ACQUISITION COST Item Carlyle-Energy Fund II Carlyle-Energy Fund III The table below details the acquisition cost of the funds since its constitution: % Held 9.94% 10.45% USD AOA USD AOA Item Gross amount in AOA Gross amount in USD Value/Commitment 100,000,000 16,672,800,000 397,000,000 66,191,016,000 2016 2015 2016 2015 Investments to date 120,940,130 20,164,105,995 372,937,628 62,179,144,841 Energy Fund III Uncommitted distribution 25,039,053 4,174,711,229 13,949,205 2,325,723,051 Cobalt International Energy LP 3,807,244,717 3,105,303,953 22,835,065 22,835,065 Dresser Inc 4,179,845,784 3,409,208,654 25,069,849 25,069,849 Remaining commitment 4,098,923 683,405,234 38,011,577 6,337,594,210 Foresight Reserves, LP 6,967,475,421 5,682,883,706 41,789,474 41,789,474 Frontier 3,577,726,786 2,918,102,186 21,458,464 21,458,464 Hong Hua LDT 191,605,652 156,279,365 1,149,211 1,149,211 7.2.4 GATEWAY FUND International Logging Inc 819,260,877 668,213,952 4,913,757 4,913,757 RJS Power (FKA Jade) 7,684,689,926 6,267,865,550 46,091,178 46,091,178 The table below details the commitments undertaken with Gateway I Fund: Kinder Morgan Inc 3,875,658,218 3,161,104,073 23,245,395 23,245,395
Trinity (FKA Legend) 6,399,247,557 5,219,419,872 38,381,361 38,381,361 Item 2016 2015 Moreno Energy Inc 705,673,092 575,568,319 4,232,481 4,232,481 USD AOA USD AOA Niska Gas Storage, LLC 2,550,623,618 2,080,365,774 15,298,112 15,298,112 Investment 83,294,027 13,887,446,534 45,629,147 6,205,034,639 Permian Tank & manufacturing, Inc 1,505,575,348 1,227,992,795 9,030,129 9,030,129 Rice Energy, Inc. 1,093,959,596 - 6,561,343 - Liquidity management balance 169,152,528 28,202,462,718 201,703,349 27,429,315,845 Phoenix exploration Company LP 7,274,077,876 5,932,957,942 43,628,412 43,628,412 Investment fair value 252,446,555 42,089,909,252 247,332,495 33,634,350,317 Red Technology Alliance LLC 970,220,910 791,341,521 5,819,184 5,819,184 Targe Energy LLC 1,721,771,712 1,404,329,089 10,326,830 10,326,830 The investment in capital risk investment Gateway Fund, with an initial investment of 41,682,000 Titan Specialties 6,328,091,714 5,161,383,015 37,954,583 37,954,583 thousands of AOA (250,000 thousands of USD), represents the market fair value in accordance with the Turbine Air Systems Ldt 174,186,911 142,072,113 1,044,737 1,044,737 fund manager final report as at 31 December 2016. Vantage Energy LLC 3,446,168,890 2,672,105,698 20,669,407 19,649,512 Sub-total 63,273,104,604 50,576,497,578 379,498,972 371,917,734 7.2.4.1 Details of the Liquidity management balance Energy Fund II Buckeye Partners 1,566,098,946 1,277,357,672 9,393,137 9,393,137 The table below details the Liquidity management balance of Gateway I Fund: Capital C Energy Partners, LP 1,108,135,477 903,828,814 6,646,367 6,646,367 CDM Resource 1,193,063,386 973,098,585 7,155,747 7,155,747 Item 2016 2015 Cobalt International Energy, LP 2,191,454,158 1,787,416,299 13,143,888 13,143,888 USD AOA USD AOA Kremer Junction 365,233,190 297,895,237 2,190,593 2,190,593 Liquidity management balance Trinity (FKA Legend) 441,264,492 359,908,667 2,646,613 2,646,613 Opening Balance 201,703,349 27,429,315,845 250,000,000,00 33,997,100,207 Legend Natural Gas, LP 1,084,154,989 884,269,603 6,502,537 6,502,537 Investment (44,719,948) (7,456,067,543) (46,812,689) (6,365,982,646) Megellan Midstream Partners, LP 1,041,894,276 849,800,487 6,249,066 6,249,066 Mariner Energy Inc 2,204,939,786 1,798,415,585 13,224,772 13,224,772 Management Cost (1,890,411) (315,184,439) (4,684,932) (637,096,344) Niska Gas Storage 1,013,612,372 826,732,911 6,079,437 6,079,437 Others gains / losses 1,098,786 183,198,397 (159,577) (21,700,636) Petroplus International 1,622,207,253 1,323,121,304 9,729,663 9,729,663 Desinvestment 1,393,012 232,254,128 - - Semgroup, LP 2,138,270,261 1,744,037,903 12,824,902 12,824,902 Adjustments 11,567,741 1,928,666,260 3,360,546 456,995,264 Stallion Oilfield Services, Lda 905,407,734 738,477,935 5,430,448 5,430,448 Exchange adjustment - 6,200,280,070 - - Topaz 3,288,369,675 2,682,093,774 19,722,960 19,722,960 Closing balance 169,152,528 28,202,462,718 201,703,349 27,429,315,845 Sub-total 20,164,105,995 16,446,454,774 120,940,130 120,940,130 Total 83,437,210,598 67,022,952,353 500,439,102 492,857,864
164 ANNUAL REPORT 2016 165 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
8. INVENTORIES 9.2 PARTICIPANTS AND AFFILIATES
8.1 DETAILS OF THE MOVEMENTS IN INVENTORIES As at 31 December 2016 the accounts receivable from affiliated entities valued at cost less impairment losses (when applicable), are detailed as follow: During 2016 the movement occurred in the inventories was as follows: 9.2.1 PARTICIPANTS AND AFFILIATES (NON-CURRENT)
Item Gross Value 2016 Impairment loss Net Value 2016 Net Value 2015 2016 Item Gross Value Impairment loss Net Value Net Value 2016 2016 2016 2015 Raw materials, subsidiaries and 20,171,677,230 (8,852,460,540) 11,319,216,690 15,447,763,454 consumption Puaça 11,422,721,793 (919,399,047) 10,503,322,746 8,525,315,624 Products and work in progress 44,681,924,126 - 44,681,924,126 36,276,192,731 Genius 29,594,724,083 (19,360,334,404) 10,234,389,679 21,387,400,492 Finished and intermediate products 8,412,731,159 (36,000,354) 8,376,730,806 5,753,910,343 Force Petroleum Angola 29,966,979,827 (12,002,684,298) 17,964,295,529 24,903,468,850 Merchandise 42,354,294,625 (6,765,028,205) 35,589,266,420 54,569,703,311 Lektron Capital, SA 20,235,810,457 - 20,235,810,457 12,499,505,510 Raw materials, merchandise and 579,955,012 - 579,955,012 97,993,064 Geni, SA 8,625,653,073 - 8,625,653,073 5,328,000,000 materials in transit 116,200,582,153 (15,653,489,099) 100,547,093,054 112,145,562,903 Embal 172,494,851 (172,494,851) - - Lobinave 1,670,490,373 (1,670,490,373) - - Biocom 13,658,297,123 - 13,658,297,123 12,904,537,625 Bauxite 83,364,000 (83,364,000) - - 9. OTHER NON-CURRENT ASSETS AND ACCOUNTS RECEIVABLE Paenal 8,525,636,280 - 8,525,636,280 6,953,766,834 Luanda Waterfront 3,046,120,560 - 3,046,120,560 2,484,508,068 9.1. DETAILS BY NATURE Diranis 7,230,270,307 (7,230,270,307) - 1,855,050,506 Sonasing OPS 1,469,438,531 - 1,469,438,531 1,196,697,920 As at 31 December 2016 the other non-current assets and accounts receivable natures are detailed as follows: Petromar 3,353,910,567 (3,353,910,567) - - Angoflex 298,209,411 (239,795,596) 58,413,815 - Current Non-current Sonangol Starfish Oil & Gas, 94,448,495,027 (94,448,495,027) - - Item 2016 2015 2016 2015 S.A. Trade receivables – current 362,003,383,761 100,442,593,750 - - Sonangol Hidrocarbonetos 16,777,621,478 (16,777,621,478) - - USA, Ltd. Trade creditors – debt balances 4,851,395,286 37,963,294,569 - - Exem Africa Limited 16,001,037,904 - 16,001,037,904 11,088,816,099 State 18,145,814,885 27,373,637,610 - 2,865,021,912 Esperaza Holding B.V. 1,168,093,380 - 1,168,093,380 42,793,046,913 State (PNUH - Centralities) 146,348,502,033 97,320,394,009 412,984,241,118 443,031,641,649 Cobalt 41,682,000,000 - 41,682,000,000 - Participants e affiliates 15,025,144,238 13,872,174,884 153,195,183,668 151,920,114,441 Sonangol S.TOMÉ 33,345,600 (11,714,685) 21,630,915 - Payroll 2,207,397,334 344,491,319 - - Other 1,043,676 - 1,043,676 - Concessionaire Rights – Asset 105,201,103 395,397,891 - - 309,465,758,300 (156,270,574,633) 153,195,183,668 151,920,114,441 Mining activities - debtors 132,374,730,284 125,968,328,549 - - Under-lift Debtors 22,639,052,046 16,998,320,566 - - Intercompany loans for each of the above mentioned entities are subject to the related contracts. These Other debtors 42,237,337,467 56,123,951,478 47,008,100,317 942,282,871,523 loans are investments made by the group in affiliated companies and the payment terms are deferred in 745,937,958,438 476,802,584,626 613,187,525,103 1,540,099,649,526 accordance with the contracts.
During 2016, the group has reclassified part of the amount from Esperaza Holding B.V. correspondent The trade receivables are mainly related with foreign customers of crude oil and natural gas and supply to the Group participation on the capital increase of this entity, to financial investments (Note 6.1), with of wood based products to public entities. purpose to present the nature of the operation in a true and fair view.
The debtor position of “under-lifting” is essentially related with the position in 3 non-operated blocks (Blocks 14, 15/06 and 31) and 2 operated blocks (3.05 and 2.05).
166 ANNUAL REPORT 2016 167 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
9.2.2 PARTICIPANTS AND AFFILIATES (CURRENT) On 25st October 2012 Sonangol EP agreed with Nessergy Ltd. the purchase of the interest that it holds in the Common Interest Zone (CIZ) affected to the Democratic Republic of Congo (95%) for later transfer Item Gross Value Impairment loss Net Value Net Value to Cohydro (NOC Congolese) for the amount of 200 million USD. 2016 2016 2016 2015 ESSA - - - - The “Preliminary Commercial Agreement” signed between Sonangol EP and Cohydro, dated 27 January Sonangol Cabo Verde, SA 348,605,270 - 348,605,270 284,333,002 2015, establishes that the amount due to Sonangol EP will be refunded by Cohydro through the Profit Mota Engil Angola 355,012,600 - 355,012,600 2,201,659,990 Oil obtained while concessionaire in CIZ, is to be defined in the PSA to be concluded between the two Sonaid 4,805,899,202 - 4,805,899,202 3,919,836,758 parties. Paenal 796,143,559 - 796,143,559 792,348,593 Porto STP 402,961,132 - 402,961,132 328,667,288 Sonangol’s management expect that in 2017 the negotiations will continue with RDC– Cohydro to define Aeroporto STP 1,411,345,256 - 1,411,345,256 760,259,822 a CPP to CIZ, with profitability and return ensured for both parties. BAI - - - 697,683,764 Sonamet/Sonacergy 995,299,363 - 995,299,363 2,520,489,650 Considering the strategic interest that this partnership has to both parties, Sonangol’s management is Kwanda 1,227,105,126 - 1,227,105,126 509,511,051 convicted that actions performed until now will lead to a successful ending of the process. ACS 492,216,239 - 492,216,239 687,762,044 Net One 132,507,933 - 132,507,933 - The amount in “Iraq” includes cash calls in the amount of 17,464,326 thousands of AOA made by the Angola Cables 581,453,328 - 581,453,328 481,366,919 Group to face the expenses incurred with Sonangol Iraq Project. Unitel 245,534,510 - 245,534,510 245,534,472 Sonair USA - - - 41,224,383 The caption “Carry à Cupet” presents a total amount of 3,929,778 thousands of AOA which is related Paz-Flor 1,824,349,317 - 1,824,349,317 401,497,149 with the loan made to entity Cupet through a carried interest contracts. The amount was expected to Trading units 1,395,187,263 - 1,395,187,263 - be recovered throughout the production phase of the associated asset. The group performed a test to Other 11,524,138 - 11,524,138 - the recoverability of this amount and has recognized an impairment for the total amount of the trade 15,025,144,237 - 15,025,144,237 13,872,174,884 receivable.
The deferred losses at mining activity and ALNG are related with the impairment losses recognized in 9.3 OTHER DEBTORS 2015 in Blocks and in the investment in the joint venture Angola LNG, Ltd, which is disclosed in Notes 4A, 5A, 6 and 13. The details of other debtors are as follows: The group has recognized the potential impairment losses deferred in previous years in retained 9.3.1 OTHER DEBTORS (NON-CURRENT) earnings, since they were considered as fundamental errors. This adjustments are recognized within Investments Funds (Energy Fund II, III and Gateway Fund) with an amount of 16,132,955 thousands of Item Gross Value Impairment loss Net Value Net Value 2016 2016 2016 2015 AOA and scholarship expenses in the amount of 14.110.104 thousands of AOA as disclosed in Note 13. Cohydro (Nessergy) 33,345,600,000 (4,161,211,401) 29,184,388,599 27,197,680,000 Monumental 187,569,000 (187,569,000) - - 9.3.2 OTHER DEBTORS (CURRENT) Space Group 247,591,080 (247,591,080) - - Global Pactum 1,550,000,000 (1,550,000,000) - - Item 2016 2015 Iraq 17,464,326,841 - 17,464,326,841 14,259,360,671 Social Fund (4,825,086,237) (5,903,731,067) Carry à Cupet 3,929,778,960 (3,929,778,960) - 3,205,246,588 Social Fund – Advanced payment 4,210,758,100 5,924,123,618 Deferred losses – Mining - - - 785,140,180,217 Pension fund - SNG Vida 1,191,316,960 - activity Trade receivables ZEE 3,499,421,449 - Deferred losses - ALNG - - - 82,237,344,608 Other debtors from real estate activities 28,548,782,527 52,591,807,667 Deferred losses - Investment - - - 16,132,955,440 Funds Angola Maritime Training Services 112,168,388 91,487,930 Deferred losses – - - - 14,110,104,000 Trading Unity 179,367,979 - Scholarships Others 9,320,608,301 3,420,263,331 Others 359,384,900 - 359,384,876 - 42,237,337,467 56,123,951,478 57,084,250,781 (10,076,150,441) 47,008,100,316 942,282,871,524
168 ANNUAL REPORT 2016 169 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
The caption Social Fund represents the reduction in trade receivables, in accordance with the CRUDE OIL RIGHTS IN VALUE notification about social benefits from 26 June 2014, which has approved a reduction of 25% and 50% of As at 31 December 2016 the rights over crude oil in value are detailed as follows: contractual obligations of retired employees of Sonangol EP to the group, resulting from the re-selling of houses that had been acquired through SONIP. Item 2015 Increase Decrease Exchange rate 2016 (Production) (Liftings) differences Block 2/85 (388,430,348) 388,430,348 - - - Block 2/05 6,743,393 31,374,517 31,511,592 10,041,782 16,648,099 9.4 CONCESSIONAIRE RIGHTS - ASSET Block 3/05 207,170,574 2,498,333,023 2,580,098,777 78,580,103 203,984,923 Block 3/05 A (2,199,031) 57,354,249 60,396,693 19,597,106 14,355,631 Assets identified as Concessionaire rights – asset, are related to the total of barrels (remaining rights) Block 4 - Gimboa 11,635,140 116,565,916 115,712,141 4,413,225 16,902,140 Block 14 (Kuito) (84,020,922) - - (31,869,260) (115,890,182) attributable to Sonangol EP acting as National Concessionaire. Block 14 (BBTL - Nemba) (389,445,593) 3,633,451,993 3,183,859,829 (302,787,405) (242,640,834) Block 14 (BBTL - Kuito) (112,426,560) - - (42,643,560) (155,070,120) CRUDE OIL RIGHTS IN BARRELS Block 14 (TL) (60,989,438) 671,403,836 610,081,752 (23,133,383) (22,800,738) As at 31 December 2016 the rights over crude oil in barrels are detailed as follows: Block 14 (Belize Norte) (39,606,295) 789,209,397 752,242,098 (15,022,726) (17,661,722) Block 14 (Lianzi) (3,022,152) 146,939,079 139,560,639 (1,146,306) 3,209,981
Item 2015 Increase Decrease 2016 Block 15 (Hungo) (126,318,482) 8,593,236,873 7,962,033,425 (375,609,184) 129,275,781 (Production) (Liftings) Block 15 (Kissanje) (230,488,099) 6,488,717,870 6,207,364,520 (560,296,353) (509,431,102) Block 2/85 (1,020,125) 1,020,125 - - Block 15 (Mondo) 45,367,308 5,844,025,885 5,606,933,192 (10,875,770) 271,584,231 Block 2/05 17,710 73,989 60,000 31,699 Block 15 (Saxi-Batuque) 220,950,253 2,781,918,970 3,326,685,595 238,852,192 (84,964,180) Block 3/05 544,087 4,756,979 4,912,666 388,400 Block 17 (Girassol) (58,975,558) 9,591,200,063 10,732,181,765 1,502,225,379 302,268,119 Block 3/05 A (5,775) 148,108 114,999 27,334 Block 17 (Dália) 958,452,009 11,703,307,583 13,579,461,028 83,419,959 (834,281,478) Block 4 - Gimboa 30,557 221,949 220,323 32,183 Block 17 (Paz Flor) (100,472,745) 4,524,453,812 4,044,535,942 56,187,404 435,632,529 Block 14 (Kuito) (220,662) - - (220,662) Block 17 (Clov Cargo) (137,751,027) 2,971,678,625 3,157,837,032 201,065,693 (122,843,740) Block 14 (BBTL - Nemba) (1,022,791) 6,623,052 6,062,264 (462,003) Block 18 (Plutónio) 517,188,526 7,197,945,595 7,470,712,561 196,170,369 440,591,928 Block 14 (BBTL - Kuito) (295,263) - - (295,263) Block 31 (Saturno) 34,282,963 2,811,377,518 2,559,039,055 13,003,579 299,625,005 Block 14 (TL) (160,175) 1,278,394 1,161,633 (43,414) Block Cabinda Sul 363,252 21,324,945 20,850,170 138,045 976,072 Block 14 (Belize Norte) (104,017) 1,502,703 1,432,315 (33,629) Block 15/06 (Sangos) 127,390,724 1,119,504,976 1,248,651,035 77,486,093 75,730,759 Block 14 (Lianzi) (7,937) 279,781 265,732 6,112 Total 395,397,892 71,981,755,073 73,389,748,842 1,117,796,982 105,201,103 Block 15 (Hungo) (331,747) 15,738,095 15,160,199 246,149 Block 15 (Kissanje) (605,325) 11,454,539 11,819,202 (969,988) Block 15 (Mondo) 119,147 11,073,910 10,675,944 517,113 Block 15 (Saxi-Batuque) 580,276 5,592,160 6,334,213 (161,777) Block 17 (Girassol) (154,886) 21,165,154 20,434,731 575,537 10. CASH AND BANKS Block 17 (Dália) 2,517,158 21,750,444 25,856,125 (1,588,523) Block 17 (Paz Flor) (263,869) 8,794,384 7,701,044 829,471 Block 17 (Clov Cargo) (361,772) 6,140,585 6,012,715 (233,902) 10.1 DETAILS BY NATURE Block 18 (Plutónio) 1,358,279 13,705,329 14,224,694 838,914 Block 31 (Saturno) 90,036 5,353,035 4,872,567 570,504 As at 31 December 2016 the cash and banks natures are detailed as follows: Block Cabinda Sul 954 40,604 39,700 1,858 Block 15/06 (Sangos) 334,563 2,187,141 2,377,508 144,196 Current Non-current Totais 1,038,423 138,900,459 139,738,574 200,309 Item 31-12-2016 31-12-2015 31-12-2016 31-12-2015 Trading securities 19,834,813,655 6,799,420,000 - - Cash in transit 24,308,355,547 1,163,228,179 - - Cash at bank 782,763,898,275 604,036,355,883 222,410,168,298 - Cash 35,242,759 13,422,435 - - 826,942,310,235 612,012,426,498 222,410,168,298 -
170 ANNUAL REPORT 2016 171 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
The caption cash at bank includes 56.583.535 thousand of AOA related with contributions to the “Centro 10.2 DETAILS OF TRADING SECURITIES de Investigação Tecnológico (CITEC)”. As at 31 December 2016 the details of trading securities are as follows: The group is evaluating with the international partners BP, Statoil and Cobalt, the way to make
profitable the funds transferred to the construction of a Technology and Investigation Center, which is in Products Initial amount Amount Net amount Net amount Acquisition Due a planning stage and is a key issue for the development and qualification of the company employees. (USD) refunded (USD) (USD) (AOA) Date date BPA bounds 50,000,000 (25,000,000) 25,000,000 4,168,200,000 31-12-2011 01-01-2017 The oil market international environment, which has significantly changed in the last 2 years, has Treasury bonds 2,252,222 2,252,222 375,508,471 14-12-2015 27-11-2017 recommended a carefully management and application of the funds in line with all the international Treasury bonds 1,269,069 1,269,069 211,589,406 14-12-2015 17-12-2017 Treasury bonds 1,504,825 1,504,825 250,896,528 14-12-2015 16-09-2022 partners. Treasury bonds 17,255,331 17,255,331 2,876,946,857 14-12-2015 30-10-2022 Treasury bonds 12,372,161 12,372,161 2,062,785,707 01-06-2016 29-03-2018 Besides the high investment required for the construction of the Technology and Investigation Center, Treasury bonds 15,465,995 15,465,995 2,578,614,369 31-03-2016 17-11-2018 there is a need to add a high amount of funds to equipment and recruitment of high qualified personnel Treasury bonds 15,465,845 15,465,845 2,578,589,368 17-03-2016 23-02-2018 that are unavailable at the moment. Treasury bonds 6,168,237 6,168,237 1,028,417,896 14-07-2016 17-11-2018 Treasury bonds 2,158,598 2,158,598 359,898,747 09-07-2016 19-07-2018 The amount of 222,410,168 thousands of AOA disclosed as non-current cash at banks, represents the Treasury bonds 5,242,925 5,242,925 874,142,395 07-09-2016 19-07-2018 Contractors Groups contributions for the Blocks 15 and 17 to cover future abandonment expenses. Treasury bonds 2,466,907 2,466,907 411,302,435 27-09-2016 28-09-2018 This amounts are deposited in escrow account´s (accounts with movements restricted to authorization) Treasury bonds 3,084,271 3,084,271 514,234,297 28-09-2016 28-09-2018 owned by the Group. These funds should be use for the approved purpose, however as Concessionaire, Treasury bonds 3,701,537 3,701,537 617,149,809 07-10-2016 08-02-2018 Sonangol controls the process of approval / decision of the dismantling plans of the mining Treasury bonds 3,700,273 3,700,273 616,939,047 26-10-2016 18-10-2018 infrastructures. Treasury bonds 1,856,907 1,856,907 309,598,321 16-09-2016 10-02-2017 143,965,102 (25,000,000)ß 118,965,102 19,834,813,655
11. OTHER CURRENT ASSETS
As at 31 December 2016 the details of other current assets are as follows:
Item 2016 2015 Accrued Income: Billing – refined products 451,376,649 1,445,690,324 Billing – aircraft - 1,462,378,513 Billing – rents 295,310,343 3,052,163,687 Billing - dividends (Esperaza Holding B.V.) - 11,053,831,200 Billing - other 3,072,333,500 4,680,821,790 3,819,020,493 21,694,885,514 Deferred Costs: Costs – Rents - 2,591,388 Costs - Docking and freight 499,312,086 841,378,391 Costs – Insurance 93,139,992 318,761,461 Costs – Other 3,668,702,991 1,744,213,904 4,261,155,069 2,906,945,144 8,080,175,562 24,601,830,659
172 ANNUAL REPORT 2016 173 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
12. CAPITAL AND SUPPLEMENTARY CAPITAL CONTRIBUTIONS 13. RESERVES AND RETAINED EARNINGS
Sonangol EP is wholly owned by the Angolan State. As at 31 December 2016 the details of retained earnings and cumulative translation adjustments are as follows:
Its share capital as at 31 December 2016 was totally subscribed and paid amounting to 1,000,000,000 Item 2015 Transfer of Profit for the year Actuarial gains Actuarial gains Prior year Others Movements the profit from and losses and losses Corrections thousands of AOA. previous year Legal reserves 61,715,701,278 11,321,941,203 - - - 12,504,600 73,050,147,081 The table below details the movements occurred in Equity and Supplementary capital Contributions Other reserves 121,141,089,143 9,553,567,809 - (9,937,157,021) 155,678,249,776 46,536,886,513 322,972,636,220 during 2016: Evaluation fund 174,066,464,305 4,783,949,198 - - - 11,670,960,000 190,521,373,503 Investment fund 749,430,805,199 25,514,395,721 - - - - 774,945,200,920 Retained (448,341,934,609) (7,942,181,520) - - (559,255,447,639) (7,851,081,564) (1,023,390,645,332) Item 2016 2015 earnings Share capital 1,000,000,000,000 1,000,000,000,000 658,012,125,318 43,231,672,411 - (9,937,157,021) (403,577,197,863) 50,369,269,549 338,098,712,393 Cumulative 538,546,953,088 - - - (116,368,521,484) 415,987,808,311 838,166,239,916 Supplementary capital contributions 946,558,748,877 285,386,630,238 translation 1,946,558,748,877 1,285,386,630,238 adjustment Income for the 47,168,755,661 (47,168,755,662) 13,281,678,224 - - - 13,281,678,224 year 585,715,708,750 (47,168,755,662) 13,281,678,224 - (116,368,521,484) 415,987,808,311 851,447,918,140 Although it is a historical and consistent practice to treat as supplementary capital contributions all the 1,243,727,834,067 (3,937,083,250) 13,281,678,224 (9,937,157,021) (519,945,719,347) 466,357,077,861 1,189,546,630,533 contributions from the Shareholder which lack contractual formalization, the Board of Sonangol Group applies the same accounting treatment to these contributions that the foreseen for the supplementary In accordance with the Presidential law n.º 42/10, of May 10th (that establishes the rules of profit capital contributions. distribution), the company´s results, after tax deduction, should be distributed as follows:
In the absence of a written contract that defines the terms of reimbursement and remuneration, and • 10% to legal reserve, whose cumulative value should not exceed 2% of the statutory capital; of an express deliberation of the Shareholder, Sonangol cannot be bound to the reimbursement or remuneration of these contributions. • At least 10% for the constitution of the fund to assess the potential for extraction of hydrocarbon resources; Additionally, since the purpose of these contributions was to fund the Group with the necessary means • At least 5% to fund other investments; to face its long term financial and operational commitments, it is the Board’s judgement that the • Up to 5% to the social fund; framework of these transactions is subordinated to the achievement of the goals that they intend to safeguard. • Distribution of individual incentives to workers and members of the governing body, as profit participation within the limits established by the applicable legislation; Regarding the legal interpretation of these transactions, it is particularly important the Basic Law of • Other voluntary funds that are approved by the Board and approved by the competent Government the Public Corporate Sector (Lei de base do Sector Empresarial Público or “LSEP”), which foresees agencies. that the financing of public companies should be primarily fulfilled with own means.
Therefore, it is the Group Management judgement that the Shareholder will exercise its rights with “Actuarial Gains and losses” reflects the changes of this nature occurred during the year in the Group respect of the financial, legal and economic sustainability and the efficiency and effectiveness of its pension fund. management. Prior year corrections of the other reserves includes the increase in 167,395,968 thousands of AOA, related to the recognition of reversible assets as disclosed in Note 4B that under the oil activity laws and the related production sharing agreements will be transferred to the Group when acquired in Angola land or, if acquired outside Angola, when they are custom-cleared in Angola.
In accordance with the majority of the production sharing agreements, the acquisition of the assets used by the contractors groups to develop the oil and gas activities must follows the investment plans which are approved unanimously by the Operation Commission. In general, the contractors groups’ expenses are recoverable through “cost oil”.
174 ANNUAL REPORT 2016 175 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
In order to harmonize the group financial reports to the generally acceptable accounting principles and IMPAIRMENT IN MINING ASSETS AND IN THE FINANCIAL INVESTMENT IN ANGOLA LNG with the good practices, several adjustments were made that were considered fundamental errors and The amount of 471,393,623 thousand of AOA is related with prior years adjustments related with therefore recognized in Retained Earnings. the impairment losses recognized in 2015 and tat were not recognized in accordance with the oil industry best practices, national and international standards. In 2015 these impairment losses include The table below details the movements occurred in retained earnings in 2016: an amount of 380,681,613 thousands of AOA related with the Angola oil blocks and the amount of 82,237,345 thousands of AOA related with the investment on the Joint Venture Angola LNG Ltd, that Item AOA were deferred in the balance sheet in the caption “Other non-current assets”. Impairment in mining assets and in the financial investment in Angola LNG (471,393,623,615) Entrances to the consolidation perimeter 91,619,674,036 An adjustment was also made to the impairment losses related with Venezuela operations in the Incorporation of blocks FS/FST 92,607,296,068 amount of 6,410,493 AOA as disclosed in Notes 5A.2 and 9.3.1, and its recognition in retained earnings is Reversal of the disposal of participative interests (80,998,190,061) justified by the fact that the evidence of that impairment loss were observed in prior years. Financial investments impairments (73,992,592,422) Capitalization of borrowing costs 73,334,433,417 ENTRANCES TO THE CONSOLIDATION PERIMETER Fair value of Millennium BCP (63,903,545,503) This caption represents the group’s subsidiaries that, by the decision of the Board of Directors, were Tax charges (45,247,079,663) fully consolidated in 2016 and includes the amounts of 76,570,525 thousands of AOA related with Sonils Gains – CITEC contributions (38,385,232,909) and Inloc Limited and 15,049,148 thousands of AOA related with the group companies responsible for Reversal of gains in Esperaza (28,576,785,073) the distribution of crude oil and other related products in international markets (Sonangol Limited, Amortization adjustment of Mafumeira Sul field 18,288,908,139 Sonangol Hong Kong Limited, Sonangol Hong Kong Limited, Sonangol USA) and Solo Properties. Fair value of investment funds (16,132,955,440) INCORPORATION OF BLOCKS FS/FST Exchange rates differences 14,417,538,436 The Board of Directors decided to recognise, starting 2016, the participative interests in FS and Scholarship gains (14,110,103,607) FST Blocks held respectively in 80% and in 63.67%. This decision explain the amount of 92,607,296 Accounts receivable (10,703,412,503) thousands of AOA in this caption. Despite the group held these participative interests they were not Other impairment (5,854,699,557) recognized in the accounting records. Recognition of the Concessionaire assets 6,621,927,179 Other (6,847,004,562) The impact described above include the recognition of a balance to be received from the Angolan State Total (559,255,447,639) related with adjustments due to payments made based on these blocks profit.
REVERSAL OF THE DISPOSAL OF PARTICIPATIVE INTERESTS The amount of 80,998,190 thousands of AOA is related with the reversal of the disposal of the participative interests held by the Group in the entities Sonatide, Sonasurf Angola, Sonaxing Xicomba, Sonaid, Sonacergy, Sonasurf International and Sonamet, for which the gains were recognized in Financial results in 2015, due to the fact that several process irregularities were detected, namely the absence of the transaction approval by the Government.
FINANCIAL INVESTMENTS IMPAIRMENTS In accordance with Group policies, in 2016 tests were performed to assess the recoverability of the financial investments for which, taking into consideration market conditions and other indicators, have impairment risks. The Group has recognized an impairment losses in the amount of 73,992,592 AOA related with the investment in China Sonangol International. These indicators already existed in prior years therefore the adjustment was recognized in retained earnings.
CAPITALIZATION OF BORROWING COSTS The amount of 73,334,433 thousands of AOA, corresponds to the capitalization of borrowing costs from medium and long term loans of 2013, 2014 and 2015 for the acquisition of qualifying assets, in accordance with the Group policy.
176 ANNUAL REPORT 2016 177 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
FAIR VALUE OF MILLENNIUM BCP 15 LOANS Over the years 2014 and 2015, the group has deferred the fair value adjustments to the investment in Millennium BCP. Since it was considered a fundamental error, the amount of 63,903,545 thousands of The table below details the short, medium and long term loans as at 31 December 2016: AOA was recognized in Retained Earnings.
Corrente Não Corrente TAX CHARGES Item 2016 2015 2016 2015 The amount of 45,247,079 thousands of AOA, is related with additional charges of industrial tax for the International bank loans 436,059,281,229 384,595,889,429 1,123,493,003,462 1,374,009,337,073 year of 2015, at “downstream” segment. National bank loans 840,700,596 1,273,444,133 - 685,701,254 Overdraft 70,573,459,764 64,876,888,076 - GAINS - CITEC CONTRIBUTIONS Other loans (Carry) - - 21,075,501,491 25,256,577,820 The amount of 38,385,232 thousands of AOA of Gains – CITEC contributions is a consequence of the reversal of gains incorrectly recognized in 2015 in the caption non-operating results. These 507,473,441,589 450,746,221,639 1,144,568,504,953 1,399,951,616,146 contributions represents a Group future obligation to materialize the creation and the operationalization of the Research and Technology Center as disclosed in Note 19.2. The national bank loans are related with a loan for a “non-core” segment for which the last payment of nominal and interests is expected to occur in 2017. AMORTIZATION ADJUSTMENT OF MAFUMEIRA SUL FIELD Other loans (carry) relate to the financing of exploration and evaluation assets of the partners of the The amount of 18,288,908 thousands of AOA, refers to the adjustment of the depreciations of Mafumeira blocks 3/05A, 32. These loans are recovered by the partners of the contractors groups of those blocks, Sul (Block 0) fields that were improperly recognized in previous years, which is expected to start the through the Group share of crude oil for cost recovery. production phase in the first quarter of 2017.
REVERSAL OF GAINS IN ESPERAZA 15.1 INTERNATIONAL BANK LOANS This caption includes an amount of 17,522,953 thousands of AOA related with prior years interest charged improperly, due to the incorrect classification of capital realization as shareholder and The table below details the short, medium and long term loans of international bank loans as at 31 includes the amount of 11,053,831 of AOA related with a correction of dividends recognized in 2015 December 2016: without the correspondent deliberation in the subsidiary’ Board Meeting (Note 11). Item Year 2015 Increase Decrease Exchange rate 2016 Current Non-current Maturity differences (Months)
SCHOLARSHIP GAINS AND FAIR VALUE OF INVESTMENT FUNDS International The scholarship gains and fair value of investment funds reflect the adjustment of deferred losses from bank loans SNL Finance 1Bi 2010 27,521,461,753 - (23,818,285,714) 6,221,109,676 9,924,285,714 9,924,285,714 - 84 prior years, as disclosed in Note 9.3.1. (CDB&SCB) SNL Finance 2010 127,489,125,000 - (52,102,500,070) 28,818,375,000 104,204,999,930 52,102,500,000 52,102,499,930 96 2,5Bi (ICBC) SNL Finance 1Bi 2011 77,060,093,333 - (16,672,799,929) 17,419,106,667 77,806,400,071 16,672,800,000 61,133,600,071 120 EXCHANGE RATES DIFFERENCES (CA-SCB) SNL Finance 1Bi 2011 73,660,383,333 - (16,672,799,929) 16,650,616,667 73,638,200,071 16,672,800,000 56,965,400,071 120 The amount of 14.417.538 thousands of AOA is related with the exchange rate adjustment of financial (SCB-KS) investments. Since these exchanges losses / gains occurred in previous years, they were considered SNL Finance 2Bi 2011 163,186,080,000 - (33,345,600,070) 36,887,520,209 166,728,000,139 33,345,600,198 133,382,399,941 112 (CDBC) fundamental errors and therefore recognized in retained earnings. SNL Finance 1.5Bi 2012 61,194,780,000 - (50,018,400,000) 13,832,820,000 25,009,200,000 25,009,200,000 - 60 (SCB) SNL Finance 1Bi 2012 95,191,880,000 - (16,672,799,930) 21,517,720,000 100,036,800,070 16,672,800,000 83,364,000,070 120 ACCOUNTS RECEIVABLE (CDB) SNL Finance 2013 158,653,133,333 - (83,364,000,069) 35,862,866,667 111,151,999,931 83,364,000,000 27,787,999,931 60 As a consequence of the reconciliation process of external confirmations received, an adjustment of 2,5Bi (SCB) SNL Finance 2013 150,558,585,714 - (184,591,714,285) 34,033,128,571 - - - 84 10.703.412 thousands of AOA was made related to the receivable balances from property sell, which 2,5Bi (CDB) was recognized in Retained Earnings due to the fact that the balances relate to previous years. SNL Finance 2Bi 2014 239,339,584,000 - (53,352,960,000) 54,101,696,000 240,088,320,000 53,352,960,000 186,735,360,000 84 (SCB) SNL Finance 1,5Bi 2014 203,982,600,000 - (32,620,695,652) 46,109,374,432 217,471,278,780 43,494,235,317 173,977,043,462 84 (SCB) SNL Finance 2Bi 2014 244,779,120,000 - (33,345,600,013) 55,331,280,000 266,764,799,987 33,345,600,000 233,419,199,987 120 (CDB) SNL Finance 1Bi 2015 135,988,400,034 - 30,739,599,966 166,728,000,000 52,102,500,000 114,625,500,000 60 (SCB)
1,758,605,226,501 - (596,578,155,663) 397,525,213,853 1,559,552,284,691 436,059,281,229 1,123,493,003,462
178 ANNUAL REPORT 2016 179 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
17. PROVISIONS FOR PENSION PLANS During 2016, the company did not use international bank loans to finance their structuring capital The table below details the Group obligation with as at 31 December 2016: projects and other operational costs in accordance with the annual budget.
Item 2016 2015 The above loans have a corporate guarantee, in accordance with the debt covenants, under which Sonangol pension plan 97,421,350,369 73,789,171,873 Sonangol EP has to comply with the following: General labour law (LGT) - 11,578,789,433 Fénix pensions plan 253,480,545 - (a) The Equity value should never fall below 1.200,000,000,000.00 AOA; ENSA benefit pension plan 6,884,265,144 5,149,903,708 (b) The ratio “EBITDA/Net debt” should not be less than 0.5; 104,559,096,058 90,517,865,013 (c) The ratio “EBITDA/debt service” should not be less than 1,3; (d) The ratio “Net debt/EBITDA should not be greater than 2,5; 17.1 PENSION PLANS AND TERMINATION BENEFITS (e) “Gearing ratio” should not be less than 100%.
The liabilities related with post-employment benefits, by type of benefit, which are unfunded or wholly The National Urbanization and Housing Plan (Plano Nacional de Urbanização e Habitação or “PNUH”) or partly funded, are as follows: is a state initiative partially implemented by the Group using the loans contracted with international Sonangol pension Retirement benefits SONILS - Fénix Retirement benefit banks. The Group recognizes the total of the debt related with the investment performed under PNHU, plan according to LGT Pensões pension plan plan ENSA and the reimbursement occurs on a monthly base through the offset with the Concessionaire Revenue, Defined benefit (fund Defined benefit Defined benefit Defined benefit Total centrally managed) (unfunded) (funded) (funded) in accordance with reimbursement plan of the contract. Balance as at 31 December 2015 Post-employment liabilities 73,789,171,873 11,578,789,433 - 10,551,697,994 95,919,659,300 This is a relevant issue when performing the technical assessment of the Group debt covenants, since Fair value of the plan assets (5,401,794,287) (5,401,794,287) in accordance with the Sonangol’s Board of Directors there is an inconsistency of the used calculation 73,789,171,873 11,578,789,433 - 5,149,903,708 90,517,865,014 parameters. Balance (receivable) / payable 73,789,171,873 11,578,789,433 5,149,903,708 90,517,865,014
This is due to the fact that for the calculation of the “DEBT” or the “NET DEBT”, the debt amount of Balance as at 31 December 2016 Sonangol Finance is considered, but for the calculation of the “EBITDA” the State reimbursements Post-employment liabilities 97,421,350,369 - 253,480,545 12,834,968,031 110,509,798,944 related with the investments of PNUH are not considered. Fair value of the plan assets (5,950,702,886) (5,950,702,886) 97,421,350,369 - 253,480,545 6,884,265,144 104,559,096,058 Sonangol submitted a proposal in 2016 to adjust the Sonangol’s EP definition of “EBITDA” with the Balance (receivable) / payable 97,421,350,369 - 253,480,545 6,884,265,144 104,559,096,058 purpose to include the “PNUH” reimbursements on the EBITDA calculation.
The Sonangol’s Board of Director expects that formal approval of this proposal will occur in 2017. 17.2 TYPES OF BENEFITS PLANS AND TERMINATION BENEFITS
DEFINED BENEFITS PLANS FINANCING CONDITIONS The types of defined benefits plans are as follows:
The average interest rate of the loans used during 2016 was 3.5% plus Libor indexation. Name of the plan Type Beneficiaries Location Sonangol pension plan Defined benefit – fund centrally Retired and pensioners of Angola All the contracts have as bank guarantee the obligation to allocate the monthly revenues in the managed Sonangol proportion of 125% to the debt service value to be carried out in a certain period. Sonangol pension plan Defined benefit – unfunded Sonangol employees Angola ENSA pension plan Defined benefit –ENSA fund Retired and pensioners of Angola Sonangol ex-FPA Fénix pension plan Defined benefit –Fénix fund Retired and pensioners of Sonils Angola
180 ANNUAL REPORT 2016 181 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
“Sonangol Pension Plan”, remains in place to service the obligations with retired and pensioners and 17.3 LIABILITIES WITH DEFINED BENEFITS PLANS AND TERMINATION this liability will be financed by contributions that the subsidiaries included in the new plan will transfer BENEFITS to the Pension Fund Managing Company. However, employees who retired or cease the labour contract between 1 January 2012 and the legal implementation date, will still be covered by the defined benefit The conciliation between the beginning and the ending balances of the liability related with defined scheme. benefits plans is as follows:
With the entry into force, 13 September 2015, of the new General Labour Law - Law No. 7/15 of 15 June, Sonangol pension Retirement benefits SONILS - Fénix Retirement benefit plan according to LGT Pensões pension plan ENSA ceased the obligations of legal nature or resulting from the consistent practice of acquired rights as for plan the obligation to the payment of a legal compensation related with the retirement of an employer. Defined benefit (fund Defined benefit Defined benefit Defined benefit Total centrally managed) (unfunded) (funded) (funded) Liability for defined benefits plans as at 73.789.171.873 11.578.789.433 - 10.551.697.994 95.919.659.300 Therefore, Sonangol EP has decided that it will not continue to attribute this benefit on a voluntary way. 1 January 2016 Interest expenses 3,427,767,216 - - 500,550,923 3,928,318,139 The Group is depositing in a bank account owned by Sonangol EP the amounts related the contributions Current service expenses - - - 194,255,483 194,255,483 to the defined contribution plan and to the defined benefits plan. As at 31 December 2016, the balance of Benefits paid (6,397,250,209) - - (1,214,535,451) (7,611,785,660) this bank account amount to 160,358 million of AOA. Actuarial gains and losses 9,705,186,656 - - 396,027,720 10,101,214,376 Exchange rate differences 16,896,474,832 - - 2,406,971,362 19,303,446,194 Cease of responsibilities (11,578,789,433) 253,480,545 - (11,325,308,888) Liability for defined benefits plans as at 97,421,350,368 - 253,480,545 12,834,968,031 110,509,798,944 DEFINED CONTRIBUTION PLANS 31 December 2016
The defined contribution plan is the following: As referred in Note 17.2 regarding the cease of responsibilities of Benefits and Retirement Plan described in LGT, the Group has reverted the associated responsibility in the amount of 11,579 million of AOA. Name of the plan Type Beneficiaries Location Sonangol pension plan Defined contribution – fund Sonangol employees Angola Sonangol pension Retirement benefits Retirement benefit centrally managed plan according to LGT plan ENSA Defined benefit (fund Defined benefit Defined benefit Total centrally managed) (unfunded) (funded) The defined contribution plan is based on participants’ contributions (employees or members of Liability for defined benefits plans as at 1 January 2015 41,486,348,263 10,421,364,972 7,233,181,662 59,140,894,897 the board of Sonangol EP and its subsidiaries). The capitalized accumulated obligation due to each Interest expenses 1,649,150,070 740,766,404 147,172,606 2,537,089,080 participant is subject to positive or negative variations, as a consequence of changes in value of the Current service expenses 409,108,321 480,571,730 889,680,051 investments made and the financial market. Participant companies are not responsible, now or in the Benefits paid (4,189,651,299) (886,974,383) (237,773,045) (5,314,398,727) future, for the level of income generated or the benefits provided under the plan. The funding of the Actuarial gains and losses 18,956,819,961 (1,899,641,070) - 17,057,178,891 pension plan will be chosen by the subsidiaries and it will match the defined risk profile and selected by Exchange rate differences 15,886,504,879 2,794,165,189 2,928,545,041 21,609,215,109 subsidiaries criteria. Liability for defined benefits plans as at 31 December 2015 73,789,171,873 11,578,789,433 10,551,697,994 95,919,659,300
The main actuarial assumptions used to determinate the post-employment benefits obligation at the balance sheet date are presented in the table below: 2016 2015 Financial assumptions for both plans (Sonangol, LGT and ENSA) % % Discount rate 4.25 4 Expected Return from plan assets 4 4 Expected Salary increase 3 3 Expected pension increase (only for Sonangol plan) 1 1 mortality table (adjusted in order to reflected the accumulated experience) ANGV2020P ANGV2020P
182 ANNUAL REPORT 2016 183 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
17.4 ACTUARIAL GAINS AND LOSSES 17.6 SENSITIVITY ANALYSIS
As disclosed in Note 2.3.s) the Group recognizes actuarial gains and losses directly in equity (reserves). The tables below detail the results from the sensitivity analysis to the discount rate, the pension growth The amount recognized during the year totals 10,057 million of AOA, as disclosed in Note 13. rate and to the wage growth rate.
4.25% 4.00% 4.50% 17.5 FAIR VALUE OF THE PLAN ASSETS Accounting ,- 25 p,b Var, ,+ 25 p,b Var, scenario Discount rate – pension plan 97,421,350,369 99,709,778,700 2% 95,185,774,979 -2% The conciliation between the beginning and the ending balances of the plan assets is as follows: Discount rate - ENSA 12,834,968,031 13,203,789,879 3% 12,476,448,473 -3% 110,256,318,399 112,913,568,579 2% 107,662,223,452 -2% Sonangol pension plan Retirement benefit plan ENSA 1.00% 0.50% 1.50% Defined benefit Defined benefit Accounting ,- 50 p,b Var, ,+ 50 p,b Var, (fund centrally managed) (funded) scenario Fair value of the plan assets as at 1 January 2016 - 5,401,794,287 Pension growth rate – pension plan 97,421,350,369 93,181,861,977 -4% 101,853,778,402 5% Expected return - 251,941,177 Pension growth rate - ENSA 12,834,968,031 12,227,503,892 -5% 13,472,611,105 5% Benefits paid - (1,214,535,451) 97,421,350,369 93,181,861,977 -4% 101,853,778,402 5% Other gains and losses - 281,643,904 3.00% 2.50% 3.50% Exchange differences related to foreign plans - 1,229,858,971 Cenário ,- 50 p,b Var, ,+ 50 p,b Var, Fair value of the plan assets as at 31 December 2016 - 5,950,702,886 contabilização Wage growth rate - ENSA 12,834,968,031 12,708,260,418 -1% 12,962,938,942 1% Sonangol pension plan Retirement benefit plan ENSA 12,834,968,031 12,708,260,418 -1% 12,962,938,942 1% Defined benefit Defined benefit (fund centrally managed) (funded) Fair value of the plan assets as at 1 January 2015 - 4,170,577,663 Expected return - 138,137,562 Benefits paid - (237,773,045) 18. PROVISIONS FOR OTHER RISKS AND CHARGES Other gains and losses - - Exchange differences related to foreign plans - 1,330,852,107 Fair value of the plan assets as at 31 December 2015 - 5,401,794,287 18.1 DETAILS OF PROVISIONS FOR OTHER RISKS AND CHARGES
The detail of the provision for other risks and charges is as follows:
Item 2016 2015 Provision for law suits 3,419,861,036 2,063,856,527 Dismantling provision - Sonangol as an investor 228,124,410,974 202,727,357,345 Abandonment Fund (Concessionaire) 632,319,993,564 336,718,403,901 Provision for tax contingencies 322,086,827,568 273,093,838,566 Other provisions 36,141,658,766 26,159,364,938 1,222,092,751,908 840,762,821,277
18.2 PROVISIONS FOR LAW SUITS
The provision for law suits covers all the Group disputes on which the Groups is part and for which are expected future outflows.
184 ANNUAL REPORT 2016 185 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
18.3 PROVISIONS FOR TAX CONTINGENCIES amount will be used to cover the future expenses with the abandonment of the oil wells, removal of platforms and other facilities when the reserves are deplete. Provisions for tax contingencies have the purpose to cover tax contingencies resulting from the audits of the Ministry of Finance to the recoverable costs of the blocks in which the Group has participative The main increases for the year are related with provision for the abandonment of the Blocks 17, 17 and interest. These contingencies result mainly from partial non-compliance with the production sharing 3.05 which are operated by ESSO, Total EP and Sonangol P&P, respectively. contracts. The provision is based on the percentage of risk of additional payments to the State. The recognised amounts represent the best estimate of the probable outcome and may differ from the final amounts payable due to subsequent reviews. 19. OTHER NON-CURRENT LIABILITIES AND ACCOUNTS PAYABLE 18.4 DISMANTLING PROVISION – SONANGOL AS AN INVESTOR 19.1 DETAILS OF OTHER NON-CURRENT LIABILITIES AND ACCOUNTS The table below details the movements occurred in 2016 in dismantling provisions where Sonangol PAYABLE participates as an investor: As at 31 December 2016 the detail of other non-current liabilities and accounts payable is as follows: Item 2015 Exchange rate Increase Decrease Abandonment 2016 adjustment Interest Item Current Non-current Dismantling provision 202,727,357,345 45,825,657,774 61,776,574,465 (93,409,938,239) 11,204,759,629 228,124,410,973 2016 2015 2016 2015 Total 202,727,357,345 45,825,657,774 61,776,574,465 (93,409,938,239) 11,204,759,629 228,124,410,973 Trade suppliers - current 456,227,345,639 353,718,148,037 - - Transactions with the National 172,141,549,950 127,616,094,375 - - The movement occurred during the year is related with the review of the abandonment estimative at the Concessionaire reporting date, with an interest related with the time value of money and a risk free rate representative Trade debtors – credit balances 4,971,729,823 1,498,721,028 - - of investment in USD in Angola, and also to the exchange rate adjustment related with the depreciation State 84,725,759,186 67,670,089,181 - - of the kwanza (AOA) against the dollar (USD). The assumptions are as follows: Participants and Affiliates 4,235,296 - - - Shareholders loans - - - - • Discount rate: 8.84% Personnel 5,386,846,638 70,791,699 - - • Inflation: 2.34% Creditors – asset suppliers 114,634,493 735,262,103 1,958,099,968 2,604,175,430 • Maturity: Concession Licence Deadline. Creditors – mining activity 263,359,996,019 120,777,659,984 127,532,756,370 100,795,864,925 Creditors – Over lift 5,231,430,283 2,711,937,233 - - Pension fund - Cut (Note 17) 118,242,102,148 126,061,602,445 - - Pension fund – withholding 27,463,751,373 22,013,693,488 - - 18.5 ABANDONMENT FUND (CONCESSIONAIRE) Other creditors 13,363,428,304 21,619,053,302 8,209,390,074 1,987,293,999 1,151,232,809,152 844,493,052,874 137,700,246,412 105,387,334,355 The table below details the movements occurred in 2016 in abandonment fund (Concessionaire):
Item 2015 Increase Decrease Regularizations Exchange rate 2016 differences 19.2 TRANSACTIONS WITH THE NATIONAL CONCESSIONAIRE Abandonment fund 336,718,403,901 255,358,971,351 - (31,409,363,840) 71,651,982,153 632,319,993,564 (Concessionaire) 336,718,403,901 255,358,971,351 - (31,409,363,840) 71,651,982,153 632,319,993,564 As at 31 December 2016 the detail of the balances associated with transactions with the National Concessionaire is as follows:
In 2016, the group maintains a bank account in the name of Sonangol EP with a debtor balance of Item 2016 2015 478,603,407 thousands of AOA which includes the deposited values related with the transfers made by Receipts of the concessionaire (13,201,815,196) 82,988,917,012 the contractors groups to cover the abandonment expenses. Bonus 45,282,401,154 44,627,177,363 Price Cap 82,072,328,936 - The amount of abandonment fund (Concessionaire) described above was constituted by the contractors CITEC 57,988,635,056 - operators and transferred to the company custody as the Concessionaire for the hydrocarbons. This 172,141,549,950 127,616,094,375
186 ANNUAL REPORT 2016 187 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
19.2.1 RECEIPTS FROM THE CONCESSIONAIRE 19.3 STATE
In 2016 the detail of the movements in the deliveries of the National Concessionaire is as follows: As at 31 December 2016 the detail of the State balances is as follows:
Table with the transactions with the Concessionaire Item 2016 2015 Item 2015 Amounts to be Amounts to be Paid amounts Offsetting Balances 2016 paid received settlement State Receipts of the 221,220,959,389 895,401,469,527 - (707,723,826,732) (145,053,517) - 408,753,548,668 Corporate income tax 38,385,591,145 21,777,948,699 Concessionaire Production and consumption tax 301,073,260 1,067,420,922 Customer credit (32,205,247,908) - (37,697,130,833) - - - (69,902,378,741) OGE Income tax oil 123,510,801 360,156,343 Subventions (74,675,901,364) - (36,534,967,731) - - - (111,210,869,095) Production taxe 4,976,595,756 3,353,447,316 Liquidation (2,220,655,628) - (773,656,755) - - - (2,994,312,383) Industries ZEE Withholding taxes 4,517,027,871 3,652,957,192 Liquidation PNUH - - (157,275,144,988) - - - (157,275,144,988) Others taxes 36,421,960,353 31,796,378,278 (nominal + interest) OGE Dividends - 5,661,780,431 Receivable - (63,903,545,503) - - - - 63,903,545,503 - Millennium BCP 84,725,759,186 67,670,089,181 Payments to public - - (96,997,496,601) - - - (96,997,496,601) entities Other movements 34,773,308,026 - (23,281,366,158) 4,932,896,076 - - 16,424,837,944 Other taxes includes several natures of taxes due by the Group at balance sheet date, namely the Total 82,988,917,012 895,401,469,527 (352,559,763,066) (702,790,930,655) (145,053,517) 63,903,545,503 (13,201,815,196) capital gains tax, consumption tax, stamp duty and other.
In subventions it is included a balance of 111,210,869 thousands of AOA related with subventions from 2015 and 2016 that was not paid as at 31 December 2016. This balance will be settled during 2017, in a 19.4 CREDITORS - MINING ACTIVITY staggered way, by the Angolan State. In this caption it is included, as at 31 December 2016, the amounts of the debts from the joint operations in blocks on which the Group holds participation interests. These debts are a consequence of the 19.2.2 PRICE CAP difference between the cash calls requested for the development of the block operations and the expense incurred in those blocks. The following table details the movements in Price Cap:
Item 2015 Increases Decreases Regularization 2016 19.5 PENSION FUND Price Cap - 82,072,328,936 - - 82,072,328,936 Total - 82,072,328,936 - - 82,072,328,936 The caption Pension Fund - Cut is related to the amount that the Group has to fund to the manager of the new pension plan (Defined Contribution) as mentioned in the Note 17. During 2016 it was deducted The variation is related with the reversal of the disposal of participating interests disclosed in Note 13. from tis liability the excess of 36,315,190 thousands of AOA, which is relate with retired employees in the period from 1 January 2012 to 31 December 2016 and that were included in the provision mentioned in Note 17.3
The caption Pension Fund – withholding is the retaining of part that Sonangol withholds from the employee’s salary as stated in the Defined Contribution Pension Plan for the years 2012, 2013, 2014, 2015 and 2016.
19.6 CREDITORS - OVER LIFT
The caption creditors – over lift is related to the difference between the oil lifting made during the year, and the entitlements of the company as partner in several blocks. This balance will be adjusted in the rights of the related blocks during 2017.
188 ANNUAL REPORT 2016 189 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
19.7 OTHER CREDITORS 21. OTHER CURRENT LIABILITIES
19.7.1 OTHER CREDITORS (NON-CURRENT) As at 31 December 2016 the detail of the other current liabilities is as follows:
As at 31 December 2016 the detail of the other creditors (non-current) is as follows: Item 2016 2015 Accrued liabilities Item 2016 2015 Personnel (Vacation Allowance) 12,787,401,901 14,562,229,283 Special account for compensation- OGE 1,987,294,000 1,987,294,000 Consulting services 10,531,076,623 3,072,660,605 Other creditors Sonils 6,169,050,563 - Specialized services 16,197,285,649 5,512,000,584 Other UT's 53,045,511 - Mining activity (non-operated blocks) 7,112,139,133 24,813,089,584 8,209,390,074 1,987,294,000 Mining activity (operated blocks) 11,257,501,327 21,282,885,044 Rents 341,023,346 8,489,421 Acquisition and Building work on condominiums 6,290,864,010 5,306,644,955 19.7.2 OTHER CREDITORS (CURRENT) Interest 1,753,493,662 1,340,264,337 Refined products - 766,266,917 As at 31 December 2016 the detail of the other creditors (current) is as follows: Docking and freight (Suezmax e LNG) 3,105,428,832 2,721,316,826 Other 23,140,255,379 4,992,087,970 Item 2016 2015 92,516,469,860 84,377,935,526 Sales on behalf of Somoil 2,660,364,492 1,728,371,272 Deferred income Sales on behalf of Kotoil - 4,282,861,234 Billing 12,119,844,455 1,087,511,697 Sales on behalf of ENI - 2,409,593,600 Others 311,821,179 321,019,126 Sales on behalf of Poliedro 67,946,729 5,158,921,217 12,431,665,634 1,408,530,822 Sales on behalf of Prodoil 1,044,095,589 266,295,205 Sales on behalf of Force Petroleum - 588,450,010 104,948,135,494 85,786,466,348 Sales on behalf of Acrep 1,445,172,775 466,016,608 Sales on behalf of Chevron Texaco - 832,425,167 The caption “Personnel (Vacation Allowance)” is related, essentially to accrued expenses with holidays FINA (non-controlling interest) 333,037,500 333,037,500 of the employees to be paid in 2017. Project SAR 2,776,156,737 2,165,020,498 SICCAL - Edificio Kalunga - 1,108,738,268 “Mining activity” is related with the operational accruals from the mining activity (oil and gas). Other 5,036,654,482 2,279,322,722 The caption “Acquisition and Building work on condominiums”, is related with the requalification work 13,363,428,304 21,619,053,302 performed by suppliers, for which invoices were not received on time. The requalification works are mainly related with the Condominium Zango, Hotel Intercontinental and Largo do Ambiente. The amounts payable to Poliedro, Somoil, Prodoil e Acrep, are from the sale of crude oil on behalf of these entities at end of 2016, which will be refunded in the following year. The caption “Docking and freight (Suezmax e LNG)” corresponds to the accrued expenses of the freight of ships from the Suezmax and LNG fleets, as well as the ships from outside the group but for which the freight expenses are Sonangol’s responsibility, as stated in “Bare boat” agreements.
190 ANNUAL REPORT 2016 191 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
22. SALES 24. OTHER OPERATIONAL INCOME
The table below details the sales by product during 2016. The table below details the other operational income during 2016
Item 2016 2015 Item 2016 2015 Crude Oil – Association 521,916,748,701 440,659,867,848 Supplementary services 4,535,774,076 7,675,152,569 Crude Oil – Concessionaire 859,970,418,952 878,855,765,122 Management fees 55,543,761 1,417,786,394 Refined – Gas 214,015,895,655 166,219,081,896 Fuel rebilling 2,517,909,635 4,035,631,206 Refined – Diesel Oil 475,509,796,983 324,721,948,842 Gas injection in Block 17 98,781,516 167,063,439 Jet A1 44,873,650,130 44,251,103,250 Sales intermediation (crude oil) - 3,541,572,249 Jet B 11,991,809,461 36,877,507,694 Royalties 10,201,857 269,752,765 LPG 27,443,551,289 10,919,648,977 Real estate management (hotels) 1,313,675,364 1,190,192,687 Kerosene 14,274,082,792 3,667,621,814 Other operating income 6,360,674,799 1,251,207,490 Fuel Oil 34,666,611,545 38,460,869,007 14,892,561,009 19,548,358,800 Naphtha 18,233,791,232 12,260,972,868 Subvention 24,217,340,272 227,502,317,476 The amount of 10,201 thousand AOA refers to royalties charged to Oil & Gas Providers for the sale of Other sales 36,663,485,423 20,233,100,706 gas cylinders with the Group brand (Sonagás). This activity began in 2014. 2,283,777,182,435 2,204,629,805,500 “Gas injection in block 17” is the charge to the Total E.P. within the optimization of production in this block. The decrease registered in Subvention in the amount of 203,284,977 thousands of AOA is due to the liberalization of some refined products previously subsidized. The subvention regime is currently only The caption of supplementary services is related to the charges made for technical costs compensation applicable to butane gas and kerosene. incurred by the technical manager of the LNG fleet ships.
23. SERVICES RENDERED 25. VARIATION IN FINISHED PRODUCTS
The table below details the services rendered by activity and nature during 2016. The table below details the movements in finished products and work in progress during 2016.
Item 2016 2015 Item 2016 2015 Aircraft renting 36,143,615,543 62,597,419,118 Finished goods and intermediates 908,098,645 9,262,645,790 Freight ships 4,704,087,512 6,581,690,954 Under/over Lift 3,218,676,389 (5,761,897,071) Communication Services 12,962,068,904 11,430,119,073 Concessionaire rights (290,196,788) 203,413,422 Healthcare and medical services 12,022,556,397 9,145,631,918 3,836,578,246 3,704,162,142 Training activities 2,089,414,656 1,848,938,277 Overheads – Block operator - 1,137,488,695 Integrated logistics services 47,683,212,923 - Pension fund management 1,066,316,960 - Other 2,216,533,725 351,639,455 Services Rendered – Domestic market 118,887,806,622 93,092,927,490
Aircraft renting 8,987,939,487 10,857,157,319 Freight ships 24,764,035,411 21,557,496,624 Real estate leases 584,300,539 - Services Rendered – Foreign market 34,336,275,437 32,414,653,943
153,224,082,059 125,507,581,433
192 ANNUAL REPORT 2016 193 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
26. CONCESSIONAIRE COST (SALES ON BEHALF OF THE STATE) The increased costs recorded in oil & gas exploration and operating costs caption are influenced by the devaluation of the kwanza (AOA) against the dollar (USD). The table below details the cost with the sales on behalf of the State:
Item 2016 2015 Concessionaire - Block 2-05 343,871,398 - 28. PAYROLL Concessionaire - Block 3-05 28,694,241,944 20,321,436,724 Concessionaire - Block 3-05A 120,668,141 752,288,708 The table below details the personnel costs in 2016. Concessionaire - Block 4-05 1,549,580,352 1,511,989,486 Concessionaire - Block 14 60,175,259,766 59,392,081,840 Item 2016 2015 Concessionaire - Block 15 287,803,591,842 299,993,541,268 Wages and Salaries 105,414,640,371 71,650,716,177 Concessionaire - Block 15/06 14,547,011,885 12,762,023,491 Extraordinary Services 257,866,190 1,739,825,279 Concessionaire - Block 17 392,612,882,310 402,943,097,518 Shift subsidy 749,399,790 421,666,079 Concessionaire - Block 18 80,026,213,216 72,098,127,275 Training expenses 2,101,176,835 2,757,509,340 Concessionaire - Block 31 29,262,752,709 25,842,800,426 Awards and other additional remuneration 25,654,537,041 28,480,288,731 Concessionaire - Block 0 Cabinda Sul 265,395,964 385,843,768 Family allowance 452,088,193 265,312,430 895,401,469,527 896,003,230,503 Social security expenses 4,869,304,136 2,652,859,062 Social actions expenses 1,877,307,517 11,521,479,943 This amount corresponds to the difference between the revenue from the sale of crude oil - the Subsistence expenses 784,133,317 1,337,000,017 Concessionaire rights and the profit margin of Concessionaire. According to the Law 13/13 of March 7, Health and care expenses 354,510,045 2,649,251,508 Chapter IV, Article 8, this margin is defined at 7% based on the price used in the State Budget for 2016. Insurance expenses 1,473,567,501 1,132,723,996 Pension Plan (Sonangol Plan LGT and ENSA) 3,870,632,445 3,288,631,569 Other pensions 3,921,715,972 3,057,647,020 Uniforms 2,926,325 23,920,977 27. COST OF GOODS SOLD AND RAW MATERIALS CONSUMED Other personnel costs 6,104,652,506 4,052,086,851 157,888,458,184 135,030,918,980
The table below details the cost of goods sold and material consumed in 2016. The increase in payroll is influenced by the devaluation of the kwanza (AOA) against the dollar (USD) in the period. Item 2016 2015 Raw materials and consumables (34,208,982,978) 12,874,076,803 The reduction in social actions expenses is the reflex of the cost reduction implemented Group Merchandises 421,593,097,552 457,698,609,540 measures. 387,384,114,574 470,572,686,343
27.A. OIL AND GAS EXPLORATION AND OPERATING COSTS
The table below details the Oil and Gas exploration and operating costs in 2016.
Item 2016 2015 Research costs 7,765,571,323 6,306,300,747 Production costs 204,254,546,456 183,054,674,080 Customs fees 3,871,530,239 2,556,909,154 Crude oil commercialization cost (1,607,628,983) 2,490,403,480 Royalties 50,792,667,993 46,772,014,034 265,076,687,029 241,180,301,496
194 ANNUAL REPORT 2016 195 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
EXPENSES WITH PENSION PLANS AND TERMINATION BENEFITS 30. OTHER OPERATIONAL COSTS The expenses with pension plans and termination benefits are recognized in payroll costs and are detailed as follows: The table below details the other operational costs in 2016. Sonangol pension Retirement benefits Retirement benefit plan according to LGT plan ENSA Defined benefit Defined benefit Defined benefit Total Item 2016 2015 (fund is centrally (without (with constituted Water and Electricity 967,440,132 698,055,425 constituted) constituted fund) fund) Technical assistance 5,055,663,425 13,797,216,470 Net cost in 2015: Audit and Consulting Services 13,286,341,786 15,532,602,006 Current services cost - 409,108,321 480,571,730 889,680,051 Fuels and lubricants 5,364,602,168 (677,884,403) Interest cost 1,649,150,070 740,766,404 147,172,606 2,537,089,080 Commissions and intermediates 343,059,526 240,521,831 Expected return from plan assets - - -138,137,562 -138,137,562 Communication 6,971,350,338 5,487,733,039 Total 1,649,150,070 1,149,874,725 489,606,774 3,288,631,569 Maintenance and Repairs 16,605,831,519 21,193,324,877 Net cost in 2016: Litigation and notaries 370,463,717 1,223,215,552 Current services cost - 194,255,483 194,255,483 Travel and accommodation 424,496,808 1,584,212,260 Interest cost 3,427,767,216 500,550,923 3,928,318,139 Representation expenses 887,927,720 884,879,453 Expected return from plan assets - - -251,941,177 -251,941,177 Food 3,062,986,763 2,539,703,748 Total 3,427,767,216 - 442,865,229 3,870,632,445 Professional fees 2,691,628,474 4,788,827,348 Taxes and Fees 20,422,507,986 16,517,197,466 Books and technical documentation 87,817,329 44,331,066 Office equipment 934,644,770 758,353,690 Hygiene and Comfort material 2,774,786,055 2,543,810,487 29. DEPRECIATIONS Computer equipment 5,037,984,676 293,095,020 Generic medicaments 2,859,417 - The table below details the depreciations costs in 2016. Offerings and donations 96,793,844 25,366,144 Marketing 4,482,361,150 5,566,491,718 Item 2016 2015 Rents 12,234,660,736 23,725,732,346 Tangible fixed assets 68,819,328,565 40,489,292,747 Insurance 4,791,056,021 3,457,877,324 Intangible assets 1,093,802,641 591,934,548 Surveillance and security services 7,103,231,146 4,685,282,647 Oil and Gas assets – Development 250,590,987,784 267,494,308,210 Subcontracts 21,832,724,376 12,480,394,803 Oil and Gas assets – Abandonment 49,084,862,295 18,093,096,254 Specialized services 34,898,138,097 34,554,416,791 369,588,981,285 326,668,631,760 Houston Express operation 6,740,564,765 1,313,303,583 Ship operation and maintenance 24,173,368,579 34,956,750,490 Others operational costs 23,067,998,853 16,722,733,803 224,713,290,176 224,937,544,983
196 ANNUAL REPORT 2016 197 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
31. FINANCIAL RESULTS 32. RESULTS FROM SUBSIDIARIES AND ASSOCIATES
The table below details the financial results in 2016. The table below details the results from subsidiaries and associates in 2016.
Item 2016 2015 Item 2016 2015 Financial income: ACS - 270,770,092 Interest 37,705,793,018 40,277,920,829 BAI 411,202,708 294,881,643 Income from investments in real estate 2,237,194,078 616,374,412 Banco Caixa Geral Totta Angola 1,169,033,832 4,051,993,464 Income from capital participations 3,123,663,963 1,014,322,823 Bayview - 537,822,608 Gains on disposals of financial interests - 142,913,898,157 Enco 106,660,565 73,704,704 Discounts for prompt payment obtained 342,818,574 194,964 Esperaza - 11,053,831,200 Other financial incomes 8,093,348,545 1,054,607,786 Kwanda 42,038,808 119,961,040 51,502,818,177 185,877,318,971 Mota Engil 355,012,600 345,110,400 Financial expenses: PumaEnergy - 637,500,025 Interest 36,536,545,181 66,941,618,755 Sonacergy - 60,780,420 Bank expenses 3,522,325,031 3,817,122,501 Sonadiets 428,185,889 167,551,014 Financing charges 2,587,538 5,935,898,894 Sonaid - 84,034,762 Provisions for financial investments 52,260,941,253 399,528,106 Sonamet - 258,039,821 Losses on disposals of financial interests 525,066,294 599,351,477 Sonasing Kuito - 938,398,640 Abandonment interest 11,204,759,629 13,739,081,086 Sonasurf 1,642,866,120 586,530,000 Default interest (cost) 7,446,500,502 5,464,691,793 Sonatide Marine - 2,080,800,000 Other financial expenses 67,776,465 2,219,560 Sonils - 1,332,955,800 111,566,501,894 96,899,512,174 Tecnip - 644,156,278 Unitel - 12,611,959,072 Exchange rate differences (net) 6,031,441,032 23,739,903,773 4,155,000,522 36,150,780,982
(54,032,242,686) 112,717,710,570
The caption of “Interests” (expenses) includes the amount of 71,131,979 thousands of AOA related with the financial expenses due to the loans disclosed in Note 15, of which the amount of 35,836,369 thousands AOA were capitalized due to the fact that they are related with loans to finance the qualifying assets disclosed in Note 4 and 4A.
The caption “Provisions for financial investment” includes the amount of 49,724,882 thousands of AOA related with fair value variations of investment funds (Energy Found I and II and Gateway) and financial investments (Millennium BCP).
The caption “Default interests (cost)” in the amount of 7,446,500 thousands of AOA is related with delays in the payments of suppliers.
The caption “Exchange rate differences (net)” includes the deduction of the unfavourable exchange rate differences in the amount of 279,176,798 thousands of AOA, related with the monetary liabilities disclosed in Note 15 and charged to the related financial investments.
198 ANNUAL REPORT 2016 199 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
33. NON-OPERATIONAL RESULTS 34. EXTRAORDINARY RESULTS
The table below details the non-operational results in 2016. The table below details the extraordinary results in 2016 after intra-group eliminations.
Item 2016 2015 Item 2016 2015 Non-operating income and gains Extraordinary gains Provisions write-back – inventories 28,754,980,903 1,613,370,923 Claims 1,079,742 - Provisions write-back – doubtful debts 6,295,710,968 - Provisions write-back – legal actions 183,547,447 - Other extraordinary gains 77,393,575 74,575,418 Provisions write-back – customer guarantees 23,400 15,000 78,473,316 74,575,418 Provisions write-back – abandonment fund 39,111,952,782 (624,822) Extraordinary losses Provisions write-back – tax contingencies (269,104) 9,802,800,286 Other extraordinary losses - 999,524,445 Provisions write-back – other 20,088,525,219 6,169,716,479 - 999,524,445 Gains on fixed assets 277,266,772,694 27,457,907 Gains on inventories 2,281,721,037 1,194,849,507 78,473,316 (924,949,027) Bad debt recovery 3,030,804,010 1,245 Gains related with CITEC - 38,356,623,488 Other gains 38,714,163,969 3,662,758,319 415,727,933,326 60,826,968,332 35. INCOME TAXES Non-operating expenses and losses Provisions – inventories 6,950,983,259 6,089,004,801 The table below details the income taxes results in 2016. Provisions – doubtful debts 89,691,188,349 29,826,722,247 Provisions – legal actions 65,389,055 - Item 2016 2015 Provisions – tax contingencies 11,066,236,118 21,501,165,664 Provisions – other 3,433,508,761 4,147,017,854 Income tax oil 34,348,193,431 31,010,483,713 Extraordinary amortizations - 207,141,687 Corporate income tax 48,952,240,441 24,892,487,594 Losses on fixed assets 197,279,462,101 69,928,374,155 Other taxes 767,942,045 1,297,254,661 Losses on inventories 4,472,060,699 8,209,231,869 84,068,375,918 57,200,225,969 Bad debts 47,834,407,663 15,020,819,568 Other losses 33,107,231,100 4,032,004,514 393,900,467,104 158,961,482,359 Adjustments relating to prior years (30,356,046,206) (4,436,640,677) (8,528,579,984) (102,571,154,705) 36. LIABILITIES NOT DISCLOSED IN THE BALANCE SHEET
The caption “Gains on fixed assets” includes the amount of 276,910,905 thousands of AOA related with As at 31 December 2016 the Group has not assumed any liability that is not disclosed in the balance reversals of adjustments to the carrying amount due to impairment tests performed during the current sheet, with the exception of contracts for the construction and purchase of two drilling ships in the total period as disclosed in Note 4A and 5A. amount of 902 thousands of USD. The captions “Losses on fixed assets” includes impairment losses in the amount of 279,007,781 thousands of AOA and are detailed as follows: • Tangible fixed assets of Lobito Refinery (116,914,238 thousands of AOA); 37. CONTINGENCIES • Financial investment in Angola LNG (58,354,800 thousands of AOA); • Investments in real estate and Hotels (39,373,317 thousands of AOA); In the normal course of the Group’s operations there are contingencies considered possible regarding • Medium and long term granted loans (33,611,613 thousands of AOA); tax, administrative and labour risks, involving customers, suppliers, tax authorities and employees. Contingencies whose loss was estimated as possible do not require recognition of a provisions and are • Accounts Receivables – Clients (14,123,195 thousands of AOA ); periodically reassessed. • Interest held in Banco Económico (10,294,954 thousands of AOA); • Marine Training Center Fixed Assets (6,335,664 thousands of AOA).
200 ANNUAL REPORT 2016 201 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 AS AT 31ST DECEMBER 2016
38. EVENTS AFTER BALANCE SHEET DATE
After the balance sheet date a relevant event occurred with potential impacts In the Group financial statements:
ACQUISITION OF PARTICIPATING INTERESTS In 8 May 2017, Cobalt International Energy, Inc. has presented two formal dispute notifications against Sonangol
This is a very recent event for which all the related information is not available to conclude o the possible impacts, if any.
Only after legally required procedural it will be possible to understand and evaluate all the arguments, legal and of fact, presented by the parties.
Sonangol will contest both notifications presented by Cobalt, and it is the management judgement that there is no contractual breach of the Share Purchase Agreement (SPA).
It is also the management judgement that if the SPA is not fulfilled, there is no obligation to postpone the research deadlines of the related block contracts.
39. GOVERNMENT AND OTHER ENTITIES SUBSIDIES
In 2016 the Group has received no grants from the Government or other entities.
40. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Related party transactions are described and disclosed in Note 6, Note 9, Note 12, Note 19, Note 22, Note 26, Note 31, Note 32 and Note 35.
41. INFORMATION REQUIRED BY LOCAL LEGI SLATION
No information required by legislation.
42. FINANCING GUARANTEES
Sonangol EP is the guarantor of external financing of Angola with international financial institutions. These guarantees are based on contractually defined quantities of future sales of crude oil.
202 ANNUAL REPORT 2016