Angola Eduardo Vera-Cruz Advogados (in association with FCB&A F Castelo Branco & Associados)
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Angola
Eduardo Vera-Cruz Advogados
(in association with FCB&A F Castelo
Branco & Associados)
Introduction Key legislation and regulatory structure
Onshore drilling for oil began in Angola The key legislation governing the oil and gas
in 1915, with the first commercial sector includes the Petroleum Activities Law
discovery in 1955. However, it was the 2004 (PAL) and the Law on Taxation of
discovery of the Girassol field in the Petroleum Activities 2004 (PTL).
deepwater Block 17 that launched According to the Angolan Constitution,
Angola’s present day oil and gas industry. solid, liquid and gaseous natural resources
It is now the second biggest oil producer are the property of the state, and the
in Sub-Saharan Africa, with proven National Assembly is the competent body
reserves of approximately 9.5bn barrels for legislating in relation to the granting
and average production in 2011 of of concessions for the use of natural
1.65mbpd. The Angolan government resources and the transfer of state assets.
expects to increase average oil production The oil and gas sector in Angola is primarily
to 2mbpd in 2014. governed by the Ministry of Petroleum,
which is responsible for the co-ordination,
The Angolan government, through the
supervision and control of the activities of
wholly state-owned national oil company
the oil and gas sector and the definition of
Sociedade Nacional de Combustiveis de its policies and guidelines. Under the PAL,
Angola (Sonangol), has now granted rights the government, acting through the
to conduct petroleum operations in Ministry of Petroleum, is responsible for the
relation to 33 of its 34 blocks to a ‘who’s grant of concessions for the exploration for
who’ of international oil companies, and exploitation of hydrocarbons and the
including BP, Chevron, ENI, ExxonMobil, grant of prospecting licences.
Petrobras, Statoil and Total. Recent PSAs
In 1976, the Angolan government
include those entered into covering
established Sonangol, a public company
pre-salt blocks in the Kwanza Basin. that arose from the nationalisation of the
Announcements by both Maersk and company ANGOL, to control hydrocarbon
Cobalt International Energy of discoveries resource exploration in Angola. Under the
on their blocks have increased hopes that PAL, Sonangol is currently the exclusive
the Angola pre-salt will bring exploration concessionaire for exploration of oil and
success to match that in Brazil. gas in Angola. Sonangol is also the entity
responsible for the exploration, production,
The exploitation of Angola’s proven gas manufacturing, transportation and
reserves of approximately 11tcf has marketing of hydrocarbons and its
lagged behind the exploitation of its oil derivatives in Angola. The activities of
reserves. With a limited domestic market Sonangol are supervised by the Ministry
for gas, the country’s first LNG plant is of Petroleum.
being developed near Soyo.
Freshfields Bruckhaus Deringer llp Angola 1
March 2013Historically, Sonangol entered into joint into arrangements with such third parties.
venture projects with the IOCs. However, The arrangements entered into by Sonangol
since the enactment of the PAL in 2004, with third parties may be carried out by way
Sonangol has changed its practice and has of the incorporation of a joint venture
entered into production sharing agreements vehicle, the establishment of a consortium
with IOCs. or by entry into production sharing
agreements or risk services agreements. The
terms of whatever agreement is entered into
Licensing regime are then approved by the concession decree.
As noted above, to date, Sonangol has
Petroleum operations in Angola may only be
entered into arrangements with third
carried out under:
parties by way of a production sharing
• a prospecting licence issued by the agreement (PSA). There is model form PSA
Ministry of Petroleum and valid for the (the Model PSA), which forms the basis for
maximum period of three years. Any negotiations. The PAL contemplates both bid
Angolan or foreign company with the rounds and open tenders, although typically
necessary technical knowledge and an RFP is provided to a limited number
financial capability may apply for this of IOCs.
licence. A prospecting licence grants the
The operator of the petroleum operations in
holder the right to perform the activities
respect of an area is appointed in the
of prospection, exploration and
relevant concession decree after having been
production of oil in a certain area (block)
proposed as the operator by Sonangol. To be
on an exclusive basis. The prospecting
appointed as operator, a party will need to
licence does not grant the holder any
demonstrate the requisite technical and
preferential rights in relation to the
financial capability.
subsequent entry into an agreement with
Sonangol regarding the exploration for Under the terms of the Model PSA, the
and exploitation of hydrocarbons in the exploration period and production periods
area to which the prospecting licence are biddable items. The exploration period
relates; or can be extended once. Following a
declaration of a commercial discovery, a
• a petroleum concession, issued by the
development and production plan must be
Angolan government through publication
approved by the Ministry and the start of
of a concession decree, that will establish
commercial production requires a
the term of the licence and its different
further approval.
periods and phases. As stated previously,
Sonangol is the sole concessionaire for Parties must provide a bank guarantee of a
petroleum operations and therefore all value equal to 50 per cent of the budgeted
concessions are granted to it. However, it work obligations for a prospecting licence
may carry out petroleum operations on and equal to the value of the work
its own or may enter into arrangements programme for a concession.
with third parties in order to carry out
petroleum operations jointly. Parties conducting petroleum operations in
Angola must establish a permanent
If Sonangol wishes to carry out petroleum presence, either by way of an Angolan
operations with one or more third parties, it incorporated subsidiary or by setting up
must first apply for an authorisation from a branch. Typically, companies
the Ministry of Petroleum to carry out a establish branches.
public tender for the purpose of entering
2 Freshfields Bruckhaus Deringer llp Angola
March 2013National oil company/state participation Income Tax on taxable income at a rate of
65.75 per cent. However, the applicable
Sonangol is involved in nearly all petroleum
rate is 35 per cent in both situations for
operations in Angola as a result of the
Angolan public companies and
provisions of the PAL, which require that
private companies wholly owned by
any entity that wishes to carry out
Angolan citizens.
petroleum operations in Angola (except
prospection activities) may only do so in Petroleum Income Tax is assessed on
association with Sonangol. As noted above, taxable income generated by any of the
this may be through an incorporated joint following activities:
venture, a consortium or a PSA. —— exploration, development, production,
Unless a dispensation is granted by the storage, sale, exportation, processing
government, when Sonangol enters into an and transportation of petroleum;
SPV or consortium it must have a majority —— wholesale trading of any other
interest. However, there are no known cases products resulting from the
where Sonangol has not had a majority operations referred to above; and
interest and it is considered very unlikely —— other activities resulting from
that this would be permitted. Under a PSA, occasional or merely incidental
Sonangol’s interest is carried through actions, provided that such activities
exploration, development and production, do not take the form of an industry
but all petroleum costs are recoverable out or business.
of a specified percentage of production,
which is a biddable item under the When petroleum operations are carried out
Model PSA. under a PSA, Petroleum Income Tax is the
only tax in respect of petroleum production,
Under the Model PSA, Sonangol’s share of and the Petroleum Production Tax and
profit oil is a biddable item, determined on a Petroleum Transaction Tax described below
sliding scale on the after tax, nominal rate do not apply. Where petroleum operations
of return achieved at the end of the are carried out under other contractual
preceding quarter by the contractor group. arrangements the amount of Petroleum
Production Tax and Petroleum Transaction
Tax are deductible in determining taxable
Fiscal regime income for the purposes of the Petroleum
The PTL provides the fiscal framework Income Tax.
generally applicable to petroleum operations • Petroleum Production Tax (Imposto Sobre
in Angola, while the Model PSA sets out the a Producao do Petroleo) – Petroleum
relevant production sharing terms. Production Tax is levied at a rate of 20 per
According to the PTL, petroleum operations cent on crude oil and natural gas
in Angola are subject to the taxes set measured at the wellhead less the
out below. quantities consumed by petroleum
operations. The rate of taxation may be
• Petroleum Income Tax (Imposto sobre o reduced for marginal or deep-water
Rendimento do Petroleo) – petroleum E&P offshore fields. The state can determine
activities carried out under a PSA are whether the tax is paid in cash or in kind.
subject to Petroleum Income Tax on Where paid in cash, the relevant volume
taxable income at the rate of 50 per cent. of hydrocarbons are valued based on
Operations carried out under other E&P the FOB price for bona fide sales to
contracts, such as consortium third parties.
agreements, are subject to Petroleum
Freshfields Bruckhaus Deringer llp Angola 3
March 2013• Petroleum Transaction Tax (Imposto de an agreed rate of return to the
Transaccao do Petroleo) – Petroleum contractor’s cumulative net cash flow.
Transaction Tax is assessed at a rate of Cumulative net cash flow is the market
70 per cent over the taxable income. value of the contractor’s share of
petroleum production (cost oil and profit
• Surface fee (Taxa de Superficie) – a surface oil) less Petroleum Income Tax and less
fee applies to the concession area or to development expenditures and
the development areas if an agreement production expenditures.
entered into under the PTL provides for
such a surface fee to be paid. The Model PSA provides for payment of
social contributions and bonuses (signature
• Training levy (Contribuicoes para o Fundo and production), to be agreed.
Petrolifero) – companies operating in the
oil and gas sector are subject to Angola’s
training levy, which is intended to be Local content requirements
used for creating a Petroleum Fund for
training and development of Angolan Article 26.1 of the PAL expressly determines
human resources. The annual rate for a that the Angolan government should adopt
company that holds a prospecting licence measures to ‘guarantee, promote and
is $100,000, while for a company in the encourage investment in the petroleum
production stage it is 15 cents per barrel sector by companies held by Angolan
produced during the year. citizens and create the conditions necessary
for such purpose’.
Under the PTL, additional investment
allowances may be granted by the The PAL goes on to state that ‘[Sonangol] and
government on an application by the its associates shall co-operate with
Ministries of Petroleum and Finance. governmental authorities in developing
public actions to promote the socio-
Further, the assessment of taxable income economic development of Angola’ and that
and computation of tax charges is done on ‘before such public actions are undertaken,
an independent basis for each petroleum the parties involved shall agree upon the
concession or, when a PSA applies, each scope of the projects, the origin of the funds
development area. to be used and the recovery of costs related
thereto, if applicable’.
Under the Model PSA, the production
sharing arrangements are that: The PAL obliges Sonangol and its associates
and any other entities that co-operate with
• the contractor may recover the costs of
them in carrying out petroleum
petroleum operations out of an agreed
operations to:
percentage of the available production.
Unrecovered costs can be carried • acquire materials, equipment, machinery
forward; and and consumer goods of national
production, of the same or approximately
• the balance of petroleum produced and
the same quality and that are available
saved and not used in petroleum
for sale and delivery in due time, at prices
operations or for cost recovery is shared
that are no more than 10 per cent higher
between Sonangol and the contractor in
than the imported items including
an agreed ratio according to the after tax,
transportation and insurance costs and
nominal rate of return achieved by the
customs charges due; and
contractor group at the end of the
preceding calendar quarter. The nominal
rate of return is determined by applying
4 Freshfields Bruckhaus Deringer llp Angola
March 2013• contract local service providers, to the In addition, Minister of Petroleum Order
extent to which the services they provide 127/03 of 25 November 2003 enacted the
are similar to those available on the General Regulatory Framework on the
international market and their prices, Contracting of Services and Goods from
when subject to the same tax charges, are Angolan Companies by Petroleum Industry
no more than 10 per cent higher than the Companies. These regulations set out the
prices charged by foreign contractors for conditions applicable to the employment of
similar services. foreign contractors by oil companies.
In connection with implementing these
requirements, the PAL states that Angolan Domestic supply obligations
companies must be consulted on the same
terms and conditions as those used for Under the PAL, the government may require
consulting companies on the Sonangol and its associates to supply their
international market. share of output to meet domestic
consumption requirements. The amount
In terms of regulating the recruitment and required to be supplied shall not exceed the
training of Angolan personnel, under the lesser of a proportion of the production from
PAL entities carrying out petroleum the relevant concession area equal to the
activities in Angola are required to employ total production from the concession as a
only Angolan citizens in all categories and proportion of total Angolan production and
functions, unless there are no Angolan 40 per cent of the production from the
citizens in the national market with the concession area. Valuation of the petroleum
required qualifications and experience. is in accordance with the procedures under
the PTL, being the market price calculated
To seek to ensure equal treatment of
on the basis of actual FOB prices obtained
Angolan and expatriate workers, the PAL
from arm’s length sales to third parties.
requires that Angolan and foreign workers,
who occupy identical professional categories
and carry out identical functions, enjoy the Transfer of interests
same remuneration and the same working
and social conditions, without any type Consents
of discrimination. Under Article 16 of the PAL:
To implement Article 26 of the PAL, the • Sonangol has a right of first refusal in
Angolan government approved Decree 48/06 relation to a transfer of any of its
of 1 September 2006. This Decree regulates associates’ ‘contractual rights and duties’;
the selection of the associates of Sonangol in
the performance of petroleum operations • if Sonangol waives its right of first
and the entities procuring goods and refusal, then the right of first refusal
services for the execution of petroleum transfers to any of the contracting
operations. Article 16 of Decree 48/06 sets group’s Angolan incorporated partners
out different procedures on the that have the status of a ‘national
procurement of goods and services company’, being a company the majority
depending on the value or amount of of the capital of which is held by Angolan
the contract. nationals (natural or corporate); and
• such transfer requires the consent of the
Ministry of Petroleum by means of
Executive Decree and also the approval
of Sonangol.
Freshfields Bruckhaus Deringer llp Angola 5
March 2013Under the PAL, a transfer of shares Stabilisation/equilibrium and dispute
representing ‘more than 50 per cent of the resolution
share capital of the assignor shall be
equivalent to the assignment of contractual Under the PAL, all legislation that was
rights and duties’ and therefore the inconsistent with the PAL was revoked while
restrictions set out above will also apply in rights acquired to conduct petroleum
those circumstances. operations before the enactment of the PAL
are stated to remain fully valid and
Affiliate transfers are permitted; however, effective. However, the PAL also states that
the assignor shall be jointly and severally ‘in cases where it is deemed necessary and
liable with the assignee for the convenient, valid and effective’ contracts
assignee’s obligations. may be renegotiated ‘according to the
principle of equity and balance of interests’
Taxation to gradually adapt contractual provisions
Under Article 20.2(b) of the PTL, any gains deemed incompatible with the PAL and
or profits arising from the assignment of ancillary regulations.
interests in PSAs and other exploration and
Under the Model PSA, if there is a change in
agreements are subject to Petroleum Income
law that adversely affects the obligations,
Tax, under the rules described in the section
rights and benefits thereunder, the parties
headed ‘Fiscal regime’ above. Although there
shall agree on amendments to be submitted
is some debate about the interpretation of
to the competent authorities (being the
the relevant provisions, gains or profits
Ministry of Petroleum) for approval to
arising from the change of control of
restore the rights, obligations and benefits.
companies engaged in exploration and
production activities will potentially also The PAL states that disputes that are
fall within the Petroleum Income contractual in nature should be settled by
Tax regime. agreement but, if not, in accordance with
arbitration under the terms of the applicable
On a disposal of an interest in a PSA or other
agreements. The seat of an arbitral tribunal
exploration agreement, the buyer will step
is to be Angola, applying Angolan law and
into the seller’s shoes with regard to cost
conducted in Portuguese. The Model PSA
recovery, and goodwill included in the
includes dispute resolution provisions
purchase price may be subject to a
consistent with the foregoing applying the
deductible amortisation for Petroleum
UNCITRAL rules and with the seat of
Income Tax and Petroleum Transaction
arbitration in Luanda.
Tax purposes.
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