The road ahead in Angola

Angola

Alfredo Fortunato, managing director of Certex Angola, talks to The Energy Year about the pandemic’s impact on the Angolan lifting equipment market and the road ahead for contract negotiations in the domestic oil and gas industry. Certex Angola provides supply, rental, inspection, testing and certification services for the oil and gas industry.

How has the Covid-19 crisis affected the lifting equipment market in Angola?
There are two ways to look at how the crisis has affected the industry. We have to remember that we are in the middle of a financial crisis, so prices will tend to drop because many projects have been called off.
Additionally, Angola faces a particular issue with its financial system not being able to support payments to the outside world. If we can’t pay for things outside that are urgently needed for operations in the country, we automatically end up facing a lower demand for activities. If you need to get equipment from outside the country, the prices go up a little bit. So, in some places we saw a decrease in prices, but in others we saw an increase.
There’s a lot of competition for all the active projects right now. Therefore, anything needed for those projects must be supplied as soon as possible. If you cannot move foreign exchange quickly, by the time you actually buy the equipment, it’s worth a lot less. The lack of foreign exchange has also meant an increase in inflation and exchange rates. The impact has been negative overall and prices have obviously gone up slightly, but this mainly hurts the subcontractors.
During a financial crisis, every single oil major is trying to cut costs and reduce the rates with their subcontractors. If you have a lower rate agreed on a contract and suddenly you still need to supply that same equipment, you end up taking a loss. The loss for most companies has been around 10-15%, which is at the moment still bearable.

What changes has Certex Angola made to its purchasing practices to adapt to the new normal?
When you have a market that is very heated, you may not be careful or efficient with what you buy. Because we were already in a financial crisis, we had to streamline our purchasing procedures to make sure that we had only what was needed in-country. We can’t have too much or too little stock. When you avoid that, you save cash, and cash is what is needed right now.
A small company like ours doesn’t normally have purchasing processes similar to those of the huge companies. Big companies have one trading company to buy and consolidate everything here. We try to emulate that. By doing that, even though we have different clients with different necessities, we try to make our purchasing more efficient and consolidate more in-country. We’re always thinking ahead six to eight months. Planning for right now is not enough.

How do you view the opportunities in marginal fields for a local company such as yours?
If done properly, the marginal field tenders will allow smaller indigenous companies to become operators. Of course, these small companies will still need the services of the subcontractors like us.
Smaller companies simply need to be given a chance, but a lot will depend on how the market evolves going forward. We know that marginal fields in a climate of low oil prices aren’t really viable, so smaller companies must wait until the price improves slightly. We are experienced and our personnel are trained and certified. So, we could easily offer our services to smaller operators too, especially after having worked with oil majors.

How did business activity evolve onshore and offshore throughout 2020?
Our business is divided equally between onshore and offshore, and we pretty much have the same amount of staff onshore and offshore. Lifting equipment is not only needed to get equipment and food to the oil rigs and FPSOs, but oil rigs are using lifting equipment to take everything out of supply boats at the same time.
Offshore, the demand has gone down considerably. The main issue we faced was that due to travel restrictions and the need to isolate offshore facilities from the pandemic, the staff has been spending more time offshore than they should. Instead of four to five weeks, crews ended up staying 10 weeks offshore during the pandemic.
We also saw a slight decrease in demand onshore, as there was a reduction in personnel required at onshore facilities. So, we reduced our manpower by 30-45%. However, operations need to go on. As long as there are people offshore, you need to move equipment and supplies no matter what happens. Thanks to that, we’ve been fortunate enough in our core business.

What level of competition do you witness in the Angolan services market?
The market is very competitive. Obviously, many companies went down, so the number of companies available to work has decreased. However, there’s a lot of competition among those companies who are left and a lot of competition for the projects that need to be done.
If there is a benefit of the current financial and economic crisis, it would be that it has taken the white elephant out of the game. When the price goes down, certain companies that cannot cope with the new normal have to leave the market. Once they move out, the opportunity is there and whoever is better prepared will grab them.

How do you see the road ahead for contract negotiations in the domestic oil and gas industry?
Our old contract on Block 15 has just been renewed. The new contract is in the same framework, but it’s a lower cost across the board. Such contracts help the growth of local, indigenous companies and will ultimately keep the money in the country. That helps transfer of technology and knowledge.
I think the market is a bit sceptical about new contracts and the industry has stagnated. As a result of the lack of predictability, a lot that was normally done via long-term contracts – three to four years – is now being done on a short-term basis via temporary, three-month contracts. This will keep things going without involving major commitments.
The reason most oil majors take advantage of renegotiating those contracts is because of the price. They are capping rates at current market prices. If market prices go up in the next two years, the oil majors are not going to feel it that badly – only the smaller companies will. That is interesting in terms of management, when you have to be inventive and creative. You are going in with a low rate and low price, but oil is cyclical. It goes up and down. If it suddenly starts going up and prices go up, then you need to find a way to mitigate the risks and losses that come with it.

What plans do you have in place to improve the company’s assets and offerings?
We already have what we really need in terms of facilities and we are planning to expand the current facilities as the situation improves. The financial crisis has taken a toll on a number of companies in Angola across all kinds of services. We’ve identified a couple of services that we are interested in doing, but right now is not a good time for diversification.
We had to close our office in Soyo, but we’re not the only ones moving out of Soyo. The

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