The Chevron Ultimatum: Sonangol Has One Week to Save Itself

New management at the Angolan National Oil Company Sonangol has engineered a situation which now threatens the very survival of the company.

Since June this year, when Angola’s President José Eduardo dos Santos installed his daughter Isabel dos Santos to chair the board, Sonangol has repeatedly failed to honour its promises to pay some US $300 million owed to the US multinational oil giant Chevron.

The sum relates to production costs for the lucrative Block 0 in Angola’s offshore oilfields, which is 40 percent owned by Sonangol and 39.2 percent owned by Chevron. Sources in Houston have told Maka Angola that the US company has exhausted all options for finding an amicable solution, with no reciprocity from Isabel dos Santos’s board.

The result is that Chevron Angola’s Director-General John Baltz has now given the Sonangol board an ultimatum: they have one week to come up with a payment plan or Chevron will trigger the relevant clause in their Joint Operations Agreement to allow Chevron to sell Sonangol’s 40 percent quota of Block 0 output for its own benefit instead of handing it over.

Should this happen, there would be a domino effect. The likely outcome would be that Sonangol would not only have to default on its debt payments to other international partners (in particular foreign banks) as revenues from crude oil sales are required to service many of its loans, but also on its commitments to China, whose loans are also repaid with crude.

It would also further lower Angola’s credit rating, already considered high risk and speculative since Moody lowered it to B1, with a negative outlook. Without oil to comply with its existing obligations and without access to further credit, the Angolan economy could go into freefall.

Chevron has always been the beating heart of oil production in Angola and the deterioration in their relationship emphasizes just how discredited Sonangol’s position has become. Until 2012 Block 0 produced more than 4 billion barrels of oil. Last year, its average daily production was 85,000bpd.

Ironically, Chevron was one of the first of Angola’s international partners to confer legitimacy and credibility on the President’s daughter in her new role at Sonangol. At the time of Isabel’s appointment John Baltz told the Reuters news agency: “The government has acted. It is clear the direction they want to go. I am always optimistic. I certainly support the direction Sonangol is taking.” His latest move suggests that is no longer the case.

When she was appointed, Isabel dos Santos promised to introduce a “culture of excellence” to Sonangol. “Excellence is our best defence and our best line of attack”, she boasted in her public statement. However, the reality is somewhat different. Right now Sonangol’s financial administrator is Sarju Raikundala, who has no prior experience in the oil industry and had never held the position of financial director prior to this job. His previous experience was as the manager of a centre specialising in holistic treatment based on spiritual awakening.

Sonangol has also had problems paying its local suppliers. Numerous Angolan companies have complained that they have not been paid since Isabel dos Santos took over. Sonangol’s explanation is that any delays are due to restructuring, but national partners who have spoken to Maka Angola say that Sonangol is holding back millions of kwanzas in its accounts, leading to a market shortage of the national currency.

At this time, Sonangol is only honouring its financial obligations to the DT Group, the Angolan subsidiary of the controversial multinational Trafigura, whose Angolan partners are the ‘presidential triumvirate’ of Manuel Vicente, General Manuel Hélder Vieira Dias Júnior “Kopelipa” and General Leopoldino Fragoso do Nascimento “Dino”.

DT Group is receiving monthly payments of US $100 millions for the sale of refined fuels back to Sonangol, in what amounts to a closed circuit of funds sloshing between the presidential family and their close circle of business friends.

The President’s daughter meanwhile has concentrated on micro-management, hiring and firing lawyers, sponsoring events in London and so on while failing to grapple with the overall management of the business.

José Eduardo dos Santos’s stubbornness in handing over Sonangol – the diamond in the national sovereignty crown – to his inexperienced daughter at such a critical time, is having the effect of accelerating the company’s collapse. His rescue plan during Angola’s economic crisis seems to be designed for his family’s benefit, not the country’s.