Sonangol Faces Arbitration over Ditched Deal

US upstream independent Cobalt International has recorded a $1.63bn impairment in Angola and threatened state Sonangol with arbitration for pulling out of a 2015 deal to buy Cobalt’s operating stakes in oil-rich blocks 20 and 21 which also include at least one sizeable gas discovery.

Total impairments of $1.7bn pushed Cobalt to a net 4Q 2016 loss of $1.87bn, compared with a loss of $486.8mn in 4Q 2015, the company said March 14. However it expects an end-2017 cash balance of $350mn-$450mn, excluding any Sonangol receipts or payments.

Cobalt said it submitted a notice of dispute to Sonangol on March 8: "If Sonangol does not timely resolve this matter to Cobalt’s satisfaction, Cobalt intends to move forward with arbitration. While Cobalt will continue to fulfill its obligations as operator of Blocks 20 and 21, Cobalt does not plan to make any material investments in Angola until this matter is resolved to its satisfaction." 

Cobalt said August 23 2016 that its $1.75bn divestment of its 40% stake in Angolan blocks 20 and 21 to Sonangol was "automatically terminated."

Cobalt CEO Timothy J Cutt (Credit: Cobalt)

Cobalt CEO Timothy J Cutt said: “This is an accounting result and not a reflection of what we believe these assets are worth to Cobalt. While it is clear that our sale process has been negatively impacted by the uncertainty surrounding the extensions, it is also clear that Sonangol's preference is for Cobalt to present potential buyers to Sonangol to finalise and grant the extensions. While we continue to work the sales process, we must also continue to work to protect our rights and thus have formally notified Sonangol of our dispute. We hope to resolve things amicably with Sonangol but will be ready for arbitration as well.”

Block 20 includes the Lontra-1 gas find which Sonangol declared commercial a year ago, estimating gas and condensate initially in place of 2.5 trillion ft³ (70bn m³) and 139mn bbls. 

Sonangol chair Isabel dos Santos told Cera Week in Houston March 7 that the Angolan state company is trying to cut costs and return to basics.

Mark Smedley