Angola’s state oil giant made no money from core oil activities last year, a Reuters analysis of its full accounts shows, as billions of dollars of debt repayments ate up profits.

The bleak disclosure within the company’s 121-page annual financial results published in Portuguese last week underlines the perils facing the impoverished, oil-dependent nation, even before oil prices plunged due to the coronavirus outbreak.

Sonangol is the engine of sub-Saharan Africa’s third largest economy, and Africa’s number two oil exporter.

The company reported last week that its net profit fell to 46 billion kwanza ($125 million) in 2019, down by over half in dollar terms from 80 billion kwanza ($316 million) in 2018, using the official average exchange rates for those years.

This was despite Brent crude oil prices averaging a comfortable $64 a barrel last year, not far below 2018’s $71. For 2020 so far, the average is $40.

Core activities lost 351 billion kwanza ($955 million) compared to a profit in 2018 of 69 billion ($274 million).

The decline in crude prices has worsened Angola’s debt burden.

Sonangol itself has borrowed billions of dollars from China and banks such as Standard Chartered in recent years, pledging its oil exports as collateral, to support the economy and its own expansion.

Its total liabilities at the end of 2019 stood at a massive 13.4 trillion kwanza ($36 billion) including loans, risk provisions and accounts payable.

In 2019, its debt repayments hit 764 billion kwanza ($1.8 billion), against operating profits from oil production, sales and refining of 580 billion kwanza ($1.57 billion).

“NET PROFIT”

The company hailed its overall net profit as “strong growth … as a result of stabilizing revenues and the strong cost reductions in the context of ongoing restructuring”.

Angola has pinned its hopes for mitigating a projected steady decline in its oil output on a drive to privatise key state assets, including parts of Sonangol itself, by 2022.

But much of the net profit was generated through 397 billion kwanza ($1.1 billion) of “extraordinary results”, mostly from cancelling a vast old debt and selling some assets.

The figure is nearly 30 times higher than in 2018.

It includes 280 billion kwanza from a cancellation of debt to South Pars, Phase 12 – an Iranian company formed with Sonangol to develop a giant gas field where activity ultimately never started due to sanctions.

Other “extraordinary items” included a gain of 46 billion kwanza from the sale of a real estate company and 13 billion kwanza from the transfer of medical care for several hundred workers back to the state.

Auditor KPMG said Sonangol’s liabilities at the end of 2019 outweighed its assets, something that has not happened since an oil price crash in 2016. (Reporting by Dmitry Zhdannikov; Editing by Kevin Liffey)