Thompson & Knight Advising on $7 Billion Angolan Gas Deal

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October 28, 2008 10:47 PM

Thompson & Knight Advising on $7 Billion Angolan Gas Deal

Posted by Brian Baxter

Four leading international oil and gas companies have announced an agreement with Sonangol, Angola's state-owned oil company, to invest more than $7 billion in a new liquefied natural gas (LNP) project. Announced on Monday, the deal will be the largest foreign investment in Angola and one of the largest of its kind worldwide. Nearly all the gas from the facility--to be built near the northwestern Angolan city of Soyo and operated by Sonangol's Sonagas subsidiary--will be shipped to the United States.

Sonangol has turned to Dallas-based Thompson & Knight to negotiate the deal with its international partners on the project: France's Total, Italy's Eni, Britain's BP, and the second-largest oil company in the U.S., Chevron. The companies will be equity partners in the project, slated for completion by 2012 and expected to yield as much as 5.2 million tons of LNG and related products.

Sonangol, based in the capital city of Luanda (pictured above), was founded in 1976, a year after Angola declared independence from three centuries of Portuguese rule. What followed was a 27-year civil war that killed an estimated 1.5 million citizens. After the war ended in 2002, the country experienced an economic boom brought about by the cessation of hostilities and record-setting oil prices. But while oil has been a boon to the nation's bottom line in recent years--the country joined OPEC in 2006--most of Angola's population still lives in abject poverty. (The American Lawyer's Daphne Eviatar penned two excellent pieces about Angola's abundance of natural resources and economic disparity. You can access those stories here and here.)

Yet changes are afoot, says Alexandre Chequer, a São Paulo, Brazil-based T&K partner advising Sonangol. Chequer says he started working for Sonangol in 2003, a year after his firm, Tauil & Chequer, affiliated with T&K. "Brazil is a big player in the international oil and gas industry and our language and cultural skills from our common colonial heritage [help on Angolan deals]," he says.

The negotiations for the LNG project were Chequer's first foray into Angola. The matter soon resulted in other representations, and T&K began doing smaller $200-$800 million deals on everything from oil and gas to infrastructure for several U.S., European, and Brazilian companies doing business in Angola. The Economist reported last year that Angola's economy grew nearly 18 percent annually this decade, making it the world's fastest-growing economy.

Chequer says he noticed changes on monthly visits to Luanda over the five years that it took to negotiate the LNG partnership between Sonangol and its international energy partners.

"Luanda might be the only place in the world where I saw more cranes than Shanghai," he says. "Highways, homes, offices, water treatment and waste management facilities--they're building everything."

The Angolan government is investing billions in reconstruction initiatives, particularly in heavy infrastructure like roads and railroads linking the capital Luanda with the rest of the country. It's a marked difference from five years ago when world bodies like the International Monetary Fund were slamming the government for unprecedented levels of corruption.

"Angola is often unfairly vilified as being a bastion of corruption and a place where there's no real accountable governance," says Patrick Heller, a legal analyst with Revenue Watch, a nonprofit institute that promotes the responsible management of oil and gas resources. Heller, who last visited Angola in early August, says that the Angolan government is "taking an approach to things that appears to track with some kind of vision of long-term benefit."

Heller says that while corruption is still a large-scale worry, the Angolan government has taken commendable steps to regularize the reporting of revenues it receives from oil and gas projects with international consortia.

"There used to be no information on how much international companies were paying [for access to Angolan resources], but now the Ministry of Finance puts on its Web site fairly detailed information about what's being paid for each block of oil production with subdivisions for various tax streams," Heller says. "There's a much better sense of how much money is coming in and how it's being transferred from the oil companies to the treasury."

That doesn't mean Angola is in the clear--Heller says that civilian oversight of government spending on infrastructure projects is almost non-existent--but it's a welcome change from where things used to be. As Angola's national oil company, Heller says Sonangol has also sought to reform its image by investing some of the vast proceeds from energy contracts into domestic development projects, social programs, and overseas assets. Sonangol itself serves as sort of a national energy management company, Heller says, seeking to maximize revenue for the state while leaving the deep water drilling and other technical operations to the integrated oil companies that it contracts with.

That posed some difficulties for the likes of Chequer and T&K, which at various times during negotiations on the LNG deal were representing both the Angolan government and Sonangol. Since the Sonangol group of companies is a parastatal group comprised of state and private investors, Chequer says he often had to "change hats" in order to balance divergent interests. As a result, the firm negotiated more than 200 contracts with various investors and partners covering gas exploration, gas sales, construction of the plant and associated pipelines, and shareholder agreements and other corporate documents.

Assisting Chequer on this Angolan endeavor were T&K partners Joe Rudberg and Bruno Werneck along with Sonangol general counsel Fernando Gomes dos Santos, who led and coordinated the entire effort. Angolan lawyers Carlos Feijó and Raul Araújo served as local counsel on the transaction.

Thomas Moore, the cohead of Dewey & LeBoeuf's energy M&A practice, served as outside counsel to the LNG project's international partners with each company's in-house lawyers taking leading roles in contract negotiations.

Chequer says T&K will continue to represent Sonangol on other project developments and corporate matters. The firm represents Sonangol on some OPEC issues in the U.S. and is also advising on the construction of LNG facilities on Mississippi's Gulf Coast that will receive shipments from Angola.

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