Ruben Brigolas
PLMJ, Lisbon
ruben.brigolas@plmj.pt

Martim Valente
PLMJ, Lisbon
martim.valente@plmj.pt

The oil and gas sector remains the cornerstone of Angola’s economy and plays a pivotal role in shaping the national legal and business landscape. Recent changes implemented to the legal framework by the Angolan government continue to attract international and domestic players, especially in the upstream sector. The combination of these factors helps maintain a healthy market for ‘participating interests’. A participating interest can be defined as the ‘individual percentage value of a party’s several interests in the underlying concession’.^[1] Although other forms of association are envisaged under Angolan law, the much preferred option continues to be combination of a Production Sharing Agreement (PSA) and a Joint Operating Agreement (JOA).

When an entity wishes to enter into an existing concession in Angola, the usual practice is to agree terms under a sale and purchase agreement (SPA) and then execute novations triggering the subjective change in the PSA and JOA. This transaction causes either a partial or entire sale of the assignor’s position in the PSA and JOA, transferring the relevant participating interest to the assignee, jointly with rights and obligations attached therewith, notably the responsibility for funding its percentage of operations. Direct transfers are the norm as they novate the obligations under the PSA and JOA. This means the assignee is usually not responsible for pre-completion liabilities (ie, they will only be responsible for costs arising after a specific date or when the transaction is completed).

Although direct transfers are the norm, indirect transfers are also an option. Indirect transfers are usually linked with the assignment of the participating interest by means of disposal of the holder of the participating interest’s share capital. In other words, assignment by means of change of control of the entity party to the PSA and JOA, which then holds the participating interest. The transaction can occur at a higher corporate level, but as these entities are special purpose vehicles, unless a group transaction is envisaged, the target is, more often than not, the entity party to the PSA and JOA. The choice for indirect transfers appears to be driven by tax considerations, despite introducing a new layer of complexity – in particular, with respect to pre-completion liabilities and indemnity period.

There are good reasons for considering either form of transaction. However, the practice in Angola has been very consistent. With only a very few examples of indirect assignments, direct transfers to enter in ongoing concessions have been the standard for the last two decades.

Nevertheless, the recent introduction of the Angolan Competition Authority (ACA) competition framework may raise additional considerations in this respect. As completion of the transfer occurs only with the verification of the relevant conditions precedent (CPs) in the SPA – particularly the regulatory CPs, parties should consider how the ACA is engaged and how it applies certain competition law concepts which may be relevant.

The Angolan competition law regime

Angola began its current competition law regime in May 2018, through the adoption of Law 5/18 of 10 May 2018 (the Competition Act). The Act set out the substantive framework of the domestic competition rules, drawing on inspiration from Portuguese and other European and competition law regimes. The ACA came into being soon after the Act became law, and by early 2019 the Board of the ACA was in place.

The area in which the ACA has been the most visibly active is merger control, the number of merger transactions reviewed having increased over time.^[2] There was a significant increase in the number of transaction decisions (and therefore, notifications) in 2022, and this trend continues to date.^[3] The ACA mergers division is clearly becoming more experienced and beginning to establish a track record of asserting jurisdiction over transactions connected to the domestic market.

In June 2023, the ACA published statistics on its merger control enforcement from 2019 onwards. In total, the ACA had reviewed 42 merger control notifications – 21 of which had been filed in 2022 alone. Of particular note is the fact that, of the transactions filed with the ACA, ten related to the oil and gas industry.^[4]

The applicable jurisdictional thresholds for notifying the ACA of a transaction are set out below.

The applicable jurisdictional thresholds

The ACA must be notified of a transaction under Competition Act rules if it qualifies as a ‘concentration’, a term which has a distinct legal meaning. The term seeks to capture the different types of transactions which lead to the combination of economic activities between the parties to a transaction.

Article 15 of the Competition Act defines a concentration as: (1) a merger between two or more previously independent undertakings; (2) the acquisition of control, by one or more undertakings, over another undertaking or undertakings, or part(s) of another undertaking to which a market turnover can be attributed; or (3) the creation of a full function JV on a lasting basis, that is, a JV independent of its parents with an independent market presence.

Once it has been established that the transaction meets this criterion, a notification will be required if one of the following additional thresholds is met:

• the creation, acquisition, or reinforcement of a market share of at least 50 per cent in a relevant market; or
• the creation, acquisition, or reinforcement of a market share of at least between 30 and 50 per cent, and individual turnover of at least two of the undertakings involved in the concentration of more than 450 million kwanzas (approx. US$540,000) in the preceding financial year in Angola; or
• the undertakings involved in the concentration achieved an aggregated turnover in Angola in the previous financial year of more than 3.5 billion kwanzas.

Assessment

To date, the oil and gas transactions assessed by the ACA have involved both large multinational oil and gas players such as BP, Total, and ENI, as well as the domestic incumbent Sonangol (among others).

The ACA has followed an established framework in the assessment of these transactions. It has followed a somewhat traditional approach to the definition of relevant markets applicable to the oil extraction and distribution markets, recognising the barriers to entry that characterise the sector, and noted the fact that exploration is undertaken by a variety of players.^[5]

In two of the ten oil and gas transactions referred to above, approvals were conditional, requiring a remedy package to address the concerns identified by the ACA.^[6] In these cases, a mixture of structural (ie, sale of assets) and behavioural (conduct) solutions were required to address the impact of the transaction on what the ACA identified as being already concentrated markets (eg, the market for the distribution of oil derivative products).^[7]

One area of potential uncertainty, however, is the ACA’s interpretation of the term ‘concentration’. As noted above, the existence of a concentration is a necessary condition for a transaction to be notifiable to the ACA.

The traditional notion of concentration (as developed by the European Commission and European courts) turns on whether, through the transaction, decisive influence is acquired over the target company/target assets. While it is clear that the Angolan competition regime has, like many others worldwide, borrowed certain principles and concepts from EU competition law, this does not mean that Angolan law will develop in an identical manner.

The ACA’s practice so far appears consistent: indirect transfers are subject to notification provided they meet the criteria for a ‘concentration’ as traditionally defined. To date, there have been no examples of direct transfers triggering this (and the other) conditions required for a notification to the ACA. This means that, until this point is clarified through decisional practice which addresses this point directly, and/or confirmation of the ACA’s approach via the courts, there may be situations in which the acquisition of an interest in an oil and gas asset/company managing such assets that would traditionally not qualify as a concentration, will nevertheless require notification or, at the very least, informal contacts to establish the ACA’s view on this matter.

Future challenges

Oil and gas transactions are underpinned by a strong regulatory framework. Each transfer is subject to legal pre-emption rights of the National Concessionaire (National Agency of Petroleum, Gas and Biofuel – the ANPG), national companies and Sonangol. Moreover, each transfer is also first subject to a two-tier approval, by the ANPG, and by the Minister of Natural Resources, Petroleum and Gas. All of these conditions are regularly included in SPAs as regulatory CPs (ie, conditions which are not waivable).

The requirement for potential notification to – or engagement with – the ACA should also be considered, given that the ACA is now an established player in the Angolan regulatory framework. As noted, the precise scope of the ACA’s likely jurisdiction over different types of transaction will develop over time. During this interim period, it will, in many cases, be advisable for parties to construct an SPA to reflect ACA practice.

This could lead to the inclusion of a regulatory CP reflecting some of the uncertainty in this respect. For example, parties could agree a ‘conditional regulatory CP’ which can be waived by the parties if the ACA decides it does not have jurisdiction over a specific transaction. While this may not be a ‘one size fits all’ approach for companies doing business in this sector in Angola, such a CP may strike the right balance between execution and compliance risks. This approach could give parties the necessary security and certainty to engage with the ACA regarding potential approvals in a timely manner, in particular as the ACA’s approach to these types of transaction becomes clearer over time.