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MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 2016Sociedade Nacionalde Combustíveis de Angola

Rua Rainha Ginga n. 29-31 Caixa Postal 1316Luanda – República de AngolaTel.: (002442) 226642010 · Fax: (002442) 332578|396496E-mail: [email protected]

00SUMMARY OF GENERAL INDEX

SUMMARY OF GENERAL INDEX

1 LETTERTOTHESHAREHOLDERS 6

2 SONANGOLE.P. 10

2.1 BUSINESSMODELOFSONANGOL,E.P. 12

2.2 CORPORATEBODIES 15

3 STRATEGICFRAMEWORK 18

3.1 INTERNATIONALFRAMEWORK 20

3.2 NATIONALCONTEXT 20

3.3 SONANGOLCONTEXT 21

3.4 SONANGOLSTRATEGY 21

4 SUMMARYOFRESULTS 24

4.1 EXECUTIVESUMMARY 26

4.2 OPERATINGPERFORMANCE–EBITDA 26

4.3 OPERATINGPERFORMANCE–NETINCOME 27

4.4 INVESTMENTS 27

5 PERFORMANCEBYBUSINESSSECTOR 30

5.1 CONCESSIONAIRE 32

5.2 PRIMARYVALUECHAIN–UPSTREAMSEGMENT 48

5.3 PRIMARYVALUECHAIN–MIDSTREAMSEGMENT 51

5.4 PRIMARYCHAIN-DOWNSTREAMSEGMENT 56

5.5 NON-NUCLEARBUSINESS 64

5.6 WORKFORCEBYBUSINESSSEGMENT 70

6 COMMITMENTTOSOCIETY 74

7 PROSPECTSFORTHEFUTURE 78

7.1 EVOLUTIONOFTHENATIONALANDINTERNATIONALCONTEXT 80

7.2 NEWPRODUCTION 81

7.3 IMPLEMENTATIONOFTHETRANSFORMATIONPROGRAM 81

8 PROPOSALFORTHEAPPLICATIONOFTHERESULTS 82

9 ANNEX 86

9.1 CONSOLIDATEDFINANCIALSTATEMENTSASAT31STDECEMBER2016 88

9.2 REPORTOFTHEINDEPENDENTAUDITORONTHECONSOLIDATEDACCOUNTSASOFDECEMBER31,2016 90

9.3 OPINIONOFTHEFISCALCOUNCILONTHECONSOLIDATEDACCOUNTSASAT31STDECEMBER2016 93

5MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 20164

LETTER TO THE

SHAREHOLDERS

01

MANAGEMENT REPORT AND CONSOLIDATED ACCOUNTS 20166 7

It was with a great sense of mission and responsibility that I assumed in June 2016 one of the greatest challenges of my professional life when I started my term as Chairwoman of Sonangol E.P.

Since then, Executive and Non-Executive Directors, with the support of the Employees of the company, in cooperation with the Business Partners and in coordination with the State Shareholder, they have been carrying out a demanding and challenging process of transformation of the Group Sonangol.

It is important to keep in mind that this transformation process takes place in a complex external context characterized by high market volatility, low oil prices, a decrease in the international appetite for investment in exploration and by lower domestic demand on many businesses of Group Sonangol. Simultaneously, the internal analysis of the company's situation revealed financial, organizational, cultural and procedural challenges that surpassed what was initially expected.In these circumstances, the immediate priority was the financial restructuring, the improvement of efficiency in its various operations, focus on the oil and natural gas value chain, and creation of the foundations for an organizational and sustainable cultural change. This effort to restructure the company has been based on five fundamental values - Rigor, Profitability, Transparency, Excellence and Commitment - through which the urgent changes were reconciled with the necessary stability.

In 2016, the bases of several programs were launched whose progressive implementation will allow to create a competitive group worldwide. Among these programs, we highlight Sonalight, which is already contributing to the increase of efficiency, elimination of waste and cost reduction, and Sonaplus, which has allowed to increase revenues and monetize the company's assets. Both have been key programs to ensure the results presented in 2016 and project their future improvement.

In turn, the Process Redesign initiative is contributing to execute more and better control while the Organizational Optimization effort has been creating better structured and more agile organizations, both in the various corporate divisions and in the Sonangol subsidiaries. At the same time, the Change Management Program has created the conditions for building a more capable, motivated and mobilized workforce for the Group's priority objectives.

In total alignment with these global strategic pillars, each company and subsidiary are also undergoing a thorough restructuring process, reviewing business models, increasing their efficiency and effectiveness, optimizing their investments and thus transforming itself organizationally.

The restructuring is being carried out together with the reinforcement of our commitment to Safety, Quality and Environment. I emphasize the reduction in the number of accidents and accident indicators in 2016, which motivates us to continue the implementation of the best safety practices throughout the group.It is also important to highlight that one of the priorities in 2016 was the development of our human capital, investing in training, promoting high potential internal staff and externally recruiting professionals, where necessary, for critical positions whose profiles were nonexistent in the Group.

Much has already been done in 2016. Much more than some believed was possible. But the most stimulating is how much is possible and what is being done to make Sonangol a profitable Business Group, which is a reference in terms of economic development and human capital. I am, like the entire Board of Directors, deeply committed to returning to this symbol of our country's wealth and potential for the respect it deserves from business partners, customers, other national and international companies, its employees and of all Angolans.

I reinforce, one year after this Board of Directors took up office, that we are more than ever committed to the implementation of a culture of excellence, because this will allow us to successfully face the great challenges that the oil sector's situation places on Sonangol and the Country.

ISABEL DOS SANTOSBOARD OF DIRECTORS CHAIRWOMAN

01LETTER TO THE SHAREHOLDER


SONANGOLE. P.

02


02SONANGOLE. P.

2.1 BUSINESS MODEL OF SONANGOL, E.P.

Sonangol develops its activities through 18 subsidiaries, being generally responsible for defining strategic lines, providing guidance, supervision and management support, especially in the decision-making process. These companies operate on the market in a three-dimensional form, namely:

• Sonangol, E.P., exercises the function of national Concessionaire, having been granted by the State the mining rights for the exploration, research, development and production of liquid or gaseous hydrocarbons. As a national Concessionaire, it is authorized to associate with foreign or national entities to carry out oil operations in the national territory, which can now be carried out in the form of association agreements, production sharing agreements and contracts of risky services;

• In addition, Sonangol E.P. acts as an integrated oil and gas company, acting as a centralized operating holding company, constituted by the following companies in its primary value chain:

• ExplorationandProduction(Upstream):consists of a group of subsidiary companies whose main activity is the exploration, development and production of hydrocarbons (crude oil and natural gas), namely:

. Sonangol Exploration e Production;. Sonangol Hidrocarbonetos Internacional;. Sonangol Gas Natural.

• RefiningandTransport(Midstream): gather refining and shipping companies for crude oil and refined products, namely:

. Sonangol Shipping Holdings Limited;. Sonangol Refinação; . Refinação.

• LogisticsandDistribution(Downstream):which are engaged in the supply, storage, distribution and marketing of refined crude oil and gas products, namely:

. Sonangol Logística; . Sonangol Distribuidora;. Sonangol Comercialização Internacional.

• In addition, Sonangol operates in two other business segments, namely:• Corporate & Financing: constituted by

companies that ensure the development of the concessionary function, corporate cross-cutting functions, support and monitoring of companies, specifically:

. Sonangol E.P. (Concessionaire) e Sonangol Finance.

• Non-core activities: consisting of the group of subsidiary companies whose main activity is to support the core business of Sonangol E.P., as well as companies that conduct business of a

social nature and related to the development of human capital, or whose priority is support for economic development support for the country’s development:

. Sonair, MS Telcom, Sonangol Holdings, Sonangol Investimentos Industriais (SIIND), Sonangol Imobiliária e Propriedades (SONIP), Clínica Girassol, Academia Sonangol and Sonangol Vida.

FIGURE 1SONANGOL, E.P. AS AN INTEGRATED OIL AND GAS COMPANY

UPSTREAM

EXPLORATION AND PRODUCTION

SONANGOL GÁS NATURAL

SONANGOL PESQUISA E PRODUÇÃO

SONANGOL HIDROCARBONETOS INTERNACIONAL

CRUDEOIL BY-PRODUCTS

SONANGOL SHIPPING

SONANGOL LOGÍSTICA

SONANGOL DISTRIBUIDORA


SONANGOL DISTRIBUIDORA


SONANGOL REFINAÇÃO


TRANSPORTATION AND STORAGE

MARKETING AND TRADINGLNG / REFINERY DISTRIBUTION

PRIMARY LOGISTICS

PLATAFORMAS SHIPS

SHIPS

TRAINS

TERMINALS AND STORAGE FACILITIES

TANKTRUCKS

PIPELINES

REFINERY

SECONDARY LOGISTIC

SONANGOL

OTHER OPERATORS

AVIATION

NAVY

B2B

LUBRICANTS

GPL

TRADING SONANGOL COMERCIALIZAÇÃO INTERNACIONAL

CORPORATE AND FINANCE SONANGOL FINANCE SONANGOL E.P.

UPSTREAM MIDSTREAM DOWNSTREAM


2.2 CORPORATE BODIES

ISABEL DOS SANTOSBOARD OF DIRECTORS CHAIRWOMAN

DIRECTORS

CÉSAR PAXI PEDRO

EDSON DOS SANTOS

EUNICE DE CARVALHO

JOÃO DOS SANTOS

JORGEDE ABREU

JOSÉGIME

ANDRÉ LELO

SARJURAIKUNDALIA

MANUELLEMOS

PAULINOJERÓNIMOCHIEF EXECUTIVE OFFICER

FIGURE 2CORPORATE MATRIX OF SONANGOL E.P. AND OVERVIEW OF ITS SUBSIDIARIES

ILUSTRATIVE – AFFILIATED ENTITIES OF SONANGOL E.P. IN PRIMARY VALUE CHAIN

· PUMA ENERGY· SONASING SAXI-BATUQUE· SONASING KUITO· LOBINAVE· ALM - ANGOLA LNG MARKETING· SONASING XIKOMBA· SONASING SANHA· SONASING MONDO· LOBITO REFINERY· JASMIN (JOINT VENTURE)· ALNG S. SERVICES· ALNG SUPPLY LTD· SONANGOL SÃO TOMÉ OFFSHORE· SONANGOL STARFISH OIL & GAS· SONANGOL HIDROCARB. INTERNACIONAL· SONANGOL ASIA. SONANGOL USA COMPANY· SONANGOL CABO VERDE· SONANGOL LIMITED· SOMG· OPCO

UP

STR

EA

M ·

MID

STR

EA

M ·

DO

WN

STR

EA

MP

RIM

AR

Y VA

LUE

CH

AIN

EXPLORATION AND PRODUCTION

REFINING AND TRANSPORTATION

LOGISTIC AND DISTRIBUTION

SONANGOL P&PSONANGOL HIDROCAC. INTL.SONANGÁS

SONANGOL SHIPPINGSONANGOL REFINAÇÃO

SONANGOL LOGÍSTICASONANGOL DISTRIBUIDORASONANGOL COMERC. INTL.

ILUSTRATIVE – AFFILIATED ENTITIES OF SONANGOL E.P. IN NON-CORE BUSINESSES

· SONASURF· ANGOFLEX· SONATIDE MARINE· TECHNIP ANGOLA· ESTALEIRO NAVAL DE PORTO AMBOIM· SONADIETS· SONAID· MOTA ENGIL ANGOLA· BCGA· UNITEL· BAI· ANGOLA CABLES· BIOCOM· MILLENNIUM BCP· BANCO ECONÓMICO· GENIUS· E.I.H· PDA· BAUXITE ANGOLA· SODIMO· KWANDA· SONAMEMT INDUSTRIAL· BAYVIEW

CORPORATE AND FINANCE

NON-CORE ACTIVITIES

SONANGOL E.P.SONANGOL FINANCE

SONAIRMS TELCOMSONANGOL HOLDINGSIINDSONIPCLINICA GIRASSOLACADEMIA SONANGOLSONANGOL VIDA


SONANGOL, E.P. BOARD OF DIRECTORSALLOCATION/ROLE

02CORPORATEBODIES

BOARD OF DIRECTORS CHAIRWOMANISABEL DOS SANTOS

INTERNAL AUDIT DEPARTMENTNELSON EFEINGE BERNARDO

FINANCE DEPARTMENTVANESSA COSTA

PLANNING DEPARTMENTKID DOS SANTOS CARVALHO

IT DEPARTMENTALBERTO RIBEIRO

SYSTEMS INFORMATION DEPARTMENTANDRE PITRA

DEPARTMENT OF STATE RELATIONS AND TAXATION

VANESSA GODINHO

PROCESS MANAGEMENT UNITDANIELA MATOS

CORPORATE SOCIAL RESPONSABILITY DEPARTMENT

ARLETE BORGES

COORDINATION COMMITEE OF SOYO SOCIAL PROJECTS

HELDER JOAQUIM DOS SANTOS

CLINICA GIRASSOLANTÓNIO FILIPE JÚNIOR

SONANGOL SERVIÇO AÉREO, S.A(SONAIR)

MANUEL LEMOS

MSTELCOM, LDA(MERCURY)

DIOGO DA SILVA MANUEL

SONANGOL PESQUISA E PRODUÇÃO, S.A.ISABEL DOS SANTOS

SONANGOL HIDROCARBONETOSINTERNACIONAL

FREDERICO FERRAZ DOMINGOS

SONANGOL GÁS NATURAL, LDA(SONAGÁS)

RUBEN DA COSTA

SONANGOL SHIPPING HOLDINGS LIMITED (SSHL)CARLOS ALBERTO VICENTE ANTÓNIO

SONANGOL REFINAÇÃO, S.A(SONAREF)

JOÃO RAMOS

HUMAN RESOURCES DEPARTMENTMARIA DO ROSÁRIO VIEGAS

COMMUNICATION AND CORPORATE IMAGE DEPARTMENT

MATEUS CRISTOVÃO BENZA

ACADEMIA SONANGOL, S.ABALTAZAR AGOSTINHO GONÇALVES MIGUEL

RECREATION CENTRE PAZ FLORADALBERTO SENA

SONANGOL LOGÍSTICALUÍS MARIA

PROJECT MANAGEMENT DEPARTMENTJOAQUIM SOARES KITECULO

SONANGOL HOLDINGS, LDAJOSINA BAIÃO MAGALHÃES

ESSA, LDAFERNANDO ALBERTO LEMOS SOARES

DA FONSECA

SONANGOL INVESTIMENTOS INDUSTRIAISEUGÉNIO BRAVO DA ROSA

SONANGOL IMOBILIÁRIA E PROPRIEDADE, LDAJOÃO SARAIVA DOS SANTOS

COOPERATIVA CAJUEIRO

DIRECTORATE OF THE CONCESSIONS CONTROL COMMITEE

PEDRO MANUEL ALEXANDRE

CONCESSIONS ECONOMY DIRECTORATE

NATACHA MASSANO

EXPLORATION DIRECTORATEDOMINGOS CUNHA

DATA ARCHIVE AND DATA MANAGEMENT DEPARTMENTISABEL POLICARPO DA SILVA

SONANGOL INTEGRATED LOGISTICSERVICES

HELDER SOUSA

QUICOMBO SUPORTE LOGÍSTICO S.A.MARIA AMÉLIA VAN-DÚNEM

SONANGOL DISTRIBUIDORA, S.A.FILOMENA ROSA

HEALTH, SAFETY AND ENVIRONMENT DIRECTORATE

DANIELA MATOS

SONANGOL COMERCIALIZAÇÃO INTERNACIONAL (SONACI)

LUÍS PEDRO MANUEL

CENTRAL LOGISTICS DEPARTMENT (DCL)ROSSANA MARILIA LAURESTINHO

SOCIAL FUND

LUXERVIZA, LDA(ELECTRIC POWER GENERATION)

JOÃO DA SILVA

BUSINESS SUPPORT CENTRE

CORPORATE SECURITY DEPARTMENTMANUEL DA SILVA

LEGAL SERVICES DEPARTMENTTIAGO ALEXANDRE COSTA NETO

ADMINISTRATION DEPARTMENTAND INFRASTRUCTURES

CÉSAR PAXI PEDRO

RISK MANAGEMENT DEPARTMENTALBERTO CARDOSO PEREIRA

SONANGOL VIDA

SONANGOL TRUST FUND

PMO LEADERSHIP AND IMPLEMENTATIONOF TRANSFORMATION

PETROCHEMICAL INDUSTRYRODOLFO AGUIAR

SONANGOL FINANCE LIMITEDISABEL DOS SANTOS

PRODUCTION DEPARTMENTBELARMINO CHITAGUELENCA

CENTRAL LABORATORY DEPARTMENTANTÓNIO AUGUSTO MORAIS GARCIA

BOARD MEMBERSARJU RAIKUNDALIA

BOARD MEMBERMANUEL LEMOS

BOARD MEMBEREDSON DOS SANTOS

BOARD MEMBEREUNICE CARVALHO

BOARD MEMBERCÉSAR PAXI PEDRO

BOARD MEMBERJOÃO DOS SANTOS

BOARD MEMBERJORGE DE ABREU

NEGOTIATIONS DEPARTMENT (DNEG)SUZEL CARDOSO ALVES

CHINA SONANGOL INTERNACIONAL

CHIEF EXECUTIVE OFFICERPAULINO JERÓNIMO

ABANDONMENT FUND

BOARD MEMBERAndré Lelo

BOARD MEMBERJosé Gime


STRATEGICFRAMEWORK

03


03STRATEGIC FRAMEWORK

3.1 INTERNATIONAL FRAMEWORK

Although the beginning of 2016 was marked by instability, the course of the year showed signs of recovery that were reflected in a moderate growth of the world economy. The latest estimates from the International Monetary Fund (IMF) indicate that in 2016 the world economy grew by 3.1%, still lower than in 2015, with a growth of 3.2%.

GRAPHIC 1 BRENT PRICE EVOLUTION BETWEEN 2014 AND 2016

120

110

100

90

80

70

60

50

40

30

202014

112

31

2015 2016

-73%$96.7 OIL GRADES SNL 14

BRENT PRICE

$49.9 OIL GRADES SNL 15(-48% vs ‘14)

$41.9 OIL GRADES SNL 16(-16% vs ‘15)

Source: Thomson Reuters; FMI

In the oil sector, it was observed a sharp decline in the oil price during the first half of 2016, with a price recovery in the second half of the year. However, the recovery was insufficient, with the average price of crude oil and gas in 2016 decreasing compared to 2015. This decrease was reflected in a decrease in the average price in 2016 of the Sonangol branches by 16% compared to the 2015 annual average, which not only created important challenges to Sonangol E.P. but also to the international operators operating in Angola.

In addition, Kwanza depreciated against the main international currencies (around 23% against the

GRAPHIC 3 EVOLUTION OF THE INFLATION RATE 2010 – 2016 (%)

Source: EIU; FMI

40

30

20

10

02010 2011 2012 2013 2014 2015 2016

14.5 13.510.3

8.8 7.310.3

32.4

%

3.3 SONANGOL CONTEXT

In the current context of the structural reduction of oil prices, Sonangol, like all companies in the sector, faced enormous financial challenges due to the reduction of revenues, especially in foreign currency.

This scenario of Sonangol’s sharp reduction in revenues was not followed in 2015 or in the first half of 2016, by a cost reduction or by a review of the company’s investment strategy. This inaction led to a difficult situation facing international creditors, reducing the ability to obtain new financing, fundamental for the sustainability of the operations and for the maintenance of the levels of production.

The situation of the oil sector has created the need for the new Board of Directors to ensure full knowledge of the company status. For this, Sonangol’s situation was assessed in five dimensions: the company’s financial and tax situation, organization, human resources, processes and information systems.

This assessment revealed a more serious situation than initially expected with a number of operational, organizational and procedural shortcomings which were reflected in a critical financial situation which needed to be corrected, such as:

• From a financial point of view, inconsistencies were detected in the financial information, with lack of control over several financial participations, and it was also evident the need for the financial restructuring of the company to be able to comply with the debt commitments previously assumed;

• At the Human Resources level, there was an over-dimensioning of the structure, with some 22,000 employees linked to the Sonangol Group, with approximately 8,000 active employees and

US dollar), which increased the cost of imports of equipment, raw materials and services in local currency.

3.2 NATIONAL CONTEXT

The continuation of the challenging international context had a natural impact in the national context. This impact results from the country’s well-known strong dependence on the sale of hydrocarbons both for the generation of wealth as for the generation of foreign exchange for the country and for revenues for the State.

Thus, the decline in the oil price had an impact on the deceleration of GDP growth and, together with the depreciation of the Kwanza, contributed to the increase in inflation.

GRAPHIC 2EVOLUTION OF GDP GROWTH 2010 – 2016 (%)

8

6

4

2

02010

% G

DP

gro

wth

2011 2012 2013 2014 2015 2016

3.43.8

5.2

6.9

4.8

3.1

0.5

Source: EIU; FMI

The national context naturally affected the demand for products and services marketed by Sonangol, in particular in the refined products distribution business segment and in various non-nuclear chain businesses.

over 1,100 non-active employees, representing an annual cost of more than 40 million dollars;

• In the organizational component, it was concluded that the current model needs to be aligned with national and international best practices. In particular, there is a high number of hierarchical layers which hampers decision making and reduces the speed of response to market challenges;

• Regarding the processes, a misalignment with good practices, non-compliance with internal procedures and standards and lack of control mechanisms were identified. The result is inefficient processes, often executed manually;

• The IT systems were also the target of a diagnosis, with a lack of reliability of information and deep weaknesses in the accounting system (SAP), with a high risk for business and decision making.

From the analysis carried out, it became clear that the challenges facing the company result not only from the fall in the oil price but, fundamentally, from management and financial policies that are not in line with the best international practices and that needs a deep revision in order to ensure the future sustainability of the company.

3.4 SONANGOL STRATEGY

The new Board of Directors of Sonangol E.P. has embraced this challenging context with enthusiasm and commitment to improve efficiency, increase profitability, management transparency and prepare the company for the new model of the Angolan oil sector.

3.4.1 INITIATIVES OF RESPONSE TO THE EMERGENCY SITUATION

In the first months of its term, the Board of Directors launched a set of initiatives in response to the urgent situation, highlighting measures to make Sonangol a more efficient and effective company, reducing costs, streamlining resources and optimizing processes through:

• Cost containment and efficiency measures to increase profitability in the Oil & Gas business, such as:


• Cancellation of non-priority contracts;

• Start of the distribution of oil derivatives by railway, between Lobito and Luena.

• Measures to contain costs and increase efficiency in the central areas of Sonangol E.P. and support services:

• Negotiation or cancellation of contracts;

• Rationalization of various expenses and superfluous consumption.

• Revaluation of investments focused on sustainability and value creation for the Angolan economy:

• Revaluation of investments in the Lobito refinery and the Dande ocean terminal to ensure long-term viability;

• Continuation of the strong investment effort in the Exploration, Development and Production of Sonangol P & P and operating partners in Angola.

• Review of critical Sonangol processes, such as the definition of the business plan and the budgeting process; purchasing process and contracting of services, observing the new law of public contracting and the best practices;

• Reinforcement of competences, with the identification of areas of the company for reinforcement of competences and start of internal and external recruitment effort, to fill the identified gaps.

In addition, the Board of Directors established a new management practice that values open communication, involves organization in decision making and encourages employees to participate in the transformation of Sonangol. The following are highlighted:

• The creation of 10 management committees by area of action, involving Directors and Directors to jointly define, evaluate and monitor the implementation of initiatives that contribute to increase profitability, production and safety of the company;

• The organization of more than 40 meetings between Management and Employees, not only to clarify doubts about the actions underway and present the new model of the oil sector, but also to listen to suggestions from the workforce.

Finally, to strengthen confidence and a climate of cooperation with its partners, Sonangol has established a practice of transparency and dialogue through frequent and open meetings. These meetings aimed to explain the main changes in the sector and present the ongoing initiatives to improve the efficiency of the company, reflecting in:

• Meetings with investors to strengthen the strong base of confidence that ensures the sources of financing for the priority investments that are intended to be made in the coming years;

• Meetings with operators and service providers in the sector to improve the climate and working methods;

• Frequent communication of economic-financial results and institutional coordination with MINFIN, MINPET and BNA.

3.4.2 RELEASE OF NEW SONANGOL STRATEGY

In parallel, and more structurally, the Board of Directors defined a new medium-term strategy based on five fundamental pillars, which embody the Sonangol Transformation Program and which they have absorbed and leveraged as initiatives among the launched ones.

At the level of cost reduction, it is underway an ambitious program - the SonalightProgram - focused on reducing expenditure on External Supplies and Services through negotiation of contracts (eg. P&P), volume centralization (eg. Maintenance of Buildings), and Rationalization of expenses (eg. Insurance); and reduction of costs with human resources, through correct sizing of operations (eg. Shipping) and review of compensation policy (eg. reduction of subsidies). The Sonalight program has already identified 1,2 billion dollars and has allowed the implementation of more than 315 million dollars of annual savings, part of which in 2016.

Regarding the increase in revenues, the Sonaplus Program was launched, which has identified and implemented opportunities to increase volumes sold (eg. Bitumen), to optimize the mixs produced (eg. refining), price revision (eg. Lubricants ), review of trade policies (eg. cabotage operations) and reinforcement of revenue assurance actions (eg. Clinica Girassol).

The renovation of Sonangol has also gone through OrganizationalOptimization andProcessRedesign, with organizational simplification (eg. Sonaci, P&P, Sonaref and all functions of the concessionaire), decentralization of decisions (eg. Implementation of Management Committees), recruitment of profiles in key areas (eg. with the Talent Management program), redesign of critical processes (eg. Contract Formalization and Payment Execution) and increased control in key processes (eg. Use of the SAP system to control the purchasing process and creation of a new management information system).

Finally, the Transformation Program intends to instill in the Group a Culture of Rigor, Profitability, Transparency, Excellence and Commitment, being implemented initiatives of change, communication and capacity management in various corporate and subsidiary directions.

2016 was the start year. 2017 will surely be the year of growth and consolidation of the impacts in the 5 major initiatives of the Sonangol Group Transformation Program.


SUMMARY OF RESULTS

04


04SUMMARY OF RESULTS

4.1 EXECUTIVE SUMMARY

The sharp and prolonged decline in the price of Crude Oil on the international market affected Sonangol’s financial performance, although the launch of a rigorous transformation program focused on Transparency, Rigor, Excellence and Profitability and Commitment, enabled the start of the phase of releasing Sonangol’s potential.

Consolidated EBITDA amounted to AOA 525,266 million, an increase of AOA 139.601 million compared to the previous fiscal year, due to the growth in services rendered and the reduction in cost of inventories.

Consolidated Net Income amounted to AOA 13,282 million, a decrease of 72% compared to the 2015 fiscal year, as a result of the reduction in the financial, subsidiaries and associates results.

The Sonangol E.P. Investment Program for the 2016 fiscal year presented a value of USD 3 billion, with 97% of the total invested in Exploration and Production, which corresponded to a decrease of 35% compared to the previous fiscal year. This reduction is due to the need to re-valuate investment decisions in the light of the new macroeconomic context and the evolution of the crude oil prices.

Sonangol reached a net position of AOA 3,136 billion, an increase of AOA 607 billion compared to the previous fiscal year. This improvement was greatly influenced by the funds injection by the shareholder, by the review carried out of the accounting policies according to the best understanding of the technical and legal framework of the concessionaire’s assets, by the increase in the consolidation perimeter and by the registration of assets that were omitted from the accounts. Contrary to these effects, and due to the effort that the Board of Directors developed to carry out a more transparent report in line with the best accounting practices, Sonangol recorded adjustments of approximately AOA 830 billion related to impairments and also approximately AOA 298 billion

in adjustments concerning other corrections from previous years’ accounts.

The most relevant impairment losses correspond to mining assets and financial investments of AOA 551 billion related with corrections of previous years’ errors.

4.2 OPERATING PERFORMANCE – EBITDA

GRAPHIC 4 2016 EBITDA BY SEGMENT

600.000

500.000

400.000

300.000

200.000

100.000

0

-100.000

CO

RP

OR

ATE

AN

D F

INA

NC

ING

UP

STR

EA

M

MID

STR

EA

M

DO

WN

TRE

AM

NO

N-C

OR

E

CO

NSO

LID

ATIO

N

AD

JUS

TMEN

TS

TOTA

L

-8.255

262.854

234.723 1.72320.384 525.266

14.185

Millions of Kwanzas

Consolidated EBITDA amounted to AOA 525,266 million, a growth of 36%, driven, in large extent, by the performance of Upstream and Downstream. These two segments represent, respectively, 50% and 45% of the total 2016 EBITDA.

EBITDA in the CorporateandFinancing segment in the fiscal year of 2016 was negative at around AOA 8,255 million, due to the fact that this segment of the group aggregates some of the support activities to the activity of the other segment.

The Upstream(ExplorationandProduction) segment represents approximately 50% of the EBITDA recorded in the year and had a positive variation of

23% compared to 50%. Total production had a positive year-on-year change of 3% resulting in an average daily production of 234 thousand bbls. Regarding gas production, Sonangol recorded a 24% increase in LPG production, which increased from 223 thousand metric tons to 277 thousand metrics tons.

In 2016, EBITDA attributed to the Midstream(RefiningandTransportation)segment accounted for 3% of Sonangol’s total EBITDA. The improvement in the stability of the Luanda refinery led to a 2% increase in the amount of the crude oil supplied, being that the utilization of installed capacity stood at 83%, showing an increase of 1.5% compared to the previous year. With regard to the transport of crude oil, we saw a 6% increase in the quantities transported, however, the transport of by-products decreased by 32%, due to the macroeconomic context and the cooling of the economy.

EBITDA in the Downstream(LogisticsandDistribution) segment reached AOA 234 billion, representing 45% of the total for the year and an increase of 29% compared to the previous year, mainly due to the reduction in the cost of the goods sold. Supply and storage activities declined by 18% and 8%, respectively, due to the retraction in consumption of derivatives. The commercialization of refined products also declined by 12% as a result of the contraction of demand as a result of the national economic situation and the increase in the prices of refined products as a consequence of the elimination of subsidies on the price of the main refined products.

The EBITDA attributed to Non-NuclearBusinessin 2016 was AOA 1,376 million, representing a 64% reduction compared to 2015. The indicator was strongly affected by the reduction in the number of hours flown by Sonair and the reduction in the activity of Clínica Girassol. However, launching the implementation of a rigorous cost-control and efficiency-enhancing program as well as revenue-raising initiatives within the Sonalight and Sonaplus programs has alleviated the effect of these reductions

4.3 OPERATING PERFORMANCE – NET INCOME

GRAPHIC 52016 NET INCOME BY SEGMENT

CO

RP

OR

ATE

AN

D F

INA

NC

ING

UP

STR

EA

M

MID

STR

EA

M

DO

WN

TRE

AM

NO

N-C

OR

E

CO

NSO

LID

ATIO

N

AD

JUS

TMEN

TS

TOTA

L

13,282

68,772

13,061134,219

-100,000

0

100,000

200,000

47,760

- 138,649

- 111,881

Millions of Kwanzas

Consolidated net income was AOA 13 billion, a decrease of 72% compared to the year 2015. For this result, the Downstream activity and the CorporateandFinancing segment contributed significantly, which incorporates around AOA 142 million of financial results, results of subsidiaries and associates and non-operating results.

Despite the effort made in the execution of the Sonalight program, the non-core segment presented negative results of about AOA 138,649 million.

4.4 INVESTMENTS

Due to the implementation of investment revaluation measures, with a focus on sustainability and value creation, in order to make the company more efficient and effective, the investments made amounted to USD 2,922 million, a decrease of 35% compared to the year 2015, and representing a 57% compliance with the target set for the period.

Priority was given to productive investments, preferably those with a direct impact on the improvement and growth. Thus, the Exploration and Production segment contributed the most to the execution of the Investments program, with approximately 95.5% of the value, with USD 2,792 million, concentrated in the oil concessions of Block 0 (Mafumeira Sul), where Sonangol E.P. holds a 41% stake; in Blocks 15/06, where Sonangol P&P holds a 36.84% stake; in Block 31 and in the Kaombo project (Block 32), where Sonangol P&P holds 45% and 30%, respectively.


Other smaller investments were made in refining and logistics and distribution to meet operational and business growth challenges.

TABLE 1 SONANGOL E.P.’S 2016 INVESTMENTS PROGRAM

M.U.: MIL USD

Designação Execution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter Execution Variance

CorporateandFinance - 139 - - 139 -99%

Sonangol E.P. - 139 - - 139 -99%

ExplorationandProduction 877,125 665,816 663,226 585,830 2,791,996 -31%

Sonangol E.P. - Block 0 154,568 94,313 123,107 44,543 416,531 -60%

Sonangol Exploration e Production 718,059 548,309 516,361 557,894 2,340,623 -19%

Sonangol Hidrocarbonetos Internacionais - - - - - -100%

SonaGas 558 19,099 20,076 -18,178 21,555 -64%

ESSA (Perfuração) 3,939 4,095 3,682 1,571 13,287 -23%

RefiningandTransportation 40,168 5,766 53,176 23,025 122,135 40%

Sonangol Shipping 86 259 259 - 604 n.a

Sonangol Refinação 40,082 5.,507 52,917 23,025 121,531 40%

Sonarel - 722 52,917 23,025 76,664 389%

Sonaref 40,082 4,785 - - 44,867 -37%

LogisticsandDistribution 1,588 1,984 - 1,433 5,005 -97%

Sonangol Logística - - - - - -100%

Sonangol Distribuidora 1,588 1,984 - 1,433 5,005 -69%

Projecto Bases Logísticas - - - - - -

Non-coreBusiness 3,237 190 - - 3,427 -98%

Sonair 85 - - - 85 n.a

Sonangol MSTelcom 530 - - - 530 -91%

Sonangol Holdings - - - - - n.a

Sonangol Investimentos Industriais (SIIND) - - - - - n.a

Sonangol Imobiliária e Propriedades (SONIP) 2,622 190 - - 2,812 -92%

Clínica Girassol - - - - - n.a

Academia Sonangol - - - - - n.a

ACADEMIA’S FUTURE FACILITIES - - - - - n.a

CFMA - - - - - n.a

ISPTEC - - - - - n.a

TOTAL 922,118 673,895 716,401 610,287 2,922,702 -35%

GRAPHIC 6 EXECUTION OF INVESTMENTS BY SEGMENT

0.000% 20.000% 40.000% 60.000% 80.000% 100.000% 120.000%

Corporate and Finance

Non Core

Logístics and Distribution

Refining and transportation

Exploration and Production

0,005%

0,12%

0,17%

4,18%

95,53%


PERFORMANCEBY BUSINESS

SECTOR

05


05PERFORMANCEBY BUSINESS SECTOR

5.1 CONCESSIONAIRE

The slowdown in exploration activity in the global oil sector was reflected in the Concessionaire’s activity during 2016. Thus, in a context of demand reduction, no oil block biddings were carried out, seismic activity decreased significantly over the same period (2D and 4D seismic activity did not exist and 3D decreased by 80%) and only 3 exploration wells were drilled (7 wells drilled in the homologous period).

In general, in 2016 it was discovered less 669 million of BOE compared to the same period of last year, due to a significant decrease in gas discoveries, which was not compensated by the increase of 300 million barrels of crude oil.

Although the expected production is relatively stable (an average of 622 Mbbl/year produced annually until 2019, excluding the impact of ANLG), in a medium-term perspective it will be necessary to invest in new production. In this sense, the Concessionaire has been developing key projects - Mafumeira Sul (Block 0), Polo Este (Block 15/06), Dália Phase 1 (Block 17) and Kaombo (Block 32) - with prospects of beginning production between 2016 and 2018 and which foresee an estimated production that exceeds 1,000 Mbbl.

The early entry into production of two of these projects in 2016, Block 0 and Block 15/06, has attenuated the reduction in production, essentially maintaining production in 2016 at the level of 2015. Thus, in 2016, the volume of crude oil production decreased by 3% compared to 2015, while Concessionaires’ Rights registered a decrease of 11%. Regarding the production of Associated Natural Gas, production decreased by 5% compared to 2015.

In turn, LPG production registered a substantial increase, 45% in relation to the previous year, justified by the restart of the ALNG factory. Also within the scope of the ALNG, the Concessionaire has a project that aims to reinforce gas supply to the factory, guaranteeing the compensation of the deficit that is expected to register from 2021. In

2016, the Concessionaire, together with SonaGas and ENI, carried out several works with the objective of preparing the terms of gas supply. Lastly, the reactivation of the ALNG was also reflected in the increase in the production of LNG and condensate products.

The international scenario of reducing the oil barrel price reinforced the need to increase efficiency, and Sonangol has been actively working with the Operators to reduce operating costs. This effort was already reflected in 2016, with a 6% reduction in operating costs compared to 2015 and a reduction in the average cost of production per barrel of 18%.

As a National Concessionaire, Crude Oil exports corresponded to 89% of the collected rights, a reduction of 15% compared to the previous year, contributing negatively to the total exports registered by the group (reduction of 9% compared to 2015), including Sonangol E.P. and Sonangol Exploration e Production.

In 2016, Sonangol was able to recover 12B dollars from the total of 43B dollars of recoverable costs in the concessions in production. Of the total costs recovered, more than 50% result from Block 31 and Block 17, respectively representing 31% and 22%.

Finally, it should be noted that in 2016, Sonangol took an important step by creating robust escrow accounts, which guarantee the comfort of the Angolan State and its partners, and the preservation of funds necessary for the proper abandonment of the oil fields. At the end of the year, accounts were created for Blocks 15 and 17, with respective funds deposited.

5.1.1 EXPLORATION

5.1.1.1 BIDS In 2016, there were no oil block biddings. However, in the framework of the Tender Program carried over from 2015, the following activities were carried out:

• Elaboration of the Map of the entry shares of the national companies, as well as the revision of the Production Sharing Contracts and the insertion of the KON 9 concession, in order to allow the negotiation process of the contracts to begin;

• Revision of the proposals of the Production Sharing Contracts based on the terms of reference and results of the tender;

• Meetings between the Negotiations Committee (constituted the National Concessionaire, MINPET and MINFIN) and the Operators of Blocks CON 1, CON 5, CON 6, KON 5, KON 9, KON 17, related to the Bids 2014/2015 , with the main objective of initiating the Production Sharing Agreements of the blocks, as well as informing the Operators about the authorization of the payment in Kwanzas, equivalent to one million dollars, by the Angolan companies, at the effective date of the Contract, by way of entry quota.

5.1.1.2 SEISMIC ACQUISITION

TABLE 2

EXPLORATION ACTIVITY [SEISMIC ACQUISITION]

SeismicAcquisition

Seismic2DKm

Seismic3DKm

Seismic4DKm

2015 2016 2015 2016 2015 2016

FS/FST (Soyo 557.17 - - - - -

Block 15/06 (3D-15/06NW-PGS) - - - 992.42 - -

Blocks 11, 27,28 e 29 (3DMC-BNPGS) - - 5,126.64 - - -

Block 32 (3DHR 32CGG15) - - 171.65 - - -

FS/FST (CGG2016) - - - 59.65 - -

Block 17 (4DHR-17WGC14GJDR) - - - - 480.88 -

Totals 557.17 ‑ 5,298.29 1,052.07 480.88 ‑


During the year, 1,052.07 km2 of 3D seismic were acquired in Angola resulting from the seismic acquisition program in Block 15/06, located in the Congo Offshore Basin and the conclusion of seismic data acquisition works in the “Cabeça de Cobra”, in FST association. In the reference period there was no production of 2D and 4D seismic.

Works on 3D seismic data processing of blocks 15/06 and 32, 2D multiclient seismic data of Blocks 37, 38, 39,

40, 41, 42, 43, 44, 46, 47 and 48 and 3D reprocessing of Block 0 and the multiclient program of Blocks 46, 47 and 48 (Phase VII & VIII) are underway.

Compared to 2015, there was a considerable decrease in seismic activity, there was no 2D and 4D seismic acquisition and 3D seismic reduced by 80%, as a result of the slowdown in exploration activity in the world oil sector, in a context of oversupply of crude oil.

5.1.1.3 SEISMIC PROCESSING

TABLE 3 SEISMIC PROCESSING COMPLETED

Seismic Block Programme Beginning Conclusion Extension

2D 46, 47, 48, 49 & 50 2D-MCWG99 LowerCongo 4º Quarter /2014 2º Quarter /2016 12,642 Km

Total2D 12,642Km

3D

0 3D-0-Area A Malongo High All Inversion 2º Quarter /2015 1º Quarter /2016 350 Km

203D-20GreaterOrca/Lontra 3º Quarter /2015 2º Quarter /2016 2,000 Km

3D-20Zalophus Addition 2º Quarter /2015 2º Quarter /2016 1,440 Km

21 3D-21Cameia Feasibility Study 3º Quarter /2015 1º Quarter /2016 500 Km

27, 28 & 29 3D-27,28,29BNAMCPGS14 4º Quarter /2014 2º Quarter /2016 11,150 Km

32

3D-32LO2007 C12SW PSTM 1º Quarter /2015 4º Quarter /2016 520 Km

3D-32PSDM13SW AreaC22 2º Quarter /2015 3º Quarter /2016 600 Km

3D-32CNEBi-Wats FT 4º Quarter /2013 2º Quarter /2016 1,484 Km

3D-32Gengibre ElasticInversion 2º Quarter /2016 3º Quarter /2016 45 Km

3D-32Gengibre HD HR Broadband 2º Quarter /2015 3º Quarter /2016 164 Km

3D-32HDGIC2006 PSTM 4º Quarter /2015 2º Quarter /2016 520 Km

Total 3D 18,773 Km

Twelve seismic processing programs were also concluded, totaling 12,642 km of 2D seismic and 18,773 km2 of 3D seismic.

At the end of 2016, fourteen seismic processing programs were underway, as in the table below:

TABLE 4SEISMIC PROCESSING IN PROGRESS

Seismic Block Programme Beginning Conclusion Extension

2D 37, 38, 39, 40, 41, 42,43, 44, 46, 47 & 48

2D-MCWGAngolaUDA PSDM 4º Quarter /2016 24% 3,250 Km

Total2D 3,250Km

3D

0

3D-0 Area A S.Limba al inversion & AVO 2º Quarter /2016 98% 398 Km

3D-0 Area A Mafumeira Sul Extension/PMDC 2º Quarter /2016 99% 469 Km

3D-0-Area A Mafumeira Sul Reproc.107-C 2º Quarter /2015 99% 125 Km

3D-0 Area A Erva/Bucomazi Study 4º Quarter /2016 98% 350 Km

3D-0-Area A Mafumeira sul Reproc.MCP 2º Quarter /2015 99% 344 Km

15/063D-15/06-PSDM-NW-PGS-2016 2º Quarter /2016 98% 1,000 Km

3D-15/06-PSDM-NW-PGS-2016 2º Quarter /2016 67% 1,000 Km

32

3D-32Bi-WATS -CNE PSDM 3º Quarter /2014 99% 1,484 Km

3D-32LO2007 C12SW PSDM 3º Quarter /2015 99% 520 Km

3D-32B22N&B10N 4º Quarter /2013 99% 1,100 Km

3D-32HDGIC2006 PSDM 2º Quarter /2016 99% 520 Km

3D-32 Colorau South dedicated imaging 4º Quarter /2016 54% 520 Km

46, 47 & 48 3D-MCWG99 Phase VII/VIII 2º Quarter /2015 94% 8,000 Km

Total 3D 15,830 Km

5.1.1.4 SURVEY-EXPLORATION ACTIVITY AND EVALUATION

TABLE 5 EXPLORATION WELLS

Blocks Well ObjectiveExplorationwells

2015 2016

Block 5/06 KINDELE-1 Mucanzo 1 -

Block 15/06 BAVUGU-1 Miocénio 1 -

Block 19/11 PANDORA-1 Pré-Sal 1 -

Block 20/11 ZALOPHUS-1 Pré-Sal - 1

Block 20/11 GOLFINHO-1 Pré-Sal 2 1

Block 22/11 CATCHIMANHA-1 Pré-Sal 1 -

Block 35/11 OHANGA-1 Carbonetos - 1

Block 37/11 VALI-1 Pré-Sal 1 -

TOTAL 5 3

In 2016, three exploration wells were concluded in the Angolan oil concessions, namely: ZOLUPHOS-1 and GOLFINHO-1 wells, in Block 20/11 and OHANGA 1 well, in Block 35/11, with the first result in gas discovery with very low porosity, the second in discovery of condensates and gas and the third in discovery of condensates and water.


TABLE 6 EVALUATION WELLS

Blocks Well Objective

Explorationwells

2015 2016

Block 21/09 CAMEIA-4ST1 Pré-Sal-Sag 1 -

Block 31 LEDA-3 Miocênio-Inferior 1 -

TOTAL 2 ‑

Regarding the evaluation activity, in 2016 no drilling well was completed.

During the period in question, fifty-two producers’ development wells and twenty injection wells were completed.

The development drilling operations were concentrated in area A of Block A, where twenty producing wells and six injecting wells were concluded in Block 15, where nine producing wells and seven injecting wells were finalized, and in Block 15/06, where six producing wells and four injecting wells were completed.

TABLE 7DEVELOPMENT WELLS

Blocks

Developmentwells//Producer

Developmentwells//Injector

2015 2016 2015 2016

Block 0 Area A 4 20 1 6

Block 3/05 2 - - -

Block 14 7 1 3 1

Block 15 3 9 4 7

Block 15/06 1 6 5 4

Block 17 5 8 - -

Block 18 2 - 3 -

Block 31 3 4 4 2

Block 32 1 4 5 -

TOTAL 28 52 25 20

5.1.1.5 RESOURCES DISCOVERED

Exploration drilling activity over the period has resulted in discoveries of 831 million oil resources and 3,067 billion cubic feet of gas, making an equivalent total of 1,507 million oil barrels in discovered resources.

TABLE 8HYDROCARBON RESOURCES DISCOVERED

Block/FielOil

(MMBO)Gas

(BSCF)Total

(BOE)

Block 20/11 (Zalophus-1) 313 2,085 813

Block 20/11 (Golfinho-1) 518 982 694

TOTAL 831 3,067 1,507

In relation to 2015, there was an increase of 300 million barrels of crude oil discovered and a decrease of 6,425 billion cubic feet of gas, less 669 million equivalent oil barrels, in discovered resources.

5.1.1.6 DEVELOPMENT PROJECTS

To support the crude oil production targets, the projects listed below have been developed, for which the status is presented as at 31 December 2016.

TABLE 9 STATUS OF OIL PROJECTS

Order Project BlocksBeginningof

ProductionCurrent

Progress(%)StatuspointasatDecember2016

1 Mafumeira Sul Block 0 2017 98.22%The connection and commissioning offshore campaign took place for the platforms CPC, and WHPs Centro e Sul. The final document is ongoing

2 Polo Oeste Block 15/06 2017 99.70%The anchorage offshore campaign as continued of FPSO and the installation of the submarine system

3 Dália Fase 1A Block 17 2017 100.00% The manufacture of the last christmas tree number 7 of production

4 Kaombo Block 32 2018 73.30%The construction of the FPSOs Norte and Sul and the manufacture os submeraine equipments as continued

Note that the early entry into production of the Mafumeira fields in Block 0, Mpungi and Mpungi Norte in Block 15/06, and the execution of projects aim at increasing recovery rates in Block 17, optimising the use of existing facilities.

For this purpose, the first pump of the loop P70 was started in the Rosa MPP project during the month of September, and the integration of the loop P80 is still in progress.


It should be also noted the cutting ceremonies of the first steel in the Heerema (Porto Amboim) and Petromar (Ambriz) yards, which marked the beginning of the construction of the Kaombo project modules in Block 32, to be executed in Angola.

5.1.2 CRUDE OIL & GAS PRODUCTION

5.1.2.1 CRUDE OIL PRODUCTION

TABLE 10CRUDE OIL PRODUCTION IN ANGOLA

M.U.: Bbls

Associations&BlocksExecution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter Total Variance

Offshore 162,022,098 158.568.900 158.919.601 147.317.663 626.828.262 -3%

Block 0 22,201,472 21,097,778 21,236,278 21,335,346 85,870,874 -7%

Area A 14,131,678 13,333,835 13,630,925 14,073,750 55,170,188 -6%

Area B 8,069,794 7,763,943 7,605,353 7,261,596 30,700,686 -8%

Block 2/05 81,023 86,076 83,903 80,583 331,585 n.a

Block 3/05 3,597,755 3,485,047 3,332,094 3,176,483 13,591,379 -14%

Block 3/05A 260,778 247,324 239,860 239,416 987,378 15%

Block 4/05 742,089 612,518 727,852 691,900 2,774,359 -19%

Block 14 9,340,803 8,629,088 8,953,007 8,302,589 35,225,487 -10%

Block 14K 1,284,102 1,191,479 1,081,727 1,023,038 4,580,346 n.a

Block 15 28,687,156 29,335,062 28,876,675 28,548,775 115,447,668 1%

Block 15/06 6,840,978 7,678,105 7,330,647 6,572,161 28,421,891 63%

Block 17 59,885,198 59,273,486 59,962,528 50,237,137 229,358,349 -10%

Block 18 13,747,528 13,276,183 11,548,459 12,188,611 50,760,781 -6%

Block 31 15,353,216 13,656,754 15,546,571 14,921,624 59,478,165 4%

Onshore 783,220 876,508 818,845 806,195 3,284,768 181%

Cabinda Sul 103,396 180,001 146,314 120,250 549,961 13%

Association FS 26,923 24,971 22,604 20,746 95,244 59%

Association FST 652,901 671,536 649,927 665,199 2,639,563 323%

TOTAL 162,805,318 159,445,408 159,738,446 148,123,858 630,113,030 -3%

Dailyaverage 1,789,069 1,752,147 1,736,287 1,610,042 1,721,620 -3%

During 2016, 630.113.030 barrels of crude oil were produced in Angola, equivalent to a daily average of 1,721,620 barrels. Compared to the same period of the previous year, production volume decreased by 3%.

This decrease is mainly explained by the stoppage of the FPSO Dália production in Block 17 for scheduled general maintenance, with a duration of 35 days, with estimated losses of 210,000 bbls/d, plus the natural decline of fields and non scheduled stoppage due to operational problems.

The increase resulting from the entry into production of the Mpungi and Mpungi Norte fields in Block 15/06 and Mafumeira Sul in Block 0 did not represent sufficient magnitude to compensate the losses caused by the factors mentioned above.

Despite the drop in production, Block 17 was the one that contributed most to production, followed by Blocks 15, 0, 31 and 18, representing an aggregate share of 85.8% of Angola’s crude oil production.

GRAPHIC 7CRUDE OIL PRODUCTION IN ANGOLA BY BLOCK

BLOCK 17

BLOCK 15

BLOCK 0

BLOCK 31

BLOCK 18

BLOCK 14

BLOCK 15/06

BLOCK 3/05

BLOCK 3/05

ASSOCIATION FST

BLOCK 3/05 A

CABINDA SUL

BLOCK 2

ASSOCIATION FS

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00%

13.6%

9.4%

8.1%

6.3%

4.5%

2.2%

0.4%

0.4%

0.2%

0.1%

0.1%

36.4%

18.3%

36.4%


The ownership of crude oil produced in Angola is shown below:

TABLE 11RIGHTS OF CRUDE OIL PRODUCTION BY COMPANIES

M.U.: Bbls

EntitiesExecution 2016


BP 28,602,194 27,984,899 27,617,663 26,062,392 110,267,147 -4%

Total 28,299,207 27,783,286 28,115,586 24,093,515 108,291,594 -9%

ESSO 23,451,902 23,588,722 23,543,176 21,466,937 92,050,737 -5%

Sonangol 22,484,337 21,346,077 22,162,084 21,446,933 87,439,430 4%

Statoil 19,841,798 19,559,313 19,910,877 17,514,928 76,826,916 -6%

ENI 13,021,397 13,175,206 12,992,682 12,496,836 51,686,121 8%

Chevron 11,996,698 11,314,705 11,435,389 11,254,400 46,001,191 -5%

SSI 10,977,292 10,707,482 10,035,641 10,062,342 41,782,757 5%

China Sonangol 964,633 933,093 892,988 853,975 3,644,689 -13%

Galp 956,241 883,851 903,126 839,306 3,582,525 2%

Somoil 757,894 728,045 725,851 707,015 2,918,805 16%

Ajoco 771,707 746,474 714,391 683,180 2,915,751 -13%

INA-NAFTA 154,341 149,295 142,878 136,636 583,150 -13%

NAFTAGAS 154,341 149,295 142,878 136,636 583,150 -13%

Acrep 149,270 125,607 146,960 139,804 561,640 -12%

Prodoil 102,889 87,324 101,469 96,560 388,243 -9%

Pluspetrol 56,868 99,001 80,473 66,138 302,479 13%

Force Petroleum 20,679 36,000 29,263 24,050 109,992 13%

Falcon Oil 16,205 17,215 16,781 16,117 66,317 -92%

Kotoil, S,A 10,128 10,760 10,488 10,073 41,448 n,a

Poliedro Oil 10,128 10,760 10,488 10,073 41,448 n,a

Cupet 5,170 9,000 7,316 6,013 27,498 13%

TOTAL 162,805,318 159,445,408 159,738,446 148,123,858 630,113,030 -3%

TABLE 12CRUDE OIL PRODUCTION BY OPERATOR

M.U.: Bbls

BlocksExecution 2016


Total 59,885,198 59,273,486 59,962,528 50,237,137 229,358,349 -10%

Chevron 32,826,377 30,918,345 31,271,012 30,660,973 125,676,707 -4%

ESSO 28,687,156 29,335,062 28,876,675 28,548,775 115,447,668 1%

BP 29,100,744 26,932,937 27,095,030 27,110,235 110,238,946 -1%

ENI 6,840,978 7,678,105 7,330,647 6,572,161 110,238,946 63%

SNL P&P 4,600,622 4,344,889 4,299,806 4,107,799 17,353,116 -14%

Somoil 760,847 782,583 756,434 766,528 3,066,392 348%

Pluspetrol 103,396 180,001 146,314 120,250 549,961 13%

TOTAL 162,805,318 159,445,408 159,738,446 148,123,858 630,113,030 -3%

Dailyaverage 1,789,069 1,752,147 1,736,287 1,610,042 1,721,620 -3%

By companies, foreign oil operators in Angola produced 96.7% of the total volume of crude oil production during the year, led by TOTAL E&P Angola with 36.4% of total production, followed by CHEVRON with 19.9% , ESSO with 18.3%, BP with 17.5%, ENI with 4.5% and Pluspetrol with 0.1%. The remaining 3.3% corresponds to the production of national operators (Sonangol Pesquisa e Produção e Somoil), with 2.8% and 0.5%, respectively.

GRAPHIC 8 CRUDE OIL PRODUCTION BY OPERATOR

0.1%

0.5%

2.8%

4.5%

17.5%

18.3%

19.9%

36.4%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

PLUSPETROL

SOMOIL

SNL PP

ENI

BP

ESSO

CHEVRON

TOTAL


In terms of achieving the targets established by the operators of the concessions in production, there was a negative deviation of 1% (minus 5,645,938 barrels), in relation to the same period, due to technical and operational factors described below:

• CabindaConcession

• AreaA:In this concession, despite the production of MW-84-71 well in the Malongo Oeste field, production was below whats was expected due to the closure of some producing wells in the Takula and Malongo reservoirs, caused by excessive water production, low pressure and problems in water injection systems.

There was also an early production of the Mafumeira Sul field through the temporary production module.

• AreaB:The production levels were below expectations due to the low performance of some wells in the Bomboco, Lomba and N’Dola fields due to their natural decline and the closing of some producing wells in the Bomboco.

• CabindaSul

Reduction of production caused by low pressure in the reservoirs of the Castanha field, which resulted in the closure of some wells.

• AssociationFS/FST

The production was affected by the closure of some wells due to low pressure and leaks in production lines.

• Block2/05

The fields remain closed, except for the Essungo field, which went into production with only two wells, in order to support the FS/FST production line.

• Block3/05

The production has been affected by the loss of pressure of some producing wells and the unavailability of the pumps, which has contributed to the low water injection and, consequently, the reduction of the rate of replacement of the fluids, which led to the closure of some wells in the Pacassa field.

• Block3/05A

The downturn in production was due to the loss of reservoir pressure and unplanned stopages in the Buffalo field due to operational problems.

• Block4/05

The production was below expectations, despite the maximum opening of the well throttle.

• Block14

Increase in the water content produced in some producing wells and the closing of some injectors for reservoir pressure management.

• Block15

The production in the Block was stable, motivated by the good management of the reservoirs and by the maintenance of pressure. To do this, some wells producing excess water and gas were closed to manage the reservoir pressure and the production of 12 wells in the Block, 4 wells in the Bavuca field, 7 wells in the Mondo Sul field and 1 well in the Kakocha field.

• Block15/06

The production was affected by increased water production, especially in Sangos and Cinguvu fields. The production of the Mpungi and Mpungi Norte fields allowed production to increase by 63% compared to 2015.

• Block17

The production levels were higher than expected despite the reduction compared to 2015. The start of production of 8 development wells, 3 wells in the Dália field, 1 well in Pazflor and 4 wells in the Clov, allowed to compensate for the production drops for operational problems in the Girassol and Dália fields and end the year with an average production of 620,000 BOPD.

• Block18

Reduction of production resulting from excessive production of water and gas and closure of some wells, insufficient pressure on the lines and unplanned stoppage of 11 days due to operational problems.

• Block31

The production levels were slightly compromised, despite the reduction in water injection caused by pump failure and reduced production due to scheduled stoppage and late entry of the Pluto field due to the unavailability of the gas treatment system. It should be noted that the entrance of 3 producing wells allowed to finish the year with an average production of 160,500 BOPD.

5.1.2.2 CRUDE OIL RIGHTS OF NATIONAL CONCESSIONAIRE

TABLE 13 CONCESSIONAIRE’S GROSS OIL RIGHTS BY BLOCK

U.M.: Bbls

Blocks

Execution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarterTotal

WithdrawalsVariance

Cabinda Onshore 8,632 14,347 11,440 9,186 43,605 -12%

Block 3/05 1,430,951 1,358,760 500,943 1,622,083 4,912,737 10%

Block 3/05A 75,000 19,999 - 20,000 114,999 -55%

Block 4/05 - 75,250 68,750 76,323 220,323 22%

Block 14 1,808,446 2,219,689 2,621,763 2,295,820 8,945,717 -21%

Block 15 9,513,156 9,366,220 10,411,500 14,697,780 43,988,656 -18%

Block 15/06 780,931 543,797 498,623 554,192 2,377,543 100%

Block 17 19,144,847 15,103,535 16,254,080 12,351,743 62,854,205 -11%

Block 18 3,917,685 3,903,766 3,441,295 2,961,948 14,224,694 18%

Block 31 1,399,598 963,198 1,185,795 1,323,975 4,872,566 6%

TOTAL 38,079,246 33,568,560 34,994,188 35,913,050 142,555,045 -11%

Dailyaverage 418,453 368,885 380,372 390,359 389,495 -11%

During the year 2016, a total of 142,555,045 barrels of crude oil, corresponding to an average of 389,495 Bbl/day, were obtained under Concessionaire’s Law.

Compared to 2015, there was a decrease of 11%, largely due to the international scenario of the reduction of the oil price, the increase in the rate of oil use, and also the natural decline of the production of the mature fields (14 and 15).

Regarding the rights collected by block, we highlight Block 17 and 15, representing 75% of the total volume.


GRAPHIC 9CONCESSIONAIRE’S GROSS OIL RIGHTS BY BLOCK

80,000,000

70,000,000

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

Bbls

10,000,000

-

20152016

Block15

Block17

Block18

Block14

Block3/05

Block31

Block15/06

Block4/05

Block3/05A

COS

5.1.2.3 GAS PRODUCTION

5.1.2.3.1 PRODUCTION OF ASSOCIATED NATURAL GAS

TABLE 14PRODUCTION OF ASSOCIATED NATURAL GAS

ft3

BlocksExecution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter Production Variance

Offshore 324,512 321,225 329,377 317,415 1,292,529 -2%

Block 0 118,578 121,931 124,279 116,100 480,888 -11%

Area A 31,590 33,605 35,482 28,041 128,718 -48%

Area B 86,988 88,326 88,797 88,059 352,170 20%

Block 2/05 - - 1,002 - 1,002 1013%

Block 3/05 5,711 5,062 6,393 4,912 22,078 -4%

Block 3/05A 101 182 268 267 818 n,a

Block 4/05 505 234 403 358 1,500 -24%

Block 14 14,827 13,227 11,984 11,325 51,363 -25%

Block 15 61,909 68,840 69,398 61,696 261,843 2%

Block 15/06 18,795 4,460 5,364 6,853 35,472 225%

Block 17 60,865 65,032 65,103 68,787 259,787 0%

Block 18 28,122 27,404 25,769 27,135 108,430 4%

Block 31 15,099 14,853 19,414 19,982 69,348 45%

Onshore 1,019 1,882 1,679 1,058 5,638 -88%

Cabinda Sul 784 986 827 131 2,728 -94%

Association FS/FST 235 896 852 927 2,910 439%

TOTAL 325,531 323,107 331,056 318,473 1,298,167 -5%

Until 31 December, 2016, 1,298,167 cubic feet of gas were produced in Angola’s oil production concessions, corresponding to a decrease of 5% compared to the same period of 2015

5.1.2.3.2 LPG PRODUCTION

TABLE 15LPG PRODUCTION IN ANGOLA

M.U.: MT

OriginExecution 2016


Sanha 99,618 108,387 108,986 99,519 416,510 4%

Butane 42,016 43,041 44,582 41,058 170,697 1%

Propane 57,602 65,346 64,404 58,462 245,814 7%

CabindaGasPlant 19,047 17,495 15,485 18,355 70,382 -11%

Butane 8,117 8,637 6,878 8,444 32,076 -12%

Propane 10,930 8,858 8,607 9,912 38,307 -10%

RefinerydeLuanda 7,011 7,402 5,868 6,967 27,248 4%

ALNG - 65,695 28,865 123,840 218,399 n,a

TOTAL 125,676 198,979 159,204 248,681 732,540 45%

In 2016, a total of 732,540 metric tons of LPG were produced in Angola. Related to 2015 , there was a substantial increase of 45%. This increase was mainly due to the resumption of production at the Angola LNG factory in May.

GRAPHIC 10LPG PRODUCTION BY ORIGIN

SANHA 57%

CABINDA GAS PLANT 9%

4%

ALNG 30%

LUANDAREFINERY

It should be noted that after the resumption of activities in Angola LNG, the factory had a maintenance stoppage during the month of August, which significantly affected third quarter production.

By origin, production was distributed between the Sanha factory with 56.86%, followed by the Angola LNG factory with 29.81%, the Cabinda Gas factory with 9.60% and the Luanda Refinery with 3.71%.


5.1.4 CONCESSIONAIRE EXPORTS

TABLE 17 EXPORTS MAP OF SONANGOL CONCESSIONAIRE

M.U.: Bbls

ExportedTypesExecution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter ExportedQuantity Variance

Dália 8,446,769 6,552,522 8,422,075 4,539,322 27,960,688 -20%

Girassol 6,790,461 4,871,343 4,856,921 3,952,547 20,471,272 -1%

Hungo 2,852,406 3,663,954 2,852,875 6,430,924 15,800,159 -20%

Mondo 1,988,353 2,774,889 2,825,298 2,800,040 10,388,580 52%

Kissanje 2,761,681 903,602 2,719,925 3,622,685 10,007,893 -54%

Nemba 1,738,821 2,139,200 2,568,676 2,233,230 8,679,927 -22%

Pazflor 1,902,922 2,762,506 1,929,596 1,857,414 8,452,438 -18%

Saxi-Batuque 1,910,715 905,626 1,913,233 1,844,133 6,573,707 2%

CLOV 2,004,695 30,460 1,045,489 2,002,461 5,083,105 -15%

Plutónio 1,954,472 1,863,230 998,925 - 4,816,627 66%

Saturno 1,399,599 849,304 1,185,795 1,323,975 4,758,673 -6%

Sangos 780,931 408,478 498,623 554,192 2,242,224 n,a

Lianzi 22,109 992,312 70,768 63,156 1,148,345 n,a

Gimboa - 324,463 68,750 76,323 469,536 58%

TOTAL 34,553,934 29,041,889 31,956,949 31,300,402 126,853,174 -15%

During 2016, Sonangol’s crude oil exports as a National Concessionaire corresponded to 89% of the rights collected in the period, with the remainder being delivered to the Luanda Refinery.

During the period, the most exported types were Dahlia (22%), Sunflower (16%), Hungo (12.4%), Mondo (8.2%) and Kissanje (7.9%).

5.1.4.1 RECOVERY OF INVESTMENTS MADE IN PRODUCTION CONCESSIONS

TABLE 18RECOVERED COSTS IN PRODUCTION CONCESSIONS

U.M.: MUSD

BlocksCost

Incurreduntill2016

RecoveredCostsuntill

2016

Coststoberecoveredasof

31.12.2016

Block 2/05 1,902,609 2,656 1,899,952

Block 3/05 5,697,840 5,256,277 441,562

Block 3/05A 384,325 38,650 345,675

Block 4/05 2,561,064 2,334,598 226,465

Block 14 25,994,337 21,949,780 4,044,557

Block 15 42,271,782 38,618,206 3,653,575

Block 15/06 5,808,802 1,350,288 4,458,513

Block 17 68,130,952 58,567,400 9,563,552

Block 18 18,322,483 17,725,663 596,820

Block 31 25,172,706 7,949,659 17,223,047

Cabinda Onshore Sul 750,187 84,861 665,326

TOTAL 196,997,085 153,878,040 43,119,045

5.1.2.3.3 PG AND CONDENSATES PRODUCTION

During 2016, as a consequence of the resumption of Angola LNG production, the production of Liquefied Natural Gas was by 896,621 metric tons, with Condensate production reaching 75,153 metric tons.

5.1.3 ECONOMIC MANAGEMENT OF CONCESSIONS

5.1.3.1 PRODUCTION COSTS

TABLE 16OPERATION COSTS IN PRODUCTION CONCESSIONS

BlocksCoats(USD/Bbl)

Variance2015 2016

Block 0 16.32 11.80 -28%

Block 2/05 - 15.47 -

Block 3/05 26.21 19.52 -26%

Block 3/05ª 5.07 6.05 19%

Block 4/05 39.81 32.80 -18%

Block 14 11.25 11.51 2%

Block 15 7.84 4.73 -40%

Block 15/06 16.39 10.43 -36%

Block 17 6.74 6.36 -6%

Block 18 5.75 6.50 13%

Block 31 5.94 4.73 -20%

Cabinda Sul 22.73 14.83 -35%

Association FS 42.41 25.29 -40%

Association FST 131.10 22.05 -83%

IndustryTotal 9.32 7.62 -18%

The weighted average operating cost of the oil industry was USD 7.62/Bbl, excluding abandonment costs.

Compared to 2015, there was a reduction of 18%.

The highest levels of efficiency were recorded in Blocks 15 and 31, having presented the unit cost of USD 4.73/Bbl.

In contrast to, lower efficiency levels were observed in Block 4/05, at a cost of USD 32.80/Bbl and in FS and FST Associations, at a cost of USD 25.29/Bbl and USD 22.05/Bbl, respectively.


During the stated period, recovered costs pertaining to oil operations in production, mostly from development expenses, amounted to M USD 153,878,040.

Regarding the recoverable costs, in block 31, the contractor group is still recovering development expenses from PSVM, whose production started in the 4th quarter of 2012.

The high costs to be recovered in block 17 are due to the investment in PAZ FLOR project, and more recently, the CLOV project, which came on stream at the end of 2014.

In block 15/06, the costs to be recovered refer to exploration and development in the block. It should be emphasized that, from the start of production at the end of 2014, only 23% of the total incurred costs were recovered.

The high recoverable costs in block 14 are due to the weak economicity of Tômbwa-Lândana.

In block 15, the reported costs are related to development expenses in Kizomba Satellite Phase 2, which came on stream in June 2015.

In terms of individual contribution by block, following the causes shown before, block 31 was the most significant with 40%, followed by block 17 with 22%, block 15/06 with 10%, block 14% with 9% and block 15 with 8% of the total costs to be recovered.

5.2 PRIMARY VALUE CHAIN – UPSTREAM SEGMENT

The Exploration and Production activity is a critical segment of Sonangol’s activity, which is reflected in the Company’s own investment strategy, with this segment representing 97% of the total investment made in 2016.

Angola produced in 2016 a total of 630,113,030 barrels of Crude Oil, of which 85,682,625 are related to Sonangol Pesquisa e Produção and Sonangol E.P. Sonangol increased its production by 3% over the same period last year. This increase is due to the increase in production of Sonangol Pesquisa e Produção in Block 15/06 (10% increase), which in turn is adversely affected by Sonangol E.P’s production losses in Block 0 (decrease of 7%).

Regarding the production of LPG, the resumption of the ALNG operation where Sonangol has a 22.8% share, was reflected positively in the increase of production of 24% and in the reduction of imports in 58% compared to the year previous.

In 2016, the Upstream primary chain recorded sales of USD 8,751 Million and EBITDA of USD 1,603 Million, equivalent to 50% of the company’s total EBITDA. The resumption of ALNG production represented and will represent a major contribution to the increase in Sonangol’s revenues.

Additionally, in a scenario of oil prices drop, Sonangol also looked for solutions to reduce its exposure and improve the profitability of its investment. An example of this was the effort made in relation to drillships, in which Sonangol designed a solution that involves negotiating with stakeholders for risk sharing and renegotiation of funding conditions in order to make the construction of two probes in a viable project.

5.2.1 PRODUCTION OF CRUDE OIL OF SONANGOL INVESTOR

TABLE 19 PRODUCTION OF GROSS OIL OF SONANGOL INVESTOR

M.U.: Bbls



SNLE,P 9,102,604 8,650,089 8,706,874 8,747,492 35,207,058 -7%

Block 0 9,102,604 8,650,089 8,706,874 8,747,492 35,207,058 -7%

Area A 5,793,988 5,466,872 5,588,679 5,770,238 22,619,777 -6%

Area B 3,308,616 3,183,217 3,118,195 2,977,254 12,587,281 -8%

SNLP&P 12,944,493 12,248,444 13,023,318 12,259,312 50,475,567 10%

OperatedBlocks 1,335,678 1,239,352 1,256,914 1,199,925 5,031,869 -14%

Block 3/05 899,439 871,262 833,023 794,121 3,397,845 -14%

Block 3/05A 65,195 61,831 59,965 59,854 246,845 15%

Block 4/05 371,045 306,259 363,926 345,950 1,387,180 -19%

Non 11,608,815 11,009,092 11,766,404 11,059,387 45,443,698 14%

Cabinda Sul 20,679 36,000 29,263 24,050 109,992 13%

Associatin FS 1,346 1,249 1,130 1,037 4,762 59%

Associatin FST 32,645 33,577 32,496 33,260 131,978 323%

Block 14 2,124,981 1,964,113 2,006,947 1,865,125 7,961,167 2%

Block 15/06 2,520,216 2,828,614 2,700,610 2,421,184 10,470,625 72%

Block 31 6,908,947 6,145,539 6,995,957 6,714,731 26,765,174 4%

TOTAL 22,047,096 20,898,533 21,730,192 21,006,804 85,682,625 3%

DailyAverage 242,276 229,654 236,198 228,335 234,106 2%

During 2016, there was a 10% increase in the production of Sonangol Pesquisa e Produção and a 7% reduction in the share of Sonangol, E.P. in Block 0, compared to the same period in 2015.

The decrease of 7% in Sonangol, EP’s share in Block 0 was due to the decrease, in the same proportion, of the production in that Block due to the closing of some producing wells, due to low pressure, and the low performance of some wells that were producing intermittently.


The 10% increase in the production of Sonangol Research and Production was mainly due to the increase in production in Block 15/06, where Sonangol participates as an investor, in which the Mpungi and Mpungi Norte fields started to be produced.

The need to guarantee the increased production is reflected in the investment strategy of Sonangol, which in 2016 focused on the development of oil concessions in Block 0 (Mafumeira Sul and Mafumeira Norte), as well as in Blocks 15/06, where Sonangol Pesquisa e Produção has 36.84% in Block 31 and in the Kaombo project in Block 32, where Sonangol Pesquisa e Produção holds 45% and 30%, respectively.

5.2.2 GAS PRODUCTION OF SONANGOL E.P.

5.2.2.1 LPG PRODUCTION

TABLE 20LPG PRODUCTION SONANGOL SHARE

U.M.: MT



Sanha(41%) 40,843 44,439 44,684 40,803 170,769 4%

Butane 17,227 17,647 18,279 16,834 69,986 1%

Propane 23,617 26,792 26,406 23,969 100,784 7%

CabindaGasPlant(41%) 7,809 7,173 6,349 7,526 28,857 -11%

Butane 3,328 3,541 2,820 3,462 13,151 -12%

Propane 4,481 3,632 3,529 4,064 15,706 -10%

LuandaRefinery(100%) 7,011 7,402 5,868 6,967 27,248 4%

ALNG(22,8%) - 14,978 6,581 28,236 49,795 n.a.

TOTAL 55,664 73,992 63,482 83,531 276,669 24%

Of the total LPG Production, 276,669 metric tons were produced from Sonangol, of which 62% came from Sanha, 18% from Angola LNG and the remaining 20%, distributed equally by the Cabinda Gas Plant and the Luanda Refinery.

Compared to 2015, Sonangol recorded a 24% increase in LPG production.

In order to meet the LPG consumption needs of the domestic market, since domestic production was not enough, until Angola LNG’s resumption of operations, Sonangol acquired approximately 70,720 metric tons of LPG from the foreign market, minus 58% compared to the year 2015. The reduction in LPG imports results from the effort made throughout the year to ensure the start of the ALNG factory.

5.2.2.2 LPG AND CONDENSATES PRODUCTION

The Angola LNG factory restarted the production in June 2016 after an extended closure. Since then, various LNG and liquid shipments, including pressurized butane for the Angolan domestic market, have been safely and successfully marketed. LNG shipments are being marketed globally in line with demand mandates, and the supply of natural gas to the domestic market is expected to start in 2017. The priority of the Project is now to reach full production level. It is expected that in full production, up to 70 LNG shipments will be exported annually and that the project will have an expected useful life of more than 30 years, creating conditions for the future development of associated gas and non-associated gas reserves.

Sonangol’s share of LNG’s production amounted to 204,430 metric tons and the condensates totaled 17,135 metric tons, all from the Angola LNG factory.

5.2.2.3 STRUCTURAL PROJECTS OF THE UPSTREAM VALUE CHAIN

DrillingRigsconstructionprojects(Drillships)

During the period, the construction of two drillships was continued in accordance with the contract signed in October 2013.

It should be noted that the overall progress of the project with Sonangol Libongos hulls (H3620) was 99.7% and for Sonangol Quenguela (H3621) 91.8%.

On the other hand, all the equipment, considered as OFE (Owner Furnished Equipment), required for the follow-up to the commissioning and mobilization works of the drillships, are already in the shipyard. Inspections are being carried out with some equipment already on board the ship Sonangol Libongos.

In addition, the second phases of the navigation tests, the installation of the helideck, as well as the completion of the topside works were concluded.

AngolaLNG

During the year, preparation work were made for the start-up of the factory with the approval of operational procedures and preparation of the production staff for the restart of the gas factory that started in the second quarter of 2016. In addition, the process of changing the gas provider from Block 15 to Block 17 was concluded, being the main source of gas supply.

The shutdown was concluded on 27/08/2016, after the final test and conclusion of defrost propane circuits, as well as the final insulation of the 72’ inch filters. Since the end of the fourth quarter, the factory has been operating safely and continuously.

FalcãoProject

Regarding Faclão project, the execution of the detailed engineering works, the acquisition and preparation of the ground activities, as well as the quality of the technical documentation presented in the EPC are continued.

On the other side, activities related to the environmental diagnosis of the area where the Soyo encampment, dock and storage area were installed, and the reception and analysis of the proposal for the installation of the second liquid gas separator in order to give a continuous supply of gas to the Soyo Combined Cycle Plant - phase 1:

• Conclusion of the coating works of Fusion Bonded Epoxi (FBE);

• Review and approval of the proposed resources to follow the next phases of the project as an alternative to the original ones;

• Beginning of the topographic survey of the additional demined area;

• Conclusion of the dismantling and mechanical demining activities of the extra land for the expansion of the Gas Reception and Distribution Unit (URDG);

• Request of a gas samples to the Soyo Combined Cycle Plant for testing purposes.

5,3, PRIMARY VALUE CHAIN – MIDSTREAM SEGMENT

The Refining and Transportation segment recorded sales equivalent to USD 1,154 million in 2016 and an EBITDA of USD 86 million, corresponding to 3% of Sonangol’s total EBITDA.

Regarding the activity of the Refinery, there was an increase in raw material supply of 2% and an increase in the use of installed refining capacity of 1.5% in relation to the same period of the previous year. This positive performance was also reflected in the increase in the volume of crude oil processed and the volume of refined products produced.


Generation of electric power through Luxervisa was another focal point. In 2016, there was a big effort to increase the efficiency of the combined cycle in the Luanda Refinery, resulting in a 50% increase in the electric power supplied to RNT. For 2017, an improvement is expected from the start up of the vapour turbine and the start of the Soyo small combined cycle;

In transport activities, there was also a 6% increase in the amount of crude oil transported in 2015, but, given the more restricted macroeconomic context, the transport of volumes of derivative products was less than 32%.

This segment represented 2.6% of the total investment made in 2016, the second largest after the Exploration and Production segment. The investments made reflect the effort to build the Centralized Control Room and sign the contract for engineering studies in the Luanda Refinery, as well as the maintenance of mechanical equipment in the Refinaria de Lobito project.

Given the current context of dropping oil prices, and despite the amount invested, the Refinaria de Lobito project was suspended for reassessment of the strategic vision and economic viability. The Sonangol Administration is convinced that the Refinaria de Lobito is a strategic project for the company and for the Country, believing that the investments already made could be made profitable by the development of industrial projects adjacent to the refinery, namely petrochemical industry projects fed by discoveries of hydrocarbons in offshore blocks near Lobito.

Parallel to the reassessment of structuring projects, important measures were implemented to improve operations in this segment. An example of this was the initiative that facilitated the processes of ad-hoc purchases of articles critical to the Refinery and which was reflected in the increase in the supply of raw material and consequently in the increase of the utilization of the installed capacity of the Refinery.

5.3.1 REFINING BUSINESS

Sonangol keeps in operation the Refinaria de Luanda with a nominal installed capacity of 65,000 Bbl/d.

The average utilization rate of installed capacity was 83%, with an increase of 1.5% over the previous year.

The increase was due to the stabilization of the supply of the Palanca and the use of stock Hungo for blending, as well as the deferral of the general stoppage, scheduled for June and July 2016, for several reasons, among which, the unavailability of spare parts in a timely manner.

Despite the positive performance, there were some constraints with an impact on the operations, among which we highlight the total shutdown of the factory during 9 days and reduction of loads in the Distillation Units (U-150 and U-600) due to lack of crude oil and for other technical reasons (NAFTA darkening, plate shifting, broken heat exchangers and unplanned outages due to power outages in equipment (GT35 and CCRL).

TABLE 21 AVERAGE INSTALLED CAPACITY UTILIZATION RATE

CrudeOilProcessingExecution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter Processing Variance

Installed Capacity Utilization Rate (BOPD)

83% 87% 76% 85% 83% 1.5%

In 2016, the Refinaria de Luanda acquired 20,025,661 barrels of crude oil, equivalent to 2,725,811 metric tons, of which the Plutonium accounted for 51.5%, the Palanca accounted for 46.7%, the Hungo accounted for 1.3% and the Nemba, 0.5%.

Compared to the previous year, there was a 2% increase in the quantities of crude oil supplied to the Refinaria de Luanda, as a result of the improved performance and factory stability verified in 2016.

TABLE 22VOLUME OF CRUDE OIL PROCESSED

U.M.: Bbls

TypesExecution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter Processing Variance

Plutónio 1,931,718 2,930,391 2,158,676 3,054,124 10,074,909 5%

Palanca 2,886,091 2,088,993 2,297,066 2,049,509 9,321,659 -3%

Hungo 93,232 - 59,521 - 152,753 483%

Nemba - 99,850 - - 99,850 n,a

TOTAL 4,911,041 5,119,234 4,515,263 5,103,633 19,649,171 2%

DailyProcessing 54,567 56,255 49,079 55,474 53,686

With the availability of crude oil, it was possible to process 19,649,171 barrels of crude oil, equivalent to 2,633,350 metric tons.

TABLE 23REFINED PRODUCTION

U.M.: MT

ProductsExecution 2016


Fuel Oil 266,949 250,818 198,886 254,579 971,232 6%

GasOil 155,904 154,059 134,970 153,750 598,683 -1%

Nafta 60,729 68,607 93,653 81,736 304,725 21%

Jet A1 66,297 68,447 53,072 72,025 259,841 9%

Ordoil 29,380 59,643 59,640 50,530 199,193 31%

Kerosene 18,673 24,741 22,270 19,699 85,383 10%

Jet B 20,026 17,185 17,474 23,213 77,898 -55%

Gasoline 13,813 18,683 - 636 33,132 103%

LPG 7,011 7,402 5,868 6,967 27,248 4%

Others* 1,834 244 2,019 231 4,328 -87%

TOTAL 640,616 669,829 587,852 663,366 2,561,663 3%

(*) Asphalt and Cut-Back


In 2016, Sonangol produced 2,561,663 metric tons of refined products, plus 70,148 metric tons compared to the same period last year. This increase is in line with the increase in raw material supplies and the increase in the use of installed refining capacity. In the last six months of the year, the refinery’s priority was to increase the production of refined products with higher demand and more profitable, of which we highlight the 103% increase in gasoline production and 9% in the jet A1.

The production profile of the refined products did not change much, with a higher production of Fuel Oil (38%), followed by Gasoline (24%), Naphtha (12%), Jet A1 (10%), Jet B and Kerosene (3%) and LPG (1%), and the other remaining products with about 9% in aggregate form.

GRAPHIC 11PRODUCTION PROFILE OF REFINED PRODUCTS

FUEL OIL 38%OTHERS 0%

NAFTA

JET A1

12%

KEROSENE 3%

DIESEL 24%

ORDOIL 8%

JET 3%

LPG1%

10%

GASOLINE1%

5.3.2 CRUDE OIL, REFINED AND GAS TRANSPORTATION BUSINESS

In 2016, the quantity of crude oil transportated was 8,331,825 MT, 6% above the amount transported in the previous year.

TABLE 24VOLUME OF CRUDE OIL TRANSPORTED

U.M.: MT


1stQuarter 2ndQuarter 3rdQuarter 4thQuarter Quantitiestransported Variance

FleetSUEZMAX 1,571,910 1,391,196 1,107,288 1,484,156 5,554,550 6%

CRUDE OIL 1,571,910 1,391,196 1,107,288 1,484,156 5,554,550 6%

FleetCABOTAGEM 785,955 695,598 553,644 742,078 2,777,275 6%

CRUDE OIL 785,955 695,598 553,644 742,078 2,777,275 6%

TOTAL 2,357,865 2,086,794 1,660,932 2,226,234 8,331,825 6%

The quantity of 5,554,550 MT of crude oil was transported by the Suezmax fleet and 2,777,275 MT by the cabotage fleet (supply of crude oil to the Refinaria de Luanda.

TABLE 25 VOLUME OF DERIVED PRODUCTS TRANSPORTED BY SEGMENT

U.M.: MT

Fleet/ProductExecution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter AmountProvisione Variance

FLEET CABOTAGEM* 1,502,207 1,575,797 1,210,941 1,326,919 5,615,864 -35%

DOMESTIC CONSUMPTION 1,488,473 1,556,641 1,201,060 1,312,167 5,558,341 -35%

Diesel 892,229 963,892 835,510 819,221 3,510,852 -35%

Gasoline 470,164 493,067 276,019 432,242 1,671,492 -37%

Kerosene 1,594 - - 1,584 3,178 -58%

Jet A1 25,226 9,837 785 2,234 38,082 -29%

LPG 99,260 89,845 88,746 56,886 334,737 -24%

EXPORT 9,441 14,407 9,881 10,352 44,081 -2%

Diesel 6,319 9,474 6,748 7,013 29,554 -8%

Gasoline 1,526 2,100 1,581 1,408 6,615 9%

Jet A1 1,596 2,833 1,552 1,931 7,912 20%

IMPORT 4,293 4,749 0 4,400 13,442 48%

Lubri. & Oil 4,293 4,749 - 4,400 13,442 48%

FLEET LNG - 141,730 130,537 - 272,267 100%

LNG - 141,730 130,537 - - 100%

TOTAL 1,502,207 1,717,527 1,341,478 1,326,919 5,888,131 -31%

In 2016, Sonangol transported 2,703,966 MT of products, compared to the same period of the previous year, amounting to 5,888,131 MT, due to adjustments resulting from the macroeconomic environment in the period under review.


Of the total volume of refined products transported, 94.39% was for domestic consumption and only 0.75% for export. The remaining 4.62% and 0.23% correspond to imports of base oils and the transport of LNG, respectively.

GRAPHIC 12REFINED PRODUCTS AND GAS TRANSPORTATION

DIESEL 60%GASOLINE 28%

LPG6%

OTHERS1%

LNG5%

Diesel was the most transportated refined product, representig 60% of the total volume, followed by Gasoline with 28%, LPG with 6%, LNG with 5% and Jet A1, Kerosene and Lubrificants amounting to 1%.

The efficiency of the transport was prioritized maximizing the laden trips and minimizing the travel time with the ships without load (“ballast”).

5,3.3 STRUCTURING PROJECTS OF THE VALUE CHAIN MIDSTREAM

5.3.3.1 CONSTRUCTION PROJECT OF REFINARIA DE LOBITOFor the current year, the Lobito Refinery project was not budgeted in the Investment Program and was suspended for the reassessment of its strategic vision and economic viability. However, efforts have been made to promote the project in the international market, with a view to attracting funds or partners.

In addition, the work has been paralyzed since April, and only maintenance activities were carried out on mechanical equipment, including cleaning activities in the crushers.

As mentioned above, the Sonangol Administration is convinced that the Refinaria de Lobito is a strategic project for the company and for the country, believing that investments already made can be made profitable by the development of industrial projects adjacent to the refinery, namely, industrial projects petrochemicals fueled by hydrocarbon discoveries in offshore blocks near Lobito

5.4 PRIMARY CHAIN - DOWNSTREAM SEGMENT

The Logistics and Distribution segment recorded sales equivalent to USD 5,079,587,227 in 2016 and an EBITDA of USD 1,431,057,301, corresponding to 45% of the total EBITDA recorded by Sonangol.

The increase in the prices of refined products, as a consequence of the elimination of the price subsidy, had a direct impact on this segment. There was a reduction of 18% and 12%, respectively, in the purchase of refined products and marketed products.

It should be noted that, although only 21% of the total amount supplied is from the domestic market, gasoline from the Luanda Refinery experienced a growth of 119% compared to 2015, evidencing the positive performance recorded in 2016.

In the Logistics activity, and in line with the contraction of demand, there was a general reduction in volumes supplied (decrease of 18%) and in storage capacity (decrease of 8%).

Regarding the Distribution activity, the most traded products continue to be Gasoline and Diesel, representing more than 80% of sales, especially in the Consumer and Retail segment. The latter, although being the segments with the highest consumption are also the ones with the highest competition.

Market competition in some segments is being watched, and reflected, in Sonangol’s effort to try to improve its market position. In this context, several initiatives are being identified for Sonangol’s offer. Investment in the expansion and improvement of the derivatives trading network is an example of this effort.

In the international market, there was also a reduction in exports of Crude Oil (9% decrease) and refined products (1% decrease).

5.4.1 LOGISTICS BUSINESS

5,4.1.1 PROCUREMENT

TABLE 26ACQUISITION OF REFINED PRODUCTS BY ORIGIN

U.M.: MT


1stQuarter 2ndQuarter 3rdQuarter 4thQuarter AmountProvisioned Variance

IMPORT 1,071,228 1,100,775 853,205 1,009,122 4,034,346 -20%

SONANGOLLOGISTICS

Diesel 629,191 609,005 604,150 510,324 2,352,671 -23%

Gasoline 294,013 348,969 99,172 287,916 1,030,070 -17%

Jet A1 23,013 8,800 11,000 - 42,813 -29%

SONAGas

LPG 32,012 19,670 5,987 13,051 70,720 -58%

SONANGOLDISTRIBUTION

Diesel (MGO) 93,000 102,330 120,894 197,831 514,056 14%

Asphalt - 12,000 12,000 - 24,000 -57%

AvGas - - 16 - 16 n,a

REFINERYDELUANDA 250,492 274,777 234,171 243,446 1,002,887 -12%

Diesel 150,553 158,503 144,762 143,973 597,791 -6%

Gasoline 12,195 13,766 2,052 - 28,013 119%

Jet A1 54,107 58,158 51,311 60,986 224,563 -7%

Jet B 19,391 16,582 16,813 22,609 75,395 -55%

Kerosene 14,246 27,768 19,233 15,878 77,125 0%

TOPPINGCABINDA 15,549 14,614 22,032 23,949 76,145 63%

Diesel 12,455 11,578 18,469 18,660 61,163 80%

Gasoline n. a.

Jet A1 557 1,183 580 554 2,874 -12%

Kerosene 2,537 1,853 2,983 4,735 12,108 28%

TOTAL 1,337,270 1,390,167 1,109,408 1,276,517 5,113,379 -18%

During the period, 5,113,379 MT of refined crude oil products were acquired, down 18% from the same period of last year, due to the retraction in the consumption of derivatives caused by the fuel price adjustment at the beginning of the year.

Of the total amount procured, only 21% came from the domestic market, with the remainder being purchased externally, as a reflection of insufficient internal refining capacity.

During the period there was a 23% reduction in the quantities of imported Gasoline and an increase of 80% in the amount of Diesel purchased in Topping Cabinda compared to 2015.

It should be noted that Gasoline from the Luanda Refinery also registered an increase of more than 100% compared to the same period of 2015, due to the stabilization of the production unit.


TABLE 27REFINING PRODUCTS PROCUREMENT

U.M.: MT



Diesel 885,198 881,417 888,276 870,789 3,525,680 -16%

Gasoline 306,208 362,735 101,225 287,916 1,058,083 -15%

Jet A1 77,677 68,141 62,891 61,540 270,250 -11%

Jet B 19,391 16,582 16,813 22,609 75,395 -55%

Kerosene 16,783 29,622 22,216 20,613 89,234 3%

Asphalt - 12,000 12,000 - 24,000 -57%

Avgás - - 16 - 16 n,a

LPG 32,012 19,670 5,987 13,051 70,720 -63%

TOTAL 1,337,270 1,390,167 1,109,424 1,276,517 5,113,379 -18%

The products with the highest volume of supply were Diesel (69%) and Gasoline (21%), totaling 90%, despite a reduction in the volumes of all products supplied, compared to the previous year, with the exception of Kerosene.

5.4.1.2 STORAGE

TABLE 28 STORAGE CAPACITY

U.M.: MT



Onshore 358.519 358.511 358.511 358.511 358.511 -6%

Floating 469.993 469.992 469.992 469.992 469.992 -9%

TOTAL 828.512 828.503 828.503 828.503 828.503 -8%

The storage capacity of refined products was around 828,503 M3, of which 358,511 M3 were onshore and 469,992 on floating storage vessels, a decrease of 8% compared to the same period of the previous year.

5.4.2 DISTRIBUTION BUSINESS

5.4.2.1 DISTRIBUTION

TABLE 29 QUANTITIES OF DISTRIBUTED REFINED PRODUCTS

U.M.: MT

Products

Execution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter Quantitydistributed Variance

Diesel 574,800 682,242 674,455 682,552 2,614,049 -14%

Gasoline 255,023 193,226 191,312 179,884 819,445 -15%

Jet A1 60,540 64,443 64,995 62,503 252,481 -11%

LPG (Butane gas) 76,770 76,884 79,616 - 233,270 -6%

Fuel Extra Heavy 11,784 42,291 59,181 38,030 151,286 659%

Jet B 20,347 17,849 15,420 23,783 77,400 -52%

Kerosene 12,535 16,290 14,327 11,618 54,770 36%

Asphalt - 514 24,473 863 25,849 -40%

Lubricants 4,269 3,411 3,323 2,966 13,969 5%

Other 3,669 7,623 1,277 1 12,570 -57%

Fuel Oil 1500 8,035 28 - - 8,062 -50%

Aviation gas 5,352 - - 28 5,380 896643%

Cutback 275 185 321 167 948 -56%

TOTAL 1,033,399 1,104,986 1,128,700 1,002,394 4,269,479 -12%

A total of 4,269,479 metric tons of refined products were sold to final consumers during the year 2016, corresponding to a decrease of 12% compared to the same period of 2015.

This reduction is explained by the contraction of demand, given the current national economic situation, mainly due to the increase in prices of refined products, as a consequence of the elimination of price subsidies.

GRAPHIC 13DISTRIBUTION OF REFINED PRODUCTS BY BUSINESS SEGMENT

49%

33%

11%

6%

0%

48%

31%

14%

6%

0.3%0%

10%

20%

30%

40%

50%

60%

CONSUMPTION RETAIL MARITIME AVIATION LUBRICANT

2016 2015

Diesel and gasoline remain the most traded domestically, accounting for around 80% of the quantities sold.


By business segment, there is a greater representativeness for the consumer sector, derived from an increase in volumes purchased to offset the limitations on the supply of diesel through the pipeline from the Luanda Refinery. On the other hand, there has been an increase of 2 percentage points in the retail segment compared to the previous year, due to the economic situation in the country.

GRAPHIC 14MARKET SHARE BY BUSINESS SEGMENT

2016 2015

0%

20%

40%

60%

80%

100%

120%

100% 100%

MARITIME

98%100%

AVIATION

86% 88%

CONSUMPTION

59% 58%

RETAIL

MA

RK

ET S

HA

RE

The Retail and Consumer segments are the ones that face the greatest competition, which means that there was a loss of market share in the consumer segment of around 2 percentage points and an increase of around 1 percentage point in the retail segment, justified by less competitive pressure.

The provinces of Luanda, Benguela, Cabinda, Zaire and Huíla continue to lead the consumption of refined products, representing 85.70% of the total recorded in the period.

FIGURE 3DISTRIBUTION OF REFINED PRODUCTS BY REGIONS

0.72% (4)

0.55% (8)

4.61% (44)

1.71% (14)

9.34% (44)

0.69% (21)

0.76% (36)

0.57% (8)

3.07% (52)

1.05% (8) 1.16%

(11)

0.67% (12)

1.71% (16)2.31%

(15)

3.99% (17)

5.12% (20 )

2.34% (27)

TOP 5 CONSUMPTION CENTERS

MARKET SHARE

INTERMEDIATE CONSUMPTION CENTERS

BOTTOM 5 CONSUMPTION CENTERS

OTHER CONSUMPTION CENTERS

%

NUMBER OF FUEL STATIONS(#)

60.27% (92)

5.4.3 INTERNATIONAL DISTRIBUTION

5.4.3.1 CRUDE OIL

TABLE 30 EXPORTS OF CRUDE OIL BY TYPES

U.M.: Bbls

Types

Execution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter QuantityExported Variance

Saturno 8,409,060 6,301,107 7,416,427 7,554,607 29,681,201 4%

Dália 8,446,769 6,292,415 8,422,075 4,539,322 27,960,688 -20%

Nemba 5,572,062 6,292,415 7,310,078 6,395,728 25,570,283 -18%

Cabinda 5,545,193 5,606,059 5,714,446 4,730,623 21,596,321 -8%

Girassol 6,790,461 4,871,343 4,856,921 3,952,547 20,471,272 -1%

Hungo 2,852,406 3,663,954 2,852,875 6,430,924 15,800,159 -20%

Sangos 3,752,529 2,580,246 2,897,515 2,721,614 11,951,904 53%

Mondo 1,988,353 2,774,889 2,825,298 2,800,040 10,388,580 52%

Kissanje 2,761,681 903,602 2,719,925 3,622,685 10,007,893 -54%

Paz-flor 1,902,922 2,762,506 1,929,596 1,857,414 8,452,438 -18%

Saxi-batuque 1,910,715 905,626 1,913,233 1,844,133 6,573,707 2%

CLOV 2,004,695 30,460 1,045,489 2,002,461 5,083,105 -15%

Plutónio 1,954,472 1,863,230 998,925 4,816,627 66%

Palanca - 986,577 983,790 - 1,970,367 107%

Lianzi 91,380 1,212,197 292,507 261,040 1,857,124 n,a

Gimboa - 712,757 452,300 515,012 1,680,069 5%

TOTAL 53,982,698 48,019,490 52,631,400 49,228,150 203,861,738 -9%

During the year 2016, 203,861,738 barrels of crude oil were distributed, a decrease of 9% over the previous year. The decrease in the price of crude oil in the international market, which favors the contractor groups to the detriment of the Concessionaire, in light of the Production Sharing Agreements combined with the decrease in production.

The scheduled 35-day stoppage in the Dália field, Block 17, which caused a significant reduction of around 20%, with estimated losses of 210,000 barrels per day i.e. approximately 7.4 million barrels during the year, is highlighted. As a consequence of these facts the Saturn type was the most distributed, accounting for 15% of the distributed volume, followed by the Dália type with 14%, the Nemba type with 13% and the Cabinda type with 11%.


GRAPHIC 15EXPORTS OF CRUDE OIL BY GRADE

CABINDA11%

CLOV 3%

NEMBA13%

GIRASSOL10%

SATURNO15%HUNGO 8%

DÁLIA 14%

KISSANJE 5%

SAXI - MONDO

BATUQUE3%

5%PAZ - FLOR 4%

SANGOS6% OUTROS 3%

Taking into account that the export profile is determined by the level of production, the largest share of crude oil exported originated in Block 17 (30.8%), followed by Block 15 with 21.5%, Block 0 with 16.5%, Block 31 with 14.6%, and the remaining blocks with a total of 16.6%.

FIGURE 4DESTINATION OF THE CRUDE OIL

URUGUAI · 0.5%

PORTUGAL · 2.9%

ITALY · 0.5%

SPAIN · 0.5%

FRANCE · 1.3%

NETHERLANDS · 1.8%

SOUTH AFRICA · 2.8%

MALAYSIA · 1.8%TAIWAN · 6.6%THAILAND · 0.2%INDIA · 9.8%

CHINA · 62.7%

SOUTH KOREA · 0.4%COLOMBIA · 0.9%

BAHAMAS · 0.4%

USA · 1.0%

CANADA · 0.4%

China continues to be the main destination for Angolan crude oil, having acquired 62.7% of exports, followed by India with 9.8%, with the two countries accounting for 72.5% of external trade, leaving the remainder shared by other destinations.

5.4.3.2 PRICE OF THE ANGOLAN TYPES

GRAPHIC 16 EVOLUTION OF THE BRENT PRICE AND ANGOLAN TYPES

DECJAN

30.69

USD/Bbls

27.98 29.45

32.48

38.49

36.16

41.48

40.37

46.88

45.52

48.33

45.9545.10

42.02

45.77

44.68

46.67

45.34

49.66

48.4345.13

44.54

53.72

52.43

0.00

10.00

20.00

30.00

40.00

50.00

60.00

FEB MAR APR MAY

DATED BRENT 2016 ANGOLAN OIL PRICE 2016

JUN JUL AUG SEP OCT NOV

The distribution price of the Angolan oil types increased approximately 50% and was sold at a weighted average price of USD 41.91/Bbl, with a maximum price of USD 52,43/Bbl in December and a minimum of USD 27.98/Bbl in the month of January, as can be seen in the graph above.

5.4.3.3 EXPORT OF REFINED PRODUCTS

TABLE 31 QUANTITY OF EXPORTED REFINED PRODUCTS

U.M.: MT

Refined

Execution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter QuantityExported Variance

Fuel Oil 276,563 231,035 230,126 220,840 958,564 -6%

Nafta 65,847 57,749 98,808 66,124 288,528 12%

Propane Gas 32,913 - - - 32,913 -42%

Diesel 6,327 9,483 6,757 7,018 29,585 -5%

Jet A1 1,598 2,837 18,123 1,932 24,489 178%

Butane Gas - - 10,058 11,011 21,069 n,a

Gasoline 1,528 2,103 1,584 1,409 6,624 -5%

TOTAL 384,775 303,207 365,456 308,333 1,361,772 -1%

The volume of exported refined products was 1,361,772 metric tons, which remained stable in relation to the same period of last year, varying only 1%.


GRAPHIC 17EXPORT PROFILE OF REFINED PRODUCTS

5.5 NON-NUCLEAR BUSINESS

5.5.1 AVIATION - SONAIR

In 2016, Sonair flew around 20 thousand hours, of which 10 thousand in the Rotating Wing segment and 10 thousand in the Fixed Wing segment, corresponding to a reduction of 47% compared to the year 2015. This reduction had a significant impact on revenues of aircraft rental, which suffered a reduction from AOA 74 billion to AOA 45 billion.

The accident in April 2016 in Norway resulted in the grounding of Super Puma (H225 and L2) aircraft, which represent more than 60% of Sonair’s Rotating Wing fleet. This stoppage significantly affected Sonair’s ability to provide Rotating Wing transport services to the oil operators, who depended on this means for transporting crews to the offshore platforms.

TABLE 32MAP OF SONAIR OPERATIONAL INDICATORS

OperacionalIndicators

Execution 2016

1stQuarter 2ndQuarter 3rdQuarter 4thQuarter ServicesRendered Variance

No.Hoursflown 6,795 6,046 4,054 2,815 19,711 -47%

No.Hoursflown-Rotatingwing 4,425 3,371 1,364 742 9,902 -55%

Commercial Contracting 3,559 2,751 1,356 731 8,396 -55%

Uncontractual 26 18 9 11 64 -56%

Military House and Presidency of the Republic 840 602 0 0 1,442 -60%

No.Hoursflown-Fixedwing 2,369 2,675 2,690 2,074 9,808 -35%

SonaAirFleet 111 397 518 490 1,516 -30%

Commercial Contracting 52 262 425 329 1,068 -30%

Uncontractual 59 135 93 161 449 -28%

Others (H.E., Carreira, Spots Charter) 1,758 1,802 1,659 1,435 6,653 -9%

MATandState 500 477 513 149 1,639 -71%

HoustonExpress(LoadFactor) 35% 33% 34% 41% 36% -21%

FreightTransported(Ton) 123 57 54 26 260 -19%

No.PassengersTransported 70,559 63,296 59,859 52,989 246,703 -15%

AverageAircraftAvailability 88% 79% 78% 68% 78% -18%

AverageAircraftUtilisation 159% 86% 106% 58% 102% 2%

Also, the cost reduction efforts of the oil operators, which also led to the reduction of offshore operational personnel as well as the search for transport solutions that could replace air transport, have affected the demand for air transport services in a more structural way, in particular in the Rotating Wing segment.

The Fixed Wing segment’s operation was also impacted by the decrease in the activity of the oil sector, which particularly affected the operation of the Houston Express, where measures were taken to increase efficiency under the Sonalight Program, which made it possible to defend and minimize the impact on profitability of the operation. These measures will, moreover, have a significant impact on the 2017 financial year.

21%

2% 2% 2% 2% 0%

19%

2% 4%0% 1% 1%

0%

10%

20%

30%

40%

50%

60%

70%

80%70%74%

FU

EL

OIL

NA

FTA

GA

SÓ

LE

O

PR

OP

AN

E G

AS

BU

TAN

E G

AS

JET

A1

GA

SO

LIN

E

2016 2015


5.5.2 HEALTH - CLÍNICA GIRASSOL

TABLE 33MAP OF OPERATIONAL INDICATORS OF CLÍNICA GIRASSOL


Execution 2016


Number of patients attended 52,400 58,758 44,296 42,486 197,940 5%

Number of hospitalizations 2,994 2,864 1,828 1,840 9,526 -3%

Number of outpatient visits 26,205 29,293 27,839 26,405 109,742 1%

Number of emergency visits 16,388 16,011 10,839 11,321 54,559 0%

Number of laboratory exams 268,491 265,516 185,073 164,366 883,446 2%

Number of surgical interventions performed 292 276 344 284 1,196 -17%

Number of surgical procedures in day-care center (day clinic) 167 166 218 157 708 -34%

Average Hospital Occupancy Rate 87% 78% 85% 84% 84% 7%

Number of completed deliveries (Etococcal and dystocic) 168 167 158 170 663 -5%

Number of Imagery Tests performed 20,791 17,079 14,107 13,743 65,720 -12%

Total Surgeries 459 442 562 441 1,904 -24%

Average Time of Stay (in days) 6 6 6 6 6 -4%

Number of specialized examinations performed 10,033 9,711 28,567 31,011 79,322 -29%

In the period under review, there was a 5% increase in the general care of Clínica Girassol, which reached 198 thousand patients.

The number of patients hospitalized at the Clinic decreased by 3% to 9,526, but an increase in the average hospital occupation rate by 7% was verified when compared to 2015.

Due to the current economic context and the difficulty in importing equipment and medicines, the increase in patient flow (5%) was not reflected in an increase in imaging tests, which decreased by 12%, while specialized examinations decreased by about 30%. Following these factors, the surgeries had a decrease of 24% compared to 2015.

During the year 2016, Clínica Girassol, within the framework of the Sonalight program, implemented a rigorous efficiency program, and the set of initiatives carried out allowed a significant gain in EBITDA.

5.5.3 TELECOMMUNICATIONS - MSTELCOM

MST provides telecommunications services to companies in the oil sector as well as to other companies in various sectors of activity.

The activity of the company grew, despite the adverse economic context, with communications services revenues increasing by 14% to AOA 13 billion.

TABLE 34MSTELCOM INDICATORS MAP


Execution 2016


1.UtilizationofAvailableCapacity(%)

1.1OpticalFiberNetwork(Mbits/Seg)

A.MetroNetwork(Mbits/seg)

Luanda 100% 100% 100% 100% 100% 10%

Lobito - Benguela 21% 23% 24% 25% 25% 64%

B.NationalNetworks-(Mbits/seg)

Luanda Malanje 11% 11% 12% 12% 12% 15%

Luanda Soyo 49% 51% 51% 81% 81% 71%

Lobito Lubango 19% 19% 26% 27% 27% 169%

Luanda Lobito 41% 43% 43% 43% 43% -73%

1.2Satellite-VSAT(MHZ)

A. Band - C 99% 97% 100% 100% 100% 1%

B. Band - Ku 100% 100% 100% 100% 100% 0%

2.VolumeofServicesRendered

Telephony (no. telephone lines) 34,681 34,564 34,011 34,224 34,224 -0.4%

Voice Traffic (minutes) 22,338,984 24,714,138 23,376,294 20,670,519 91,099,935 6%

3.Customers

Average number of complaints p/ 100 Customers 4.70 4.54 4.05 4.72 4.63 8%

Satisfaction Index of Costumers MST (range from 1 to 10) 3.6 3.6 3.6 3.6 3.6 n.a.

With regard to the rendering of internet services, the utilization rate of fiber optic capacity in the metro networks was 100% (+ 10%) for the Luanda network and 25% (+ 64%) for the Lobito-Benguela, during the year 2016. The increase in the utilization of installed capacity resulted from the activation and upgrades of several services, in response to customers’ requests.

The rates of use of the C-Band and Ku-Band satellites remained practically unchanged compared to the same period of the previous year.

As a result of the economic situation and efficiency measures in the sector, telephony services registered a slight reduction of 0.4% compared to 2015. Voice traffic services grew by 6% over the same period, as a result of increased interconnection to customers.


In spite of the overall positive trend in operating results, the telephony business presents significant challenges to overcome, particularly in the profitability of ongoing investments, in a context where competition is more aggressive. The company is investing in its own infrastructure.

5.5.4 REAL ESTATE MANAGEMENT - SONIP

The year 2016 was marked by an effort to adjust Sonip’s activity to the reality and transformation guidelines of the Sonangol Group. In this sense, the new Executive Committee has prioritized the identification and implementation of measures with immediate impact on cost containment and revenue collection, as well as the rigorous collection and analysis of management information essential for decision-making. It should be noted that certain concrete measures such as the execution of due diligence (both the company and its assets), the concentration of some workplaces of different subsidiaries, the release of leased premises from third parties, renegotiation or revocation Of several leasing contracts to third parties, focusing on a greater effectiveness in the billing and collection of rentals to the assets of Sonip or under its management (both at corporate and /residential level) and the delivery of the projects in the final phase (e.g. Largo do Ambiente) and the freezing of all projects under way until a review of their viability in the light of the macroeconomic context.

Regarding the Cajueiro cooperative, a total of 28 properties were sold to the partners in the various condos: M’bembo M’bote, Mazozo and Jardins Talatona.

TABLE 35SOLD REAL ESTATE

Condominium BeginingStock2016 Sales Final

Stock%per

Condominium

M’bembo M’bote 23 5 18 22%

Mazozo 19 14 5 74%

Jardins de Talatona 9 9 - 100%

TOTAL 51 28 23 55%

5.5.5 TRAINING – ACADEMIA SONANGOL

Despite the challenging economic environment, Sonangol continued its effort to train human resources, not only of Sonangol, but also the of oil sector and the economy in general. As such, 1,646 training actions were performed in 2016, representing a decrease in the order of 3% over the previous year.

In terms of workload, 16,609 hours were administered in 76 courses. Compared to the same period of 2015, there were reductions of 26% and 7%, in the hours of training and in the number of courses given, respectively.

TABLE 36MAIN INDICATORS OF EDUCATION AND TRAINING

OperationalIndicatorsExecution 2016


1.TRAINING

1.1Numberoftrainingcourses(Unit) 437 458 425 326 1,646 -3%

1.1.1 Petrotechnic and Engineering school - - 1 1 2 91%

1.1.2 Leadership and management school - - - 6 6 87%

1.1.3 Safety school 437 458 424 319 1,638 1%

1.2Numberoftraininghours 4,067 4,766 4,264 3,512 16,609 -26%

1.2.1 Petrotechnic and Engineering school - - 28 28 56 -97%

1.2.2 Leadership and management school - - - 144 144 -96%

1.2.3 Safety school 4,067 4,766 4,236 3,340 16,409 -2%

1.3Numberofcoursesgiven 17 18 19 22 76 -7%



1.3.3 Safety school 17 18 18 20 73 181%

1.4Numberoftrainees 4,485 4,493 3,740 2,627 15,345 -14%



1.4.3 Safety school 4,485 4,493 3,729 2,543 15,250 -10%

2.EDUCATIONANDTEACHING

2.1Qualityandteaching

2.1.1 Teacher's Assessment - - 24% 24% 24% -65%

2.1.2 Ratio student/teacher - 15% 13% 13% 14% 13%

2.1.3 Ratio Teacher with Master and Phd/Teacher 47% 49% 48% 46% 48% 11%

2.1.4 Success rate - - 22% 43% 33% -26%

2.1.5 Rate of early school leavers - 2% 10% 14% 9% -62%

2.2ScientificProduction

2.2.1 Articles published in Journals with impact - - 2 3 5 400%

2.2.2 Participation in International Scientific events - - - 4 4 100%

3.SCHOLARSHIP

3.1Numberofscholarshipsoffered 1,917 1,943 1,879 1,859 1,859 -15%

3.1.1 Internal 525 538 537 549 549 -30%

3.1.2 External 1,392 1,405 1,342 1,310 1,310 -6%

4.RECRUITMENT

4.1Numberofavailablevacancies - - - - - -100%

4.1.1 Filed Jobs (Direct Access) - - - - - -100%

4.1.2 Taining through the Academy - - - - - -100%


Under the scholarship program, the Academy managed a total of 1,859 scholarships, of which 549 were internal and 1,310 external.

The Academy is responsible for managing the scholarship process, with guidelines from Sonangol, in 5 main geographies: USA, UK, France, Brazil and Portugal. In 2016 no new scholarships were granted, but the current contracts with the fellows were maintained.

The Safety school continues to teach safety courses to the oil industry, certified by international maritime authorities. The material of its maritime training center is fully certified according to ISO 9000. In 2016, 15,250 trainees were trained in 1,638 training courses.

5.6 WORKFORCE BY BUSINESS SEGMENT

5.6.1 FINANCING

During 2016, the company did not use international bank financing to finance its structuring capital projects and other operating expenses, in accordance with the annual budget for the financial year.

5.6.2 HUMAN RESOURCES

5.6.2.1 ACTUAL COMPOSITION In order to carry out the 2016 activity, the company had a total effective staff of 7,980 active employees, representing a decrease of 4% over the same period of 2015.

GRAPHIC 18 NUMBER OF SONANGOL EMPLOYEES

2,0122,120

1,486

481 511

2,2642,416

1,7381,751

1,481

2016 2015

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GRAPHIC 19WORKFORCE BY BUSINESS SEGMENT

NON CORE

CORPORATEAND FINANCE22% 25%

2016

EXPORATION AND PRODUCTION 19%

REFINING AND TRANSPORTATION6%LOGISTICS

AND DISTRIBUTION28%

Sonangol E.P. was the most represented company, with 25% of the active labor force, followed by Sonangol Distribuidora with 18%. By business segment, the largest portion of the workforce is concentrated in the Logistics and Distribution segment (28%), followed by the Corporate and Financial segment (25%) and Non-Nuclear Business (22%).

The labor force of Sonangol is represented mostly by men (61%).

GRAPHIC 20EFFECTIVE BY FUNCTIONAL BAND

SPECIALISTS

OPERATIONAL AND ADMINISTRATIVE SUPPORT

7%

MANAGERS11%

34%

TECHNICALFUNCTIONS48%

In terms of the distribution of effective employees by functional band, 48% belonged to the technical category, 34% to the Operational and Administrative Support category, 11% to the Manager category and 7% to the Specialist category.

The average age of Sonangol employees is 43 years.

5.6.2.2 HR TRANSFORMARTION In the second half of 2016 an ambitious process of transformation of the entire Sonangol organization was started. This transformation affects both the central areas and all the subsidiaries. Ambitious and highly complex, the transformation process has as main objective to align the company with the best practices of the sector, with regard to its organizational design, dimensioning, as well as identification and motivation of the best talent in the staff.

As part of the transformation project, and in view of the importance for the whole Group, Sonangol started a thorough restructuring of its Corporate HR Directorate in late 2016 to achieve seven objectives:

• Position Human Resources as a true strategic partner of the business;

• Create a more agile, fast and efficient organizational structure;

• Optimize Sonangol resources to perform functions closer to their profiles;

• Increase process efficiency at both central and subsidiary levels;

• Empower leaders to truly be managers of their teams;

• Introduce greater discipline in work with time management;

• Turn culture into a culture of leadership.

In order to improve the opportunities of each employee, a review of the Performance Assessment Model is underway to improve on the following aspects:

• Gains in efficiency and results at work, and focus on performance;

• Less subjectivity with a focus on relevant and measurable objectives;

• Greater commitment and responsibility from stakeholders;

• Promotion of meritocracy with fair career moves.

At the same time, Sonangol began a new Competency Assessment project to identify the potential for human resources development at Sonangol. This ambitious process, whose second phase will continue in 2017, is critical to the Group’s human resources strategy, aligning it with the ambition of excellence defined by the Board of Directors.

Undergoing this process of deep transformation, the launch of a Change Management program


was prepared in 2016 to promote the cultural and behavioral change necessary to:

• Promote a culture of excellence, profitability, rigor, transparency and commitment;

• Align processes and incentives to recognize and hold individual actions accountable;

• Strengthen company processes and policies to ensure business and professional behavior according to the highest ethical standards.

5.6.3 ORGANIZATION AND CORPORATE PROCESSES

5.6.3.1 NEW QSSA POLICYSonangol’s QSSA Policy aims to ensure the identification of operational, SSA (System Safety Assessment) and legal risks of the organization, and, in parallel, ensure that measures are in place to mitigate such exposure. In order to fulfill this objective, a set of initiatives was carried out with a transversal impact on the whole Sonangol group and its employees:

• Quality:

• With regard to Quality Management, the business unit processes and SNL E.P.’s strategy were approved;

• Critical business processes were reviewed and audited at SONACI, Sonagás and Shipping. Quality Management Systems were audited in comparison with the international quality management standard, ISO 9001: 2008;

• At SNL Logística e Distribuidora, the QSSA and Operational Areas’ compliance with the Quality requirements was evaluated.

• Safety

Sonangol’s activity was centered on guaranteeing compliance with legal requirements, reducing the Rate of Accidents with Absence and the transition from the QSSA Culture Stage from level 1 to level 2.

• Reinforcement of various operational procedures leading to a 55% reduction in the number of fatal accidents and the reduction of spilled quantities;

• Several awareness campaigns were carried out, such as (1) Condução Segura Campaign/Sonangol 40 years, which was attended by the Direção Nacional de Viação e Trânsito, workshops and exhibitions at national level. Also worthy of note is the Botas no Terreno Campaign, in which visits were made to the operational areas of Sonangol E.P..

• Environment

With regard to environmental management, it was sought to safeguard the resource needs for business continuity and mitigation and / or elimination of potential impacts to the environment. Thus, the following programs were highlighted in 2016:

• Program for the reduction of natural resources (water, paper and energy);

• Proper waste disposal;

• Recycling program for tires, oils and other wastes;

• Environmental awareness actions with exhibitions and environmental campaigns.

5.6.4 CONSOLIDATION OF CORPORATE PROCESSES

During the course of 2016, under the ongoing Transformation program, Sonangol’s Board of Directors made a considerable effort to consolidate corporate processes with an emphasis on purchasing management and increased control of payments. A new centralized purchasing process has been implemented that allows leveraging efficiency gains by reducing the number of interfaces and suppliers, favoring economies of scale and cost reductions by bundling.


COMMITMENTTO SOCIETY

06


Transformresourcesintosocialwelfare

Sonangol is committed to the sustained development and stabilization of the Angolan nation. Sonangol works to improve the conditions for the development of Angola by supporting projects in the areas of education, culture, sports, science and environment.

Sonangol supervises the execution of social projects as well as the relationship with the operators in its Social Investment Plans (PIS), financed through Cost of Oil or Subscription Bonuses. To this end, three priority strategic lines were defined with the following developments in 2016:

InternalSocialResponsibility

• A total of 1,620 social services were provided in the most diverse areas of social intervention to the various users.

• In its various campaigns, more than 3 thousand children were included by PROCIVO and distributed by institutions in several provinces more than 3 tons of diverse goods, collected among employees.

06COMMITMENT TO SOCIETY

• The quality of 2,7 million meals served to employees throughout the country was monitored, associated with the implementation of projects and actions in the field of education and food safety.

• As part of the implementation of the Quality of Life at Sonangol Program, 1,170 employees were sensitized and 250 employees followed with opportunities for improvement of different subsidiaries. In addition to the monitoring and monitoring of the 480 children who attended the kindergartens.

TheExternalSocialResponsibilityisbasedonthecommitmentofSonangolanditspartnerswiththecommunities:

• In 2016, 54 Social Investment Projects (PIS) of SONANGOL and its partners were monitored in different oil concessions and made available to the 15 PIS community of “Cost Oil. Of the more than 300 applications for Sponsorships, 37 were approved.


PROSPECTS FORTHE FUTURE

07


7.1 EVOLUTION OF THE NATIONAL AND INTERNATIONAL CONTEXT

After a five-year slowdown in economic growth, prospects for emerging economies recovered in 2016, reaching a 4.6% growth in 2016 and a 4.5% forecast for 2017. According to the International Monetary Fund (IMF WEO Update, January 2017), this recovery, of which Angola will be a beneficiary, can be justified by some factors, namely:

• The stabilization of the Chinese economy and prospects for emerging from the crisis by Brazil and Russia;

• Significant recovery of commodity prices;

• The prospect of increased investment, which was initially encouraged by a context of low interest rates in developed economies, but is currently reversing.

In the world oil industry, there is a general consensus that, despite the expected increase in demand (largely driven by the recovery of emerging economies and the prospect of robust growth - although not too fast - in developed economies), the proliferation of alternative sources of hydrocarbon supply has altered the structure of the global supply curve. Therefore, it is not expected that the crude price will recover rapidly to the levels of 2013 and 2014. As for gas, according to data published by Rystad in 2017, despite the prospects for the future foreseeing a material increase in demand, this, although important, will not be enough to replace the demand for oil. In short, we can identify three major trends in the industry worldwide:

07PROSPECTS FOR THE FUTURE

• Demand for oil is stable, with new production sources being needed to fill the production gap;

• The demand for gas is increasing but does not threaten the consumption of oil;

• Operators are diversifying gas and unconventional production portfolio.

Given the slight recovery in the world economy and the continued demand for oil, a new investment cycle in industry is expected to start but under a new paradigm in which:

• Despite the encouraging outlook for 2017, investment levels will remain well below 2014 levels, indicating a capital constraint;

• The reduction of investments from 2013 to 2016 prevented replenishment of operators’ reserves, being that a new investment cycle is expected;

• Operators will continue to have difficult debt access for new projects;

• The level of risk will be an increasingly important criterion for Operators, who favor opportunities for fast payback and lower breakeven.

In addition, traders have been concerned about the tax regimes of producing countries, with some countries, notably the United Kingdom, Brazil and India, already taking steps to maintain production and make it more profitable to attract investment. For producing countries this means that in order to remain competitive and attractive to investment from operators, they must re-analyze their tax regime and consider trade incentives.

The attractiveness of the national oil sector should also be ensured by its efficiency and by reducing the costs of operating in Angola. Sonangol is strongly committed to this purpose, and is implementing measures and programs that will allow to reduce the cost of production in the country, in a sustained manner.

As for the national economy there are quite encouraging signs in the capacity of evolution and diversification of the national business fabric. Development in non-oil exporting sectors and in import substitution sectors (such as agriculture and manufacturing) is palpable. Sonangol will be an attentive and participatory agent in promoting the diversification of the economy whenever and wherever it can, to participate in projects of high impact and creation of value.

7.2 NEW PRODUCTION

In the current framework, in order to maintain production levels that allow the development of Sonangol and, more critically, the release of resources to the State as a shareholder, Sonangol should continue to make an effort to maintain national production volumes of oil and gas at current or, if appropriate, higher levels, focusing on the creation of value (not merely volumes).

It is essential that Sonangol E.P. guarantees new production projects for both oil and gas and should encourage the implementation of a range of measures that could lead to this, inter alia, without being exhaustive:

• Sonangol must guarantee the financial flexibilityto match the investment demands in the blocksin which it participates;

• Sonangol should also encourage projects in blocks with reduced investment or without Sonangol’s participation;

• It will be urgent to re-evaluate the exploration and to plan bidrounds plans;

• In the current context of greater risk aversion and focus on profitability, it is critical to evaluate opportunities for less investment and evaluate complementary models to the PSA for large investments;

• The current lack of gas matrix discourages investment in fields with high gas reserves so it is crucial that a gas matrix is defined and the exploitation of this resource encouraged.

7.3 IMPLEMENTATION OF THE TRANSFORMATION PROGRAM

As mentioned above, in view of the current economic context and on the basis of the results of the diagnosis made to Sonangol, its Management Board identified the need to prioritize the operational transformation of the company and created an ambitious transformation program based on five (5) strategic pillars that aim not only to deal with the challenges that the company is currently facing but also to prepare it for the future, making it more sustainable.

The strategic pillars on which this program is based are: cost reduction - through the Sonalight program; Revenue growth through the Sonaplus program; ProcessRedesignandOrganizationalOptimization in order to evolve processes and organization in line with best practices, and CultureChange focusing on profitability, excellence, rigor, transparency and commitment.

The successful implementation of this program, launched in 2016, is the base matrix that will guide the action of the Board of Directors in 2017.


PROPOSAL FORTHE APPLICATIONOF THE RESULTS

08


Sonagol E.P. closed the 2016 financial year with a positive net profit of AOA 13,281,678,224 calculated in accordance with the Companies Act 1/04, of 13 February.

The Board of Directors proposes, under legal terms, that the net result for the year 2016 be applied as follows:

• 10% for constitution of the legal reserve, whose cumulative amount must not exceed 2% of the statutory capital;

• At least 10% for the establishment of the fund for the evaluation of exploration potentials for hydrocarbon resources;

• At least 5% for the other investments fund;

• Up to 5% for the social fund;

• The remaining amount applied to Retained Earnings.

Luanda, June 30, 2017

The Board of Directors

08PROPOSAL FORTHE APPLICATION OFTHE RESULTS


ANNEX

09


31-12-2016 31-12-2015

AOA AOA

Assets

Non-currentAssets

Tangible fixed assets 937,802,927,657 816,000,337,114

Intangible assets 65,059,719,976 30,085,222,003

Oil&Gas upstream assets 2,447,205,577,713 1,685,112,617,507

Reversible assets 167,395,967,501 -

Exploration and evaluation assets 724,759,575,062 126,797,283,209

Investments in subsidiaries and associates 470,928,863,134 684,095,454,331

Other financial assets 178,422,503,244 239,006,873,583

Other non-current assets 613,187,525,103 1,540,099,649,526

Bank deposits 222,410,168,298 -

TotalNon-currentAssets 5,827,172,827,688 5,121,197,437,272

CurrentAssets

Inventories 100,547,093,054 112,145,562,903

Accounts receivable 745,937,958,438 476,802,584,626

Cash and equivalents 826,942,310,235 612,012,426,498

Other current assets 8,080,175,562 24,601,830,659

TotalCurrentAssets 1,681,507,537,289 1,225,562,404,685

Total Assets 7,508,680,364,977 6,346,759,841,957

EquityandLiabilities

Equity

Capital 1,946,558,748,877 1,285,386,630,238

Reserves and retained earnings 338,098,712,393 658,012,125,318

Translation adjustments (financial statement conversion) 838,166,239,916 538,546,953,088

Income for the year 13,281,678,224 47,168,755,661

TotalEquity 3,136,105,379,410 2,529,114,464,306

Non-CurrentLiabilities

Medium and long term loans 1,144,568,504,953 1,399,951,616,146

Employee benefit liability 104,559,096,058 90,517,865,013

Provisions for other risks and charges 1,222,092,751,908 840,762,821,277

Other non-current liabilities 137,700,246,412 105,387,334,355

TotalNon-CurrentLiabilities 2,608,920,599,331 2,436,619,636,790

CurrentLiabilities

Accounts payable 1,151,232,809,152 844,493,052,874

Short term loans 507,473,441,589 450,746,221,639

Other current liabilities 104,948,135,494 85,786,466,348

TotalCurrentLiabilities 1,763,654,386,236 1,381,025,740,861

TotalLiabilities 4,372,574,985,567 3,817,645,377,652

Total Equity and Liabilities 7,508,680,364,977 6,346,759,841,957

09ANNEX

A. FINANCIAL BALANCE SHEET

31-12-2016 31-12-2015

AOA AOA

Sales 2,283,777,182,435 2,204,629,805,500

Services rendered 153,224,082,059 125,507,581,433

Other operational income 14,892,561,009 19,548,358,800

2,451,893,825,503 2,349,685,745,733

Variation in finished products 3,836,578,246 3,704,162,142

Concessionaire cost (sales on behalf of the State) (895,401,469,527) (896,003,230,503)

Cost of goods sold and raw materials consumed (387,384,114,574) (470,572,686,343)

Oil&Gas exploration and operating costs (265,076,687,029) (241,180,301,496)

Payroll (157,888,458,184) (135,030,918,980)

Depreciation (369,588,981,285) (326,668,631,760)

Other operational costs (224,713,290,176) (224,937,544,983)

(2,296,216,422,529) (2,290,689,151,924)

Operational Income 155,677,402,974 58,996,593,809

Financial income and expenses (54,032,242,686) 112,717,710,570

Result of affiliates 4,155,000,522 36,150,780,982

Non-operating income and expenses (8,528,579,984) (102,571,154,705)

(58,405,822,148) 46,297,336,848

Income before taxes 97,271,580,826 105,293,930,657

Taxation (84,068,375,918) (57,200,225,969)

Current activities net income 13,203,204,908 48,093,704,688

Extraordinary income and expenses 78,473,316 (924,949,027)

Net income 13,281,678,224 47,168,755,661

B) CONSOLIDATED FINANCIAL STATEMENTS AS AT 31ST DECEMBER 2016

9.1 CONSOLIDATED STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED 31ST DECEMBER 2016


PricewaterhouseCoopers (Angola), Limitada Edifício Presidente - Largo 17 de Setembro, n.º 3, 1º andar – sala 137, Luanda- República de Angola T: +244 227 286 109, www.pwc.com/ao

Independent auditor’s report To the Board of Directors of Sonangol – Sociedade Nacional de Combustíveis de Angola, E.P. Introduction 1 We have audited the accompanying financial statements of Sonangol – Sociedade Nacional de Combustíveis de Angola, E.P. (“Sonangol EP”) and of the companies included in the scope of consolidation as defined by the Board of Directors (together “Grupo Sonangol”), comprising the consolidated balance sheet as at December 31, 2016 which shows total assets of 7,508,680,365 thousands of Kwanzas (“AOA”) and total equity of AOA 3,136,105,379 thousand, including income for the year of AOA 13,281,678 thousand, the consolidated income statement by nature for the year then ended and the corresponding notes to the consolidated financial statements. These consolidated financial statements have been prepared in accordance with the accounting policies described in note 2 of the notes to the consolidated financial statements. Directors’ responsibility for the financial statements 2 The directors are responsible for the preparation and fair presentation of these financial statements in accordance with the accounting policies described in note 2 of the notes to the consolidated financial statements and for such internal control, as the directors determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. Auditor’s responsibility 3 Our responsibility is to express an independent opinion on the consolidated financial statements based on our audit, which has been conducted in accordance with Technical Standards issued by the Institute of Statutory Auditors ‘‘Ordem dos Contabilistas e Peritos Contabilistas de Angola”Those standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement. 4 An audit involves performing procedures to obtain audit evidence regarding the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate under the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements. 5 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

9.2 REPORT OF THE INDEPENDENT AUDITOR ON THE CONSOLIDATED ACCOUNTS AS OF DECEMBER 31, 2016

9.1 C) STATEMENT OF CONSOLIDATED CASH FLOWS

31-12-2016 31-12-2015

AOA AOA

CashFlowsofOperationalActivities

Customers reimbursements 2,278,348,412,578 1,521,584,831,534

Suppliers payments (1,615,184,518,515) (861,393,859,993)

Payroll payments (158,012,847,123) (136,730,464,995)

Cash related with operations 505,151,046,940 523,460,506,546

Payment/Receivables related with taxes (124,959,795,905) (72,547,080,021)

Other Payments/Receivables (93,783,699,526) (12,876,710,582)

Exchangeratedifferencesonoperationalactivities 253,413,671 220,217,733,426

Cash Flows from Operational Activities [1] 286,660,965,181 658,254,449,368

CashFlowsofInvestingActivities

Payments related to:

Tangible fixed assets (108,069,924,072) (82,546,664,592)

Intangible assets (29,328,130,338) (240,273,787)

Oil&Gas upstream assets (447,640,264,982) (597,748,320,382)

Financial Investments 0 (93,215,170,654)

Real Estate Investments (10,900,820,321) (5,437,682,886)

Receivables related to:

Financial Investments 86,645,166,117 11,783,333,201

Interest and similar income 9,553,186,272 5,443,752,865

Dividends 4,155,000,522 44,895,474,784

Exchangeratedifferencesoninvestingactivities (99,735,854,512) (694,398,928,798)

Cash Flows from Investing Activities [2] (595,321,641,315) (1,411,464,480,249)

Cash Flows of Financing Activities


Loans 0 125,783,212,871

Capital increases and other equity instruments 672,486,100,000 67,994,200,000


Loans (586,521,578,372) (390,853,552,219)

Ordinary Loans (414,690,054,563) (390,853,552,219)

Prepayments (171,831,523,810) 0

Interest and similar charges (48,511,431,177) (71,661,833,469)

Exchange rate differences on financing activities 376,551,705,769 471,410,821,814

Cash Flows from Financing Activities [3] 414,004,796,220 202,672,848,997

Changes in cash and cash equivalents [1]+[2]+[3]=[4] [4] 105,344,120,085 (547,766,808,325)

Impact of exchange rate differences 331,995,931,951 398,127,542,893

Cash and cash equivalents at the beginning of the year 612,012,426,498 699,545,177,413

Cash and cash equivalents at the end of the year 1,049,352,478,534 612,012,426,498


Qualified opinion 10 In our opinion, except for the possible effects of the matters described in paragraphs 6 to 9 under the section “Basis for qualified opinion”, the consolidated financial statements of Sonangol – Sociedade Nacional de Combustíveis de Angola, E.P. and of the companies included in the scope of consolidation as defined by the Board of Directors referred to in paragraph 1 above have been prepared in all material respects in accordance with the accounting policies described in Note 2 of the Notes to the consolidated financial statements. Luanda, June 26, 2017 For PricewaterhouseCoopers (Angola), Limitada (This is merely a free translation, not signed)

Basis for qualified opinion 6 Sonangol Group has several types of transactions with the State of Angola, including those related to its activity as National Concessionaire. This activity is reflected in the contracts with the Contractor Groups which define, amongst others, the financial terms related to bonuses, provisions for abandonment, price caps and surface rents. As disclosed in notes 9, 18 and 19 of the notes to the consolidated financial statements, the consolidated balance sheet as at December 31, 2016 includes the following balances resulting from those transactions which, relate to financial transactions with the National Treasury in the Group’s role as National Concessionaire: accounts receivable amounting to AOA 25,531,093 thousand (2015: AOA 5,924,124 thousand) and accounts payable amounting to AOA 436,248,242 thousand (2015: AOA 332,742,218 thousand). We have been unable to determine if these balances reflect adequately all underlying transactions, rights and obligations. 7 Exploration and evaluation assets as at December 31, 2016 include AOA 215,035,603 thousand and AOA 310,003,279 thousand of investments in Block 21.09 and Block 31, respectively. As stated in note 5A of the notes to the consolidated financial statements, the recoverability of the investment in Block 21.09 depends on the definition of a gas exploration regulatory framework while the recoverability of the investment in Block 31 is dependent on the implementation of more efficient exploration techniques. Given the inherent uncertainty regarding these assumptions, we are unable to conclude, with the necessary precision, on the recoverability of these investments. 8 Tangible fixed assets, other financial assets, inventories and accounts receivable in the consolidated balance sheet of Sonangol EP include AOA 44,408,188 thousand (AOA 2015: 29,703,097 thousand), AOA 81,870,578 thousand (2015: AOA 62,144,614 thousand), AOA 5,731,951 thousand (2015: AOA 7,747,097 thousand) and AOA 22,279,960 thousand (2015: AOA 10,146,190 thousand), respectively, related to non-core segments for which there is an ongoing internal reconciling process as well as several actions to enable their recoverability. As such, we are unable to conclude on these balances and on the effect that potential adjustments resulting from these processes, if any, may have on the consolidated financial statements as at December 31, 2016. 9 As stated in note 2.3 of the notes to the consolidated financial statements, Sonangol EP changed its accounting policy in respect of the recognition of physical assets acquired by Contractor Groups under the terms of Production Sharing Agreements signed with the National Concessionaire, that attribute ownership of these assets to Sonangol (“Concessionaire Assets”), being these assets now presented in the balance sheet. As such, the consolidated balance sheet item Reversible assets as at December 31, 2016 includes AOA 167,395,968 thousand related to those assets that Sonangol EP was able to identify as at that date. There is an ongoing process to value and identify all Concessionaire Assets, but Sonangol EP has not yet been able to obtain the required information from all Block operations. As such, we are unable to determine the impact, if any, that the conclusion of this exercise might have on the consolidated financial statements at December 31, 2016.


9.3 OPINION OF THE FISCAL COUNCIL ON THE CONSOLIDATED ACCOUNTS AS AT 31ST DECEMBER 2016

Sociedade Nacional de Combustíveis de Angola, E.P.

(Free Translation from the original in Portuguese)

OPINION OF THE SUPERVISORY BOARD TO THE MANAGEMENT REPORT AND TO THE CONSOLIDATED FINANCIAL

STATEMENTS, AS OF THE ECONOMIC PERIOD ENDED AT 31 DECEMBER 2016

Dear representatives of the shareholder (State) of the

Sociedade Nacional de Combustíveis de Angola, E.P.

1. In compliance with the legal requirements in place, it is our responsibility, as members of the Supervisory Board of Sociedade Nacional de Combustíveis de Angola, E.P.(SONANGOL E.P.), to issue an opinion on the Management Report, the annual consolidated Financial Statements and additional reporting statements, presented by the Board of Directors for the year ended 31 December 2016.

2. The Supervisory Board, after the closure of the consolidated accounts, assessed the reporting documents, such as, the management report, balance Sheet, Profit and Loss Statement and related explanatory Notes.

3. The Supervisory Board, also reviewed the independent auditor Report and became aware of the nature of the qualifications raised.

4. From the Board of Directors and other departments we always obtained the requested clarifications, in a context of high level of cooperation. Based on the work performed, we concluded that:

i. The consolidated financial statements, and the respective annexes, allow a proper comprehension of the financial situation and Company results - within the limits of the consolidation perimeter and qualifications raised by the independent auditor;

ii. The accounting policies and valuation methods adopted were the more

suitable, having as reference the General Accounting Plan of Angola (PGC) and the International Financial Reporting Standards (IFRS); and,

iii. The Management Report is sufficiently clear of the business evolution and the position of the Company, as well as of the group of companies included in the consolidation perimeter.

5. In this terms, taking in consideration the information received from the Board of

Directors and other departments of the Company, as well as the conclusions included within the independent auditor report, the Supervisory Board recommends to the Board of Directors to follow with the actions that will lead to the transformation of SONANGOL, E.P., having as reference the vision of the Shareholder, as well the intention to solve the qualifications raised.

6. To the Shareholder, the Supervisory Board proposes:

a) To approve the Management Report and the Group Financial Statements of the economic year ended 31 December 2016;

b) That the net results of the period are applied in company’s operations, taking into consideration the need to leverage the main business units and to generate a higher cash surplus; and,

c) To keep supporting the transformation strategy of the Sonangol Group, having as objective a higher efficiency of the entire petroleum sector chain and a higher added value to the shareholder and remaining stakeholders.

Luanda, 30 of June 2017

SUPERVISORY BOARD

Emílio Londa

(President)

André Goma

(Vowel)

Hélder Gourgel

(Vowel)


DETAILED INDEX1 LETTERTOTHESHAREHOLDERS 62 SONANGOLE.P. 10

2.1 BUSINESSMODELOFSONANGOL,E.P 12

2.2 CORPORATEBODIES 15

3 STRATEGICFRAMEWORK 183.1 INTERNACIONALFRAMEWORK 20

3.2 NATIONALCONTEXT 20

3.3 SONANGOLCONTEXT 21

3.4 SONANGOLSTRATEGY 21

3.4.1 INITIATIVESOFRESPONSETOTHEEMERGENCYSITUATION 21

3.4.2 RELEASEOFNEWSONANGOLSTRATEGY 22

4 SUMMARYOFRESULTS 244.1 EXECUTIVESUMMARY 26

4.2 OPERATINGPERFORMANCE–EBITDA 26

4.3 OPERATINGPERFORMANCE–NETINCOME 27

4.4 INVESTMENTS 27

5 PERFORMANCEBYBUSINESSSECTOR 305.1 CONCESSIONAIRE 32

5.1.1 EXPLORATION 33

5.1.1.1 BIDS 33

5.1.1.2 SEISMICACQUISTION 33

5.1.1.3 SEISMICPROCESSING 34

5.1.1.4 SURVEY-EXPLORATIONACTIVITYANDEVALUATION 35

5.1.1.5 RESOURCESDISCOVERED 37

5.1.1.6 DEVELOPMENTPROJECTS 37

5.1.2 CRUDEOIL&GASPRODUCTION 38

5.1.2.1 CRUDEOILPRODUCTION 38

5.1.2.2 CRUDEOILRIGHTSOFNATIONALCONCESSIONAIRE 43

5.1.2.3 GASPRODUCTION 44

5.1.2.3.1 PRODUCTIONOFASSOCIATEDNATURALGAS 44

5.1.2.3.2 LPGPRODUCTION 45

5.1.2.3.3 LPGANDCONDENSATESPRODUCTION 46

5.1.3 ECONOMICMANAGEMENTOFCONCESSIONS 46

5.1.3.1 PRODUCTIONCOSTS 46

5.1.4 CONCESSIONAIREEXPORTS 47

5.1.4.1 RECOVERYOFINVESTMENTSMADEINPRODUCTIONCONCESSIONS 47

5.2 PRIMARYVALUECHAIN–UPSTREAMSEGMENT 48

5.2.1 PRODUCTIONOFGROSSOILOFSONANGOLINVESTOR 49

5.2.2 GASPRODUCTIONOFSONANGOLE.P 50

5.2.2.1 LPGPRODUCTION 50

5.2.2.2 LPGANDCONDENSATESPRODUCTION 51

5.2.2.3 STRUCTURALPROJECTSOFTHEUPSTREAMVALUECHAIN 51


5.3 PRIMARYVALUECHAIN–MIDSTREAMSEGMENT 51

5.3.1 REFININGBUSINESS 52

5.3.2 CRUDEOIL,REFINEDANDGASTRANSPORTATIONBUSINESS 55

5.3.3 STRUCTURINGPROJECTSOFTHEVALUECHAINMIDSTREAM 56

5.3.3.1 CONSTRUCTIONPROJECTOFREFINARIADELOBITO 56

5.4 PRIMARYCHAIN-DOWNSTREAMSEGMENT 56

5.4.1 LOGISTICSBUSINESS 57

5.4.1.1 PROCUREMENT 57

5.4.1.2 STORAGE 58

5.4.2 DISTRIBUTIONBUSINESS 59

5.4.2.1 DISTRIBUTION 59

5.4.3 INTERNATIONALDISTRIBUTION 61

5.4.3.1 CRUDEOIL 61

5.4.3.2 PRICEOFTHEANGOLANTYPE 63

5.4.3.3 EXPORTOFREFINEDPRODUCTS 63

5.5 NON-NUCLEARBUSINESS 64

5.5.1 AVIATION-SONAIR 64

5.5.2 HEALTH-CLÍNICAGIRASSOL 66

5.5.3 TELECOMMUNICATIONS-MSTELCOM 67

5.5.4 REALESTATEMANAGEMENT-SONIP 68

5.5.5 TRAINING–ACADEMIASONANGOL 69

5.6 WORKFORCEBYBUSINESSSEGMENT 70

5.6.1 FINANCING 70

5.6.2 HUMANRESOURCES 70

5.6.2.1 ACTUALCOMPOSITION 70

5.6.2.2 HRTRANSFORMATION 71

5.6.3 ORGANIZATIONANDCORPORATEPROCESSES 72

5.6.3.1 NEWQSSAPOLICY 72

5.6.4 CONSOLIDATIONOFCORPORATEPROCESSES 72

6 COMMITMENTTOSOCIETY 747 PROSPECTSFORTHEFUTURE 78

7.1 EVOLUTIONOFTHENATIONALANDINTERNATIONALCONTEXT 80

7.2 NEWPRODUCTION 81

7.3 IMPLEMENTATIONOFTHETRANSFORMATIONPROGRAM 81

8 PROPOSALFORTHEAPPLICATIONOFTHERESULTS 829 ANNEX 86

9.1 CONSOLIDATEDFINANCIALSTATEMENTS 88

A) FINANCIALBALANCESHEET 88

B) CONSOLIDATEDFINANCIALSTATEMENTSASAT31STDECEMBER2016 89

C) STATEMENTOFCONSOLIDATEDCASHFLOWS 90

9.2 REPORTOFTHEINDEPENDENTAUDITORONTHECONSOLIDATEDACCOUNTSASOFDECEMBER31,2016 90

9.3 OPINIONOFTHEFISCALCOUNCILONTHECONSOLIDATEDACCOUNTSASAT31STDECEMBER2016 94

CAPTIONS

GRAPHICS:GRAPHIC1–BRENTPRICEEVOLUTIONBETWEEN2014AND2016 20

GRAPHIC2–EVOLUTIONOFGDPGROWTH2010–2016(%) 20

GRAPHIC3–EVOLUTIONOFTHEINFLATIONRATE2010–2016(%) 21

GRAPHIC4–2016EBITDABYSEGMENT 26

GRAPHIC5–2016NETINCOMEBYSEGMENT 27

GRAPHIC6-EXECUTIONOFINVESTMENTSBYSEGMENT 28

GRAPHIC7–CRUDEOILPRODUCTIONINANGOLABYBLOCK 39

GRAPHIC8–CRUDEOILPRODUCTIONBYOPERATOR 41

GRAPHIC9–CONCESSIONAIRE’SGROSSOILRIGHTSBYBLOCK 44

GRAPHIC10–LPGPRODUCTIONBYORIGIN 45

GRAPHIC11–PRODUCTIONPROFILEOFREFINEDPRODUCTS 54

GRAPHIC12–REFINEDPRODUCTSANDGASTRANSPORTATION 56

GRAPHIC13-DISTRIBUTIONOFREFINEDPRODUCTSBYBUSINESSSEGMENT 59

GRAPHIC14–MARKETSHAREBYBUSINESSSEGMENT 60

GRAPHIC15-EXPORTSOFCRUDEOILBYTYPE 62

GRAPHIC16-EVOLUTIONOFTHEBRENTPRICEANDANGOLANTYPES 63

GRAPHIC17-EXPORTPROFILEOFREFINEDPRODUCTS 64

GRAPHIC18-NUMBEROFSONANGOLEMPLOYEES 70

GRAPHIC19–WORKFORCEBYBUSINESSSEGMENT 70

GRAPHIC20–EFFECTIVEBYFUNCTIONALBAND 70

TABLESTABLE1–SONANGOLE.P.’S2016INVESTMENTSPROGRAM6 28

TABLE2–EXPLORATIONACTIVITY[SEISMICACQUISITION] 33

TABLE3–SEISMICPROCESSINGCOMPLETED 34

TABLE4–SEISMICPROCESSINGINPROGRESS 35

TABLE5–EXPLORATIONWELLS 35

TABLE6–EVALUATIONWELLS 36

TABLE7–DEVELOPMENTWELLS 36

TABLE8-HYDROCARBONRESOURCESDISCOVERED 37

TABLE9–STATUSOFOILPROJECTS 37

TABLE10–CRUDEOILPRODUCTIONINANGOLA 38

TABLE11–RIGHTSOFCRUDEOILPRODUCTIONBYCOMPANIES 40

TABLE12–CRUDEOILPRODUCTIONBYOPERATOR 41

TABLE13–CONCESSIONAIRE’SGROSSOILRIGHTSBYBLOCK 43

TABLE14–PRODUCTIONOFASSOCIATEDNATURALGAS 44

TABLE15–LPGPRODUCTIONINANGOLA 45

TABLE16–OPERATIONCOSTSINPRODUCTIONCONCESSIONS 46


TABLE17–EXPORTATIONSMAPOFSONANGOLCONCESSIONAIRE 47

TABLE18–RECOVEREDCOSTSINPRODUCTIONCONCESSIONS 47

TABLE19–PRODUCTIONOFGROSSOILOFSONANGOLINVESTOR 49

TABLE20–LPGPRODUCTIONSONANGOLSHARE 50

TABLE21–AVERAGEINSTALLEDCAPACITYUTILIZATIONRATE 53

TABLE22-VOLUMEOFCRUDEOILPROCESSED 53

TABLE23–REFINEDPRODUCTION 53

TABLE24–VOLUMEOFCRUDEOILTRANSPORTED 55

TABLE25–VOLUMEOFDERIVEDPRODUCTSTRANSPORTEDBYSEGMENT 55

TABLE26–ACQUISITIONOFREFINEDPRODUCTSBYORIGIN 57

TABLE27-REFININGPRODUCTSPROCUREMENT 58

TABLE28–STORAGECAPACITY 58

TABLE29-QUANTITIESOFDISTRIBUTEDREFINEDPRODUCTS 59

TABLE30–EXPORTSOFCRUDEOILBYTYPES 61

TABLE31–QUANTITYOFEXPORTEDREFINEDPRODUCTS 63

TABLE32–MAPOFSONAIROPERATIONALINDICATORS 65

TABLE33-MAPOFOPERATIONALINDICATORSOFCLÍNICAGIRASSOL 66

TABLE34–MSTELCOMINDICATORSMAP 67

TABLE35–SOLDREALESTATE 68

TABLE36–MAININDICATORSOFEDUCATIONANDTRAINING 69

FIGUREFIGURE1–SONANGOL,E.P.ASANINTEGRATEDOILANDGASCOMPANY 13

FIGURE2–CORPORATEMATRIXOFSONANGOL,E.P.ANDOVERVIEWOFITSSUBSIDIARIES 14

FIGURE3–DISTRIBUTIONOFREFINEDPRODUCTSBYREGIONS 60

FIGURE4–DESTINATIONOFTHECRUDEOIL 62


CONSOLIDATED FINANCIAL STATEMENTS 2016

CONTENTS

CONSOLIDATED FINANCIAL STATEMENTS:

CONSOLIDATED BALANCE SHEET 108

CONSOLIDATED STATEMENT OF PROFIT & LOSS 109

STATEMENT OF CONSOLIDATED CASH FLOWS 110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. ACTIVITY AND CORPORATE INFORMATION 114

2. ACCOUNTING POLICIES USED IN THE PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS 1162.1 Basis of preparation 116 2.2 Judgment, estimates and significant assumptions used 1192.3 Basis of valuation adopted in preparing the Consolidated Financial Statements 1242.4 Changes in accounting policy 146

3. OPERATIONAL SEGMENTS 146

4. TANGIBLE FIXED ASSETS 1504.1 Tangible fixed assets 150

4.A. Oil and gas properties 1524.B. Reversible assets 154

5. INTANGIBLE ASSETS 1545.1 Details by nature 1545.2 Movements during the period in gross amount 1555.3 Movements during the period in accumulated depreciations 155

5.A. Exploration and evaluation assets 156

6. FINANCIAL INVESTMENTS 1586.1 Details by type of measurement 158 6.2 Details by entity – financial investments – cost less impairment losses 1586.3 Details by entity – financial investments – fair value 160

7. OTHER FINANCIAL ASSETS 1627.1 Details by nature 162

8. INVENTORIES 1668.1 Details of the movements in inventories 166

9. OTHER NON-CURRENT ASSETS AND ACCOUNTS RECEIVABLE 1669.1. Details by nature 1669.2 Participants and affiliates 1679.3 Other debtors 1689.4 Concessionaire rights - asset 170

10. CASH AND BANKS 17110.1 Details by nature 17110.2 Details of trading securities 173

11. OTHER CURRENT ASSETS 173

12. CAPITAL AND SUPPLEMENTARY CAPITAL CONTRIBUTIONS 174

13. RESERVES AND RETAINED EARNINGS 175

15. LOANS 17915.1 International bank loans 179

17. PROVISIONS FOR PENSION PLANS 17917.1 Pension plans and termination benefits 181

17.2 Types of benefits plans and termination benefits 181

17.3 Liabilities with defined benefits plans and termination benefits 183

17.4 Actuarial gains and losses 183

17.5 Fair value of the plan assets 184

17.6 Sensitivity analysis 185

18. PROVISIONS FOR OTHER RISKS AND CHARGES 18518.1 Details of provisions for other risks and charges 185

18.2 Provisions for law suits 185

18.3 Provisions for tax contingencies 186

18.4 Dismantling provision – Sonangol as an investor 186

18.5 Abandonment fund (Concessionaire) 186

19. OTHER NON-CURRENT LIABILITIES AND ACCOUNTS PAYABLE 18719.1 Details of other non-current liabilities and accounts payable 187

19.2 Transactions with the National Concessionaire 187

19.3 State 189

19.4 Creditors - mining activity 189

19.5 Pension fund 189

19.6 Creditors - Over lift 189

19.7 Other creditors 190

21. OTHER CURRENT LIABILITIES 191

22. SALES 192

23. SERVICES RENDERED 192

24. OTHER OPERATIONAL INCOME 193

25. VARIATION IN FINISHED PRODUCTS 193

26. CONCESSIONAIRE COST (SALES ON BEHALF OF THE STATE) 194

27. COST OF GOODS SOLD AND RAW MATERIALS CONSUMED 19427.A. Oil and Gas exploration and operating costs 194

28. PERSONNEL COSTS 195

29. DEPRECIATIONS 196

30. OTHER OPERATIONAL COSTS 197

31. FINANCIAL RESULTS 198

32. RESULTS FROM SUBSIDIARIES AND ASSOCIATES 199

33. NON-OPERATIONAL RESULTS 200

34. EXTRAORDINARY RESULTS 201

35. INCOME TAXES 201

36. LIABILITIES NOT DISCLOSED IN THE BALANCE SHEET 201

37. CONTINGENCIES 201

38. EVENTS AFTER BALANCE SHEET DATE 202

39. GOVERNMENT AND OTHER ENTITIES SUBSIDIES 202

40. BALANCES AND TRANSACTIONS WITH RELATED PARTIES 202

41. INFORMATION REQUIRED BY LOCAL LEGISLATION 202

42. FINANCING GUARANTEES 202

14CONSOLIDATED

FINANCIAL STATEMENTS

ANNUAL REPORT 2016106 107

CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER 2016

CONSOLIDATED STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED 31ST DECEMBER 2016

31-12-2016 31-12-2015

AOA AOA

Sales 22 2,283,777,182,435 2,204,629,805,500

Services rendered 23 153,224,082,059 125,507,581,433

Other operational income 24 14,892,561,009 19,548,358,800

2,451,893,825,503 2,349,685,745,733

Variation in finished products 25 3,836,578,246 3,704,162,142

Concessionaire cost (sales on behalf of the State) 26 (895,401,469,527) (896,003,230,503)

Cost of goods sold and raw materials consumed 27 (387,384,114,574) (470,572,686,343)

Oil&Gas exploration and operating costs 27A (265,076,687,029) (241,180,301,496)

Payroll 28 (157,888,458,184) (135,030,918,980)

Depreciation 29 (369,588,981,285) (326,668,631,760)

Other operational costs 30 (224,713,290,176) (224,937,544,983)

(2,296,216,422,529) (2,290,689,151,924)

Operational Income 155,677,402,974 58,996,593,809

Financial income and expenses 31 (54,032,242,686) 112,717,710,570

Result of affiliates 32 4,155,000,522 36,150,780,982

Non-operating income and expenses 33 (8,528,579,984) (102,571,154,705)

(58,405,822,148) 46,297,336,848

Income before taxes 97,271,580,826 105,293,930,657

Taxes 35 (84,068,375,918) (57,200,225,969)

Current activities net income 13,203,204,908 48,093,704,688

Extraordinary income and expenses 34 78,473,316 (924,949,027)

Net income 13,281,678,224 47,168,755,661

31-12-2016 31-12-2015

AOA AOA

Assets

Non-current Assets

Tangible fixed assets 4 937,802,927,657 816,000,337,114

Intangible assets 5 65,059,719,976 30,085,222,003

Oil&Gas upstream assets 4A 2,447,205,577,713 1,685,112,617,507

Reversible assets 4B 167,395,967,501 -

Exploration and evaluation assets 5A 724,759,575,062 126,797,283,209

Investments in subsidiaries and associates 6 470,928,863,134 684,095,454,331

Other financial assets 7 178,422,503,244 239,006,873,583

Other non-current assets 9 613,187,525,103 1,540,099,649,526

Bank deposits 10 222,410,168,298 -

Total Non-current Assets 5,827,172,827,688 5,121,197,437,272

Current Assets

Inventories 8 100,547,093,054 112,145,562,903

Accounts receivable 9 745,937,958,438 476,802,584,626

Cash and equivalents 10 826,942,310,235 612,012,426,498

Other current assets 11 8,080,175,562 24,601,830,659

Total Current Assets 1,681,507,537,289 1,225,562,404,685

Total Assets 7,508,680,364,977 6,346,759,841,957

Equity and Liabilities

Equity

Capital 12 1,946,558,748,877 1,285,386,630,238

Reserves and retained earnings 13 338,098,712,393 658,012,125,318

Forex translation (financial statement conversion) 838,166,239,916 538,546,953,088

Income for the year 13,281,678,224 47,168,755,661

Total Equity 3,136,105,379,410 2,529,114,464,306

Non-Current Liabilities

Medium and long term loans (Debt) 15 1,144,568,504,953 1,399,951,616,146

Employee benefit liability (provisions) 17 104,559,096,058 90,517,865,013

Provisions for other risks and charges obligations 18 1,222,092,751,908 840,762,821,277

Other non-current liabilities 19 137,700,246,412 105,387,334,355

Total Non-Current Liabilities 2,608,920,599,331 2,436,619,636,790

Current Liabilities

Accounts payable 19 1,151,232,809,152 844,493,052,874

Short term loans 15 507,473,441,589 450,746,221,639

Other current liabilities 21 104,948,135,494 85,786,466,348

Total Current Liabilities 1,763,654,386,236 1,381,025,740,861

Total Liabilities 4,372,574,985,567 3,817,645,377,652

Total Equity and Liabilities 7,508,680,364,977 6,346,759,841,957

CONSOLIDATED FINANCIAL STATEMENTS

109ANNUAL REPORT 2016108

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT 31ST DECEMBER 201614

STATEMENT OF CONSOLIDATED CASH FLOWS FOR THE YEAR ENDED 31ST DECEMBER 2016

31-12-2016 31-12-2015

AOA AOA

Cash Flows of Operational Activities

Customers reimbursements 2,278,348,412,578 1,521,584,831,534

Suppliers payments (1,615,184,518,515) (861,393,859,993)

Payroll payments (158,012,847,123) (136,730,464,995)

Cash related with operations 505,151,046,940 523,460,506,546

Payment/Receivables related with taxes (124,959,795,905) (72,547,080,021)

Other Payments/Receivables (93,783,699,526) (12,876,710,582)

Exchange rate differences on operational activities 253,413,671 220,217,733,426

Cash Flows from Operational Activities [1] 286,660,965,181 658,254,449,368

Cash Flows of Investing Activities


Tangible fixed assets (108,069,924,072) (82,546,664,592)

Intangible assets (29,328,130,338) (240,273,787)

Oil&Gas upstream assets (447,640,264,982) (597,748,320,382)

Financial Investments 0 (93,215,170,654)

Real Estate Investments (10,900,820,321) (5,437,682,886)


Financial Investments 86,645,166,117 11,783,333,201

Interest and similar income 9,553,186,272 5,443,752,865

Dividends 4,155,000,522 44,895,474,784

Exchange rate differences on investing activities (99,735,854,512) (694,398,928,798)

Cash Flows from Investing Activities [2] (595,321,641,315) (1,411,464,480,249)

Cash Flows of Financing Activities


Loans 0 125,783,212,871

Capital increases and other equity instruments 672,486,100,000 67,994,200,000


Loans (586,521,578,372) (390,853,552,219)

Ordinary Loans (414,690,054,563) (390,853,552,219)

Prepayments (171,831,523,810) 0

Interest and similar charges (48,511,431,177) (71,661,833,469)

Exchange rate differences on financing activities 376,551,705,769 471,410,821,814

Cash Flows from Financing Activities [3] 414,004,796,220 202,672,848,997

Changes in cash and cash equivalents [1]+[2]+[3]=[4] [4] 105,344,120,085 (547,766,808,325)

Impact of exchange rate differences 331,995,931,951 398,127,542,893

Cash and cash equivalents at the beginning of the year 612,012,426,498 699,545,177,413

Cash and cash equivalents at the end of the year 1,049,352,478,534 612,012,426,498

ANNUAL REPORT 2016110


111

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS


1. ACTIVITY AND CORPORATE INFORMATION

The Sociedade Nacional de Combustíveis de Angola E.P. (here and after “Sonangol EP” or “Company” as individual company, or “Sonangol Group” or “Group” when referred as Sonangol EP and the entities included in the consolidation perimeter) with headquarters in Rua Rainha Ginga n.º 29-31 – Luanda, Angola, has as its main activity the oil & gas industry exploration, appraisal and production of hydrocarbons (upstream), together with other Midstream and Downstream activities related to sale of related products to the final customer.

By the Law n. 10/04 (Oil Activities Law), Sonangol EP was designated as the Entity to which the Angolan State has granted the mining rights of exploration, development and production of liquid and gaseous hydrocarbons. As the National Concessionaire, Sonangol is authorized to jointly perform petroleum operations together with foreign or Angolan companies. These operations are substantiated in association contracts, production sharing agreements and service contracts with risk.

The Group is present in various activities related with Oil & Gas, divided into 5 main segments, as follows:

CORPORATE & FINANCING This segment includes the activities related with financial investments “core” and the Sonangol Group financing.

UPSTREAMThis segment incorporates Oil & Gas exploration and production activities onshore and offshore as either operator or non-operator of joint arrangements.

MIDSTREAMThis segment includes the activities of refining and transportation of crude oil, natural gas and by-products.

DOWNSTREAMThis segment includes storage, commercialization and delivery of by-products, crude oil and natural gas to the final customer.

“NON CORE”This segment includes all other Group activities, not related with the value chain of the oil and gas business.

These consolidated financial statements were approved by Board of Directors of Sonangol EP at the Board meeting held on 22th June 2017, being further subject to the approval of the Shareholder and supervising Government member, which has the capability to change them after the authorization of the Board of Directors of Sonangol EP.

It is the opinion of the Board of Directors of Sonangol EP that these consolidated financial statements present a true and fair view of the Sonangol Group operations and its financial position and the cash flows, in accordance with the accounting rules and principles set out in Notes 2 and 3.


115ANNUAL REPORT 2016114


2. ACCOUNTING POLICIES USED IN THE PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

2.1 BASIS OF PREPARATION

2.1.1 BASIS OF PREPARATION AND ACCOUNTING FRAMEWORK USED

The consolidated financial statements and the related notes were prepared based upon the accounting policies defined by the Board of Directors. Although they were not prepared in accordance with generally accepted accounting principles, they take by reference the best practices of the national accounting policies and the International Financial Reporting Standards (IFRS). These principles are explained throughout Notes 2 and 3.

For the preparation of the financial statements, the Sonangol Group followed the historical cost basis, except as stated in Note 2.3. q), under which the assets were recognized by the amount of cash or cash equivalents paid or to be paid, at the exchange rate to the presentation currency, at acquisition date, and the liabilities were recognized by the amount of the products and services received in exchange for the present obligation or the amount of cash to be paid, at the exchange rate for the presentation currency, at transaction date.

The carrying amounts of monetary items nominated in foreign currencies (when related to the presentation currency) are updated using the exchange rate at reporting date, on the basis of the reference exchange rates published by the National Bank of Angola (“Banco Nacional de Angola”). The carrying amounts of non-monetary items nominated in foreign currencies (when related to the presentation currency) are not updated. Favourable and unfavourable exchange rate differences are recognized in the Statement of Profit & Loss, under the caption “Financial income” or “Financial expenses”, respectively, either they are favourable or unfavourable to the Group.

The financial statement relate to the characteristics of relevance and reliability, were prepared on the basis of going concern and accrual accounting in compliance with the accounting principles of consistency, materiality and comparability.

2.1.2. BASIS OF PRESENTATION

The Group consolidated financial statements and the related Notes are presented in Kwanzas, in accordance with the classification, format and order outlined in the General Accounting Plan (“Plano Geral de Contabilidade” or “PGC”), adjusted by introduction of specific items relating to the Group’s core activity (oil and gas industry). The notes not mentioned are not applicable to the Sonangol Group, or not relevant, or as a result of the adopted he accounting policies.

The Group as also considered to what extent the currency in which the financial statements of the entities included in the consolidation perimeter are prepared, differ from the currency used by Sonangol Group.

For entities that present their financial statements in a currency other than Kwanza, the Sonangol Group has translated those financial statements to the presentation currency of the Group, using the exchange rates of the National Bank of Angola as follows: (i) assets and liabilities were translated at the closing exchange rate; (ii) income and expenses were translated at the average exchange rate for the year; (iii) equity was translated at the historical exchange rate. The resulting exchange differences are recognized within Equity in the caption “Forex translation adjustments (financial statement conversion)”.

The exchange rates used to translate the balances presented in a currency other than Kwanza were as follows:

Closing Exchange Rate 2016 2015

1 USD = 166,7280 AOA 135,9884 AOA

1 EURO = 186,2820 AOA 148,5730 AOA

1 GBP = 203,9580 AOA 201,5839 AOA

1 ZAR = 12,2230 AOA 8,8197 AOA

Average Exchange rate 2016 2015

1 USD = 164,0210 AOA 121,136 AOA

2.1.3 COMPARABILITY OF THE FINANCIAL STATEMENTS

The captions included in the financial statements are, as a whole, comparable with the previous period, except for:

• As disclosed in Note 4B, in relation to the change in the accounting policy applicable to recognize the assets acquired by the Contractors groups, for the execution of the work plans and budget of the concessions which revert by law and in accordance with the production sharing agreement to the concessionaire, at the end of the concession; and

• As disclosed in Note 2.1.4, in relation to changes in the consolidation perimeter in 2016 and the decision to integrate in the fixed assets of the Group the mining assets related with the participation held in FS and FST Associations (Note 4A).

2.1.4 CONSOLIDATION PERIMETER

The Sonangol Group has prepared consolidated financial statements, for the first time, in 2013. The definition of the consolidation perimeter, of the entities to be included in it and the consolidation method to be applied, was defined by the Board of directors for the purpose of providing the relevant information required by the Shareholder, the supervising Government member and the financing entities of Sonangol Group, and to provide accurate information for the purpose to which these financial statements were prepared.

The exclusion criteria from consolidation were the immateriality of the subsidiary, the absence of financial information timely, the existence of long and severe restrictions which, in accordance with the Board of directors, substantially prejudice the control exercise by the Sonangol Group of its rights over the patrimony or the management over the subsidiary, or the fact that the subsidiaries’ activities are so dissimilar that the inclusion on the consolidation would not provide relevant information over the economic situation of the Sonangol Group.



In the consolidation process, the following procedures were followed:

• Harmonisation of accounting principles and conversion of the financial statement, when the principles followed and the currency of presentation differ from the used by the Group;

• Sum of the financial statements of the subsidiaries included in the consolidation by the full consolidation method;

• Write off of the financial investments held in the subsidiaries and of the related equity;

• Adjustments related with the use of the acquisition method – calculation of the goodwill and of the non-controlling interests;

• Elimination of intra group balances and transactions;

• Reclassification of potential exchange rate differences, incurred by the parent company with the loans obtained for the acquisition of share capital of subsidiaries translation adjustments;

• Other necessary consolidation adjustments.

The entities integrating the Group, the percentage of shares held and the nature of the financial investment (subsidiary, joint arrangements, associate, other) are disclosed in Note 3 for subsidiaries (held 100%) consolidated by the full consolidation method and Note 6 for the other entities.

In comparison with the perimeter that was the base for the preparation of the consolidated financial statements of 2015, the following changes have occurred:

• Entrance: Sonils – Sonangol Integrated Logistic Services, Lda

• Entrance: Inloc Limited

• Entrance: Sonangol Asia

• Entrance: Sonangol Limited

• Entrance: Sonangol Hong Kong Limited

• Entrance: Sonangol USA

• Entrance: Solo Properties

The impact on the final balance resulted from inclusion of new entities are presented and disclosed in the different categories of the financial statements below:

Amounts in Thousands AOA

Description Sonils Inloc Sonangol ASIA

Sonangol LTD

Sonangol Hong-Kong

Sonangol USA

Solo Properties

Assets (A) 116,128,366 14,912,889 333,880 1,432,362 35,464,748 8,387,179 14,311,052

Equity (E) 72,357,981 14,386,353 325,927 722,331 30,478,314 5,727,245 6,732,444

Liabilities (L) 43,770,384 526,535 7,954 710,031 4,986,434 2,659,934 7,578,608

A-(E+L) - - - - - - -

2.2 JUDGMENT, ESTIMATES AND SIGNIFICANT ASSUMPTIONS USED

The preparation of the Consolidated Financial Statements requires judgment, estimates and assumptions that affect the amount of income, expenses, asset and liabilities, and the related disclosures, and the disclosure of contingent liabilities at the date of the consolidated financial statements.

Estimates and judgments are continuously reviewed and are based on the management experience and also other factors, including expectations of future events that are believed to be reasonable according to the circumstances. However, uncertainty related to assumptions used and the estimates made, may lead to conclusions that require material adjustments to assets book values and liabilities in future periods.

In particular, the Group has identified the following areas where significant judgements, estimates and assumption are required. Additional information on each of these areas and how they impact the various accounting policies are described below and also in the relevant notes to the financial statements.

Changes in estimates are treated prospectively.

2.2.1 JUDGEMENTS

(i) Joint arrangements

Judgment is required to determine when the Group has joint control over an arrangement, which requires an assessment of the relevant activities and when the decisions in relation to those activities require unanimous consent. The Group has determined that the relevant activities for its joint arrangements are those relating to the operating and capital decisions of the arrangement, such as the approval of the annual investment and operating expenditure work program and to nominate, remunerate and destitute the personnel responsible for the management or suppliers of the joint arrangement. See Note 2.3.b) for further details.

Judgment is also required to classify a joint arrangement. Classifying the joint arrangement requires the Group to assess their rights and obligations arising from the arrangement. Specifically, the Group considers:

• The structure of the joint arrangement – whether it is structured through a separate vehicle

• When the arrangement is structured through a separate vehicle, the Group also considers the rights and obligations arising from:

• The legal form of the separate vehicle;

• The terms of the contractual arrangement;

• Other facts and circumstances, considered on a case by case basis.

This assessment often requires significant judgment and can affect significantly the accounting treatment.

Investments in associates and joint arrangements are measured at cost less impairment.



(ii) Contingencies

By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence, and potential amount, of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events.

2.2.2 ESTIMATES AND SIGNIFICANT ASSUMPTIONS

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market change or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

(i) Hydrocarbon reserve and resource estimates

The estimation of crude oil reserves are an integral part of the decision-making process relating to the assets of upstream activities, in addition to supporting the development or implementation of assisted recovery techniques (secondary and tertiary).

The volumes of crude oil proved reserves that the company uses for the preparation of financial statements, arise from external independent expert reports in the case of blocks operated by the Group an operators information in case of blocks not operated by the Group. This information is updated annually and is used to calculate the depreciation of assets relating to the oil and gas production activity according to the unit of production method as well as for the annual recognition of decommissioning costs of the blocks. For evaluation of impairment of investments in assets relating to upstream activity (see Note 2.2.2 iv)), the Group uses the same source of information used for the calculation of depletion, however it uses both proven and probable reserves and considers the future investment to be made to access these reserves.

The estimation of reserves is subject to future revision, based on new information available, for example, for development activities (drilling and projects), information on exchange rates, prices, contract termination dates or development plans (sanctioning development projects), the advent of new technologies, etc.

The volume of crude oil produced and the cost of the assets are known, while reserves are based on estimates subject to adjustment (increase reserves to be produced). The impact on depletion and provisions for decommissioning costs resulting from changes in estimated proved reserves is treated prospectively, depleting the remaining net value of assets and adjusting the provision for decommissioning costs, respectively, depending on the expected future production. In case of a downward revision of proved reserves, net income may be adversely affected in the future by a higher amount of depreciation and provisions for decommissioning costs.

(ii) Exploration and evaluation expenditures

The application of the Group’s accounting policy for exploration and evaluation expenditure requires judgment to determine whether future economic benefits are likely, from either future use or sale, or whether activities have not reached a stage which permits a reasonable assessment of the existence of reserves. The determination of reserves and resources is itself an estimation process that involves several degrees of uncertainty depending on how the resources are classified. The capitalization policy requires management to make certain estimates and assumptions about future events and circumstances, in particular, whether an economically viable extraction operation can be established. Such estimates and assumptions may change as new information becomes available. If, after expenditure is capitalized, information becomes available suggesting that the recovery of the expenditure is unlikely, the capitalized amount is written off in the statement of profit or loss in the period when the new information becomes available (impairment).

(iii) Depreciation of Oil & Gas properties - Units of production method

Oil and gas properties are depreciated using the units of production method (UOP) method over total proved developed and undeveloped hydrocarbon reserves. This results in a depreciation charge proportional to the depletion of the anticipated remaining production from the field.

The useful life of each asset, which is assessed at least annually, has regard to both its physical life limitations and present assessments of economically recoverable reserves of the field at which the asset is located. The calculation of the UOP rate of depreciation will be impacted to the extent that actual production in the future is different from current forecast production based on total proved reserves, or future capital expenditure estimates change. Changes to proven reserves could arise due to changes in the factors or assumptions used in estimating reserves, including the effect on proved reserves of differences between actual commodity prices and commodity price assumptions

(iv) Recoverability of oil and gas assets

The Group assesses each asset or cash generating unit at each reporting period to determine whether any indication of impairment exists. For the specific situation of goodwill, it is assessed annually for impairment at each reporting date.

Where an indicator of impairment is identified, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs of disposal and value in use. In determining the recoverable amount of an asset, and particularly the fair value less costs of disposal, in situations where there are no recent market transactions, the Group used the discounted cash flows, and the assumptions were adjusted based on the assumptions that the market participants would use to evaluate the asset, cash generating unit or a group of cash generating units.

In accordance with this methodology, the cash flows and the discount rate are after taxes.

Oil and gas properties

The recoverable amount of the oi and gas properties was determined in accordance with the best Group Management estimation, based on the fair value less costs of disposal, as for the estimated cash flows for the period of the exploration of the blocks / fields, for the oil and natural gas prices curves



(considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital requirements, decommissioning costs (these based on updated information provided by the operators), exploration potential, reserves (see 2.2.2 Estimates and assumptions (i) Hydrocarbon reserves and resource estimates above) and operating performance (which includes production and sales volumes).

For the impairment tests, which were performed in USD and subsequently translated to AOA at the exchange rate at reporting date, the Group considered a discount rate after taxes between 9% and 11% and a current oil and natural gas prices curve of $55/barrel (2016) to $85/barrel (2025 and subsequent years).

The oil and gas properties that were tested are disclosed in Note 4.A. Oil and gas properties, net of any accumulated impairment loss recognized.

Exploration and evaluation assets

The Group uses the successful effort method for the capitalization of its exploration and evaluation assets, i.e., as long as it is expected that future expenditure will result in the discovery of hydrocarbon resources with technical, economic and commercial viability and the outcome of the evaluation activities, such as additional wells drilling or delineation wells would result in positive and favourable to the extraction of the discovered hydrocarbons.

When determining the recoverable amount of exploration and evaluation assets, the Group Management has used its best estimate to determine if the expected future economic benefits with the extraction of the hydrocarbons are higher than the investment performed, having considered for the effect the probable reserves in the testing areas and a current oil and natural gas prices curve of $55/barrel (2016) to $85/barrel (2025 and subsequent years).

This analysis was performed in USD and subsequently translated to AOA at the exchange rate at reporting date.

The exploration and evaluation assets that were tested are disclosed in Note 5.A. Exploration and evaluation assets, net of any impairment loss recognized in the period.

Real estate properties

The Group is the owner of several real estate properties (lands, buildings or part of a building) which are held for capital appreciation, to earn rentals or both.

In determining the recoverable amount, the Group Management has considered the amounts determined in accordance with the income approach method by internal and external valuers, considering the best use that the market would give to the asset.

The real estate that were tested are disclosed in Note 7 Other financial assets – investment in real estate properties, net of any impairment loss recognized in the period.

Goodwill

Sonangol Group has recognised a Goodwill related with the acquisition of Refinaria de Luanda to the Fina Petróleos and the acquisition of Inloc Limitada which holds 70% of Sonangol Integrated Logistic Services, Lda (Sonils), whose activity consists in logistical base for support of oil and gas operations in Porto de Luanda, under a Concession Arrangement, being both of them separate cash generation units (CGU).

The recoverable amount of the goodwill was determined based on the best Group Management estimate, based on the cash flows of each identified CGU, and assuming the oil and natural gas prices curves (considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital requirements, decommissioning costs, operating performance and concession period (when applicable).

For the impairment tests, the Group has considered the current oil and natural gas prices curve of $55/barrel (2016) to $85/barrel (2025 and subsequent years), a nominal discount rate in AOA between 18% and 21% for Refinaria de Luanda (forecasts in AOA) and a nominal discount rate in USD between 12% and 14% for the logistic operations held by Inloc Limitada (forecasts in USD).

The goodwill tested is disclosed in Note 5 Other intangible assets, net of any impairment loss recognized in the period.

Financial investment in Angola LNG

The recoverable amount of the financial investment held in Angola LNG was determined based on the best Group Management estimate, based on the fair value less costs of disposal, which was determined based on the cash flows of the business, the oil and natural gas prices curves (considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital requirements, decommissioning costs and operating performance (including production volumes and sales).

For the impairment tests, which were performed in USD and subsequently translated to AOA at the exchange rate at reporting date, the Group considered a nominal discount rate between 9% and 11% and a current oil and natural gas prices curve of $6,1/MMBTU (2017) to $7.14/MMBTU (2025).

The tested financial investment held in Angola LNG is disclosed in Note 6.2.1 Financial investment in Angola LNG, net of any accumulated impairment loss recognized.

The estimates and assumptions related with the recoverability of the assets “Oil and gas properties”, “Exploration and evaluation assets”, “Real estate properties” and “Goodwill” and other assets are subject to risk and uncertainty, therefore there is a possibility that changes in circumstances will impact these projections, which may impact the recoverable amount of assets and/or cash generating units.



(v) Decommissioning costs

Decommissioning costs will be incurred by the Group at the end of the operating life of some of the Group’s facilities and properties. The Group assesses its decommissioning provision at each reporting date, depending its extension of the evaluation of significant changes in the key assumptions and of the market information. The ultimate decommissioning costs are uncertain and cost estimates can change in response to many factors, including changes to relevant legal requirements, the emergence of new environmental restoration techniques. The expected timing, extent and amount of expenditure may also change — for example, in response to changes in reserves or changes in laws and regulations or their interpretation. Consequently, there could be significant adjustments to the provisions established which would impact future non-operational results of the Group.

External or internal valuers may be used to assist with the assessment of future decommissioning costs. The involvement of independent valuers is determined on a case by case basis, taking into account factors such as the expected total cost or timing of abandonment, and is approved by the Company’s Management. Selection criteria include market knowledge, reputation and independence.

The decommissioning provision at reporting date represents the best management’s estimate of the present value of the future decommissioning costs obligation.

2.3 BASIS OF VALUATION ADOPTED IN PREPARING THE CONSOLIDATED FINANCIAL STATEMENTS

(a) Investments in subsidiaries

The consolidated financial statements of Sociedade Nacional de Combustíveis de Angola – Empresa Pública (Sonangol E.P.) for the period ended on 31 December 2016, comprise the financial statements of the parent company (Sonangol E.P.) and its subsidiaries described in Note 3, following the criteria set out in Note 2.1.4.

Subsidiaries are those entities (including restructured entities) over which the Group exercises control and where the exclusion situations mentioned in Note 2.1.4 re not present. The Group controls an entity when it is exposed, or has rights, to variable returns resulting from its involvement with the investee and has the potential to affect those same returns through its power over the investee. The entities that meet these criteria are fully consolidated since the date the control is transferred to the Group, and are excluded when this control ceases.

Entities that are subsidiaries and include in the consolidation perimeter, are consolidated by the full consolidation method and are disclosed in Note 3.

The subsidiaries that were included in these consolidated financial statements are controlled in accordance with the requirements prescribed in IFRS 10 - Consolidated Financial Statements, which defines that control is obtained when the Group is exposed, or has rights, to variable returns resulting

from its involvement with the investee and has the potential to affect those same returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group presents:

• Power over the investee (existing rights confer the ability to direct the relevant activities of the investee);

• Exposure, or rights, to variable returns resulting from its involvement with the investee;

• The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of votes or similar rights over an investee it considers all relevant facts and circumstances when considering if the power over an investee, including:

• Contracted agreements with other shareholders of the investee;

• Rights arising from other contracted agreements;

• Voting rights and potential voting rights of the Group.

The Financial Statements of subsidiaries are prepared at the same reporting date, using consistent Group accounting policies.

When necessary, adjustments are made to the financial statements of subsidiaries to ensure that these accounting policies are consistent with the Group’s accounting policies. All balances and transactions between Group companies are totally eliminated.

A change in the percentage ownership in a subsidiary that does not result in a loss of control is treated as an equity transaction. When the Group loses control over a subsidiary, the Group proceeds as follows:

• Assets (including Goodwill) and the liabilities of this subsidiary are derecognized;

• Non-controlling interests are derecognized;

• Accumulated translation adjustments are derecognized;

• Fair value of the consideration received is recognized;

• Fair value of the participation retained is recognized;

• Any difference in current year income is recognized; and

• Reclassification of the Group share of elements formerly recognized in comprehensive are taken to income for the period.



(b) Interests in Joint Arrangements

A joint arrangement is an economic activity undertaken by two or more parties, subject to joint control through a contractual arrangement. Joint control is the contractually agreed sharing of control of an arrangement, whereby the Strategic, Finance and Operational decision of the activity requires unanimous consent of the parties sharing control.

i) Joint operations

A joint operations are a type of joint arrangement whereby the parties that have joint control of an economic activity have rights to the assets and obligations for the liabilities, relating to the arrangement.

In relation to its interests in joint operations, the Group recognizes its:

• Assets, including its share of any assets held jointly;

• Liabilities, including its share of any liabilities incurred jointly;

• Revenue from the sale of its share of the output arising from the joint operation;

• Share of the revenue from the sale of the output by the joint operation;

• Expenses, including its share of any expenses incurred jointly.

ii) Joint ventures

A joint ventures are a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets (equity) of the joint arrangement. The Group’s investment in its joint venture is accounted for using the equity method less impairment losses, and are disclosed in Note 6.1.

(c) Other financial investments

Except for financial investment measured at fair value (see Note 2.3 q)) the remaining financial investments (i.e. equity instruments in third party entities) are measured at acquisition cost net of impairment losses (when applicable), and are disclosed in Note 6.

(d) Business combinations and Goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at acquisition date.

The fair value of the identifiable assets acquired and liabilities and contingent liabilities assumed in a business concentration are initially measured at fair value at acquisition date, regardless if there are any non-controlling interests. The excess of the acquisition cost over the fair value of the interest held in the identified net assets is recognized as goodwill.

Acquisition related costs are expensed as incurred.

If the fair value of net assets acquired is greater than the aggregate consideration transferred, before recognizing a gain, the Group reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in the statement of profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s CGU s that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units.

(e) Exploration and evaluation expenditures

Exploration and evaluation expenditure are accounted for using the successful efforts method of accounting, which is detailed in Notes 4A, 5A and 27A.

i) Pre-license costs

Pre-license costs are expensed in the period in which they are incurred.

ii) License and property acquisition costs

Exploration license and leasehold property acquisition costs are capitalized in intangible assets under the caption “exploration and evaluation assets”.

License costs paid in connection with a right to explore in an existing exploration area are capitalized and amortized over the term of the permit.

License and property acquisition costs are reviewed at each reporting date to confirm that there is no indication that the carrying amount exceeds the recoverable amount. This review includes confirming that exploration drilling is still under way or firmly planned, or that it has been determined, or work is under way to determine that the discovery is economically viable based on a range of technical and commercial considerations and that sufficient progress is being made on establishing development plans and timing.

If no future activity is planned or the license has been relinquished or has expired, the carrying amount of the license and property acquisition costs are written off through the statement of profit or loss.

Upon recognition of proved reserves and internal approval for development, the relevant expenditure is transferred to oil and gas properties.

iii) Exploration and evaluation costs

Exploration and evaluation activity involves the search for hydrocarbon resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource.



Once the legal right to explore has been acquired, costs directly associated with an exploration well are capitalized as exploration and evaluation intangible assets until the drilling of the well is complete and the results have been evaluated. These costs include directly attributable employee remuneration, materials and fuel used, rig costs and payments made to contractors.

Geological and geophysical costs are recognized in the statement of profit or loss as incurred.

If no potentially commercial hydrocarbons are discovered, the exploration asset is written off through the statement of profit or loss as a dry hole (i.e. mining costs). If extractable hydrocarbons are found and, subject to further appraisal activity (e.g., the drilling of additional wells), it is probable that they can be commercially developed, the costs continue to be carried as an intangible asset while sufficient/continued progress is made in assessing the size, characteristics and commercial potential of a reservoir following the initial discovery of hydrocarbons, including the costs of appraisal wells where hydrocarbons were not found, are initially capitalized as an intangible asset.

Such capitalized costs are subject to technical, commercial and management review, as well as review for indicators of impairment at least once a year. This is to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, the costs are written off through the statement of profit or loss.

When proved reserves of oil and natural gas are identified and development is sanctioned by management, the relevant capitalized expenditure is first assessed for impairment and (if required) any impairment loss is recognized, then the remaining balance is transferred to oil and gas properties. Other than license costs, no amortization is charged during the exploration and evaluation phase.

iv) Development costs

Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including unsuccessful development or delineation wells, is capitalized within oil and gas properties as disclosed in Note 2.3 f).

(f) Oil and gas properties and other property, plant and equipment

The Group considers as oil and gas properties, those property, plant and equipment items directly related with oil and gas fields / blocks. These assets are disclosed separately in the face of the balance sheet under the caption “Oil and gas properties”.

i Initial recognition

Oil and gas properties and other property, plant and equipment are initially measured at cost, less accumulated depreciation and accumulated impairment losses (if and when applicable).

The acquisition cost of the asset comprises its purchase price or construction cost, which includes the acquisition costs, transportation costs, assembly and installation costs, other costs directly attributable to bringing the asset into operation, the initial estimate of the decommissioning obligation and, for qualifying assets, i.e., an asset that necessarily takes a substantial period of time to get ready for its intended use or sale (greater than 12 months), the borrowing costs. The purchase price or construction

cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset.

Specifically, for oil and gas properties, when a development project moves into the production stage, the capitalization of certain construction/development costs ceases, and costs are either regarded as part of the cost of inventory or expensed, except for costs which qualify for capitalization relating to oil and gas property asset additions, improvements or new developments.

ii) Amortisation

Amortisations of oil and gas properties and other property, plant and equipment, start when the asset has the conditions to be used, i.e., when it is located and in the necessary conditions for its intended use, and cease when the economic benefits incorporated are extinct, for impairment or derecognition.

OIL AND GAS PROPERTIES Oil and gas properties are amortized on a unit-of-production basis, determined in accordance with the ratio between the hydrocarbons production volume in each period and the total proved developed and undeveloped hydrocarbons reserves of the field concerned (Reserves 1P), except in the case of assets whose useful life is shorter than the lifetime of the field, in which case the straight-line method is applied.

Because it is based on current production values, and because it is a Sonangol Group policy to review periodically the volume of oil and gas reserves, the amortization method of units of production has implicit a periodical review of the consumption pattern of future economic benefits embodied in the asset.

Rights and concessions are depreciated on the unit-of-production basis over the total proved developed and undeveloped reserves of the relevant area.

OTHER PROPERTY, PLANT AND EQUIPMENTOther property, plant and equipment are generally depreciated on a straight-line basis over their estimated useful lives on a duodecimal basis. The main depreciation rates correspond to the following estimated useful life (except for refineries which is generally fifteen years and major inspection costs are depreciated over three to five years, which represents the estimated period before the next planned major inspection):

Class of assets Years

Buildings and other constructions 50

Basic equipment

- Construction equipment 15 – 18

- Other 6 – 10

Transport equipment 4 – 5

IT equipment 3 – 7

Administrative equipment 3 – 7

The asset’s residual values, useful lives and methods of amortization are reviewed at each reporting period and adjusted prospectively, if appropriate.



iii) Derecognition

OIL AND GAS PROPERTIES

In accounting for a farm-out arrangement outside the exploration phase, the Group:

• Derecognises the proportion of the asset sold;

• Recognises a gain or loss on the transaction for the difference between the net disposal proceeds and the carrying amount of the asset disposed of. A gain is recognised only when the value of the consideration can be determined reliably. If not, then the Group accounts for the consideration received as a reduction in the carrying amount of the underlying assets;

• Tests the retained interests for impairment if the terms of the arrangement indicate that the retained interest may be impaired.

OTHER PROPERTY, PLANT AND EQUIPMENT

An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is derecognized.

iv) Major maintenance, inspection and repairs

Expenditure on major maintenance refits, inspections or repairs comprises the cost of replacement assets or parts of assets. When an asset, or part of an asset that was separately depreciated and is now written off is replaced and it is probable that future economic benefits associated with the item will flow to the Group, the expenditure is capitalized.

When part of the asset replaced was not separately considered as a component and therefore not depreciated separately, the replacement value is used to estimate the carrying amount of the replaced asset(s) and is immediately written off.

Inspection costs associated with major maintenance programs are capitalized and amortized over the period to the next inspection. All other day-to-day repairs and maintenance costs are expensed as incurred.

(g) Reversible assets

Under the contracts signed between Sonangol EP, as National Concessionaire of the rights to explore, develop and produce of liquid and gaseous hydrocarbons, and the contractors groups that operate the oil blocks, there are several assets acquired by these contactors groups that, at the end of the concession arrangements, will return to Sonangol EP without compensation.

By definition, the investments in reversible assets correspond to assets that were deducted the concept of Petroleum- Profit of the oil & gas operations, a therefore are deducted from the contributions to be

made the contractors group to the National Concessionaire. The investments in reversible assets by the contractor groups contribute also to the deduction to the amounts to be paid by the State to the National Concessionaire (as described in Note 2.3 p)).

Sonangol EP recognises these reversible assets when one of the following situation occur

• When the assets starts to generate economic benefits to Sonangol EP; or

• When the risks and returns of the assets are transferred to Sonangol EP (generally when the contractors groups invest under the Production Sharing Contracts with the National Concessionaire).

The reversible assets are measured initially at fair value, and classified as “Reversible assets” against Equity (on the portion that would be delivered to the State / shareholder, i.e., approximately 93% of the estimated production), and the remaining is recognised against “Other current liabilities” (under deferred profits to be recognised in future periods) under the pace of the recovery by the contractors groups in the contribution to be made.

Subsequently, the reversible assets are not amortised, and are measured at fair value at each reporting date, and the fair value variations are recognised in profit and loss.

At the end of the contract with the contract with the Contractor Group, the assets are reclassified to “Other tangible fixed assets” and amortised prospectively in accordance with the remaining useful life.

(h) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets with definite life are carried at cost less any accumulated amortization (calculated on a straight-line basis over their useful life) and accumulated impairment losses, if any. Indefinite lived intangibles (e.g. Goodwill) are not amortized, instead they are tested for impairment annually, at the reporting date.

Intangible assets with finite life are amortized over their useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite life is recognized in the statement of profit or loss in the caption “Depreciations”.

Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit or loss when the asset is derecognized.



(i) Impairment of assets

i) Non-financial assets (excluding Goodwill)

The Group assesses at each reporting date whether there is an indication that an asset (or cash generating units) may be impaired. For the oil and gas properties, the Management has assessed its cash generating units as being an individual field or block, which is the lowest level for which cash inflows are largely independent of those of other assets.

If any indication exists, or if it is the Group policy an annual impairment testing, the Group estimates the recoverable amount of the cash generating units or of the asset. The recoverable amount of a cash generating units or of an asset is the higher of the fair value less costs of disposal and value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the asset is tested as part of a larger cash generating unit to which it belongs. When the carrying amount of an asset or cash generating unit exceeds its recoverable amount, the asset or the cash generating unit is considered impaired and is written down to its recoverable amount.

The calculation of the value in use can be based: i) on the sales price contractually agreed in a transaction between non-related parties, deducted from the costs to sell it; ii) the market price if the asset is negotiated in an active market; or (iii) in the fair value calculated as an estimative of the future cash flows that any market player would expect to obtain from the asset. In accordance with the methodology in iii), the cash flows and the discount rate are after-taxes

In calculating value in use, the methodology of the discounted cash flows is used, and includes the following elements:

• An estimative the future cash flows that the entity expects to obtain from the asset;

• The expectations of the variations and the timing of the expected future cash flows;

• The use of a pre-tax discount rate associated with the concept of the average cost of capital; and

• Other factors that should be considered in this analysis, such as the lack of liquidity that the market participants might reflect in the future cash flows that the entity expects to obtain from the asset.

The value in use does not reflect the cash flows associated with the restructuring and improvement or enhancing of the operational performance of the asset. Rather, for the calculation of the fair value less costs of disposal, the discounted cash flows model includes the cash flows associated with the costs with restructuring and improvement when it corresponds to a market expectation.

The Group bases its impairment calculation on detailed budgets and forecasts, which are prepared separately for each cash generating unit to which the individual assets are allocated. These budgets and forecasts generally cover the period of six years. For longer periods, a long-term growth rate is calculated and applied to project future cash flow after the sixth year.

Impairment losses of continuing operations, including impairment of inventories, are recognised in the statement of profit or loss in those expense categories consistent with the function/nature of the impaired asset.

For assets/ cash generating units, excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash generating units’ recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s/ cash generating units’ recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset/ cash generating units does not exceed either its recoverable amount, or the carrying amount that would have been determined, net of depreciation/amortisation, had no impairment loss been recognised for the asset/ cash generating units in prior years. Such reversal is recognised in the Statement of Profit & Loss.

When an impairment loss is recognised or its reversal, the amortisation of the related assets is recalculated prospectively in accordance with the recoverable amount adjusted by the impairment loss recognised.

ii) Goodwill

Goodwill is tested for impairment annually at each reporting date or whenever circumstances indicate that the carrying value may be impaired.

Impairment is determined for Goodwill by assessing the recoverable amount of each cash generating units (or group of cash generating units) to which the Goodwill relates. When the recoverable amount of the cash generating units is less than its carrying amount including Goodwill, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

iii) Financial investments and investments in real estate

The Group as financial investments and investments in real estate (registered in other financial assets) measured at cost less impairment losses and financial investments in other financial assets measured at fair value through profit and loss. For financial investments and investments in real estate measured at cost, the impairment is determined based on rules and a methodology similar to the used for non-financial assets.

For financial investments in other financial assets measured at fair value through profit and loss the calculation is based the quotations reported by independent valuers for the funds and market information for the quoted assets.

FINANCIAL INSTRUMENTS

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity, and is recognised initially at the transaction cost.



(j) Financial assets

The Group financial assets include accounts receivable (trade and others), other current and non-current assets, other non-current financial assets and cash. The purchases and sales of financial assets that demand delivery of goods within a certain agreed timeframe are recognised at the date in which the Group commits to purchase or sell the good.

ACCOUNTS RECEIVABLE AND OTHER CURRENT AND NON-CURRENT ASSETS

This is the most significant category for the Group. Accounts receivable, other current and non-current assets are financial assets not derivatives with fixed or determinable payments that are not quoted in an active market. After initial mensuration, such financial assets are recorded at nominal value less any impairment loss, necessary to reflect their expected net realizable value. Losses are registered in the Statement of Profit & Loss when there is objective evidence that the total debt, according with the original conditions of the account receivables, will not be received.

For the oil & gas activities, whenever the Group has performed liftings below or above its share in accordance with the production sharing agreements (CPP), it considered that there is “Under-lifting” or “Over-lifting”, respectively, and the quantities are measured at production cost and registered as an account receivable or payable, against profit and loss.

OTHER NON-CURRENT FINANCIAL ASSETS

Financial investments in real estate

The Group has several real estate properties classified as financial investments in real estate. These investments in real estate are initially recognised at acquisition or construction cost, including the non-deductibles taxes (e.g. SISA), the assembly and installation costs, the other directly attributable acquisition costs to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by Management, the estimated costs of dismantling, removing or restoring items (if applicable) and the borrowing costs of qualifying assets, net of accumulate impairment losses so that the asset does not exceed its realizable value.

Investment funds

The Group owns participation units in investment funds. These financial investments held by the Branch are measured at cost, which is the acquisition price, the charges related with the acquisition, such as brokerage commissions, fees and expenses and bank charges. Subsequently, these financial investments are measured at fair value, calculated based on the final report of the fund managers, against financial results.

CASH AND BANK DEPOSITS

The Group recognized in cash and banks the balances held in Banks (sight or term) subject to a reduced risk of changes in value, monetary means in transit and cash surplus applications in financial products (e.g. Angolan Treasury bonds) which are registered in Trading securities.

Under the contracts between Sonangol EP and the contractors groups for each block, Sonangol EP is the beneficiary of the bank deposits with restricted mobilization “escrow accounts” and which are

related with the wells shutdown, assets dismantling and environment recovery after the exploration of the blocks of each contractor group. These deposits are measured at cost.

(k) Financial liabilities

Financial liabilities include accounts payable (suppliers and other accounts payable) and medium and long term loans.

ACCOUNTS PAYABLE

The trade suppliers and other current liabilities balances are stated at their nominal value.

The trade suppliers and other current liabilities balances are, as a rule, measured at historical cost.

The historical cost corresponds to the initial registered amount (nominal amount) eventually adjusted to reflect (i) accrued interests related with loans that were not paid on payment date and (ii) non-realised exchange rate differences determined by the application of the exchange rate at the reporting date to the balances in foreign currencies.

Whenever, in exceptional circumstances, the payable amount is less that the historical amount, as in the situation of a reduction or a debt forgiveness, the nominal amount is reduced, directly, for the realizable amount, and an extraordinary profit is recognized in the Statement of Profit & Loss.

The Group derecognizes a financial liability when the obligation under the liability is discharged, cancelled or expires.

LOANS

This caption includes loans obtained from credit institutions and other entities, measured at amortised cost in its current and non-current portions.

Financial charges are generally recognized using the effective interest rate method, which corresponds to the rate that discounts the future estimated cash payments during the financial instrument life period and that inputs the interest charges during the relevant period, in accordance with the principal of accrual. When determining the effective interest rate, the Group considers all commissions, transaction costs, premiums or discounts paid when contracting the associated financial instrument.

The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, are capitalized and as part of the cost of the related asset. The capitalization of these costs commence after the beginning of the construction or development of the asset and ceases when the assets is ready for its intended use or when the related project is suspense. Any financial profits generated by loans directly relates with the specific investment are deducted to the amount of financial charges eligible to be capitalized.

Additionally, in the caption of loans are included the amounts of incurred research expenses totally supported by the other partners in joint agreements, under the modality “carry” in research phase, if it is the Management expectation that its future use /reimburse will occur. This loan will be settled



through recovery of third party, recurring to the share of crude oil under the form of “cost oil”, initially correspondent to the share of Sonangol EP for recovering theses research expenses.

(l) Inventories

Inventories are recorded at the lower of cost and net realizable value.

The acquisition or production cost is determined, in accordance with the nature of the inventories and of the business involve, and the Group has recognised the following types of inventories in consolidated accounts:

a. Raw materials and subsidiary products

• Crude oil - The cost of crude oil, includes the invoice price, transportation and insurance expenses, for which the costing method is FIFO (first in first out), applied to a unique family which includes all types of crude oil.

• Other raw materials (excluding general materials) – The acquisition cost includes the invoice price, transportation and insurance expenses, for which the costing method is FIFO, applied to product families which are created taking into consideration the characteristics of the several materials.

• General materials - The acquisition cost includes the invoice price, transportation and insurance expenses, for which the average weighted cost method is used to determine the cost of sales.

b. Products and work in progresso

The production cost includes materials, external supplies and services e general expenditures.

c. Finished products and intermediate goods

• Crude oil – Relates with crude oil produced in the oil and gas activities and which is in inventories as at 31 December each year, in the share part of the total crude oil produced in each development area. These inventories are measured at production cost, which includes the direct costs of production added with amortisations and dismantling cost for the year.

• Derived petroleum products – The entrances of finished products and intermediates goods are measured at production cost, which includes the consumables of raw materials and other products, direct labour costs and overheads. In the situation of products acquired to third parties, they are measured at acquisition cost which includes the invoice price, transportation and insurance expenses, for which the costing method is FIFO, applied to product families which are created taking into consideration the characteristics of the several materials.

• Other finished and intermediate products – The production cost includes raw materials, variable and fixed industrial products, using the average weighted cost method is used to determine the cost of sales.

d. Goods

The acquisition cost includes the invoice price, transportation and insurance expenses, using the average weighted cost method for natural gas (liquefied petroleum gas), oil by-products e other goods as the method used to determine the cost of sales.

Raw material and subsidiaries and goods in transit, as they are not available to be consumed or sold, are segregated from the remaining inventories and are measured at the specific acquisition cost.

The net realisable value of the inventories is based on the estimated sales price on the ordinary course of business, deducted from the estimated costs to finalise the product and the necessary sales costs.

The difference between the acquisition cost and the related net realisable value, if positive, are registered as non-operational costs (see Note 33); any reversal, in situations where there is no difference between the acquisition cost and the net realisable value, are recognised in the caption Non-operational results.

The variation of products and work in progress at each reporting date, when compared with the position at the beginning of the period, is recognised as variation in finished products.

The Group recognises as Cost of goods sold and raw materials, the inventories exists of the captions goods, raw material, subsidiary and consumable goods.

(m) Leases

The Group recognized a lease when it is a part of lease contract (until the end of the contract), which is always recognized as operational lease. The Group has, currently, leases as lessor and as lessee, which are recognized and measured as follows:

• Operational leases as a lessee: the rents paid are recognized as cost in the Consolidated Statement of Profit & Loss, by the nominal amount;

• Operational leases as a lessor: rents received are recognized as profit in the Consolidated Statement of Profit & Loss (see Note 2.3 j)) by the nominal amount. The leased assets are predominantly recognised as “Other financial assets” – investments in real estate.

(n) Provisions for other risks and charges

Provisions are recognized when there is (i) a legal or constructive obligation as a result of past events; (ii) it is probable that an outflow of resources will be required to settle the obligation, and (iii) a reliable estimate can be made of the amount of the obligation.

No provision is recognized for future operating losses. Provisions are reviewed at each balance sheet date and are adjusted to reflect the best estimate at that date.



If the temporal effect of money is material, provisions are discounted to present value using a discount rate (before tax) that reflects, where appropriate, the specific risks associated with the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as financial costs. Except for decommissioning provisions, the cost of any provision is disclosed in the Statement of Profit & Loss.

(i) Decommissioning provisions

The Group recognized a decommissioning provisions when it has an obligation (legal or constructive) as a result of past events; and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The obligation generally originates when the asset is installed or the when the environment is modified. When the liability is initially recognized, the present value of the estimated decommissioning total cost is capitalized by increasing the net value of the underlying oil and gas assets.

Changes in time or cost of the estimated decommissioning are treated prospectively by an adjustment to the provision made as well as the related asset.

Any decrease in the provision for decommissioning and therefore any decrease the value of the related assets, may not exceed the net book value of it. If this happens, any excess of net book value is adjusted directly in the income statement.

If changing the assessment of dismantling obligation leads to an increase in the provision for decommissioning and hence an increase to the net value of the related assets, the Group considers whether this is an impairment indicator of the asset as a whole, and if so, tests the asset for impairment. If, for mature fields, the revised estimate of the value for the oil and gas assets net of decommissioning liabilities exceeds the recoverable amount, the proportion of the increase is accounted for in the income statement.

The discount rates used to calculate the present value of the estimated cash flows is a free risk interest rate, considering the temporal horizon of the associate cash flows and are reviewed at each reporting date.

The amount of decommissioning provision is increased at the reporting date, to reflect the time value of money, and the variation is recognized as financial costs in the financial statements.

When the decommissioning provision is adjusted to reflect changes in the discount rates, the effect of the change in the liability is split between i) the time value of money for one year more that has passed, which is recognized in financial results and ii) the effect of the variation on the present value of the liability, which is recognized in the related asset for which the decommission provision was recognized).

Over time, the discounted liability is increased by the change in present value based on the discount rate that reflects current market assessments and specific liability risks.

The estimative of the decommissioning cost for the assets related with participating interests on the blocks that the Group operates as an investor (in its share in the participating interest) is not related with the Group acting as the National Concessionaire.

(ii) Decommissioning fund (Concessionaire)

The amounts allocated to the decommissioning fund (Concessionaire) are the responsibility of the field operators and are transferred to the custody of the Company, as Concessionaire. The fund is intended to cover future costs related to the closure of oil wells, removal of platforms and other facilities when reserves are exhausted, as disclosed in Note 18.4.

(o) Taxes

OIL TAXES

Sonangol Group companies, involved in petroleum exploration and production, are subject to Income Tax on oil disclosed in Note 19.3, and are exempt from other income taxes due by other companies in Angola. This oil taxation is defined and regulated by the Law 13/04 of December – Law of Taxation of Petroleum Activities.

According to this Law, the taxable income of each block is based on the monthly estimated production, communicated to the competent tax authorities through provisional tax declarations and paid within the time limits established by law.

The provisional tax returns are replaced by definitive returns at year end, corrected by “tax reference prices”, the final costs incurred in petroleum operations and actual operating costs.

Taxes, duties and fees above include:

• Tax on oil production - levied on the quantities of crude oil and natural gas produced in the year, valued at tax reference prices;

• Transaction Fee of oil – applied to Concession Contracts at the rate of 70% and deductible for the purpose of determining the taxable amount of income tax on oil;

• Income tax on oil – tax on annual profits (net of tax on oil production and oil transaction fee) applied to Concession Contracts and Production Sharing contracts.

DEFERRED TAXES

The tax computed refers exclusively to tax payable, the Group does not recognize any other deferred tax, asset or liability, resulting from temporary differences between the accounting and tax bases.

(p) Sales and services rendered

Revenue is recognized to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of discounts, taxes and other obligations relating to their realization.



The main Group revenue categories are as follows:

a) Sales of crude oil – associate;

b) Sales of crude oil – concessionaire;

c) Sales of refined products;

d) State subsidy (subventions);

e) Services rendered – leases;

f) Services rendered – shipping;

g) Services rendered – logistic.

Sales of crude oil – associate

Revenue from the sale of crude oil and natural gas and oil products is recognized when the significant risks and benefits of ownership have been transferred, which is considered to occur when the asset is passed to the customer. This usually occurs when the product is physically transferred to the ship or other delivery mechanism.

Revenue from oil and gas production where the Group has participating interests with other producers is recognized on the basis of the Group’s share in accordance with the production sharing contracts (PSC).

When the forward contracts (to buy or sell) on oil and natural gas are signed, the sales and purchases are disclosed by the net amount.

Sales of crude oil – concessionaire

As the National Concessionaire (“NC”), Sonangol EP owns the mining rights attributed by the Angolan State (Law 10-04 article 4). The NC can create associate with other entities to execute the oil and gas operations or request the Government to directly give the concession, subject to approval of the Ministry and to a public tender.

The NC decides the associates will be, so as the content of the contract to execute the oil and gas operations (e.g. production sharing contracts), subject to approval of the Ministry in what relates to the association and the contract.

The premium for the contract signing which is paid by the associates to the NC revert to the State and therefore are not part of the revenue.

Receivables from NC correspond mainly to the share of Petroleum- Profit as established in each contract, which is the crude oil produced and collected and not used in the oil and gas operations, deducted from the crude oil to cost recovery.

The crude oil share usually results from the application of a formula in accordance with the profitability of the Contractor Group in the development area and with the depth of groundwater where it was obtained.

On the other hand, and also in accordance in the law in force, Sonangol has to deliver to the State the amount that corresponds to the sales performed as National Concessionaire deducted from its margin (currently 7%), determined over the sales measured at the fiscal reference price of the State’s Budget. The law n. 23/14 of 31 December of 2015 has fixed the fiscal reference price in 45 USD/Barrel for 2016. The retained margin should face the expenses related with the supervision and control of its associates and of the oil and gas operations. This amount is recognized as a cost for the period in the caption “Concessionaire cost (sales on behalf of the State)”.

Sales of refined products

Sales of refined products relate to sales of gasoline and diesel, and the revenue is recognized when the sale occurs in accordance with the price list in force.

State subsidy (subventions)

In accordance with the Executive Decree No 17/95 updated by Executive Decree 127/04 and complemented by the Executive Decree # 27/05, by Order no. º77 / 10 and by Presidential Decree 1/12, the Company recognizes on basis of the defined structure of charges, margins and selling prices to the public, a subsidy at prices resulting from the quantities of products sold in the period. During the period in which revenue from the sale of products is recognized in accordance with the table annexed to Executive Decree No. 97/12 of 26 March, the corresponding subsidy is also recognized.

The executive decree 706/15 of 30 September 2015, has defined that with the exception of the kerosene and the butane gas, all other refined products would pass to the free price regime, ceasing the State obligation to compensate with any subventions, and Sonangol Group would define the new price.

Services rendered – leases

Revenue from leases relates mainly to leased aircrafts and real estate, including variable and fixed rent components, in accordance with the contracts. Rents are recognised in profit and loss in the related period.

Services rendered – shipping

Revenue from shipping is recognised in the moment of arrival at the port of destination, when all performance obligations are fulfilled.

Services rendered – logistic

Logistic activity consists mainly in the management of the logistic base of Luanda, by providing integrated business support services to the oil and gas activities and renting of premises, under the service concession contract.

Services are rendered bearing in mind the construction and exploration of a basis for supporting the oil and gas industry, and the revenue is recognised at the moment each contracted service is rendered.

In addition to the revenue recognised as above explained, the profits with receivable interests are recognised on an accrual basis considering the debts amount and the effective interest rate during the period until maturity.



(q) Fair value measurement

The group measures in each reporting period the investments in listed companies and investments in investment funds at fair value. Additionally, for impairment testing purposes, the recoverable amount considers the highest between value in use and fair value less costs of disposal.

Fair value is the price that would be received to sell an asset or pay to settle a liability in an ordinary transaction between independent market participants. The fair value measurement is based on the assumption that the transaction to sell an asset or a liability to pay takes place in:

• In the active market of the asset or liability; or• In the absence of an active market of an active market, in the most advantageous market for the

asset or liability.

The fair value of an asset or liability is measured in the assumption that the participants of the market have in consideration the price of the asset or liability, assuming that these, act on base of their best economical interest.

The measurement of the fair value of a financial asset has in consideration the ability of the participant of the market to generate economic benefits for the use of the asset in its best consideration, or for its sale to other market participant.

When necessary, the Group uses appropriated valuation techniques for which has enough available information to measure the fair value, maximizing the use of relevant observable inputs and minimizing the use of non-observable inputs.

The Group uses market prices to value the investments in quoted companies and the reports of the fund manager responsible for the investment funds to measure the participations in high risk capital investments.

(r) Current and non-current classification

The Group has assets and liabilities in its financial position based on the current / non-current classification.

An asset is current when:

• Expected realization or intended to be sold or consumed in the normal operating cycle;

• Held for the main purpose of sale;

• Forecasted realization in 12 months after the balance sheet date;

• Cash that are not restricted to be exchanged or used for the payment of a liability until 12 months after the balance sheet date.

All other assets are classified as non-current.

A liability is current when:

• Expectation of payment in 12 months after the balance sheet date;• Held for negotiation;• It is due in a 12 month period after the balance sheet date:

a. As defined in the contract; orb. As formal request of payment from the creditor, after.

(s) Benefit retirement and pension plan employees

i) Short term benefits

Short term benefits correspond to the expenses incurred with remunerations, fixed or variable, other expenses directly related with employees, and other recognised responsibilities recognised in the period associated with services rendered by employees that will be paid in the future, excluding termination benefits and post-retirement benefits and pension plans. They are usually recognised in the caption Payroll when incurred.

In accordance with legislation in force, Group employees are entitle annually to month of holiday and holiday subsidy, and this right is obtained in the preceding year of the payment, therefore, this responsibility is recognised in the period when the employee is earns this right, regardless of the related payment.

ii) Termination benefits

Termination benefits are recognised when the Group ceases the employment before the retirement date, or when the employee accepts the contract termination in exchange for these benefits. Sonangol group recognises the responsibility with termination benefits at the latest of the following dates: on the date when the Group is no longer able to withdraw the benefits or when the Group recognises the restructuring costs under the scope of a provision. The benefits due in more than 12 months, after the reporting period, are discounted to its present value.

iii) Retirement benefits and pension plans

Until the end of 2011, the Company personnel was covered by a “Defined Benefit Plan” of Sonangol that was closed to new hires with effect from 1 January 2012, and the active participants were transferred into a new “Defined Contribution Plan” to be financed by the employees as from this date. The new plan covers all future Sonangol employees.

The defined benefit plan remains in place to service the pension obligations of pensioners. This residual balance will be financed by subsidiaries included in the new plan through a management entity. Nevertheless employees who retire or terminate their relationship with the company between 1 January, 2012 and the date of legal implementation of the new plan will remain covered by the defined benefit plan.



AAA Pensões S.A. was the entity responsible for the management of the fund constituted for Sonangol Pension Plan until 31 December 2013. In 2014 the responsibility was transferred to Sonangol Vida which has not yet initiated its activity. Sonangol EP being in charge during the transition.

In the future, Sonangol Vida will be responsible for the management of the fund and associated responsibilities to the Sonangol Pension Plan.

REMEASUREMENTS (ACTUARIAL GAINS AND LOSSES)Remeasurements are a consequence of experience adjustments and changes in the financial and demographic assumptions. The Group recognises all remeasurements, of all plans in force, directly in Equity, as statements of changes in equity.

(t) Accrual basis method

Profits and losses are registered on an accrual basis, therefore they are recognised when they occur, regardless of the receivable or payment. Differences between amounts paid or received and the related costs and profits are recognised in “Other current assets” and “Other current liabilities”, respectively if the differences correspond to a right or a liability for the Group.

Consequently, the captions “Deferred expenses” and “Deferred income” include expenses and income that have already incurred but which relate to future periods and that will be recognised in the profit and loss of the related periods by the correspondent amount. “Accrued income” and “Accrued expenses” relate to income and expenses already incurred and that will be invoiced in the future.

(u) Results policy

a) Extraordinary and non-operational results

Extraordinary results include the extraordinary costs and gains from activities that are distinguishable from the operational activities and, therefore, that are not expected to occur regularly and frequently.

Non-operational results include the costs and gains in transactions with current nature and that do not occur regularly or frequently.

b) Financial results

Financial results include interests paid on loans, interests received from applications, dividends received, gains and losses from exchange rate differences, realized gains or losses, and fair value variations related with financial instruments and fair value variations of hedge risks, when applicable.

Interests are recognised in an accrual basis. Dividends to be received are recognised when the right to the receivable is established.

c) Results from affiliates and associates

Results from affiliates and associates include only dividends received from companies that the Group owns as financial investment. Dividends are recognised when the right to the receivable is established.

(v) Mining activity related costs

This caption includes the share of the Sonangol Group on the costs related with joint operations that are charged by the contract operators and its share on the costs incurred as a block operator.

(w) Related parties

The entities considered related parties by Sonangol Group are (i) entities directly or indirectly controlled, jointly controlled or where the Group has significant influence, regardless they are included in the consolidation perimeter; (ii) key-personnel of Sonangol Group, i.e., persons having authority and responsibility for planning, directing and controlling the Group activities, including any Group director (whether executive or otherwise) and the respective close members of the family, i.e., persons with whom they live in shared economy; and (iii) entities that the close member of the family controls, jointly controls or has significant influence.

Due to the public nature of Sonangol Group, other public entities owned by the shareholder “State” are also related parties, but the balances and the transactions with those entities are not disclosed in the financial statements when the nature of the relationship with Sonangol Group drive from sales of goods and rendering of services in the course of ordinary activities, at prices and market conditions.

(x) Events after balance sheet date

The events that occur after the balance sheet date that provide additional information about conditions that existed at reporting date are recognized in the Statement of Profit & Loss of the Group. The events that occur after the balance sheet date that provide information about conditions that are disclosed after the reporting date, are disclosed in the notes to the financial statements, if considered significant.

(y) Accounting policies, accounting estimates and errors

ACCOUNTING ESTIMATESEstimation involves judgements based on the latest available, reliable information. An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience. The effect of a change in an accounting estimate, shall be recognised in profit and loss of the current period in the same caption used to register the accounting estimate.

CHANGES IN ACCOUNTING POLICIESBy general rule, a change in accounting policy is applied retrospectively, i.e., the new accounting policy is applied to the events and transactions as if the new accounting policy had always been applied, and changes are recognised in retained earnings.

ERRORSThe correction of errors, when preparing the financial statement, from one or more prior periods discovered in the current period, is corrected in the profit and loss of the current period, except if it compiles the characteristics of a fundamental error, in which situation shall be recognized in retained earnings.



2.4 CHANGES IN ACCOUNTING POLICY

Except for what it is stated below, there were no other changes in accounting policies from prior period.

Based on a better interpretation of laws in force and of the contractual terms that guide the oil and gas activities, the Group has recognised at its fair value, reversible assets in the amount of 167,395,968 thousands of AOA related with oil and gas operations, as explained in Note 2.3 g).

As described in the policy followed from 2016 forward, reversible assets are assets that were deducted the concept of Petroleum- Profit of the oil & gas operations, a therefore are deducted from the contributions to be made the contractors group to the National Concessionaire. Sonangol EP recognises these reversible assets when one of the following situation occur:

• When the assets starts to generate economic benefits to Sonangol EP; or

• When the risks and returns of the assets are transferred to Sonangol EP (generally when the contractors groups invest under the Production Sharing Contracts with the National Concessionaire).

3. OPERATIONAL SEGMENTS

For management purposes, the Group is organized into business units based on products and services provided, subdivided in five reportable segments:

• Corporate & Financing, which includes core financial investments, financing and intercompany loans;

• Upstream, representing research and crude oil and natural gas production;

• Midstream, which includes refining and transport of products based on crude oil and natural gas;

• Downstream, which includes storage of finished products, commercialization and distribution of the derived products and crude oil and natural gas to the final customer;

• Group Non-Core Activities such as aviation services, healthcare services, training activities, real estate investments, telecommunications and other “non-core” financial investments.

The management monitors the operating results of its business separately, with the purpose of making decisions about resources allocation and performance evaluation. The performance of a segment is evaluated based on their operating income and expenses which are valued consistently with the consolidated operating income and expenses.

However, Group financing (including finance costs and income) and net income are managed from the perspective of the consolidated accounts and are not allocated to segments.

The table below shows, as mentioned above, the entities within the consolidation perimeter as defined by the Board of Sonangol EP and their operating segment:

Company SegmentSonangol E.P Corporate & FinancingSonangol Finance Limited Corporate & Financing

Sonangol E.P UpstreamSonangol Pesquisa e Produção, S.A. UpstreamSonangol Hidrocarbonetos Internacional, S.A. UpstreamSonagás - Sonangol Gás Natural, S.A. Upstream

Sonangol Refinação S.A. MidstreamSonangol Shipping Holding, Limited MidstreamSonangol Shipping Angola, Limited MidstreamSonangol Shipping Services, Limited MidstreamSonangol Chartering Services limited MidstreamSonangol LNG Shipping Service Limited MidstreamSonangol Marine Transportation limited MidstreamSonangol Marine Services Inc MidstreamAngola LNG Fleet Managment Services LLC MidstreamSonangol Shipping Angola (Luanda) Limitada MidstreamStena Sonangol Suezmax Pool MidstreamSonangol Shipping Girassol Limited MidstreamSonangol Huila Limited MidstreamSonangol Shipping Kassanje Limited MidstreamSonangol Kalandula Limited MidstreamSonangol Shipping Kizomba Limited MidstreamSonangol Shipping Luanda Limited MidstreamSonangol Rangel Limited MidstreamSonangol Porto Amboim Limited MidstreamSonangol Shipping Namibe Limited MidstreamSonangol Cabinda Limited MidstreamSonangol Etosha Limited MidstreamSonangol Benguela Limited MidstreamSonangol Sambizanga Limited MidstreamNgol Bengo Limited MidstreamNgol Chiloango Limited MidstreamNgol Zaire Limited MidstreamNgol Cunene (Clyde) Limited MidstreamSonangol Shipping Ngol Luena Limited MidstreamSonangol Shipping Ngol Cassai Limited MidstreamNgol Dande Limited MidstreamNgol Kwanza Limited MidstreamCumberland Limited (Ngol Cubango) Midstream

Sonagás - Sonangol Gás Natural, S.A. DownstreamSonangol Distribuidora, S.A. DownstreamSonangol Logística, Lda. Downstream

Sonangol Holdings, Lda. Actividades "non-core"SIIND – Sonangol Investimentos Industriais, S.A. Actividades "non-core"SONIP - Sonangol Imobiliária e Propriedades, Lda. Actividades "non-core"Sonair - Serviços Aéreos, S.A. Actividades "non-core"Clínica Girassol, Sarl. Actividades "non-core"MS TELCOM – Mercury Serviço de Telecomunicações, S.A. Actividades "non-core"Instituto Superior Politécnico de Tecnologias e Ciências (ISPTEC) Actividades "non-core"CFMA - Centro de Formação Marítima de Angola Lda Actividades "non-core"Academia Sonangol S.A. Actividades "non-core"SONACI Actividades "non-core"Sonangol Vida Actividades "non-core"Sonils - Sonangol Integrated Logistic Services, Lda Actividades "non-core"Inloc Limited Actividades "non-core"Pessoas Desenvolvimento e Associações – PDA Actividades "non-core"Sonangol Asia Actividades "non-core"Sonangol Limited Actividades "non-core"Sonangol Hong Kong Limited Actividades "non-core"Sonangol USA Actividades "non-core"Solo Properties Actividades "non-core"



SEGMENT REPORT CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER 2016

The exercise mentioned above lists the aggregated values of the companies comprising the respective operating segments net of Intra-Group eliminations within each segment in order to best reflect the economic substance of each Sonangol Group operational segment. The consolidation adjustments column reflects eliminations between group companies belonging to different operational activity sectors. The translation to USD follows the exchange rate policy described in Note 2.1.2.

SEGMENT REPORT CONSOLIDATED STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED 31ST DECEMBER 2016

The exercise mentioned above lists the aggregated values of the companies comprising the respective operating segments net of Intra-Group eliminations within each segment in order to best reflect the economic substance of each Sonangol Group operational segment. The consolidation adjustments column reflects eliminations between group companies belonging to different operational activity sectors. The translation to USD follows the exchange rate policy described in Note 2.1.2.

CORPORATE &

FINANCING

UPSTREAM MIDSTREAM DOWNSTREAM NON CORE TOTAL

Consolidated AKZ

Consolidated AKZ

Consolidated AKZ

Consolidated AKZ

Consolidated AKZ

AKZ

Assets

Non-current Assets

Tangible fixed assets - 3,955,005,660 310,343,744,342 252 021,625,387 371,482,552,268 937,802,927,657

Intangible assets - 115,174,349 33,811,594,287 644,552,342 30,488,398,998 65,059,719,976

Oil&Gas upstream assets - 2 447,205,577,713 - - - 2,447,205,577,713

Reversible assets 167,395,967,501 - - - - 167,395,967,501

Exploration and evaluation assets - 724,759,575,062 - - - 724,759,575,062

Investments in subsidiaries and

associates

62,676,581,408 270,302,436,865 3,488,880,853 - 134,460,964,008 470,928,863 134

Other financial assets 53,045,311,857 - - - 125,377,191,386 178,422,503,244

Other non-current assets 560,544,594,913 17,464,326,830 - 1,043,654 35,177,559,707 613,187 525,103

Bank deposits 222,410,168,298 222,410,168,298

Total Non-current Assets 1,066,072,623,978 3,463,802,096,478 347,644,219,481 252,667,221,383 696 ,986,666,368 5,827,172,827,688

Current Assets

Inventories - -5,014 343,810 17,765,534,563 30,332,031,251 57,463,871,050 100,547,093,054

Accounts receivable 1,737,342,199 350,418,683,415 14,766,097,434 238,704,828,600 140,311,006,789 745,937,958,438

Cash and equivalents 584,697,454 729 27,047,561,635 48,447,326,958 82,670,334,819 84,079,632,095 826 942,310,235

Other current assets -347,973,918 1,258,887,412 725,350,337 944,539,727 5,499,372,005 8,080,175,562

Total Current Assets 586,086,823,009 373,710,788,652 81,704,309,292 352,651,734,397 287,353,881,939 1,681,507,537,290

Total Assets 1,652,159,446,987 3,837,512,885,130 429,348,528,773 605,318,955,780 984,340,548,307 7,508,680,364,978

Total Equity -115,774,190,665 2,035,696,832,964 349,746,364,955 13,175,127,523 853,261,244,633 3,136,105,379,410

Non-Current Liabilities

Medium and long term loans 1,123,493 003,462 21,075,501,491 - - - 1,144 568,504,953

Employee benefit liability 28,545,511,160 8,806,750,862 8,041,678,588 47,731,826,980 11,433,328 467 104,559,096,058

Provisions for other risks and

charges

2,940 099,917 1,132,939,617,227 19 ,36,619,039 48 620,315,507 17,956,100,219 1,222,092,751,908

Other non-current liabilities 0 127 532 756 370 1 987 360 874 1 958 099 968 6 222 029 200 137 700 246 412

Total Non-Current Liabilities 1,154 978,614,538 1,290,354,625,950 29,665,658,501 98,310,242,456 35,611,457,886 2,608,920,599,331

Current Liabilities

Accounts payable 79,267,297,997 490,874 ,758,953 46 ,216,162,803 469,289,353,754 65,585,235,646 1,151,232,809,152

Short term loans 506,632,740,994 - - - 840,700,596 507,473,441,589

Provisão para outros riscos e

encargos

- - - - - -

Other current liabilities 27 054 984 123 20 586 667 263 3 720 342 514 24 544 232 048 29 041 909 546 104 948 135 494

Total Current Liabilities 612,955,023,113 511,461,426,216 49,936,505,317 493,833,585,802 95,467,845,788 1,763,654,386,236

Total Equity and Liabilities 1,652,159,446 987 3,837,512,885,130 429,348,528,773 605,318,955,780 984,340,548,307 7,508,680,364,978

CORPORATE &

FINANCING

UPSTREAM MIDSTREAM DOWNSTREAM NON CORE CONSOLIDATION

ADJUSTMENTS

TOTAL

AKZ AKZ AKZ AKZ AKZ AKZ AKZ

Sales 73,255,802,476 1,435,406,709,130 144,724,228,734 832,146,898,392 12,672,082,250 (214,428,538,546) 2,283,777,182,435

Services rendered - - 39,719,788,531 73,763,105 135,719, 858,987 (22,289,328,564) 153,224,082,059

Other operational income - 4,171,405,407 4,819,667,522 938,315,818 8,302,822,009 (3,339,649,748) 14,892,561,009

73,255,802,476 1,439,578,114,538 189,263,684,787 833,158,977,315 156,694,763,246 (240,057,516,859) 2,451,893,825,503

Variation in finished

products

- (647,619,419) 332,740,810 4,835,965,367 - (684,508,511) 3,836,578,246

Concessionaire cost (sales

on behalf of the State)

- (895 401 469 527) - - - - (895,401,469,527)

Cost of goods sold and

raw materials

- (117) (123,087,387,827) (476,489,472,014) (18,508,642,563) 230,701,387,946 (387,384,114,574)

Oil&Gas exploration and

operating costs

- (267,357,942,328) - - - 2,281,255,300 (265,076,687,029)

Payroll (45,976,280,554) (7,778,151,913) (12,225,514,251) (53,874,398,507) (46,362,118,568) 8,328,005,609 (157,888,458,184)

Depreciation - (300,232,714,106) (15,235,889,110) (16,489,513,577) (37,433,825,944) (197,038,549) (369,588,981,285)

Other operational costs (35,534,695,356) (5,539,262,516) (40,098,937,372) (72,907,622,269) (90,447,705,448) 19,814,932,786 (224,713,290,176)

(81,510,975,910) (1,476,957,159,926) (190,314,987,750) (614,925,041,000) (192,752,292,523) 260,244,034,580 (2,296,216,422,529)

Operational Income (8,255,173,434) (37,379,045,389) (1,051,302,963) 218,233,936,315 (36,057,529,277) 20,186,517,722 155,677,402,974

Financial income and

expenses

35,813,352,454 (153,008,051,183) 1,018,234,556 74,064,381,628 (53,869,523,283) 41,949,363,142 (54,032,242,686)

Result of affiliates 24,536,988,603 - - - 3 179 458 225 (23 561 446 307) 4 155 000 522

Non-operating income

and expenses

82,123,430,189 231,618,901,412 (109,666,036,499) (172,166,884,223) (50,017,793,397) 9,579,802,533 (8,528,579,984)

142,473,771,247 78,610,850,230 (108,647,801,943) (98,102,502,595) (100,707,858,455) 27,967,719,368 (58,405,822,148)

Income before taxes 134,218,597,813 41,231,804,841 (109,699,104,906) 120,131,433,720 (136,765,387,732) 48,154,237,090 97,271,580,826

Taxation - (28,170,705,143) (2,182,214,664) (51,360,556,394) (1,960,916,069) (393,983,648) (84,068,375,918)

Current activities net income

134,218,597,813 13,061,099,698 (111,881,319,570) 68,770,877,326 (138,726,303, 801) 47,760,253,441 13,203,204,908

Extraordinary income

and expenses

- - - 869,662 77,651,450 (47,796) 78,473,316

Net income 134,218,597,813 13,061,099,698 (111,881,319 570) 68,771,746,988 (138 ,648,652,351) 47,760,205,646 13,281,678,224

CORPORATE & FINANCING

UPSTREAM MIDSTREAM DOWNSTREAM NON CORE CONSOLIDATION ADJUSTMENTS

TOTAL

USD USD USD USD USD USD USD

Operational Income (50,329,979) (227,891,827) (6,409,563) 1,330,524,362 (219,834,834) 123,072,763 949,130,922

Income before taxes 818,301,302 251,381,255 (668,811,341) 732,414,957 (833,828,520) 293,585,804 593,043,457

Current activities net income

818,301,302 79,630,655 (682,115,824) 419,280,929 (845,783,795) 291,183,772 80,497,039

Net income 818,301,302 79,630,655 (682,115,824) 419,286,232 (845,310,371) 291,183,480 80,975,474

CORPORATE &

FINANCING

UPSTREAM MIDSTREAM DOWNSTREAM NON CORE TOTAL

Consolidated USD

Consolidated USD

Consolidated USD

Consolidated USD

Consolidated USD

USD

Total Non-current Assets 6,394,082,721 20,775,167,317 2,085,098,001 1,515,445,644 4,180,381,618 33,946,168,971

Total Current Assets 3,515,227,334 2,241,439,882 490,045,519 2,115,132,038 1,723,489,048 10,085,333,821

Total Assets 9,909,310,056 23,016,607,199 2,575,143,520 3,630,577,682 5,903,870,665 45,035,509,123

Total Equity -694,389,609 12,209,687,833 2,097,706,234 79,021,685 5,117,684,160 18,809,710,303

Total Non-Current Liabilities 6,927,322,433 7,739,279,701 177,928,473 589,644,466 213,590,146 15,647,765,218

Total Current Liabilities 3,676,377,232 3,067,639,666 299,508,813 2,961,911,531 572,596,359 10,578,033,601

Total Equity and Liabilities 9,909,310,056 23,016,607,199 2,575,143,520 3,630,577,682 5,903,870,665 45,035,509,123



4. TANGIBLE FIXED ASSETS

4.1 TANGIBLE FIXED ASSETS

4.1.1 DETAILS BY NATURE

As at 31 December 2016 the tangible fixed assets natures are detailed as follows:

Items Gross Value 2016 Accumulated Depreciation 2016

Net Value 2016 Net Value 2015

Land and natural resources 7,162,059,413 - 7,162,059,413 6,528,472,807

Buildings and other construction 563,481,737,724 (198,759,587,266) 364,722,150,458 206,026,165,951

Basic equipment 432,334,857,106 (164,977,847,285) 267,357,009,821 223,197,100,517

Transport equipment 40,973,170,744 (30,228,141,726) 10,745,029,018 5,984,335,333

IT equipment 33,294,026,395 (22,360,741,576) 10,933,284,820 2,896,619,241

Administrative equipment 45,516,540,275 (45,798,016,709) (281,476,434) 9,352,960,467

Other tangible fixed assets 5,642,317,970 (4,505,030,278) 1,137,287,692 1,002,780,661

Tangible fixed assets in progress

269,865,527,420 - 269,865,527,420 342,274,129,563

Advanced payments for tangible fixed assets

6,162,055,451 - 6,162,055,451 18,737,772,575

1,404,432,292,497 (466,629,364,840) 937,802,927,657 816,000,337,114

During the year 2016, the main Group investments were related with:

• Construction of Lobito Refinery in the “midstream” segment;

• Construction of 2 drilling vessels in the “upstream” segment;

• Construction of logistics facilities at Barra do Dande in the “downstream” segment.

LOBITO REFINERYIn August 2016, Sonangol’s Management decided, among others, to suspend the construction works of the Lobito Refinery, in order to re-evaluating the strategic vision of the development and implementation of this project.

The applied measure foresee a careful review of the development, construction phasing and financing of the project and was a consequence not only of the current adverse economic situation, in particular in the oil and gas sector, but also because some of the original assumptions that supported its sanction were not verified.

The Sonangol Administration is convinced that the Lobito Refinery project is a strategic project for the Company and for the country, given the high national deficit of production of refined products. Additionally, it intends that this new strategy incorporates all the investments already made, believing that these investments could become more profitable with the development of industrial projects adjacent to the refinery, namely petrochemical industry projects, boosted by hydrocarbon discoveries in the offshore blocks near Lobito.

The impossibility of measuring and incorporating the development and exploration potential of the industries adjacent to the refinery into the present value of the Refinery, has affected negatively the exercise performed.

The potential of the national refining production allied with the adjacent industrial projects synergies can demonstrate greater economic strength and results in the reversal of impairment losses recognised in the period.

DRILLING VESSELSSonangol is negotiating with international partners a business model to increase the profitability of the two drilling vessels, and the activities in progress are as follows: conclusion of the financing process, final selection of technology partners and identification of new production opportunities. In accordance with the related business model, the entry into operation of the drilling vessels will occur in compliance with the Angolan legislation’s (Decree 48/06) and competitive daily average rates indexed to the industry reference prices will be applied.

4.1.2 MOVEMENTS DURING THE PERIOD IN GROSS AMOUNT

During 2016 the movements occurred in the gross amount of tangible fixed asset were as follows:

Items Beginning balance Increases Decreases Transfers / /write-offs

Exchange rate differences

Ending balance

Land and natural resources

6,528,472,807 990,703,911 (584,123,266) (213,705) 227,219,666 7,162,059,413

Buildings and other construction

298,846,555,946 272,748,483,119 (11,307,432,780) (5,956,517,653) 9,150,649,093 563,481,737,724

Basic equipment 349,631,375,647 32,343,328,560 (4,946,537,489) (85,503,956) 55,392,194,344 432,334,857,106

Transport equipment 22,136,197,485 18,120,908,771 (434,638,558) (306,889,208) 1,457,592,254 40,973,170,744

IT equipment 28,377,795,898 784,210,338 (53,857,410) 255,849,275 3,930,028,295 33,294,026,395

Administrative equipment

35,849,279,808 6,641,592,869 (24,007,138) 143,384,690 2,906,290,046 45,516,540,275

Other tangible fixed assets

3,111,562,698 1,903,248,714 - (7,808) 627,514,366 5,642,317,970

Tangible fixed assets in progress

342,148,215,031 94,176,743,205 (171,161,381,732) (35,198,287,013) 39,900,237,929 269,865,527,420

Advanced payments for tangible fixed assets

18,737,772,575 5,649,857 (15,313,622,219) - 2,732,255,237 6,162,055,451

1,105,367,227,894 427,714,869,344 (203,825,600,592) (41,148,185,380) 116,323,981,230 1,404,432,292,497

The decreases amount includes impairment losses detailed in Note 13 Retained earnings in the amount of 5,439,536 thousands of AOA and in Note 33 Non-operational results in the amount of 123,249,902 thousands of AOA with a direct impact in profit and loss.



4.1.3 MOVEMENTS DURING THE PERIOD IN ACCUMULATED DEPRECIATIONS

During 2016 the movements occurred in the accumulated depreciations of tangible fixed asset were as follows:

Items Beginning balance Increases Decreases Transfers / /write-offs


Ending balance

Buildings and other construction

92,820,113,495 106,397,360,583 (80,116,604) (1,895,445,887) 1,517,675,679 198,759,587,266

Basic equipment 126,432,666,380 27,367,188,797 (3,891,270,000) (221,461,729) 15,290,723,838 164,977,847,285

Transport equipment 16,151,862,212 13,508,244,448 (85,806,115) (203,380,476) 857,221,657 30,228,141,726

IT equipment 17,074,915,238 1,844,197,952 (82,695,418) (1,471,422) 3,525,795,225 22,360,741,576

Administrative equipment

34,904,466,041 9,222,262,283 (5,785,496) (16,889,935) 1,693,963,817 45,798,016,709

Other tangible fixed assets

2,108,782,037 1,953,338,718 - (7,255) 442,916,778 4,505,030,278

289,492,805,403 160,292,592,781 (4,145,673,634) (2,338,656,704) 23,328,296,994 466,629,364,840

4.A. OIL AND GAS PROPERTIES

4.A.1 DETAILS BY NATURE

As at 31 December 2016 the oil and gas properties natures are detailed as follows:

Item Gross value 2016 Accumulated amortisations 2016

Net vale 2016 Net vale 2015

Development expenses 4,416,477,258,529 (2,100,421,076,058) 2,316,056,182,471 1,463,225,749,111

Abandonment expenses 310,687,127,845 (179,537,732,603) 131,149,395,242 221,886,868,396

4,727,164,386,374 (2,279,958,808,661) 2,447,205,577,713 1,685,112,617,507

As at 31 December 2016, the Group development expenses includes an amount of 6,763,829 thousands of AOA related with the investment in Iraq project.

Sonangol and the Government of Iraq agreed in 2015, due to the conflicts of war and political instability in the province of Nineveh, the waiver of compliance with the contractual obligation foreseen in the Development and Production Service Contract (DPSC) and, consequently, the closure of the oil fields of Qayarah and Najmah. The Sonangol Administration is currently working on a program to reactivate and revitalize these oil fields, which took place during 2016 with the recovery of effective control over these assets, after the de-escalation of the conflict and the intergovernmental contacts reinforcement.

The Sonangol Administration considers that the current efforts to resume the operations in these fields and the projected financial viability of this transaction will ensure the recovery of the investments performed in these mining assets.

4.A.2 MOVEMENTS DURING THE PERIOD IN GROSS AMOUNT

During 2016 the movements occurred in the gross amount of oil and gas properties were as follows:

Item 2015 Increases Decreases Transfers / /write-offs


2016

Development expenses

3,121,171,551,405 1,321,185,632,815 (510,503,229,347) - 484,623,303,656 4,416,477,258,529

Abandonment expenses

334,122,877,215 59,082,615,790 (113,598,563,393) - 31,080,198,233 310,687,127,845

3,455,294,428,620 1,380,268,248,605 (624,101,792,740) - 515,703,501,889 4,727,164,386,374

In addition to the regular developments, resulting from investments in the operated and non-operated blocks, other specific increases are highlighted, such as:

• Incorporation of mining assets relative to the participations in concessions FS and FST in the amount of 14,643,255 thousand of AOA;

• Borrowing costs capitalization for the years 2013, 2014, 2015 and 2016 in the amount of 98,650,977 thousand of AOA, from the medium and long term loans related with the construction of qualify assets.

The increase in development expenses includes the reclassification of the impairment loss registered in the 2015 in Others debtors (non-current) in the amount of 355.969.743 thousand of AOA and include the decreases include the same amount related with the impairments loss recognition in Retained earnings, as disclosed in Note 13, since it was considered a fundamental error.

In 2016 the Group has performed new impairment tests to the mining assets in the production phase, the main assumptions were reviewed in accordance with new market factors, with special focus on the evolution of the oil price curve, on the business plans, and on group costs of the debt and the equity (in line with benchmarks and information sources commonly accepted by the industry). These tests presented significant improvements regarding the mining assets recoverability, when compared with the previous period, which has resulted in an adjustment to the carrying amount of the assets of 380.912.384 thousand of AOA, which was recognized in Non operating results.

4.A.3 MOVEMENTS DURING THE PERIOD IN ACCUMULATED DEPRECIATIONS

During 2016 the movements occurred in the accumulated depreciations of oil and gas properties were as follows:

Item 2015 Increases Decreases Transfers / /write-offs


2016

Development expenses

1,657,945,802,294 250,590,987,784 - - 191,884,285,979 2,100,421,076,058

Abandonment expenses

112,236,008,819 49,084,862,295 - - 18,216,861,489 179,537,732,603

1,770,181,811,113 299,675,850,079 - - 210,101,147,468 2,279,958,808,661

In 2016 the Group has adjusted the amortizations of the mining fixed assets (Block 0), due to the need to exclude form the basis of amortization the investments in the field in development in Mafumeira Sul,



since the effective production will only start in 2017. The impact of the retrospective adjustment in the mining tangible assets and in the Abandonment expenses was in the amount of 18,288,908 thousands of AOA.

4.B. REVERSIBLE ASSETS

4.B.1 DETAILS BY NATURE

As at 31 December 2016 the reversible assets natures are detailed as follows:

Items Fair Value 2016

Fair Value Variation 2016

Net Value 2016

Net Value 2015

Reversible Assets 167,395,967,501 - 167,395,967,501 -

167,395,967,501 - 167,395,967,501 -

Based on a better interpretation of laws in force and of the contractual terms that guide the oil and gas activities, the Group has recognised at its fair value, reversible assets in the amount of 167,395,968 thousands of AOA related with oil and gas operations, as explained in Note 2.3 g).

4.B.2 MOVEMENTS DURING THE PERIOD IN GROSS AMOUNT

During 2016 the movements occurred in the accumulated depreciations of reversible assets were as follows:

Item 2015 Increases Decreases Transfers / write-offs


2016

Reversible assets - 167,395,967,501 - - - 167,395,967,501

- 167,395,967,501 - - - 167,395,967,501

5 INTANGIBLE ASSETS

5.1 DETAILS BY NATURE

As at 31 December 2016 the intangible assets natures are detailed as follows:



Goodwill 61,547,521,500 - 61,547,521,500 27,385,587,200

Rights and contracts 2,365,013,267 (239,973,925) 2,125,039,342 1,245,731,996

Formation expenses 104,128,980 (104,128,980) - 4,140,843

Other intangible assets 21,163,598,750 (19,776,439,616) 1,387,159,134 1,449,761,965

85,180,262,497 (20,120,542,520) 65,059,719,976 30,085,222,003

The above Goodwill represents:

• Excess acquisition consideration transferred for the acquisition of “Refinaria de Luanda” by “Fina Petróleos” and the fair value of the identifiable net assets acquired and liabilities assumed; AOA 33,779,424 thousands.

• Excess acquisition consideration transferred for the acquisition of Inloc Limitada pela Sonangol Holdings by Sonangol Holdings in 2011 and the fair value of the identifiable net assets acquired and liabilities assumed; AOA 27,768,098 thousands.

5.2 MOVEMENTS DURING THE PERIOD IN GROSS AMOUNT

During 2016 the movements occurred in the accumulated depreciations of intangible assets were as follows:

Item Beginning balance

Increases Decreases / write-offs


Ending balance

Goodwill 27,385,587,200 27,768,097,500 - 6,393,836,800 61,547,521,500

Rights and contracts 1,428,943,191 1,001,006,452 (64,936,375) - 2,365,013,267

Formation expenses 89,419,092 - - 14,709,887 104,128,980

Other intangible assets 17,591,895,387 1,053,865,206 (8,085,070) 2,525,923,226 21,163,598,749

46,495,844,870 29,822,969,158 (73,021,445) 8,934,469,914 85,180,262,497

The increase in Goodwill is related with the entrance of Inloc Limited to the consolidation perimeter in 2016.

5.3 MOVEMENTS DURING THE PERIOD IN ACCUMULATED DEPRECIATIONS

During 2016 the movements occurred in the accumulated depreciations of intangible assets were as follows:

Item Beginning balance

Increases Decreases Exchange rate differences

Ending balance

Goodwill - - - - -

Rights and contracts 183,211,195 223,490,731 - - 406,701,925

Formation Expenses 85,278,250 4,140,843 - 14,709,887 104,128,980

Other intangible assets 16,142,133,423 1,287,988,442 - 2,179,589,751 19,609,711,616

16,410,622,867 1,515,620,016 - 2,194,299,638 20,120,542,520



5.A. EXPLORATION AND EVALUATION ASSETS

5.A.1 DETAILS BY NATURE

As at 31 December 2016 the exploration and evaluation assets natures are detailed as follows:



Exploration and evaluation assets 509,723,972,264 - 509,723,972,264 126,797,283,209

Advances for acquisition of interests in blocks

215,035,602,798 - 215,035,602,798 -

724,759,575,062 - 724,759,575,062 126,797,283,209

5.A.2 MOVEMENTS DURING THE PERIOD IN GROSS AMOUNT

During 2016 the movements occurred in the accumulated depreciations of exploration and evaluation assets were as follows:

Item 2015 Increases Decreases Transfers Exchange rate differences

2016

Exploration and evaluation assets:

Block 15.06 26,390,016,358 31,859,439,454 - - 5,965,351,060 64,214,806,872

Block 31 32,246,999,593 309,436,191,052 - (38,969,208,732) 7,289,297,240 310,003,279,154

Block 32 31,775,808,580 59,704,071,257 - - 7,182,786,524 98,662,666,362

Block 02.05 2,603,290,895 550,571 (3,192,304,311) - 588,462,826 (20)

Block 02.06 393,295,816 - (482,198,598) - 88,902,904 122

Block 37.11 - 3,339,506,543 (3,339,506,543) - - -

Block 22.11 - - (162,059,827) - - (162,059,827)

Iraq 30,182,625,380 - - - 6,822,654,220 37,005,279,600

Venezuela 3,205,246,588 - (3,929,778,960) - 724,532,372 -

126,797,283,208 404,339,758,877 (11,105,848,238) (38,969,208,732) 28,661,987,147 509,723,972,264

Advances for acquisition of interests in blocks:

Block 09.09 - 23,306,064,477 (23,306,064,477) - - -

Block 21.09 - 215,035,602,798 - - - 215,035,602,798

- 238,341,667,275 (23,306,064,477) - - 215,035,602,798

126,797,283,208 642,681,426,152 (34,411,912,715) (38,969,208,732) 28,661,987,147 724,759,575,062

The caption exploration and evaluation assets includes an amount of 37,005 thousands of AOA related to the signature bonus paid by the Group, related to the Iraq investment.

Given the uncertainty related to the mining investment recoverability in Venezuela, associated to the signature bonus specifically in Migas and Melones fields, the group recognized an impairment loss for all the investment in the amount of 3,929 thousands AOA. Due to the fact that the impairment indicators were already identified in the prior years, the impairment loss was recognized in retained earnings as disclosed in Note 13, since it was considered a fundamental error.

Regarding block 09.09, the amount of increase corresponds to the reclassification of the impairments losses recognized in 2015 in “Others Debtors non-current”, in amount of 23,306,064 thousands OAO, and the same amount was recognized as a decrease due to the recognition of the impairment loss in retained earnings as disclosed in Note 13, since it was considered a fundamental error.

The increases during the period include the amount of 309,436,191 thousands AOA and 215,035,603 thousands AOA, related with the reclassification of the impairment losses of the blocks 31 and 21.09, respectively, recognized in 2015 in “Others Debtors non-current”.

BLOCK 21.09Sonangol’s management believes that this block has potential of profitability due to the contingent resources of oil and gas. The potential of this block is associated with the existence of a gas contractual matrix which is currently in development by a ministerial group of which Sonangol EP is a part. In the absence of a clear regulation that allows the gas resources valuation, it’s hard to perform a reasonable evaluation, based on solid and consistent assumptions with the results of the ministerial work group. However, Sonangol’s management believes that the efforts already started by the Angola Government will allow the resources valuation and monetization in line with the returns’ expectations foreseen at the date of the investment in the block.

BLOCK 31Sonangol’s management believes that the 2nd Hub of Block 31 block has potential of profitability due to the contingent resources of oil and gas. The related resources are split and distributed for 15 small fields, thereby increasing the development costs when compared to a conventional development. However, efforts have been made find a more efficient techniques that can reduce the needs to invest in infrastructures, increasing its economic attractiveness and, therefore, recovering the investments already made. It is Sonangol’s management judgement that there is a high degree of uncertainty to perform a financial and economic evaluation based on solid assumptions and adherent to the reality.



6. FINANCIAL INVESTMENTS

6.1 DETAILS BY TYPE OF MEASUREMENT

As at 31 December 2016 the financial investments by type of measurement are detailed as follows:

Item 2016 2015

Financial investment – cost less impairment losses 442,906,989,553 607,406,283,398

Financial investment – fair value 28,021,873,581 76,689,170,933

470,928,863,134 684,095,454,331

6.2 DETAILS BY ENTITY – FINANCIAL INVESTMENTS – COST LESS IMPAIRMENT LOSSES

As at 31 December 2016 the detail of the financial investments measured at cost less impairment loss is as follows:

Item % held Gross value 2016 Accumulated impairment losses 2016

Net value 2016 Net value 2015

ACS 100.0% 796,688,890 - 796,688,890 650,614,310

AGOLE 80.0% 2,295,769 (2,295,769) - -

ALM 50.0% 129,893 - 129,893 105,944

AMA 33.0% 15,427,500 (15,427,500) - -

Angoflex 30.0% 1,084,724,391 (1,084,724,391) - -

Angola Cables 9.0% 2,248,548,662 - 2,248,548,662 1,626,929,317

Angola LNG Supply Ltd 22.8% 428,686,304,175 (158,391,600,000) 270,294,704,175 284,527,128,081

Angola LNG Supply Services 72.8% 28,518,658 (10,003,680) 18,514,978 3,660,156,964

BAI 8.5% 1,275,840,744 - 1,275,840,744 1,275,840,744

Banco Caixa Geral Angola 25.0% 5,657,563,888 - 5,657,563,888 5,657,563,888

Banco Economico, S.A. 39.4% 28,368,000,000 (10,294,953,816) 18,073,046,184 28,368,000,000

Banco Millennium Angola 14.3% 5,333,568,082 - 5,333,568,082 5,333,568,082

Bauxite 20.0% 491,250,000 (491,250,000) - -

Bayview 16.0% 136,000 (136,000) - -

BCI - Banco de Comércio e Indústria, SARL

1.1% 79,147,425 (79,147,425) - -

Biocom 20.0% 1,051,800,000 - 1,051,800,000 1,051,800,000

BPA Europa 20.0% 359,299,116 (359,299,116) - -

Bricomil 15.0% 39,343,274 (39,343,274) - -

Cardlane Limited 100.0% 16,000,300 - 16,000,300 16,000,300

China Sonangol International 30.0% 73,992,592,422 (73,992,592,422) - 73,992,592,422

Cobalt Angola - Adiantamento 100.0% - - - 34,000,000,000

Cogesform - Comércio Gestão e Formação

100.0% 6,259,750 - 6,259,750 6,259,750

Diranis 100.0% 145,621,667 (145,621,667) - -

E.I.H. - Energia Inovação Holding, SA 30.0% 2,701,890 (2,701,890) - -

Embal 30.0% 305,363,246 (305,363,246) - -

Enco, SARL 77.6% 2,579,284,614 (598,833,757) 1,980,450,857 1,980,451,613

Esperaza Holding B.V. 60.0% 12,397,138,198 - 12,397,138,198 1,622,417

ESSA 100.0% 18,668,650 - 18,668,650 18,668,651

Item % held Gross value 2016 Accumulated impairment losses 2016


Genius, Lda 10.0% 701,250,000 (701,250,000) - -

Gesporto 70.0% 1,400,000 (1,400,000) - -

Jasmin (Joint Venture) 30.0% 3,470,032,251 - 3,470,032,251 2,830,258,575

Kicombo 60.0% 60,000,000 - 60,000,000 60,000,000

Kwanda Lda 30.0% 13,141,040 - 13,141,040 13,141,040

Lobinave 75.0% 525,647,462 (525,647,462) - -

Luanda Waterfront 26.1% 6,099,427,614 - 6,099,427,614 6,099,427,614

Luxervisa 80.0% 2,000,736,000 (2,000,736,000) - -

Mota Engil 20.0% 6,494,048,204 (1,873,689,264) 4,620,358,940 6,494,048,204

Net One 51.0% 2,219,316,408 (2,219,316,408) - -

OPCO 22.8% 3,801,398 - 3,801,398 3,100,536

Orleans Invest Holding (OI OSC) 100.0% - - - 27,769,500,000

Paenal - Porto Amboim Navais 10.0% 7,500,000 - 7,500,000 7,500,000

Petromar 30.0% 9,198,728 - 9,198,728 9,198,728

Puaça 100.0% 4,230,868,867 (4,292,745,816) (61,876,949) 4,230,868,867

Puma Energy 27.9% 101,387,608,141 - 101,387,608,141 101,387,608,141

S. Tomé e Principe Offshore 51.0% 765,000 (765,000) - -

Sodimo 30.0% - - - -

Somg 0.0% 3,801,398 - 3,801,398 3,100,536

Sonacergy 40.0% 304,168,263 - 304,168,263 -

Sonadiets 60.0% 6,439,470 - 6,439,470 6,439,470

Sonaid 30.0% 11,705,107 - 11,705,107 -

Sonair USA 50.0% 1,875,000 - 1,875,000 1,875,000

Sonamet 40.0% 356,351,721 - 356,351,721 -

Sonangalp 51.0% 501,880,661 - 501,880,661 501,880,661

Sonangol Asia 100.0% - - - 40,184,150

Sonangol Cabo-Verde 99.0% 2,162,710,815 - 2,162,710,815 2,162,710,815

Sonangol Hidrocarbonetos USA, Ltd. 100.0% 21,287,491,915 (21,287,491,915) - -

Sonangol Holdings USA 100.0% 399,528,106 (399,528,106) - -

Sonangol Limited 100.0% - - - 244,319,315

Sonangol SA (Solo Properties,Ltd) 100.0% - - - 8,791,902,366

Sonangol São Tomé e Príncipe 92.0% 1,091,487,601 (511,717,279) 579,770,322 579,708,843

Sonangol Starfish Oil & Gas, S.A. 100.0% 28,399,740,260 (28,399,740,260) - -

Sonangol USA Company 100.0% - - - 970,886,917

Sonasing Kuito 30.0% 233,922,597 (233,922,597) - -

Sonasing Mondo 10.0% 107,545 - 107,545 107,545

Sonasing OPS 50.0% 537,726 - 537,726 537,726

Sonasing Sanha 30.0% 270,000 - 270,000 270,000

Sonasing Saxi - Batuque 10.0% 107,545 (107,545) - -

Sonasing Xicomba 30.0% 270,000 - 270,000 -

Sonasurf International 49.0% 401,360,038 - 401,360,038 -

Sonatide Mar - SMS 51.0% 52,460 - 52,460 -

Sonatide SML 51.0% 43,786 - 43,786 43,786

Sonils 30.0% - - - 6,439,161

Spal 50.0% 48,932,001 - 48,932,001 48,932,000

Technip 40.0% 1,042,720 - 1,042,720 1,042,719

Sonasurf Angola 50.0% 187,500 - 187,500 -

Miramar Empreendimentos 40.0% 75,600,000 - 75,600,000 -

Sonimechi, Lda. 30.0% 25,009,200 - 25,009,200 -

Sonils Limited 100.0% 560,206 - 560,206 -

Unitel 25.0% 3,646,196,557 - 3,646,199,199 2,973,948,202

751,168,338,515 (308,261,351,605) 442,906,989,553 607,406,283,398



The investments held in Sonils, Inloc limited, Sonangol USA, Sonangol ASIA, Sonangol HK, Sonangol LTD and Solo Properties were excluded from the table above, when compared to 2015, since they enter into the consolidation perimeter in 2016, as disclosed in Note 2.1.4. The advance payment made to the Cobalt Angola (2015: 33,997,000,000 AOA) was transferred to the caption “Other non-current assets and accounts receivable”, as disclosed in Note 9.2.1, due to the ongoing negotiations to recover the amount advanced.

6.2.1 FINANCIAL INVESTMENT IN ANGOLA LNG

The financial investments in Angola LNG Supply Services, Angola LNG Ltd, OPCO and SOMG correspond to a share of 22.8% in companies responsible for refining natural gas in Angola, on which Sonangol Gás Natural participates together with other operators, in particular Chevron with 36.4% and Total, BP Amoco and ENI, all with 13.6%.

The LNG Ltd. is the gas refinery and is the main focus of the consortium investment. LNG Supply Services is the company responsible for cargo dispatch from the refinery to the final customer. SOMG is the company responsible for the maintenance and repair of the refinery infrastructure and OPCO is the company responsible for providing technical expertise to operate the refinery. Finally ALM is responsible for the product distribution in Europe and was created to replace ALNG SS.

During 2016 the movement occurred in the financial investment in Angola LNG Supply Ltd was as follows:

Entity Net value 2015 Amounts paid Amounts received

Impairments Exchange rate differences

Net value 2016

Angola LNG Supply Ltd

284,527,128,081 19,235,075,904 (40,218,795,072) (58,354,800,000) 65,106,095,263 270,294,704,175

284,527,128,081 19,235,075,904 (40,218,795,072) (58,354,800,000) 65,106,095,263 270,294,704,175

New impairment tests were made in 2015 to the investment in Angola LNG Supply Ltd, and an additional impairment loss of 58,354,800 thousands AOA was recognised in “Non-operating results” (see Note 33). Regarding the impairment losses recognised in 2015in the amount of 82,237,344 thousands AOA, which were deferred on “Other non-current debtors” (see Note 31), they were transferred to retain earnings since they were considered a fundamental error.

6.3 DETAILS BY ENTITY – FINANCIAL INVESTMENTS – FAIR VALUE

As at 31 December 2016 the detail of the financial investments measured at fair value is as follows:

Item % held Gross value 2016 Accumulated impairment losses

2016


Banco Millennium BCP 14.87% 28,021,873,581 - 28,021,873,581 76,689,170,933

28,021,873,581 - 28,021,873,581 76,689,170,933

Due to the share capital increase and a share regrouping, where each lot of 75 shares was converted to one share of Millennium BCP, Sonangol EP owns now 140.454.871 shares, representing a qualifying

holding of 14.87% (17.84% in 2015) and valued at market price (fair value), based in market quotations as at 31 December 2016. The table below details the position in the balance sheet of the company:

Year Fair value

Number of shares before conversion

Number of shares after conversion

EUR AOA

31/12/2007 180,000,000 - 525,600,000 58,030,181,977

31/12/2008 469,000,000 - 379,890,000 42,032,258,380

31/12/2009 469,000,000 - 397,008,500 51,025,914,471

31/12/2010 685,138,638 - 398,750,687 48,676,293,902

31/12/2011 794,933,620 - 108,110,564 13,671,878,185

31/12/2012 3,803,587,403 - 285,268,647 13,671,878,185

31/12/2013 3,803,587,403 - 635,877,509 85,245,738,843

31/12/2014 10,534,115,358 - 695,251,614 86,982,929,381

31/12/2015 10,534,115,358 - 516,171,653 76,689,170,933

Market fair value as at 31/12/2016

140,454,871 150,427,167 28,021,873,581

Movements in fair value were as follows:

Beginning balance Acquisitions Gains / losses Ending balance

Value in EUR 516,171,653 - (365,744,486) 150.427.167

Value in AOA 76,689,170,933 - (48,667,297,352) 28.021.873.581

Sonangol participation in BCP is a strategic investment since it is a support for diversification of investment in geographies as Africa and Europe and emphasizes the company internationalization.

Despite the long devaluation on the stock exchange, BCP is progressing on the implementation of their Restructuring Plane and has become the most efficient bank in Portugal due to the financial deleveraging.

These shares are in the custody of “Banco BIG – Banco de Investimento Global” under a contract signed between this bank and SONANGOL EP.



7. OTHER FINANCIAL ASSETS


As at 31 December 2016 the other financial assets natures are detailed as follows:

Item 2016 2015

Real estate investment 125,377,191,386 190,470,847,767

Energy Fund II & III 10,955,402,605 14,901,675,499

Gateway Fund I 42,089,909,252 33,634,350,318

178,422,503,244 239,006,873,583

7.1.1 REAL ESTATE INVESTMENTS

As at 31 December 2016 the detail of investments in real estate is as follows:

Item 2016 2015

Real estate investment:

- Hotels 13,405,428,410 32,695,141,744

- Buildings: Sonangol Group - 71,184,514,730

- Overseas property 13,930,331,400 -

- Other properties 14,310,124,529 11,978,588,762

41,645,884,338 115,858,245,236

Real estate investment in progress:

- Hotels 79,731,936,681 71,489,441,878

- Other properties 3,999,370,367 3,123,160,653

83,731,307,048 74,612,602,531

125.377.191.386 190.470.847.767

The caption Hotels includes investments in Hotels, such as, HCTA (32,459,175 millions of AOA), Maianga (3,725 million of AOA), Florença (2,601 million of AOA) and Base do Kwanda (396 million of AOA). The operations of these Hotels are managed by third parties under exploration contracts and the Group receives rents from the exploration (Note 24). The caption “Overseas property” relates to the building owned outside the country which is explored by the group entity Grupo Solo Properties.

The group made impairment tests due to the uncertainty about the recoverability of the investments in the hotels units. These tests result in the recognition of impairment losses in HCTA (22,531,955 thousands of AOA), Hotel Riomar (6,494,889 thousands of AOA), Hotel Maianga (2,751,679 thousands of AOA) and Hotel Florença (493,348 thousands of AOA). These impairment losses were recognised under the caption “Non-operating results”.

The decrease in the caption Buildings: Sonangol Group is related with the reclassification of these assets to tangible fixed assets, due to the fact that these assets used for our operations and not held for investment.

The caption Real estate investments in progress includes ongoing projects related mainly with the investments in Intercontinental – Hotel & Casino and Hotel Riomar, in the amounts of 74,675 thousands of AOA and 11,457 thousands of AOA, respectively.

At 31 December 2016, the investment in “Hotel Intercontinental” is valued at historic cost. At the reporting date the profitability model of this asset is under review, therefore we were not able to determine if any impairment loss should be recognised in the period. Never the less, the Group considers that the contractual terms ensure the recoverability of the investment.

7.1.2 ENERGY FUND II & III AND GATEWAY FUND I

During 2016 the movements occurred in the Energy Fund II & III and Gateway Fund I was as follows: Gross amounts

Item Opening Balance Increases Decreases Exchange rate differences

Closing Balance

Energy Fund II 1,881,066,095 - (1,241,201,376) 410,751,932 1,050,616,652

Energy Fund III 13,020,609,403 - (6,021,084,557) 2,905,261,108 9,904,785,954

14,901,675,498 - (7,262,285,933) 3,316,013,040 10,955,402,605

Gateway Fund 33,634,350,317 852,656,959 - 7,602,901,976 42,089,909,252

Amount in AOA 48,536,025,816 852,656,959 (7,262,285,933) 10,918,915,016 53,045,311,857

Amount in USD 356,912,985 5,114,060 (43,557,686) (314,569) 318,154,790

7.2.1 DETAILS OF THE MOVEMENTS OF THE FUNDS

The table below details the movements occurred in the funds since its constitution:

Item Energy II Energy III Ending balance 2016 Ending balance 2015

Original cost 20,164,105,995 63,273,104,604 83,437,210,598 67,022,952,353

Gains/Losses of realized capital 22,267,639,310 27,019,900,332 49,287,539,642 45,620,616,698

Other investment profit 3,071,250,805 10,500,152,468 13,571,403,273 11,069,247,018

Distributions (gross) (41,216,753,852) (80,032,377,080) (121,249,130,933) (95,718,830,970)

Remaining Cost 4,286,242,257 20,760,780,323 25,047,022,580 27,993,985,098

Unrealized gains/losses (4,030,670,408) (15,508,413,497) (19,539,083,904) (20,378,443,906)

Others 2,646,279,639 6,338,933,870 8,985,213,509 7,147,349,033

Administrative Cost (1,851,234,837) (1,686,514,743) (3,537,749,580) 138,785,273

Investment Value 1,050,616,651 9,904,785,953 10,955,402,605 14,901,675,498



The amount reported for the capital risk investment - Energy Fund II and Energy Fund III – represent the market fair value, according with their final reports as at 31 December 2016.

7.2.2 DETAILS OF ACQUISITION COST

The table below details the acquisition cost of the funds since its constitution:

Item Gross amount in AOA Gross amount in USD

2016 2015 2016 2015

Energy Fund III

Cobalt International Energy LP 3,807,244,717 3,105,303,953 22,835,065 22,835,065

Dresser Inc 4,179,845,784 3,409,208,654 25,069,849 25,069,849

Foresight Reserves, LP 6,967,475,421 5,682,883,706 41,789,474 41,789,474

Frontier 3,577,726,786 2,918,102,186 21,458,464 21,458,464

Hong Hua LDT 191,605,652 156,279,365 1,149,211 1,149,211

International Logging Inc 819,260,877 668,213,952 4,913,757 4,913,757

RJS Power (FKA Jade) 7,684,689,926 6,267,865,550 46,091,178 46,091,178

Kinder Morgan Inc 3,875,658,218 3,161,104,073 23,245,395 23,245,395

Trinity (FKA Legend) 6,399,247,557 5,219,419,872 38,381,361 38,381,361

Moreno Energy Inc 705,673,092 575,568,319 4,232,481 4,232,481

Niska Gas Storage, LLC 2,550,623,618 2,080,365,774 15,298,112 15,298,112

Permian Tank & manufacturing, Inc 1,505,575,348 1,227,992,795 9,030,129 9,030,129

Rice Energy, Inc. 1,093,959,596 - 6,561,343 -

Phoenix exploration Company LP 7,274,077,876 5,932,957,942 43,628,412 43,628,412

Red Technology Alliance LLC 970,220,910 791,341,521 5,819,184 5,819,184

Targe Energy LLC 1,721,771,712 1,404,329,089 10,326,830 10,326,830

Titan Specialties 6,328,091,714 5,161,383,015 37,954,583 37,954,583

Turbine Air Systems Ldt 174,186,911 142,072,113 1,044,737 1,044,737

Vantage Energy LLC 3,446,168,890 2,672,105,698 20,669,407 19,649,512

Sub-total 63,273,104,604 50,576,497,578 379,498,972 371,917,734

Energy Fund II

Buckeye Partners 1,566,098,946 1,277,357,672 9,393,137 9,393,137

Capital C Energy Partners, LP 1,108,135,477 903,828,814 6,646,367 6,646,367

CDM Resource 1,193,063,386 973,098,585 7,155,747 7,155,747

Cobalt International Energy, LP 2,191,454,158 1,787,416,299 13,143,888 13,143,888

Kremer Junction 365,233,190 297,895,237 2,190,593 2,190,593

Trinity (FKA Legend) 441,264,492 359,908,667 2,646,613 2,646,613

Legend Natural Gas, LP 1,084,154,989 884,269,603 6,502,537 6,502,537

Megellan Midstream Partners, LP 1,041,894,276 849,800,487 6,249,066 6,249,066

Mariner Energy Inc 2,204,939,786 1,798,415,585 13,224,772 13,224,772

Niska Gas Storage 1,013,612,372 826,732,911 6,079,437 6,079,437

Petroplus International 1,622,207,253 1,323,121,304 9,729,663 9,729,663

Semgroup, LP 2,138,270,261 1,744,037,903 12,824,902 12,824,902

Stallion Oilfield Services, Lda 905,407,734 738,477,935 5,430,448 5,430,448

Topaz 3,288,369,675 2,682,093,774 19,722,960 19,722,960

Sub-total 20,164,105,995 16,446,454,774 120,940,130 120,940,130

Total 83,437,210,598 67,022,952,353 500,439,102 492,857,864

7.2.3 COMMITMENTS UNDERTAKEN

The table below details the commitments undertaken by Sonangol EP with the fund management company of Energy Fund II and III:

Item Carlyle-Energy Fund II Carlyle-Energy Fund III

% Held 9.94% 10.45%

USD AOA USD AOA

Value/Commitment 100,000,000 16,672,800,000 397,000,000 66,191,016,000

Investments to date 120,940,130 20,164,105,995 372,937,628 62,179,144,841

Uncommitted distribution 25,039,053 4,174,711,229 13,949,205 2,325,723,051

Remaining commitment 4,098,923 683,405,234 38,011,577 6,337,594,210

7.2.4 GATEWAY FUND

The table below details the commitments undertaken with Gateway I Fund:

Item 2016 2015

USD AOA USD AOA

Investment 83,294,027 13,887,446,534 45,629,147 6,205,034,639

Liquidity management balance 169,152,528 28,202,462,718 201,703,349 27,429,315,845

Investment fair value 252,446,555 42,089,909,252 247,332,495 33,634,350,317

The investment in capital risk investment Gateway Fund, with an initial investment of 41,682,000 thousands of AOA (250,000 thousands of USD), represents the market fair value in accordance with the fund manager final report as at 31 December 2016.

7.2.4.1 Details of the Liquidity management balance

The table below details the Liquidity management balance of Gateway I Fund:

Item 2016 2015

USD AOA USD AOA

Liquidity management balance

Opening Balance 201,703,349 27,429,315,845 250,000,000,00 33,997,100,207

Investment (44,719,948) (7,456,067,543) (46,812,689) (6,365,982,646)

Management Cost (1,890,411) (315,184,439) (4,684,932) (637,096,344)

Others gains / losses 1,098,786 183,198,397 (159,577) (21,700,636)

Desinvestment 1,393,012 232,254,128 - -

Adjustments 11,567,741 1,928,666,260 3,360,546 456,995,264

Exchange adjustment - 6,200,280,070 - -

Closing balance 169,152,528 28,202,462,718 201,703,349 27,429,315,845



8. INVENTORIES

8.1 DETAILS OF THE MOVEMENTS IN INVENTORIES

During 2016 the movement occurred in the inventories was as follows:

Item Gross Value 2016 Impairment loss 2016

Net Value 2016 Net Value 2015

Raw materials, subsidiaries and consumption

20,171,677,230 (8,852,460,540) 11,319,216,690 15,447,763,454

Products and work in progress 44,681,924,126 - 44,681,924,126 36,276,192,731

Finished and intermediate products 8,412,731,159 (36,000,354) 8,376,730,806 5,753,910,343

Merchandise 42,354,294,625 (6,765,028,205) 35,589,266,420 54,569,703,311

Raw materials, merchandise and materials in transit

579,955,012 - 579,955,012 97,993,064

116,200,582,153 (15,653,489,099) 100,547,093,054 112,145,562,903

9. OTHER NON-CURRENT ASSETS AND ACCOUNTS RECEIVABLE

9.1. DETAILS BY NATURE

As at 31 December 2016 the other non-current assets and accounts receivable natures are detailed as follows:

Current Non-current

Item 2016 2015 2016 2015

Trade receivables – current 362,003,383,761 100,442,593,750 - -

Trade creditors – debt balances 4,851,395,286 37,963,294,569 - -

State 18,145,814,885 27,373,637,610 - 2,865,021,912

State (PNUH - Centralities) 146,348,502,033 97,320,394,009 412,984,241,118 443,031,641,649

Participants e affiliates 15,025,144,238 13,872,174,884 153,195,183,668 151,920,114,441

Payroll 2,207,397,334 344,491,319 - -

Concessionaire Rights – Asset 105,201,103 395,397,891 - -

Mining activities - debtors 132,374,730,284 125,968,328,549 - -

Under-lift Debtors 22,639,052,046 16,998,320,566 - -

Other debtors 42,237,337,467 56,123,951,478 47,008,100,317 942,282,871,523

745,937,958,438 476,802,584,626 613,187,525,103 1,540,099,649,526

The trade receivables are mainly related with foreign customers of crude oil and natural gas and supply of wood based products to public entities.

The debtor position of “under-lifting” is essentially related with the position in 3 non-operated blocks (Blocks 14, 15/06 and 31) and 2 operated blocks (3.05 and 2.05).

9.2 PARTICIPANTS AND AFFILIATES

As at 31 December 2016 the accounts receivable from affiliated entities valued at cost less impairment losses (when applicable), are detailed as follow:

9.2.1 PARTICIPANTS AND AFFILIATES (NON-CURRENT)

Item Gross Value 2016

Impairment loss 2016

Net Value 2016

Net Value 2015

Puaça 11,422,721,793 (919,399,047) 10,503,322,746 8,525,315,624

Genius 29,594,724,083 (19,360,334,404) 10,234,389,679 21,387,400,492

Force Petroleum Angola 29,966,979,827 (12,002,684,298) 17,964,295,529 24,903,468,850

Lektron Capital, SA 20,235,810,457 - 20,235,810,457 12,499,505,510

Geni, SA 8,625,653,073 - 8,625,653,073 5,328,000,000

Embal 172,494,851 (172,494,851) - -

Lobinave 1,670,490,373 (1,670,490,373) - -

Biocom 13,658,297,123 - 13,658,297,123 12,904,537,625

Bauxite 83,364,000 (83,364,000) - -

Paenal 8,525,636,280 - 8,525,636,280 6,953,766,834

Luanda Waterfront 3,046,120,560 - 3,046,120,560 2,484,508,068

Diranis 7,230,270,307 (7,230,270,307) - 1,855,050,506

Sonasing OPS 1,469,438,531 - 1,469,438,531 1,196,697,920

Petromar 3,353,910,567 (3,353,910,567) - -

Angoflex 298,209,411 (239,795,596) 58,413,815 -

Sonangol Starfish Oil & Gas, S.A.

94,448,495,027 (94,448,495,027) - -

Sonangol Hidrocarbonetos USA, Ltd.

16,777,621,478 (16,777,621,478) - -

Exem Africa Limited 16,001,037,904 - 16,001,037,904 11,088,816,099

Esperaza Holding B.V. 1,168,093,380 - 1,168,093,380 42,793,046,913

Cobalt 41,682,000,000 - 41,682,000,000 -

Sonangol S.TOMÉ 33,345,600 (11,714,685) 21,630,915 -

Other 1,043,676 - 1,043,676 -

309,465,758,300 (156,270,574,633) 153,195,183,668 151,920,114,441

Intercompany loans for each of the above mentioned entities are subject to the related contracts. These loans are investments made by the group in affiliated companies and the payment terms are deferred in accordance with the contracts.

During 2016, the group has reclassified part of the amount from Esperaza Holding B.V. correspondent to the Group participation on the capital increase of this entity, to financial investments (Note 6.1), with purpose to present the nature of the operation in a true and fair view.



9.2.2 PARTICIPANTS AND AFFILIATES (CURRENT)



Net Value 2016

Net Value 2015

ESSA - - - -

Sonangol Cabo Verde, SA 348,605,270 - 348,605,270 284,333,002

Mota Engil Angola 355,012,600 - 355,012,600 2,201,659,990

Sonaid 4,805,899,202 - 4,805,899,202 3,919,836,758

Paenal 796,143,559 - 796,143,559 792,348,593

Porto STP 402,961,132 - 402,961,132 328,667,288

Aeroporto STP 1,411,345,256 - 1,411,345,256 760,259,822

BAI - - - 697,683,764

Sonamet/Sonacergy 995,299,363 - 995,299,363 2,520,489,650

Kwanda 1,227,105,126 - 1,227,105,126 509,511,051

ACS 492,216,239 - 492,216,239 687,762,044

Net One 132,507,933 - 132,507,933 -

Angola Cables 581,453,328 - 581,453,328 481,366,919

Unitel 245,534,510 - 245,534,510 245,534,472

Sonair USA - - - 41,224,383

Paz-Flor 1,824,349,317 - 1,824,349,317 401,497,149

Trading units 1,395,187,263 - 1,395,187,263 -

Other 11,524,138 - 11,524,138 -

15,025,144,237 - 15,025,144,237 13,872,174,884

9.3 OTHER DEBTORS

The details of other debtors are as follows:

9.3.1 OTHER DEBTORS (NON-CURRENT)



Net Value 2016

Net Value 2015

Cohydro (Nessergy) 33,345,600,000 (4,161,211,401) 29,184,388,599 27,197,680,000

Monumental 187,569,000 (187,569,000) - -

Space Group 247,591,080 (247,591,080) - -

Global Pactum 1,550,000,000 (1,550,000,000) - -

Iraq 17,464,326,841 - 17,464,326,841 14,259,360,671

Carry à Cupet 3,929,778,960 (3,929,778,960) - 3,205,246,588

Deferred losses – Mining activity

- - - 785,140,180,217

Deferred losses - ALNG - - - 82,237,344,608

Deferred losses - Investment Funds

- - - 16,132,955,440

Deferred losses – Scholarships

- - - 14,110,104,000

Others 359,384,900 - 359,384,876 -

57,084,250,781 (10,076,150,441) 47,008,100,316 942,282,871,524

On 25st October 2012 Sonangol EP agreed with Nessergy Ltd. the purchase of the interest that it holds in the Common Interest Zone (CIZ) affected to the Democratic Republic of Congo (95%) for later transfer to Cohydro (NOC Congolese) for the amount of 200 million USD.

The “Preliminary Commercial Agreement” signed between Sonangol EP and Cohydro, dated 27 January 2015, establishes that the amount due to Sonangol EP will be refunded by Cohydro through the Profit Oil obtained while concessionaire in CIZ, is to be defined in the PSA to be concluded between the two parties.

Sonangol’s management expect that in 2017 the negotiations will continue with RDC– Cohydro to define a CPP to CIZ, with profitability and return ensured for both parties.

Considering the strategic interest that this partnership has to both parties, Sonangol’s management is convicted that actions performed until now will lead to a successful ending of the process.

The amount in “Iraq” includes cash calls in the amount of 17,464,326 thousands of AOA made by the Group to face the expenses incurred with Sonangol Iraq Project.

The caption “Carry à Cupet” presents a total amount of 3,929,778 thousands of AOA which is related with the loan made to entity Cupet through a carried interest contracts. The amount was expected to be recovered throughout the production phase of the associated asset. The group performed a test to the recoverability of this amount and has recognized an impairment for the total amount of the trade receivable.

The deferred losses at mining activity and ALNG are related with the impairment losses recognized in 2015 in Blocks and in the investment in the joint venture Angola LNG, Ltd, which is disclosed in Notes 4A, 5A, 6 and 13.

The group has recognized the potential impairment losses deferred in previous years in retained earnings, since they were considered as fundamental errors. This adjustments are recognized within Investments Funds (Energy Fund II, III and Gateway Fund) with an amount of 16,132,955 thousands of AOA and scholarship expenses in the amount of 14.110.104 thousands of AOA as disclosed in Note 13.

9.3.2 OTHER DEBTORS (CURRENT)

Item 2016 2015

Social Fund (4,825,086,237) (5,903,731,067)

Social Fund – Advanced payment 4,210,758,100 5,924,123,618

Pension fund - SNG Vida 1,191,316,960 -

Trade receivables ZEE 3,499,421,449 -

Other debtors from real estate activities 28,548,782,527 52,591,807,667

Angola Maritime Training Services 112,168,388 91,487,930

Trading Unity 179,367,979 -

Others 9,320,608,301 3,420,263,331

42,237,337,467 56,123,951,478



The caption Social Fund represents the reduction in trade receivables, in accordance with the notification about social benefits from 26 June 2014, which has approved a reduction of 25% and 50% of contractual obligations of retired employees of Sonangol EP to the group, resulting from the re-selling of houses that had been acquired through SONIP.

9.4 CONCESSIONAIRE RIGHTS - ASSET

Assets identified as Concessionaire rights – asset, are related to the total of barrels (remaining rights) attributable to Sonangol EP acting as National Concessionaire.

CRUDE OIL RIGHTS IN BARRELSAs at 31 December 2016 the rights over crude oil in barrels are detailed as follows:

Item 2015 Increase (Production)

Decrease (Liftings)

2016

Block 2/85 (1,020,125) 1,020,125 - -

Block 2/05 17,710 73,989 60,000 31,699

Block 3/05 544,087 4,756,979 4,912,666 388,400

Block 3/05 A (5,775) 148,108 114,999 27,334

Block 4 - Gimboa 30,557 221,949 220,323 32,183

Block 14 (Kuito) (220,662) - - (220,662)

Block 14 (BBTL - Nemba) (1,022,791) 6,623,052 6,062,264 (462,003)

Block 14 (BBTL - Kuito) (295,263) - - (295,263)

Block 14 (TL) (160,175) 1,278,394 1,161,633 (43,414)

Block 14 (Belize Norte) (104,017) 1,502,703 1,432,315 (33,629)

Block 14 (Lianzi) (7,937) 279,781 265,732 6,112

Block 15 (Hungo) (331,747) 15,738,095 15,160,199 246,149

Block 15 (Kissanje) (605,325) 11,454,539 11,819,202 (969,988)

Block 15 (Mondo) 119,147 11,073,910 10,675,944 517,113

Block 15 (Saxi-Batuque) 580,276 5,592,160 6,334,213 (161,777)

Block 17 (Girassol) (154,886) 21,165,154 20,434,731 575,537

Block 17 (Dália) 2,517,158 21,750,444 25,856,125 (1,588,523)

Block 17 (Paz Flor) (263,869) 8,794,384 7,701,044 829,471

Block 17 (Clov Cargo) (361,772) 6,140,585 6,012,715 (233,902)

Block 18 (Plutónio) 1,358,279 13,705,329 14,224,694 838,914

Block 31 (Saturno) 90,036 5,353,035 4,872,567 570,504

Block Cabinda Sul 954 40,604 39,700 1,858

Block 15/06 (Sangos) 334,563 2,187,141 2,377,508 144,196

Totais 1,038,423 138,900,459 139,738,574 200,309

CRUDE OIL RIGHTS IN VALUEAs at 31 December 2016 the rights over crude oil in value are detailed as follows:

Item 2015 Increase (Production)

Decrease (Liftings)


2016

Block 2/85 (388,430,348) 388,430,348 - - -

Block 2/05 6,743,393 31,374,517 31,511,592 10,041,782 16,648,099

Block 3/05 207,170,574 2,498,333,023 2,580,098,777 78,580,103 203,984,923

Block 3/05 A (2,199,031) 57,354,249 60,396,693 19,597,106 14,355,631

Block 4 - Gimboa 11,635,140 116,565,916 115,712,141 4,413,225 16,902,140

Block 14 (Kuito) (84,020,922) - - (31,869,260) (115,890,182)

Block 14 (BBTL - Nemba) (389,445,593) 3,633,451,993 3,183,859,829 (302,787,405) (242,640,834)

Block 14 (BBTL - Kuito) (112,426,560) - - (42,643,560) (155,070,120)

Block 14 (TL) (60,989,438) 671,403,836 610,081,752 (23,133,383) (22,800,738)

Block 14 (Belize Norte) (39,606,295) 789,209,397 752,242,098 (15,022,726) (17,661,722)

Block 14 (Lianzi) (3,022,152) 146,939,079 139,560,639 (1,146,306) 3,209,981

Block 15 (Hungo) (126,318,482) 8,593,236,873 7,962,033,425 (375,609,184) 129,275,781

Block 15 (Kissanje) (230,488,099) 6,488,717,870 6,207,364,520 (560,296,353) (509,431,102)

Block 15 (Mondo) 45,367,308 5,844,025,885 5,606,933,192 (10,875,770) 271,584,231

Block 15 (Saxi-Batuque) 220,950,253 2,781,918,970 3,326,685,595 238,852,192 (84,964,180)

Block 17 (Girassol) (58,975,558) 9,591,200,063 10,732,181,765 1,502,225,379 302,268,119

Block 17 (Dália) 958,452,009 11,703,307,583 13,579,461,028 83,419,959 (834,281,478)

Block 17 (Paz Flor) (100,472,745) 4,524,453,812 4,044,535,942 56,187,404 435,632,529

Block 17 (Clov Cargo) (137,751,027) 2,971,678,625 3,157,837,032 201,065,693 (122,843,740)

Block 18 (Plutónio) 517,188,526 7,197,945,595 7,470,712,561 196,170,369 440,591,928

Block 31 (Saturno) 34,282,963 2,811,377,518 2,559,039,055 13,003,579 299,625,005

Block Cabinda Sul 363,252 21,324,945 20,850,170 138,045 976,072

Block 15/06 (Sangos) 127,390,724 1,119,504,976 1,248,651,035 77,486,093 75,730,759

Total 395,397,892 71,981,755,073 73,389,748,842 1,117,796,982 105,201,103

10. CASH AND BANKS


As at 31 December 2016 the cash and banks natures are detailed as follows:

Current Non-current

Item 31-12-2016 31-12-2015 31-12-2016 31-12-2015

Trading securities 19,834,813,655 6,799,420,000 - -

Cash in transit 24,308,355,547 1,163,228,179 - -

Cash at bank 782,763,898,275 604,036,355,883 222,410,168,298 -

Cash 35,242,759 13,422,435 - -

826,942,310,235 612,012,426,498 222,410,168,298 -



The caption cash at bank includes 56.583.535 thousand of AOA related with contributions to the “Centro de Investigação Tecnológico (CITEC)”.

The group is evaluating with the international partners BP, Statoil and Cobalt, the way to make profitable the funds transferred to the construction of a Technology and Investigation Center, which is in a planning stage and is a key issue for the development and qualification of the company employees.

The oil market international environment, which has significantly changed in the last 2 years, has recommended a carefully management and application of the funds in line with all the international partners.

Besides the high investment required for the construction of the Technology and Investigation Center, there is a need to add a high amount of funds to equipment and recruitment of high qualified personnel that are unavailable at the moment.

The amount of 222,410,168 thousands of AOA disclosed as non-current cash at banks, represents the Contractors Groups contributions for the Blocks 15 and 17 to cover future abandonment expenses. This amounts are deposited in escrow account s (accounts with movements restricted to authorization) owned by the Group. These funds should be use for the approved purpose, however as Concessionaire, Sonangol controls the process of approval / decision of the dismantling plans of the mining infrastructures.

10.2 DETAILS OF TRADING SECURITIES

As at 31 December 2016 the details of trading securities are as follows:

Products Initial amount (USD)

Amount refunded (USD)

Net amount (USD)

Net amount (AOA)

Acquisition Date

Due date

BPA bounds 50,000,000 (25,000,000) 25,000,000 4,168,200,000 31-12-2011 01-01-2017

Treasury bonds 2,252,222 2,252,222 375,508,471 14-12-2015 27-11-2017

Treasury bonds 1,269,069 1,269,069 211,589,406 14-12-2015 17-12-2017

Treasury bonds 1,504,825 1,504,825 250,896,528 14-12-2015 16-09-2022

Treasury bonds 17,255,331 17,255,331 2,876,946,857 14-12-2015 30-10-2022

Treasury bonds 12,372,161 12,372,161 2,062,785,707 01-06-2016 29-03-2018

Treasury bonds 15,465,995 15,465,995 2,578,614,369 31-03-2016 17-11-2018

Treasury bonds 15,465,845 15,465,845 2,578,589,368 17-03-2016 23-02-2018

Treasury bonds 6,168,237 6,168,237 1,028,417,896 14-07-2016 17-11-2018

Treasury bonds 2,158,598 2,158,598 359,898,747 09-07-2016 19-07-2018

Treasury bonds 5,242,925 5,242,925 874,142,395 07-09-2016 19-07-2018

Treasury bonds 2,466,907 2,466,907 411,302,435 27-09-2016 28-09-2018

Treasury bonds 3,084,271 3,084,271 514,234,297 28-09-2016 28-09-2018

Treasury bonds 3,701,537 3,701,537 617,149,809 07-10-2016 08-02-2018

Treasury bonds 3,700,273 3,700,273 616,939,047 26-10-2016 18-10-2018

Treasury bonds 1,856,907 1,856,907 309,598,321 16-09-2016 10-02-2017

143,965,102 (25,000,000)ß 118,965,102 19,834,813,655

11. OTHER CURRENT ASSETS

As at 31 December 2016 the details of other current assets are as follows:

Item 2016 2015

Accrued Income:

Billing – refined products 451,376,649 1,445,690,324

Billing – aircraft - 1,462,378,513

Billing – rents 295,310,343 3,052,163,687

Billing - dividends (Esperaza Holding B.V.) - 11,053,831,200

Billing - other 3,072,333,500 4,680,821,790

3,819,020,493 21,694,885,514

Deferred Costs:

Costs – Rents - 2,591,388

Costs - Docking and freight 499,312,086 841,378,391

Costs – Insurance 93,139,992 318,761,461

Costs – Other 3,668,702,991 1,744,213,904

4,261,155,069 2,906,945,144

8,080,175,562 24,601,830,659



12. CAPITAL AND SUPPLEMENTARY CAPITAL CONTRIBUTIONS

Sonangol EP is wholly owned by the Angolan State.

Its share capital as at 31 December 2016 was totally subscribed and paid amounting to 1,000,000,000 thousands of AOA.

The table below details the movements occurred in Equity and Supplementary capital Contributions during 2016:

Item 2016 2015

Share capital 1,000,000,000,000 1,000,000,000,000

Supplementary capital contributions 946,558,748,877 285,386,630,238

1,946,558,748,877 1,285,386,630,238

Although it is a historical and consistent practice to treat as supplementary capital contributions all the contributions from the Shareholder which lack contractual formalization, the Board of Sonangol Group applies the same accounting treatment to these contributions that the foreseen for the supplementary capital contributions.

In the absence of a written contract that defines the terms of reimbursement and remuneration, and of an express deliberation of the Shareholder, Sonangol cannot be bound to the reimbursement or remuneration of these contributions.

Additionally, since the purpose of these contributions was to fund the Group with the necessary means to face its long term financial and operational commitments, it is the Board’s judgement that the framework of these transactions is subordinated to the achievement of the goals that they intend to safeguard.

Regarding the legal interpretation of these transactions, it is particularly important the Basic Law of the Public Corporate Sector (Lei de base do Sector Empresarial Público or “LSEP”), which foresees that the financing of public companies should be primarily fulfilled with own means.

Therefore, it is the Group Management judgement that the Shareholder will exercise its rights with respect of the financial, legal and economic sustainability and the efficiency and effectiveness of its management.

13. RESERVES AND RETAINED EARNINGS

As at 31 December 2016 the details of retained earnings and cumulative translation adjustments are as follows:

Item 2015 Transfer of the profit from previous year

Profit for the year Actuarial gains and losses

Actuarial gains and losses

Prior year Corrections

Others Movements

Legal reserves 61,715,701,278 11,321,941,203 - - - 12,504,600 73,050,147,081

Other reserves 121,141,089,143 9,553,567,809 - (9,937,157,021) 155,678,249,776 46,536,886,513 322,972,636,220

Evaluation fund 174,066,464,305 4,783,949,198 - - - 11,670,960,000 190,521,373,503

Investment fund 749,430,805,199 25,514,395,721 - - - - 774,945,200,920

Retained earnings

(448,341,934,609) (7,942,181,520) - - (559,255,447,639) (7,851,081,564) (1,023,390,645,332)

658,012,125,318 43,231,672,411 - (9,937,157,021) (403,577,197,863) 50,369,269,549 338,098,712,393

Cumulative translation adjustment

538,546,953,088 - - - (116,368,521,484) 415,987,808,311 838,166,239,916

Income for the year

47,168,755,661 (47,168,755,662) 13,281,678,224 - - - 13,281,678,224

585,715,708,750 (47,168,755,662) 13,281,678,224 - (116,368,521,484) 415,987,808,311 851,447,918,140

1,243,727,834,067 (3,937,083,250) 13,281,678,224 (9,937,157,021) (519,945,719,347) 466,357,077,861 1,189,546,630,533

In accordance with the Presidential law n.º 42/10, of May 10th (that establishes the rules of profit distribution), the company s results, after tax deduction, should be distributed as follows:

• 10% to legal reserve, whose cumulative value should not exceed 2% of the statutory capital;

• At least 10% for the constitution of the fund to assess the potential for extraction of hydrocarbon resources;

• At least 5% to fund other investments;

• Up to 5% to the social fund;

• Distribution of individual incentives to workers and members of the governing body, as profit participation within the limits established by the applicable legislation;

• Other voluntary funds that are approved by the Board and approved by the competent Government agencies.

“Actuarial Gains and losses” reflects the changes of this nature occurred during the year in the Group pension fund.

Prior year corrections of the other reserves includes the increase in 167,395,968 thousands of AOA, related to the recognition of reversible assets as disclosed in Note 4B that under the oil activity laws and the related production sharing agreements will be transferred to the Group when acquired in Angola land or, if acquired outside Angola, when they are custom-cleared in Angola.

In accordance with the majority of the production sharing agreements, the acquisition of the assets used by the contractors groups to develop the oil and gas activities must follows the investment plans which are approved unanimously by the Operation Commission. In general, the contractors groups’ expenses are recoverable through “cost oil”.



In order to harmonize the group financial reports to the generally acceptable accounting principles and with the good practices, several adjustments were made that were considered fundamental errors and therefore recognized in Retained Earnings.

The table below details the movements occurred in retained earnings in 2016:

Item AOA

Impairment in mining assets and in the financial investment in Angola LNG (471,393,623,615)

Entrances to the consolidation perimeter 91,619,674,036

Incorporation of blocks FS/FST 92,607,296,068

Reversal of the disposal of participative interests (80,998,190,061)

Financial investments impairments (73,992,592,422)

Capitalization of borrowing costs 73,334,433,417

Fair value of Millennium BCP (63,903,545,503)

Tax charges (45,247,079,663)

Gains – CITEC contributions (38,385,232,909)

Reversal of gains in Esperaza (28,576,785,073)

Amortization adjustment of Mafumeira Sul field 18,288,908,139

Fair value of investment funds (16,132,955,440)

Exchange rates differences 14,417,538,436

Scholarship gains (14,110,103,607)

Accounts receivable (10,703,412,503)

Other impairment (5,854,699,557)

Recognition of the Concessionaire assets 6,621,927,179

Other (6,847,004,562)

Total (559,255,447,639)

IMPAIRMENT IN MINING ASSETS AND IN THE FINANCIAL INVESTMENT IN ANGOLA LNGThe amount of 471,393,623 thousand of AOA is related with prior years adjustments related with the impairment losses recognized in 2015 and tat were not recognized in accordance with the oil industry best practices, national and international standards. In 2015 these impairment losses include an amount of 380,681,613 thousands of AOA related with the Angola oil blocks and the amount of 82,237,345 thousands of AOA related with the investment on the Joint Venture Angola LNG Ltd, that were deferred in the balance sheet in the caption “Other non-current assets”.

An adjustment was also made to the impairment losses related with Venezuela operations in the amount of 6,410,493 AOA as disclosed in Notes 5A.2 and 9.3.1, and its recognition in retained earnings is justified by the fact that the evidence of that impairment loss were observed in prior years.

ENTRANCES TO THE CONSOLIDATION PERIMETERThis caption represents the group’s subsidiaries that, by the decision of the Board of Directors, were fully consolidated in 2016 and includes the amounts of 76,570,525 thousands of AOA related with Sonils and Inloc Limited and 15,049,148 thousands of AOA related with the group companies responsible for the distribution of crude oil and other related products in international markets (Sonangol Limited, Sonangol Hong Kong Limited, Sonangol Hong Kong Limited, Sonangol USA) and Solo Properties.

INCORPORATION OF BLOCKS FS/FST The Board of Directors decided to recognise, starting 2016, the participative interests in FS and FST Blocks held respectively in 80% and in 63.67%. This decision explain the amount of 92,607,296 thousands of AOA in this caption. Despite the group held these participative interests they were not recognized in the accounting records.

The impact described above include the recognition of a balance to be received from the Angolan State related with adjustments due to payments made based on these blocks profit.

REVERSAL OF THE DISPOSAL OF PARTICIPATIVE INTERESTS The amount of 80,998,190 thousands of AOA is related with the reversal of the disposal of the participative interests held by the Group in the entities Sonatide, Sonasurf Angola, Sonaxing Xicomba, Sonaid, Sonacergy, Sonasurf International and Sonamet, for which the gains were recognized in Financial results in 2015, due to the fact that several process irregularities were detected, namely the absence of the transaction approval by the Government.

FINANCIAL INVESTMENTS IMPAIRMENTS In accordance with Group policies, in 2016 tests were performed to assess the recoverability of the financial investments for which, taking into consideration market conditions and other indicators, have impairment risks. The Group has recognized an impairment losses in the amount of 73,992,592 AOA related with the investment in China Sonangol International. These indicators already existed in prior years therefore the adjustment was recognized in retained earnings.

CAPITALIZATION OF BORROWING COSTSThe amount of 73,334,433 thousands of AOA, corresponds to the capitalization of borrowing costs from medium and long term loans of 2013, 2014 and 2015 for the acquisition of qualifying assets, in accordance with the Group policy.



FAIR VALUE OF MILLENNIUM BCP Over the years 2014 and 2015, the group has deferred the fair value adjustments to the investment in Millennium BCP. Since it was considered a fundamental error, the amount of 63,903,545 thousands of AOA was recognized in Retained Earnings.

TAX CHARGESThe amount of 45,247,079 thousands of AOA, is related with additional charges of industrial tax for the year of 2015, at “downstream” segment.

GAINS - CITEC CONTRIBUTIONSThe amount of 38,385,232 thousands of AOA of Gains – CITEC contributions is a consequence of the reversal of gains incorrectly recognized in 2015 in the caption non-operating results. These contributions represents a Group future obligation to materialize the creation and the operationalization of the Research and Technology Center as disclosed in Note 19.2.

AMORTIZATION ADJUSTMENT OF MAFUMEIRA SUL FIELDThe amount of 18,288,908 thousands of AOA, refers to the adjustment of the depreciations of Mafumeira Sul (Block 0) fields that were improperly recognized in previous years, which is expected to start the production phase in the first quarter of 2017.

REVERSAL OF GAINS IN ESPERAZAThis caption includes an amount of 17,522,953 thousands of AOA related with prior years interest charged improperly, due to the incorrect classification of capital realization as shareholder and includes the amount of 11,053,831 of AOA related with a correction of dividends recognized in 2015 without the correspondent deliberation in the subsidiary’ Board Meeting (Note 11).

SCHOLARSHIP GAINS AND FAIR VALUE OF INVESTMENT FUNDSThe scholarship gains and fair value of investment funds reflect the adjustment of deferred losses from prior years, as disclosed in Note 9.3.1.

EXCHANGE RATES DIFFERENCESThe amount of 14.417.538 thousands of AOA is related with the exchange rate adjustment of financial investments. Since these exchanges losses / gains occurred in previous years, they were considered fundamental errors and therefore recognized in retained earnings.

ACCOUNTS RECEIVABLEAs a consequence of the reconciliation process of external confirmations received, an adjustment of 10.703.412 thousands of AOA was made related to the receivable balances from property sell, which was recognized in Retained Earnings due to the fact that the balances relate to previous years.

15 LOANS

The table below details the short, medium and long term loans as at 31 December 2016:

Corrente Não Corrente

Item 2016 2015 2016 2015

International bank loans 436,059,281,229 384,595,889,429 1,123,493,003,462 1,374,009,337,073

National bank loans 840,700,596 1,273,444,133 - 685,701,254

Overdraft 70,573,459,764 64,876,888,076 -

Other loans (Carry) - - 21,075,501,491 25,256,577,820

507,473,441,589 450,746,221,639 1,144,568,504,953 1,399,951,616,146

The national bank loans are related with a loan for a “non-core” segment for which the last payment of nominal and interests is expected to occur in 2017.

Other loans (carry) relate to the financing of exploration and evaluation assets of the partners of the blocks 3/05A, 32. These loans are recovered by the partners of the contractors groups of those blocks, through the Group share of crude oil for cost recovery.

15.1 INTERNATIONAL BANK LOANS

The table below details the short, medium and long term loans of international bank loans as at 31 December 2016:

Item Year 2015 Increase Decrease Exchange rate differences

2016 Current Non-current Maturity (Months)

International bank loans

SNL Finance 1Bi (CDB&SCB)

2010 27,521,461,753 - (23,818,285,714) 6,221,109,676 9,924,285,714 9,924,285,714 - 84

SNL Finance 2,5Bi (ICBC)

2010 127,489,125,000 - (52,102,500,070) 28,818,375,000 104,204,999,930 52,102,500,000 52,102,499,930 96

SNL Finance 1Bi (CA-SCB)

2011 77,060,093,333 - (16,672,799,929) 17,419,106,667 77,806,400,071 16,672,800,000 61,133,600,071 120

SNL Finance 1Bi (SCB-KS)

2011 73,660,383,333 - (16,672,799,929) 16,650,616,667 73,638,200,071 16,672,800,000 56,965,400,071 120

SNL Finance 2Bi (CDBC)

2011 163,186,080,000 - (33,345,600,070) 36,887,520,209 166,728,000,139 33,345,600,198 133,382,399,941 112

SNL Finance 1.5Bi (SCB)

2012 61,194,780,000 - (50,018,400,000) 13,832,820,000 25,009,200,000 25,009,200,000 - 60

SNL Finance 1Bi (CDB)

2012 95,191,880,000 - (16,672,799,930) 21,517,720,000 100,036,800,070 16,672,800,000 83,364,000,070 120

SNL Finance 2,5Bi (SCB)

2013 158,653,133,333 - (83,364,000,069) 35,862,866,667 111,151,999,931 83,364,000,000 27,787,999,931 60

SNL Finance 2,5Bi (CDB)

2013 150,558,585,714 - (184,591,714,285) 34,033,128,571 - - - 84

SNL Finance 2Bi (SCB)

2014 239,339,584,000 - (53,352,960,000) 54,101,696,000 240,088,320,000 53,352,960,000 186,735,360,000 84

SNL Finance 1,5Bi (SCB)

2014 203,982,600,000 - (32,620,695,652) 46,109,374,432 217,471,278,780 43,494,235,317 173,977,043,462 84

SNL Finance 2Bi (CDB)

2014 244,779,120,000 - (33,345,600,013) 55,331,280,000 266,764,799,987 33,345,600,000 233,419,199,987 120

SNL Finance 1Bi (SCB)

2015 135,988,400,034 - 30,739,599,966 166,728,000,000 52,102,500,000 114,625,500,000 60

1,758,605,226,501 - (596,578,155,663) 397,525,213,853 1,559,552,284,691 436,059,281,229 1,123,493,003,462



During 2016, the company did not use international bank loans to finance their structuring capital projects and other operational costs in accordance with the annual budget.

The above loans have a corporate guarantee, in accordance with the debt covenants, under which Sonangol EP has to comply with the following:

(a) The Equity value should never fall below 1.200,000,000,000.00 AOA;

(b) The ratio “EBITDA/Net debt” should not be less than 0.5;

(c) The ratio “EBITDA/debt service” should not be less than 1,3;

(d) The ratio “Net debt/EBITDA should not be greater than 2,5;

(e) “Gearing ratio” should not be less than 100%.

The National Urbanization and Housing Plan (Plano Nacional de Urbanização e Habitação or “PNUH”) is a state initiative partially implemented by the Group using the loans contracted with international banks. The Group recognizes the total of the debt related with the investment performed under PNHU, and the reimbursement occurs on a monthly base through the offset with the Concessionaire Revenue, in accordance with reimbursement plan of the contract.

This is a relevant issue when performing the technical assessment of the Group debt covenants, since in accordance with the Sonangol’s Board of Directors there is an inconsistency of the used calculation parameters.

This is due to the fact that for the calculation of the “DEBT” or the “NET DEBT”, the debt amount of Sonangol Finance is considered, but for the calculation of the “EBITDA” the State reimbursements related with the investments of PNUH are not considered.

Sonangol submitted a proposal in 2016 to adjust the Sonangol’s EP definition of “EBITDA” with the purpose to include the “PNUH” reimbursements on the EBITDA calculation.

The Sonangol’s Board of Director expects that formal approval of this proposal will occur in 2017.

FINANCING CONDITIONS

The average interest rate of the loans used during 2016 was 3.5% plus Libor indexation.

All the contracts have as bank guarantee the obligation to allocate the monthly revenues in the proportion of 125% to the debt service value to be carried out in a certain period.

17. PROVISIONS FOR PENSION PLANS

The table below details the Group obligation with as at 31 December 2016:

Item 2016 2015

Sonangol pension plan 97,421,350,369 73,789,171,873

General labour law (LGT) - 11,578,789,433

Fénix pensions plan 253,480,545 -

ENSA benefit pension plan 6,884,265,144 5,149,903,708

104,559,096,058 90,517,865,013

17.1 PENSION PLANS AND TERMINATION BENEFITS

The liabilities related with post-employment benefits, by type of benefit, which are unfunded or wholly or partly funded, are as follows:

Sonangol pension plan

Retirement benefits according to LGT

SONILS - Fénix Pensões pension plan

Retirement benefit plan ENSA

Defined benefit (fund centrally managed)

Defined benefit (unfunded)

Defined benefit (funded)


Total

Balance as at 31 December 2015

Post-employment liabilities 73,789,171,873 11,578,789,433 - 10,551,697,994 95,919,659,300

Fair value of the plan assets (5,401,794,287) (5,401,794,287)

73,789,171,873 11,578,789,433 - 5,149,903,708 90,517,865,014

Balance (receivable) / payable 73,789,171,873 11,578,789,433 5,149,903,708 90,517,865,014

Balance as at 31 December 2016

Post-employment liabilities 97,421,350,369 - 253,480,545 12,834,968,031 110,509,798,944

Fair value of the plan assets (5,950,702,886) (5,950,702,886)

97,421,350,369 - 253,480,545 6,884,265,144 104,559,096,058

Balance (receivable) / payable 97,421,350,369 - 253,480,545 6,884,265,144 104,559,096,058

17.2 TYPES OF BENEFITS PLANS AND TERMINATION BENEFITS

DEFINED BENEFITS PLANSThe types of defined benefits plans are as follows:

Name of the plan Type Beneficiaries Location

Sonangol pension plan Defined benefit – fund centrally managed

Retired and pensioners of Sonangol

Angola

Sonangol pension plan Defined benefit – unfunded Sonangol employees Angola

ENSA pension plan Defined benefit –ENSA fund Retired and pensioners of Sonangol ex-FPA

Angola

Fénix pension plan Defined benefit –Fénix fund Retired and pensioners of Sonils Angola



“Sonangol Pension Plan”, remains in place to service the obligations with retired and pensioners and this liability will be financed by contributions that the subsidiaries included in the new plan will transfer to the Pension Fund Managing Company. However, employees who retired or cease the labour contract between 1 January 2012 and the legal implementation date, will still be covered by the defined benefit scheme.

With the entry into force, 13 September 2015, of the new General Labour Law - Law No. 7/15 of 15 June, ceased the obligations of legal nature or resulting from the consistent practice of acquired rights as for the obligation to the payment of a legal compensation related with the retirement of an employer.

Therefore, Sonangol EP has decided that it will not continue to attribute this benefit on a voluntary way.

The Group is depositing in a bank account owned by Sonangol EP the amounts related the contributions to the defined contribution plan and to the defined benefits plan. As at 31 December 2016, the balance of this bank account amount to 160,358 million of AOA.

DEFINED CONTRIBUTION PLANS

The defined contribution plan is the following:

Name of the plan Type Beneficiaries Location

Sonangol pension plan Defined contribution – fund centrally managed

Sonangol employees Angola

The defined contribution plan is based on participants’ contributions (employees or members of the board of Sonangol EP and its subsidiaries). The capitalized accumulated obligation due to each participant is subject to positive or negative variations, as a consequence of changes in value of the investments made and the financial market. Participant companies are not responsible, now or in the future, for the level of income generated or the benefits provided under the plan. The funding of the pension plan will be chosen by the subsidiaries and it will match the defined risk profile and selected by subsidiaries criteria.

17.3 LIABILITIES WITH DEFINED BENEFITS PLANS AND TERMINATION BENEFITS

The conciliation between the beginning and the ending balances of the liability related with defined benefits plans is as follows:



SONILS - Fénix Pensões pension

plan






Total

Liability for defined benefits plans as at 1 January 2016

73.789.171.873 11.578.789.433 - 10.551.697.994 95.919.659.300

Interest expenses 3,427,767,216 - - 500,550,923 3,928,318,139

Current service expenses - - - 194,255,483 194,255,483

Benefits paid (6,397,250,209) - - (1,214,535,451) (7,611,785,660)

Actuarial gains and losses 9,705,186,656 - - 396,027,720 10,101,214,376

Exchange rate differences 16,896,474,832 - - 2,406,971,362 19,303,446,194

Cease of responsibilities (11,578,789,433) 253,480,545 - (11,325,308,888)

Liability for defined benefits plans as at 31 December 2016

97,421,350,368 - 253,480,545 12,834,968,031 110,509,798,944

As referred in Note 17.2 regarding the cease of responsibilities of Benefits and Retirement Plan described in LGT, the Group has reverted the associated responsibility in the amount of 11,579 million of AOA.







Total

Liability for defined benefits plans as at 1 January 2015 41,486,348,263 10,421,364,972 7,233,181,662 59,140,894,897

Interest expenses 1,649,150,070 740,766,404 147,172,606 2,537,089,080

Current service expenses 409,108,321 480,571,730 889,680,051

Benefits paid (4,189,651,299) (886,974,383) (237,773,045) (5,314,398,727)

Actuarial gains and losses 18,956,819,961 (1,899,641,070) - 17,057,178,891

Exchange rate differences 15,886,504,879 2,794,165,189 2,928,545,041 21,609,215,109

Liability for defined benefits plans as at 31 December 2015 73,789,171,873 11,578,789,433 10,551,697,994 95,919,659,300

The main actuarial assumptions used to determinate the post-employment benefits obligation at the balance sheet date are presented in the table below:

2016 2015

Financial assumptions for both plans (Sonangol, LGT and ENSA) % %

Discount rate 4.25 4

Expected Return from plan assets 4 4

Expected Salary increase 3 3

Expected pension increase (only for Sonangol plan) 1 1

mortality table (adjusted in order to reflected the accumulated experience) ANGV2020P ANGV2020P



17.4 ACTUARIAL GAINS AND LOSSES

As disclosed in Note 2.3.s) the Group recognizes actuarial gains and losses directly in equity (reserves). The amount recognized during the year totals 10,057 million of AOA, as disclosed in Note 13.

17.5 FAIR VALUE OF THE PLAN ASSETS

The conciliation between the beginning and the ending balances of the plan assets is as follows:

Sonangol pension plan Retirement benefit plan ENSA



Fair value of the plan assets as at 1 January 2016 - 5,401,794,287

Expected return - 251,941,177

Benefits paid - (1,214,535,451)

Other gains and losses - 281,643,904

Exchange differences related to foreign plans - 1,229,858,971

Fair value of the plan assets as at 31 December 2016 - 5,950,702,886

Sonangol pension plan Retirement benefit plan ENSA



Fair value of the plan assets as at 1 January 2015 - 4,170,577,663

Expected return - 138,137,562

Benefits paid - (237,773,045)

Other gains and losses - -

Exchange differences related to foreign plans - 1,330,852,107

Fair value of the plan assets as at 31 December 2015 - 5,401,794,287

17.6 SENSITIVITY ANALYSIS

The tables below detail the results from the sensitivity analysis to the discount rate, the pension growth rate and to the wage growth rate.

4.25% 4.00% 4.50%

Accounting scenario

,- 25 p,b Var, ,+ 25 p,b Var,

Discount rate – pension plan 97,421,350,369 99,709,778,700 2% 95,185,774,979 -2%

Discount rate - ENSA 12,834,968,031 13,203,789,879 3% 12,476,448,473 -3%

110,256,318,399 112,913,568,579 2% 107,662,223,452 -2%

1.00% 0.50% 1.50%

Accounting scenario

,- 50 p,b Var, ,+ 50 p,b Var,

Pension growth rate – pension plan 97,421,350,369 93,181,861,977 -4% 101,853,778,402 5%

Pension growth rate - ENSA 12,834,968,031 12,227,503,892 -5% 13,472,611,105 5%

97,421,350,369 93,181,861,977 -4% 101,853,778,402 5%

3.00% 2.50% 3.50%

Cenário contabilização

,- 50 p,b Var, ,+ 50 p,b Var,

Wage growth rate - ENSA 12,834,968,031 12,708,260,418 -1% 12,962,938,942 1%

12,834,968,031 12,708,260,418 -1% 12,962,938,942 1%

18. PROVISIONS FOR OTHER RISKS AND CHARGES

18.1 DETAILS OF PROVISIONS FOR OTHER RISKS AND CHARGES

The detail of the provision for other risks and charges is as follows:

Item 2016 2015

Provision for law suits 3,419,861,036 2,063,856,527

Dismantling provision - Sonangol as an investor 228,124,410,974 202,727,357,345

Abandonment Fund (Concessionaire) 632,319,993,564 336,718,403,901

Provision for tax contingencies 322,086,827,568 273,093,838,566

Other provisions 36,141,658,766 26,159,364,938

1,222,092,751,908 840,762,821,277

18.2 PROVISIONS FOR LAW SUITS

The provision for law suits covers all the Group disputes on which the Groups is part and for which are expected future outflows.



18.3 PROVISIONS FOR TAX CONTINGENCIES

Provisions for tax contingencies have the purpose to cover tax contingencies resulting from the audits of the Ministry of Finance to the recoverable costs of the blocks in which the Group has participative interest. These contingencies result mainly from partial non-compliance with the production sharing contracts. The provision is based on the percentage of risk of additional payments to the State. The recognised amounts represent the best estimate of the probable outcome and may differ from the final amounts payable due to subsequent reviews.

18.4 DISMANTLING PROVISION – SONANGOL AS AN INVESTOR

The table below details the movements occurred in 2016 in dismantling provisions where Sonangol participates as an investor:

Item 2015 Exchange rate adjustment

Increase Decrease Abandonment Interest

2016

Dismantling provision 202,727,357,345 45,825,657,774 61,776,574,465 (93,409,938,239) 11,204,759,629 228,124,410,973

Total 202,727,357,345 45,825,657,774 61,776,574,465 (93,409,938,239) 11,204,759,629 228,124,410,973

The movement occurred during the year is related with the review of the abandonment estimative at the reporting date, with an interest related with the time value of money and a risk free rate representative of investment in USD in Angola, and also to the exchange rate adjustment related with the depreciation of the kwanza (AOA) against the dollar (USD). The assumptions are as follows:

• Discount rate: 8.84%

• Inflation: 2.34%

• Maturity: Concession Licence Deadline.

18.5 ABANDONMENT FUND (CONCESSIONAIRE)

The table below details the movements occurred in 2016 in abandonment fund (Concessionaire):

Item 2015 Increase Decrease Regularizations Exchange rate differences

2016

Abandonment fund (Concessionaire)

336,718,403,901 255,358,971,351 - (31,409,363,840) 71,651,982,153 632,319,993,564

336,718,403,901 255,358,971,351 - (31,409,363,840) 71,651,982,153 632,319,993,564

In 2016, the group maintains a bank account in the name of Sonangol EP with a debtor balance of 478,603,407 thousands of AOA which includes the deposited values related with the transfers made by the contractors groups to cover the abandonment expenses.

The amount of abandonment fund (Concessionaire) described above was constituted by the contractors operators and transferred to the company custody as the Concessionaire for the hydrocarbons. This

amount will be used to cover the future expenses with the abandonment of the oil wells, removal of platforms and other facilities when the reserves are deplete.

The main increases for the year are related with provision for the abandonment of the Blocks 17, 17 and 3.05 which are operated by ESSO, Total EP and Sonangol P&P, respectively.

19. OTHER NON-CURRENT LIABILITIES AND ACCOUNTS PAYABLE

19.1 DETAILS OF OTHER NON-CURRENT LIABILITIES AND ACCOUNTS PAYABLE

As at 31 December 2016 the detail of other non-current liabilities and accounts payable is as follows:

Item Current Non-current

2016 2015 2016 2015

Trade suppliers - current 456,227,345,639 353,718,148,037 - -

Transactions with the National Concessionaire

172,141,549,950 127,616,094,375 - -

Trade debtors – credit balances 4,971,729,823 1,498,721,028 - -

State 84,725,759,186 67,670,089,181 - -

Participants and Affiliates 4,235,296 - - -

Shareholders loans - - - -

Personnel 5,386,846,638 70,791,699 - -

Creditors – asset suppliers 114,634,493 735,262,103 1,958,099,968 2,604,175,430

Creditors – mining activity 263,359,996,019 120,777,659,984 127,532,756,370 100,795,864,925

Creditors – Over lift 5,231,430,283 2,711,937,233 - -

Pension fund - Cut (Note 17) 118,242,102,148 126,061,602,445 - -

Pension fund – withholding 27,463,751,373 22,013,693,488 - -

Other creditors 13,363,428,304 21,619,053,302 8,209,390,074 1,987,293,999

1,151,232,809,152 844,493,052,874 137,700,246,412 105,387,334,355

19.2 TRANSACTIONS WITH THE NATIONAL CONCESSIONAIRE

As at 31 December 2016 the detail of the balances associated with transactions with the National Concessionaire is as follows:

Item 2016 2015

Receipts of the concessionaire (13,201,815,196) 82,988,917,012

Bonus 45,282,401,154 44,627,177,363

Price Cap 82,072,328,936 -

CITEC 57,988,635,056 -

172,141,549,950 127,616,094,375



19.2.1 RECEIPTS FROM THE CONCESSIONAIRE

In 2016 the detail of the movements in the deliveries of the National Concessionaire is as follows:

Table with the transactions with the Concessionaire

Item 2015 Amounts to be paid

Amounts to be received

Paid amounts Offsetting Balances settlement

2016

Receipts of the Concessionaire

221,220,959,389 895,401,469,527 - (707,723,826,732) (145,053,517) - 408,753,548,668

Customer credit OGE

(32,205,247,908) - (37,697,130,833) - - - (69,902,378,741)

Subventions (74,675,901,364) - (36,534,967,731) - - - (111,210,869,095)

Liquidation Industries ZEE

(2,220,655,628) - (773,656,755) - - - (2,994,312,383)

Liquidation PNUH (nominal + interest)

- - (157,275,144,988) - - - (157,275,144,988)

Receivable - Millennium BCP

(63,903,545,503) - - - - 63,903,545,503 -

Payments to public entities

- - (96,997,496,601) - - - (96,997,496,601)

Other movements 34,773,308,026 - (23,281,366,158) 4,932,896,076 - - 16,424,837,944

Total 82,988,917,012 895,401,469,527 (352,559,763,066) (702,790,930,655) (145,053,517) 63,903,545,503 (13,201,815,196)

In subventions it is included a balance of 111,210,869 thousands of AOA related with subventions from 2015 and 2016 that was not paid as at 31 December 2016. This balance will be settled during 2017, in a staggered way, by the Angolan State.

19.2.2 PRICE CAP

The following table details the movements in Price Cap:

Item 2015 Increases Decreases Regularization 2016

Price Cap - 82,072,328,936 - - 82,072,328,936

Total - 82,072,328,936 - - 82,072,328,936

The variation is related with the reversal of the disposal of participating interests disclosed in Note 13.

19.3 STATE

As at 31 December 2016 the detail of the State balances is as follows:

Item 2016 2015

State

Corporate income tax 38,385,591,145 21,777,948,699

Production and consumption tax 301,073,260 1,067,420,922

Income tax oil 123,510,801 360,156,343

Production taxe 4,976,595,756 3,353,447,316

Withholding taxes 4,517,027,871 3,652,957,192

Others taxes 36,421,960,353 31,796,378,278

OGE Dividends - 5,661,780,431

84,725,759,186 67,670,089,181

Other taxes includes several natures of taxes due by the Group at balance sheet date, namely the capital gains tax, consumption tax, stamp duty and other.

19.4 CREDITORS - MINING ACTIVITY

In this caption it is included, as at 31 December 2016, the amounts of the debts from the joint operations in blocks on which the Group holds participation interests. These debts are a consequence of the difference between the cash calls requested for the development of the block operations and the expense incurred in those blocks.

19.5 PENSION FUND

The caption Pension Fund - Cut is related to the amount that the Group has to fund to the manager of the new pension plan (Defined Contribution) as mentioned in the Note 17. During 2016 it was deducted from tis liability the excess of 36,315,190 thousands of AOA, which is relate with retired employees in the period from 1 January 2012 to 31 December 2016 and that were included in the provision mentioned in Note 17.3

The caption Pension Fund – withholding is the retaining of part that Sonangol withholds from the employee’s salary as stated in the Defined Contribution Pension Plan for the years 2012, 2013, 2014, 2015 and 2016.

19.6 CREDITORS - OVER LIFT

The caption creditors – over lift is related to the difference between the oil lifting made during the year, and the entitlements of the company as partner in several blocks. This balance will be adjusted in the rights of the related blocks during 2017.



19.7 OTHER CREDITORS

19.7.1 OTHER CREDITORS (NON-CURRENT)

As at 31 December 2016 the detail of the other creditors (non-current) is as follows:

Item 2016 2015

Special account for compensation- OGE 1,987,294,000 1,987,294,000

Other creditors Sonils 6,169,050,563 -

Other UT's 53,045,511 -

8,209,390,074 1,987,294,000

19.7.2 OTHER CREDITORS (CURRENT)

As at 31 December 2016 the detail of the other creditors (current) is as follows:

Item 2016 2015

Sales on behalf of Somoil 2,660,364,492 1,728,371,272

Sales on behalf of Kotoil - 4,282,861,234

Sales on behalf of ENI - 2,409,593,600

Sales on behalf of Poliedro 67,946,729 5,158,921,217

Sales on behalf of Prodoil 1,044,095,589 266,295,205

Sales on behalf of Force Petroleum - 588,450,010

Sales on behalf of Acrep 1,445,172,775 466,016,608

Sales on behalf of Chevron Texaco - 832,425,167

FINA (non-controlling interest) 333,037,500 333,037,500

Project SAR 2,776,156,737 2,165,020,498

SICCAL - Edificio Kalunga - 1,108,738,268

Other 5,036,654,482 2,279,322,722

13,363,428,304 21,619,053,302

The amounts payable to Poliedro, Somoil, Prodoil e Acrep, are from the sale of crude oil on behalf of these entities at end of 2016, which will be refunded in the following year.

21. OTHER CURRENT LIABILITIES

As at 31 December 2016 the detail of the other current liabilities is as follows:

Item 2016 2015

Accrued liabilities

Personnel (Vacation Allowance) 12,787,401,901 14,562,229,283

Consulting services 10,531,076,623 3,072,660,605

Specialized services 16,197,285,649 5,512,000,584

Mining activity (non-operated blocks) 7,112,139,133 24,813,089,584

Mining activity (operated blocks) 11,257,501,327 21,282,885,044

Rents 341,023,346 8,489,421

Acquisition and Building work on condominiums 6,290,864,010 5,306,644,955

Interest 1,753,493,662 1,340,264,337

Refined products - 766,266,917

Docking and freight (Suezmax e LNG) 3,105,428,832 2,721,316,826

Other 23,140,255,379 4,992,087,970

92,516,469,860 84,377,935,526

Deferred income

Billing 12,119,844,455 1,087,511,697

Others 311,821,179 321,019,126

12,431,665,634 1,408,530,822

104,948,135,494 85,786,466,348

The caption “Personnel (Vacation Allowance)” is related, essentially to accrued expenses with holidays of the employees to be paid in 2017.

“Mining activity” is related with the operational accruals from the mining activity (oil and gas).

The caption “Acquisition and Building work on condominiums”, is related with the requalification work performed by suppliers, for which invoices were not received on time. The requalification works are mainly related with the Condominium Zango, Hotel Intercontinental and Largo do Ambiente.

The caption “Docking and freight (Suezmax e LNG)” corresponds to the accrued expenses of the freight of ships from the Suezmax and LNG fleets, as well as the ships from outside the group but for which the freight expenses are Sonangol’s responsibility, as stated in “Bare boat” agreements.



22. SALES

The table below details the sales by product during 2016.

Item 2016 2015

Crude Oil – Association 521,916,748,701 440,659,867,848

Crude Oil – Concessionaire 859,970,418,952 878,855,765,122

Refined – Gas 214,015,895,655 166,219,081,896

Refined – Diesel Oil 475,509,796,983 324,721,948,842

Jet A1 44,873,650,130 44,251,103,250

Jet B 11,991,809,461 36,877,507,694

LPG 27,443,551,289 10,919,648,977

Kerosene 14,274,082,792 3,667,621,814

Fuel Oil 34,666,611,545 38,460,869,007

Naphtha 18,233,791,232 12,260,972,868

Subvention 24,217,340,272 227,502,317,476

Other sales 36,663,485,423 20,233,100,706

2,283,777,182,435 2,204,629,805,500

The decrease registered in Subvention in the amount of 203,284,977 thousands of AOA is due to the liberalization of some refined products previously subsidized. The subvention regime is currently only applicable to butane gas and kerosene.

23. SERVICES RENDERED

The table below details the services rendered by activity and nature during 2016.

Item 2016 2015

Aircraft renting 36,143,615,543 62,597,419,118

Freight ships 4,704,087,512 6,581,690,954

Communication Services 12,962,068,904 11,430,119,073

Healthcare and medical services 12,022,556,397 9,145,631,918

Training activities 2,089,414,656 1,848,938,277

Overheads – Block operator - 1,137,488,695

Integrated logistics services 47,683,212,923 -

Pension fund management 1,066,316,960 -

Other 2,216,533,725 351,639,455

Services Rendered – Domestic market 118,887,806,622 93,092,927,490

Aircraft renting 8,987,939,487 10,857,157,319

Freight ships 24,764,035,411 21,557,496,624

Real estate leases 584,300,539 -

Services Rendered – Foreign market 34,336,275,437 32,414,653,943

153,224,082,059 125,507,581,433

24. OTHER OPERATIONAL INCOME

The table below details the other operational income during 2016

Item 2016 2015

Supplementary services 4,535,774,076 7,675,152,569

Management fees 55,543,761 1,417,786,394

Fuel rebilling 2,517,909,635 4,035,631,206

Gas injection in Block 17 98,781,516 167,063,439

Sales intermediation (crude oil) - 3,541,572,249

Royalties 10,201,857 269,752,765

Real estate management (hotels) 1,313,675,364 1,190,192,687

Other operating income 6,360,674,799 1,251,207,490

14,892,561,009 19,548,358,800

The amount of 10,201 thousand AOA refers to royalties charged to Oil & Gas Providers for the sale of gas cylinders with the Group brand (Sonagás). This activity began in 2014.

“Gas injection in block 17” is the charge to the Total E.P. within the optimization of production in this block.

The caption of supplementary services is related to the charges made for technical costs compensation incurred by the technical manager of the LNG fleet ships.

25. VARIATION IN FINISHED PRODUCTS

The table below details the movements in finished products and work in progress during 2016.

Item 2016 2015

Finished goods and intermediates 908,098,645 9,262,645,790

Under/over Lift 3,218,676,389 (5,761,897,071)

Concessionaire rights (290,196,788) 203,413,422

3,836,578,246 3,704,162,142



26. CONCESSIONAIRE COST (SALES ON BEHALF OF THE STATE)

The table below details the cost with the sales on behalf of the State: Item 2016 2015

Concessionaire - Block 2-05 343,871,398 -

Concessionaire - Block 3-05 28,694,241,944 20,321,436,724

Concessionaire - Block 3-05A 120,668,141 752,288,708

Concessionaire - Block 4-05 1,549,580,352 1,511,989,486

Concessionaire - Block 14 60,175,259,766 59,392,081,840


Concessionaire - Block 15/06 14,547,011,885 12,762,023,491




Concessionaire - Block 0 Cabinda Sul 265,395,964 385,843,768

895,401,469,527 896,003,230,503

This amount corresponds to the difference between the revenue from the sale of crude oil - the Concessionaire rights and the profit margin of Concessionaire. According to the Law 13/13 of March 7, Chapter IV, Article 8, this margin is defined at 7% based on the price used in the State Budget for 2016.

27. COST OF GOODS SOLD AND RAW MATERIALS CONSUMED

The table below details the cost of goods sold and material consumed in 2016.

Item 2016 2015

Raw materials and consumables (34,208,982,978) 12,874,076,803

Merchandises 421,593,097,552 457,698,609,540

387,384,114,574 470,572,686,343

27.A. OIL AND GAS EXPLORATION AND OPERATING COSTS

The table below details the Oil and Gas exploration and operating costs in 2016. Item 2016 2015

Research costs 7,765,571,323 6,306,300,747

Production costs 204,254,546,456 183,054,674,080

Customs fees 3,871,530,239 2,556,909,154

Crude oil commercialization cost (1,607,628,983) 2,490,403,480

Royalties 50,792,667,993 46,772,014,034

265,076,687,029 241,180,301,496

The increased costs recorded in oil & gas exploration and operating costs caption are influenced by the devaluation of the kwanza (AOA) against the dollar (USD).

28. PAYROLL

The table below details the personnel costs in 2016.

Item 2016 2015

Wages and Salaries 105,414,640,371 71,650,716,177

Extraordinary Services 257,866,190 1,739,825,279

Shift subsidy 749,399,790 421,666,079

Training expenses 2,101,176,835 2,757,509,340

Awards and other additional remuneration 25,654,537,041 28,480,288,731

Family allowance 452,088,193 265,312,430

Social security expenses 4,869,304,136 2,652,859,062

Social actions expenses 1,877,307,517 11,521,479,943

Subsistence expenses 784,133,317 1,337,000,017

Health and care expenses 354,510,045 2,649,251,508

Insurance expenses 1,473,567,501 1,132,723,996

Pension Plan (Sonangol Plan LGT and ENSA) 3,870,632,445 3,288,631,569

Other pensions 3,921,715,972 3,057,647,020

Uniforms 2,926,325 23,920,977

Other personnel costs 6,104,652,506 4,052,086,851

157,888,458,184 135,030,918,980

The increase in payroll is influenced by the devaluation of the kwanza (AOA) against the dollar (USD) in the period.

The reduction in social actions expenses is the reflex of the cost reduction implemented Group measures.



EXPENSES WITH PENSION PLANS AND TERMINATION BENEFITSThe expenses with pension plans and termination benefits are recognized in payroll costs and are detailed as follows:




Defined benefit (fund is centrally

constituted)

Defined benefit (without

constituted fund)

Defined benefit (with constituted

fund)

Total

Net cost in 2015:

Current services cost - 409,108,321 480,571,730 889,680,051

Interest cost 1,649,150,070 740,766,404 147,172,606 2,537,089,080

Expected return from plan assets - - -138,137,562 -138,137,562

Total 1,649,150,070 1,149,874,725 489,606,774 3,288,631,569

Net cost in 2016:

Current services cost - 194,255,483 194,255,483

Interest cost 3,427,767,216 500,550,923 3,928,318,139

Expected return from plan assets - - -251,941,177 -251,941,177

Total 3,427,767,216 - 442,865,229 3,870,632,445

29. DEPRECIATIONS

The table below details the depreciations costs in 2016.

Item 2016 2015

Tangible fixed assets 68,819,328,565 40,489,292,747

Intangible assets 1,093,802,641 591,934,548

Oil and Gas assets – Development 250,590,987,784 267,494,308,210

Oil and Gas assets – Abandonment 49,084,862,295 18,093,096,254

369,588,981,285 326,668,631,760

30. OTHER OPERATIONAL COSTS

The table below details the other operational costs in 2016.

Item 2016 2015

Water and Electricity 967,440,132 698,055,425

Technical assistance 5,055,663,425 13,797,216,470

Audit and Consulting Services 13,286,341,786 15,532,602,006

Fuels and lubricants 5,364,602,168 (677,884,403)

Commissions and intermediates 343,059,526 240,521,831

Communication 6,971,350,338 5,487,733,039

Maintenance and Repairs 16,605,831,519 21,193,324,877

Litigation and notaries 370,463,717 1,223,215,552

Travel and accommodation 424,496,808 1,584,212,260

Representation expenses 887,927,720 884,879,453

Food 3,062,986,763 2,539,703,748

Professional fees 2,691,628,474 4,788,827,348

Taxes and Fees 20,422,507,986 16,517,197,466

Books and technical documentation 87,817,329 44,331,066

Office equipment 934,644,770 758,353,690

Hygiene and Comfort material 2,774,786,055 2,543,810,487

Computer equipment 5,037,984,676 293,095,020

Generic medicaments 2,859,417 -

Offerings and donations 96,793,844 25,366,144

Marketing 4,482,361,150 5,566,491,718

Rents 12,234,660,736 23,725,732,346

Insurance 4,791,056,021 3,457,877,324

Surveillance and security services 7,103,231,146 4,685,282,647

Subcontracts 21,832,724,376 12,480,394,803

Specialized services 34,898,138,097 34,554,416,791

Houston Express operation 6,740,564,765 1,313,303,583

Ship operation and maintenance 24,173,368,579 34,956,750,490

Others operational costs 23,067,998,853 16,722,733,803

224,713,290,176 224,937,544,983



31. FINANCIAL RESULTS

The table below details the financial results in 2016.

Item 2016 2015

Financial income:

Interest 37,705,793,018 40,277,920,829

Income from investments in real estate 2,237,194,078 616,374,412

Income from capital participations 3,123,663,963 1,014,322,823

Gains on disposals of financial interests - 142,913,898,157

Discounts for prompt payment obtained 342,818,574 194,964

Other financial incomes 8,093,348,545 1,054,607,786

51,502,818,177 185,877,318,971

Financial expenses:

Interest 36,536,545,181 66,941,618,755

Bank expenses 3,522,325,031 3,817,122,501

Financing charges 2,587,538 5,935,898,894

Provisions for financial investments 52,260,941,253 399,528,106

Losses on disposals of financial interests 525,066,294 599,351,477

Abandonment interest 11,204,759,629 13,739,081,086

Default interest (cost) 7,446,500,502 5,464,691,793

Other financial expenses 67,776,465 2,219,560

111,566,501,894 96,899,512,174

Exchange rate differences (net) 6,031,441,032 23,739,903,773

(54,032,242,686) 112,717,710,570

The caption of “Interests” (expenses) includes the amount of 71,131,979 thousands of AOA related with the financial expenses due to the loans disclosed in Note 15, of which the amount of 35,836,369 thousands AOA were capitalized due to the fact that they are related with loans to finance the qualifying assets disclosed in Note 4 and 4A.

The caption “Provisions for financial investment” includes the amount of 49,724,882 thousands of AOA related with fair value variations of investment funds (Energy Found I and II and Gateway) and financial investments (Millennium BCP).

The caption “Default interests (cost)” in the amount of 7,446,500 thousands of AOA is related with delays in the payments of suppliers.

The caption “Exchange rate differences (net)” includes the deduction of the unfavourable exchange rate differences in the amount of 279,176,798 thousands of AOA, related with the monetary liabilities disclosed in Note 15 and charged to the related financial investments.

32. RESULTS FROM SUBSIDIARIES AND ASSOCIATES

The table below details the results from subsidiaries and associates in 2016.

Item 2016 2015

ACS - 270,770,092

BAI 411,202,708 294,881,643

Banco Caixa Geral Totta Angola 1,169,033,832 4,051,993,464

Bayview - 537,822,608

Enco 106,660,565 73,704,704

Esperaza - 11,053,831,200

Kwanda 42,038,808 119,961,040

Mota Engil 355,012,600 345,110,400

PumaEnergy - 637,500,025

Sonacergy - 60,780,420

Sonadiets 428,185,889 167,551,014

Sonaid - 84,034,762

Sonamet - 258,039,821

Sonasing Kuito - 938,398,640

Sonasurf 1,642,866,120 586,530,000

Sonatide Marine - 2,080,800,000

Sonils - 1,332,955,800

Tecnip - 644,156,278

Unitel - 12,611,959,072

4,155,000,522 36,150,780,982



33. NON-OPERATIONAL RESULTS

The table below details the non-operational results in 2016.

Item 2016 2015Non-operating income and gains

Provisions write-back – inventories 28,754,980,903 1,613,370,923Provisions write-back – doubtful debts 6,295,710,968 -Provisions write-back – legal actions 183,547,447 -Provisions write-back – customer guarantees 23,400 15,000Provisions write-back – abandonment fund 39,111,952,782 (624,822)Provisions write-back – tax contingencies (269,104) 9,802,800,286Provisions write-back – other 20,088,525,219 6,169,716,479Gains on fixed assets 277,266,772,694 27,457,907Gains on inventories 2,281,721,037 1,194,849,507Bad debt recovery 3,030,804,010 1,245Gains related with CITEC - 38,356,623,488Other gains 38,714,163,969 3,662,758,319 415,727,933,326 60,826,968,332Non-operating expenses and lossesProvisions – inventories 6,950,983,259 6,089,004,801Provisions – doubtful debts 89,691,188,349 29,826,722,247Provisions – legal actions 65,389,055 -Provisions – tax contingencies 11,066,236,118 21,501,165,664Provisions – other 3,433,508,761 4,147,017,854Extraordinary amortizations - 207,141,687Losses on fixed assets 197,279,462,101 69,928,374,155Losses on inventories 4,472,060,699 8,209,231,869Bad debts 47,834,407,663 15,020,819,568Other losses 33,107,231,100 4,032,004,514 393,900,467,104 158,961,482,359Adjustments relating to prior years (30,356,046,206) (4,436,640,677) (8,528,579,984) (102,571,154,705)

The caption “Gains on fixed assets” includes the amount of 276,910,905 thousands of AOA related with reversals of adjustments to the carrying amount due to impairment tests performed during the current period as disclosed in Note 4A and 5A.

The captions “Losses on fixed assets” includes impairment losses in the amount of 279,007,781 thousands of AOA and are detailed as follows:

• Tangible fixed assets of Lobito Refinery (116,914,238 thousands of AOA);

• Financial investment in Angola LNG (58,354,800 thousands of AOA);

• Investments in real estate and Hotels (39,373,317 thousands of AOA);

• Medium and long term granted loans (33,611,613 thousands of AOA);

• Accounts Receivables – Clients (14,123,195 thousands of AOA );

• Interest held in Banco Económico (10,294,954 thousands of AOA);

• Marine Training Center Fixed Assets (6,335,664 thousands of AOA).

34. EXTRAORDINARY RESULTS

The table below details the extraordinary results in 2016 after intra-group eliminations.

Item 2016 2015

Extraordinary gains

Claims 1,079,742 -

Other extraordinary gains 77,393,575 74,575,418

78,473,316 74,575,418

Extraordinary losses

Other extraordinary losses - 999,524,445

- 999,524,445

78,473,316 (924,949,027)

35. INCOME TAXES

The table below details the income taxes results in 2016.

Item 2016 2015

Income tax oil 34,348,193,431 31,010,483,713

Corporate income tax 48,952,240,441 24,892,487,594

Other taxes 767,942,045 1,297,254,661

84,068,375,918 57,200,225,969

36. LIABILITIES NOT DISCLOSED IN THE BALANCE SHEET

As at 31 December 2016 the Group has not assumed any liability that is not disclosed in the balance sheet, with the exception of contracts for the construction and purchase of two drilling ships in the total amount of 902 thousands of USD.

37. CONTINGENCIES

In the normal course of the Group’s operations there are contingencies considered possible regarding tax, administrative and labour risks, involving customers, suppliers, tax authorities and employees. Contingencies whose loss was estimated as possible do not require recognition of a provisions and are periodically reassessed.



38. EVENTS AFTER BALANCE SHEET DATE

After the balance sheet date a relevant event occurred with potential impacts In the Group financial statements:

ACQUISITION OF PARTICIPATING INTERESTS In 8 May 2017, Cobalt International Energy, Inc. has presented two formal dispute notifications against Sonangol

This is a very recent event for which all the related information is not available to conclude o the possible impacts, if any.

Only after legally required procedural it will be possible to understand and evaluate all the arguments, legal and of fact, presented by the parties.

Sonangol will contest both notifications presented by Cobalt, and it is the management judgement that there is no contractual breach of the Share Purchase Agreement (SPA).

It is also the management judgement that if the SPA is not fulfilled, there is no obligation to postpone the research deadlines of the related block contracts.

39. GOVERNMENT AND OTHER ENTITIES SUBSIDIES

In 2016 the Group has received no grants from the Government or other entities.

40. BALANCES AND TRANSACTIONS WITH RELATED PARTIES

Related party transactions are described and disclosed in Note 6, Note 9, Note 12, Note 19, Note 22, Note 26, Note 31, Note 32 and Note 35.

41. INFORMATION REQUIRED BY LOCAL LEGI SLATION

No information required by legislation.

42. FINANCING GUARANTEES

Sonangol EP is the guarantor of external financing of Angola with international financial institutions. These guarantees are based on contractually defined quantities of future sales of crude oil.

ANNUAL REPORT 2016202


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