Sonangol Fin Stmt 2010_Jul11_Eng

52 Sociedade Nacional de Combustveis de Angola (Sonangol) - EP(National Fuel Company of Angola - a Public Corporation)

2010

REPORT AND ACCOUNTS

Finance Department

Sonangol - EP

Notes to the Accounts for the Financial Year Ended December31,2010Amounts expressed in kwanza (AKZ)

REPORT AND ACCOUNTS

This report contains:

Balance Sheet

Earnings Statement

Notes to the Accounts

BALANCE SHEET AT DECEMBER31,2010(Amounts expressed in kwanza)Financial Year

Note20102009

ASSETS

Noncurrent assets

Tangible fixed assets4

Intangible fixed assets5

Investments in mining4A

Investments in subsidiaries and associates6

Other financial assets7

Other noncurrent assets9

TOTAL NONCURRENT ASSETS

Current assets

Inventories8

Accounts receivable9

Cash and other liquid assets10

Total current assets

TOTAL ASSETS

SHAREHOLDER EQUITY AND LIABILITIES

Shareholder equity

Capital12

Reserves and funds12

Earnings

TOTAL SHAREHOLDER EQUITY

Noncurrent liabilities

Medium and long-term loans16

Provisions for risks and charges18

Other noncurrent liabilities19

Total noncurrent liabilities

Current liabilities

Accounts payable19

Other current liabilities21

Total current liabilities

TOTAL CAPITAL AND LIABILITIES

/s/Jacinto Manuel VelosoChief, Accounting Department/s/Raquel Rute da Costa David VungeDirector of Finance

/s/Mbiavanga Filipe, Director of Internal Control and AuditRegistration No. 3227

EARNINGS STATEMENT AT DECEMBER31,2010(By type)(Amounts expressed in kwanza)Financial Year

Note20102009

Sales22

Other operating income24

Change in finished products and products in process25.1

Delivery of sales - concessionaire25.2

Cost of merchandise sold and raw materials consumed27

Payroll costs28

Amortizations29

Other operating costs and losses30

Operating balance

Financial balance31

Subsidiaries and associates balance32

Nonoperating balance33

Earnings before taxes

Tax on profits35

Net earnings from current activities

Noncurrent earnings34

Tax on profits

Net profit for the financial year

/s/Jacinto Manuel VelosoChief, Accounting Department/s/Raquel Rute da Costa David VungeDirector of Finance

/s/Mbiavanga Filipe, Director of Internal Control and AuditRegistration No. 3227

INTRODUCTION1A. Areas of businessThe Sociedade Nacional de Combustveis de Angola, E.P. (hereinafter called Sonangol - EP, or the company), is a wholly publicly owned corporation, created under Angolan law in 1976 by Decree 52/76 of June 9, 1976. According to its current articles of association approved by Presidential Decree 42/10 of May 4, 2010, the main activities of Sonangol - EP are prospecting, research, development, upstream production, transport, marketing, refining, and processing of liquid and gaseous hydrocarbons and their derivatives, including downstream petrochemical operations.Law 10/04 (the Law on Petroleum Activities) identifies Sonangol - EP as the Angolan enterprise to which the state has granted mining rights for prospecting, research, development, and production with respect to liquid and gaseous hydrocarbons. As concessionaire, Sonangol - EP is authorized to enter into partnerships with foreign and domestic entities for the conduct of oil operations within the national territory. These operations are currently based on partnership agreements and production sharing agreements.To fulfill more effectively and professionally its role as the national hydrocarbons concessionaire, the company created subsidiary companies Sonangol Pesquisa e Produo (Sonangol Research and Production) and Sonangol Gs Natural (Sonangol Natural Gas). These two subsidiaries have been used by Sonangol - EP, over time and in partnerships, as vehicles for investment in the exploration and development of crude oil and natural gas.Nonetheless, Sonangol - EP still partly engages in the crude oil business, through investments in Block0 - the Cabinda Concession.The table below summarizes the areas of business in which the company is involved through its subsidiaries and projects, thus gradually fulfilling its corporate purpose:SUBSIDIARY/PROJECTBUSINESS

Sonangol Pesquisa e ProduoProspecting, research (on natural gas), development, and production of crude oil

Sonags Sonangol Gs NaturalDevelopment and production of natural gas

Sonangol ShippingTransport of crude and refined oil

Sonarel Sonangol Refinaria de LuandaRefining of crude oil in Luanda

Sonaref Sonangol Refinaria (Project)Refining of crude oil in Lobito (under construction)

Sonangol LogsticaSupply and storage of refined oil products

Sonangol Distribuidora Marketing and distribution of refined oil products

Sonangol Limited (UK)Marketing of crude oil and LPG

Sonangol USA CompanyMarketing of crude oil

Sonangol Asia LimitedMarketing of crude oil

Sonangol Finance Limited Contracting of medium- and long-term credit

SonairAir transport services to support oil operationsReal estate and property management

MSTTelecommunications services

ESSAProfessional training services

Sonangol Holdings, LdaFinancial equity holding

PUAA Administrao e Gesto, S.A.Real estate and property management

Solo Properties (Knightsbridge) LtdReal estate and property management

SONIP Sonangol Imobiliria e PropriedadesReal estate promotion and property management

Sonangol Investimentos IndustriaisCoordination of the management, promotion, and development of industrial projects

CG Clnica GirassolHospital business

Sonangol HidrocarbonetosHydrocarbon research and mining

In 2010, Sonangol - EP expanded its business, with the establishment of two new subsidiaries, Sonangol Investimentos Industriais and Sonangol Hidrocarbonetos, the former being devoted mainly to coordinating the management, promotion, and development of industrial projects for Sonangol - EP and its subsidiaries in the Special Luanda Bengo Economic Zone, and the latter being involved primarily in hydrocarbons research and mining.2. Accounting policies adopted in the preparation of the financial statements2.1 Bases of presentation the accounts consolidation criterionThe Sonangol Board of Directors has chosen Sonangol - EP as the consolidating entity of the Group. Accordingly, since2008 the implementation of the Accounting Policies Manual (Manual de Polticas ContabilsticasMPC) has been under way. The objective is to lay the foundation for the first consolidation of the companys accounts; but, for the time being, consolidated financial statements were not prepared, presented, and audited for 2010.2.2 Bases of presentation preparation of the financial statementsThe financial statements were prepared on the basis of accounting records maintained as prescribed in the current Angolan legislation, defined in the general chart of accounts (Plano Geral de Contabilidade PGCDecree82/01 of November16,2001), and in accordance with generally accepted accounting principles and standards.The accounts classification established in the PGC has been amended, with the introduction of a number of specific items relating to the companys business (oil and gas industry). Accordingly, Sonangol - EP and its subsidiaries have devised a single chart of accounts for the Group so as to recognize those specific items, taking into account the MPC, which was designed for that purpose. The numbering of the notes below reflects that shown in the PGC. Notes not included in this annex are not applicable or insignificant for understanding the financial statements.2.3 Exchange rate fluctuationsTransactions are recorded on a historical cost basis and adjusted at year-end for the effects of exchange-rate fluctuations occurring during the year between the kwanza (AKZ) and the foreign currency in question.In 2010, current assets and liabilities denominated in foreign currency were revalued at the exchange rate prevailing on December31,2010, as published by the National Bank of Angola, and under the terms stated in Ministry of Finance Resolution104/91 of October18 and reiterated in Instruction01/DF-DC/2010. The exchange rates used were as follows:12/31/0912/31/10

USD 1 =AKZ 89,621AKZ92,874

EURO 1 =AKZ128,526 AKZ123,021

2.4 Key accounting criteriaThe key accounting criteria used to prepare the financial statements were as follows:1. Investments in mining in Block0Investments in mining include the share of Sonangol - EP in the expenditure relating to research, development, operations, and other expenses incurred by the operator of Block0. These investments are recorded at historical cost.Development expenses and those of management and capitalized services are amortized using the straight-line method, at rates depending on the amortization period specified in each concession contract. The contractual amortization period is six years.1. Tangible fixed assetsTangible fixed assets are shown at purchase cost, with adjustments for legally required revaluations minus cumulative amortization. Revaluations are based on the corresponding coefficients published each year by the Ministry of Finance.Amortizations are done using the straight-line method, at rates calculated to ensure that the value of properties is fully absorbed during their useful life, as estimated for each fixed assets item, as follows:Fixed Assets ItemUseful Life (Years)

Buildings and other construction20-50

Basic equipment10

Transport equipment5

Administrative equipment8-10

Consignable packaging5

Other tangible fixed assets5-10

Expenses incurred for the repair and current maintenance of fixed assets are considered costs in the year in which they occur. Large-scale repairs that lengthen the useful life of fixed assets are capitalized and amortized over the remaining portion of their useful life.1. Intangible fixed assetsIntangible fixed assets are shown at purchase cost, minus cumulative amortization.Amortizations are done using the straight-line method, at rates calculated to ensure that the value of the fixed assets is fully absorbed during their useful life, estimated for each fixed assets item, as follows:Fixed Assets ItemUseful Life (Years)

Development expenses3

Industrial property and other rights and contracts10

Start-up expenses5

Other intangible fixed assets5-10

1. Mining investments and works in progressTangible fixed assets relating to oil exploration and production are recorded at purchase cost and basically correspond to the following: Expenses incurred in respect of exploration area (field) research and development, plus the structure and financial costs incurred up to the date of the start of production, which are capitalized in works in progress. When the field begins its production these expenses are transferred from works in progress to fixed assets and are amortized; Research expenses, when incurred, involve the whole geographic area of the field, irrespective of where the reserves are located; Research expenses relating to a field under exploration and development are classified in works in progress; and All expenses incurred during a phase of oilfield research that proves unsuccessful are recognized as costs in the earnings statement for the financial year in which the research and/or development work is halted. Also considered as current financial year expenses are all exploration costs, such as seismic interpretation and acquisition as well as geological and geophysical costs in general.1. Investments in subsidiaries and associatesShareholdings in subsidiary and associate companies are recorded at purchase cost.Financial investments classified as other financial assets represent investments in asset markets (venture capital investment funds) and are valued at the market value prevailing on the balance sheet date.1. InventoriesCrude oil inventories are valued at the cost price equivalent to the average annual production cost. Valuation is based on the quantities declared in the operators inventory. The cost of stocks sold is calculated on the basis of the specific production cost of each concession.1. Accounts receivable and other noncurrent assetsThe balances of accounts receivable from customers, other debtors, and subsidiary and associate companies are recorded at their net payment value.Noncurrent assets consist of medium- and long-term financial transfers to subsidiaries. These are permanent interest-bearing loans with a repayment period longer than 12 months, the balance of which is shown at net market value.1. Cash and other liquid assetsCash and other liquid assets include: (i) cash; (ii) bank sight and time deposits; and (iii) other short-term investments maturing in up to three months that can be immediately callable without significant risk of fluctuations in value.1. ProvisionsProvisions are established whenever: (i) there is a legal or constructive obligation resulting from past events; (ii) it is likely that an outlay of funds will be needed to settle a liability; and (iii) a reliable estimate can be made of the amount of the liability.Provisions are not made for future operating losses. Provisions are reviewed on the balance sheet date and are adjusted to reflect the best estimate at that date.1. Other current liabilitiesSupplier balances and other current liabilities are recorded at their nominal value.1. Sales and provision of servicesSales are recorded net of taxes, discounts, and other intrinsic costs, at the market value of the amount received or receivable.1. InterestInterest received is recorded on the basis of the financial year specificity principle, taking account of the amount owed and the actual rate in force during the period until maturity.1. Taxes, duties, and fees Block0The company is liable for mining taxes, duties, and fees under Law 13/04 of December 24 (the Law on the Taxation of Petroleum Activities). Under this legislation, taxable earnings are defined as presumed monthly profit and calculated provisionally for each Block under production, reported to the tax authorities in provisional tax returns, and paid by legally established deadlines.Provisional tax returns are replaced at the end of the financial year by final tax returns, adjusted to reflect the tax reference prices, the final costs incurred by the company in oil operations, and its structural costs.Final tax returns are subject to review and adjustment by the National Tax Directorate (DNI), Ministry of Finance, which is the revenue authority. Taxes for 2009 are currently being reviewed and definitively established.The taxes, duties, and fees referred to above include the following:Oil production tax levied on the amounts of crude oil and natural gas produced in the year, valued at the tax reference prices, at the rate of 20percent for the Cabinda concession (Block0);Oil transaction fee levied on the annual profit recognized under partnership agreements at the rate of 70percent and deductible for the purposes of calculating the oil income tax assessment basis; andOil income tax levied on annual profit (net of the oil production tax and the oil transaction fee) recognized under partnership agreements (Cabinda concessions) and at the rate of65.75percent.Only current tax is recognized, there being no calculation or recording of any deferred taxes, whether positive or negative, resulting from temporary differences between the accounting base and the tax base.1. Income of the national concessionaireUnder current legislation, Sonangol - EP is required to transfer to the state an amount equivalent to a minimum of90percent of its earnings from sales made as national concessionaire. This amount is considered a tax and, as such, is included in the costs for the financial year.3. Changes in accounting policiesNo changes in accounting policies were made or reported. Nonetheless, the Accounting Policies Manual is currently being implemented in the Sonangol Group, the objective being to provide information on the account consolidation process. The achievement of this objective will make it even more possible, through the harmonization and documentation of accounting principles from the standpoint of the Group, to take account of the specific nature of the business activities of the various companies comprising the Group. To date, policies have been implemented concerning the Groups chart of accounts, additions and deferments, and financial statements. Procedures for closing accounts and settling intra-Group transactions have also been put into place.

NOTES TO THE BALANCE SHEET4. Tangible fixed assets4.1 Composition of tangible fixed assets, by item

ItemGross AmountCumulative AmortizationNet Amount

Tangible fixed assets

Land and natural resources

Buildings and other construction

Basic equipment

Transport equipment

Administrative equipment

Other tangible fixed assets

Works in progress

Total

4.3 Movements during the financial year, in gross amounts

ItemInitial BalanceRevaluationIncreaseSalesWrite-off/TransferFinal Balance




Basic equipment

Transport equipment



Works in progress

Total

4.4 Movements during the financial year, in cumulative amortization

ItemInitial BalanceRevaluationIncreaseSalesWrite-off/TransferFinal Balance




Basic equipment

Transport equipment



Works in progress

Total

4A Investments in mining4A.1 Composition, by itemItemGross AmountCumulative AmortizationNet Amount

Research expenditure

Development expenditure

Inventory material

Supply material

Material in transit

Means of transport

Other investments

Works in progress

Total

4A.2 Movements during the year, in gross amounts

ItemInitial BalanceIncreaseDecreaseFinal Balance



Inventory material

Supply material

Material in transit

Means of transport

Other investments

Works in progress

Total

4A.3 Movements during the year, in cumulative amortization




Inventory material

Supply material

Material in transit

Means of transport

Other investments

Works in progress

Total

4B Works in progress4B.1 Composition, by item


Nonmining

- Buildings and other construction

- Refinery project- SINCO project- Cabinda biodiversity project- Prospection and research project

- Miscellaneous projects

Mining

- Block0

Total

In the case of works in progress, the following changes were made during the period:i.Transfer of the amount allocated for the Sonaref project, against payment, to Sonangol Refinaria do Lobito, in the context of its establishment as a subsidiary in the Group;ii.Closure of the items relating to the SINCO project and the prospection and research project, the amounts in question having been recognized as charges to the company; andiii.Closure of the Cabinda biodiversity project item, the amount in question having been assigned to expenditure for the period.

5. Intangible fixed assets5.1 Composition, by itemItemGross AmountCumulative AmortizationNet Amount

Intangible assets

- Intangible fixed assets

Grand total

5.2 Movements during the financial year, in gross amountsItemInitial BalanceRevaluationIncreaseSalesWrite-off/TransferFinal Balance

Intangible assets


Grand total

5.3 Movements during the financial year, in cumulative amortizationItemInitial BalanceRevaluationIncreaseSalesWrite-off/transferFinal Balance

Intangible assets


Grand total

6. Investments in subsidiaries and associates6.1 Composition, by itemItemGross AmountCumulative ProvisionsNet Amount

Subsidiaries

Shareholdings

Associates

Shareholdings

Loans

Total

6.2 Movements in the initial balance and in transactions during the yearGross Amount


Subsidiaries

Shareholdings

Loans

Associates

Shareholdings

Loans

Total

6.3 Details on subsidiaries and associatesCompanySubsidiary Accounts

Shareholder EquityPercent of Equity HoldingAmount HeldGross Amount Recorded

Subsidiaries

Sonangol P&P

Sonangol Gs Natural

Sonangol Refinaria de Luanda

Sonaref

Sonangol Shipping

Sonangol Logstica

Sonangol Distribuidora

Sonangol Finance Ltd

Sonangol Holdings Lda

Sonair

MST Telecomunicaes

Sonangol Limited

Sonangol USA Company

Sonangol Asia

Puaa

Essa

SONIP

SOLO Properties

Clnica Girassol

Sonangol Hidrocarbonetos Ltd

Sonangol Investimentos Industrias

Total Subsidiaries

Associates

Banco Millennium BCP

Banco Caixa Geral Totta Angola

Banco Millennium Angola

Petroci

Banco Privado Atlntico

Banco Privado Atlntico Europa

Angolan Securities and Derivatives Exchange

Total - Associates

Grand total

Thepercentage of equity held by the company in each of the subsidiaries is as stated in Decision06/GPCA/06 of April 20, 2006. For Sonangol Holdings Lda, it is as stated in Decision02/2007 of March 5, 2007. In the cases of the subsidiaries Sonair, Servio Areo SARL, and Sonangol Gs Natural, it is as stated in Decisions023/2008 and02/2009 of December 22,2008 and April 6,2009 respectively. In March2009, Sonangol - EP and Caixa Geral de Depsitos signed a strategic partnership agreement for the establishment of the Banco de Produo e Desenvolvimento (BPD). The BPD will have $500million in statutory capital, with Sonangol - EP directly holding50percent of its shares, which represents an investment of $250million.As at December31,2010, Sonangol - EP held 685,138,638 shares in Millennium BCP, corresponding to a14.59percent shareholding and valued at market price (fair value). In accordance with the valuation criteria specified in the PGC, whenever the purchase cost exceeds the sale value the corresponding provisions must be constituted. In this regard, and based on the market listings obtained as at December31,2010, the company recognized an impairment loss on this investment, as shown below:

Value DateNo. of SharesAmount in EuroAmount in Kwanza

12/31/0712/31/0812/31/0912/31/10

Fair market value at 12/31/10

These securities are held at Banco de Investimento Global (BIG) under the terms of the custody contract signed with Sonangol - EP.

7. Other financial assets7.1 Details of other investmentsGross Amount

ItemInitial BalanceIncrease/ DecreaseFinal Balance

Investments

Energy Fund II

Energy Fund III

Total

7.1.1Composition

ItemGross Amount

12/31/1012/31/09

Energy Fund II- CDM Resource- Cobalt International Energy, LP- Legend Natural Gas II, LP- Niska Gas Storage- Petroplus International- Stallion Oilfield Services, Lda

Subtotal

Energy Fund III- Cobalt International Energy, LP- Dresser Inc.- Foresight Reserves, LP- Frontier- Hong Hua LDT- Jade Partners LLC- Kinder Morgan Inc.- Legend Natural Gas III, LP- Moreno Energy Inc.- Niska Gas Storage, LLC- Permian Tank & Manufacturing, Inc.- Phoenix Exploration Company LP- Red Technology Alliance LLC- Targe Energy LLC- Titan Specialties- Vantage Energy LLC

Subtotal

GRAND TOTAL

7.2 Commitments

DescriptionCommitment Amount (USD)Percentage of ShareholdingExecutions (USD)

Carlyle-Energy Fund II

Carlyle-Energy Fund II

The amounts recorded for venture capital investments Energy Fund II and Energy Fund III represent their fair market value, as shown in the final reports as at December31,2010.

8. Inventories

8.1 Inventory movements during the financial year


Raw materials

Crude oil or natural gas

Block 0

Total

8.2 Composition of inventories, by Block

ItemQuantityAverage Unit Cost (AKZ)Total

Block0

Areas A and B

Total

9. Other noncurrent assets and accounts receivable

9.1 Composition

ItemCurrentNoncurrentFinal Balance

Maturing in up to 5 yearsMaturing in over 5 years

CustomersDomesticForeignAdvances to suppliersSubsidiaries and associatesIntra-Group transactionsOther debtors

Total accounts receivable

9.1.1 Composition, by type of other noncurrent assets

CompanyInitial BalanceIncrease/DecreaseFinal Balance

Subsidiaries

Sonangol P&PSonagsSonangol Shipping Holding (SSHL)Sonangol LogsticaSonangol Holdings LdaSonairEssaSONIP

Total - Subsidiaries

Associates

FCKSChina Sonangol InternationalGrupo GeniusSonilsForce PetroleumKwanda LimitadaACREPAspenway

Total - Associates

Grand total

The transfers made by Sonangol - EP to each of its subsidiaries as well as its loans to associates are each the subject of a contract. Any reimbursement not made is automatically transformed into a further transfer.

Such transfers represent investments made by the company in its subsidiaries and not only those for which the repayment period is deferred.

Also included here are loans granted to nonassociate companies, primarily Force Petroleum (Angola) and ACREP, to finance their oil operation liabilities, and to the Kwanza Sul cement factory (FCKS), all of these within the framework of the Business Development Law.

9.1.2 Composition of accounts receivable, by type

Item12/31/1012/31/09

Customers

Domestic

Foreign

Miscellaneous debtors

Increases and deferments

Intra-Group transactions

Stock of the concessionaire

Others

Total accounts receivable

9.1.2.1 Composition of customer balances

Item12/31/1012/31/09

Customers

Domestic- Sonangol Refinaria de Luanda

Subtotal

Foreign- Trafigura Beher Amsterdam- Sonangol Congo Kinshasa- DTS Refining Pte Ltd- Enco So Tom- Braskem Incorp.- PTT Public Company Ltd- Formosa Petrochem Co.- STASCO Shell International Trading- Shell Trading Comp. Ltda- Conoco Trading- CNOOC Trading- China Sonangol International Hld Ltd- China National Unit Oil- TOTSA Total Oil Trading- Reliance Industries- Indian Oil Corporation- DT Refining- Kangoi Oil Trading Ltd- Unipec China Intern. Chemic. Beijing- Valero Marketing & Supply- Vitol S.A.- Others

Subtotal

Total Customers

The balance maintained with Sonangol Refinaria de Luanda is largely the result of crude oil sales made during the fourth quarter but not yet paid for. These sales have generally been settled only after publication of the tax reference price by the Oil Ministry.

The balance in respect of foreign crude oil customers will be fully settled in January2011. This represents a post-closure event but is in keeping with the terms and conditions for crude oil sales.

9.1.2.2 Composition, by type of debtor

Item12/31/1012/31/09

Other miscellaneous debtors


Sonangol Shipping (Angola), LuandaSonangol Gs Natural


Sonangol Logstica

Sonangol Holdings


Essa

Clnica Girassol

Sonangol Finance LtdSonangol Shipping Holding LimitedSIINDTuala Kumoxi

Amounts receivable Barclays Wealth

Amounts receivable Esperaza BVSupplies Elf

Advances to suppliers

Concessionaire inventory

Amounts receivable BCGTA partners)Amounts receivable Total EP (Abandonment Fund Block 3/8)Material stimulus social fund

Workers social fund Subscription

Others

Subtotal

Total - Other miscellaneous debtors

The Increases and deferments item reflects the amount for Sonags accounts receivable, related to the collection of Sanha operating costs, which will take place in early2011.

Transactions with the subsidiaries relate basically to services provided to Sonangol - EP and to amounts charged by the latter and remaining unpaid, related to the reimbursement of principal and interest on transfers it has granted.

As regards the intra-Group transactions, the Sonangal Finance balance consists mainly of amounts resulting from the differences found between the remainder to be transferred after debt servicing in the context of financing contracted by Sonangol - EP and the amount actually transferred by the subsidiary in question. It also includes dividends for2009,recognized and paid to the subsidiary at the end of the period.

9.1.3.1. Stock of oil rights as concessionaire (value)

ItemInitial BalanceIncrease (Production)Decrease (Exports)Final Balance

Concessionaire

Block 2/85

Block 2/05

Block 3/85

Block 3/91

Block 3/05

Block 4 Gimboa

Block 14 (Kuito)

Block 14 (BBLT-Nemba)

Block 14 (BBLT-Kuito)

Block 14 (TL)Block 14 (Belize Norte)

Block 15 (Hungo)

Block 15 (Kisanje)

Block 15 (Xikomba)

Block 15 (Mondo)

Block 15 (Saxi-Baluque)

Block 17 (Girassol)

Block 17 (Dlia)

Bock 18 (Plutnio)

Total

9.1.3.2. Concessionaires stock of oil rights (in barrels)

BlockInitial StockConcessio-naires Profit OilConcessio-naires ExportsAdjustmentsFinal Stock

Block 2/85

Block 2/05

Block 3/85

Block 3/91

Block 3/05

Block 3 Gimboa

Block 14 (Kuito)

Block 14 (BBLT-Nemba)

Block 14 (BBLT-Kuito)

Block 14 (TL)Block 14 (Belize Norte)

Block 15 (Kisanje)

Block 15 (Xikomba)

Block 15 (Mondo)

Block 15 (Saxi-Batuque)

Block 17 (Girassol)

Block 17 (Dlia)

Bock 18 (Plutnio

Total

Concessionaires stock fell sharply because of the volume of exports in2010, as recorded in the fourth quarter.

10. Cash and other liquid assets

10.1 Composition, by type

ItemMovement in Cash and Other Liquid Assets

20102009

Cash

Transfers of funds

Balances held at banks

Sight deposits

Time deposits

Bonds

Total

10.2 Details of bonds

ProductAmount (USD)Amount (AKZ)DateMaturity Date

BAI deposit bonds

Treasury bonds*

Total

* Represents 20,000 bonds, each valued at US$5,000.

The negotiable securities portfolio consists of: (i)35,000subordinated deposit bonds issued by the BAI, each with a nominal value of US$1,000, after the redemption of10,000bonds this year. These mature in six years and bear interest paid semiannually at the six-month LIBOR plus a margin. Returns on this investment totaled US$748,240; and (ii)20,000treasury notes maturing in five years, generating income on the order of US$3,823,505.

12. Shareholder Equity

12.1 Composition and movements during the year


Statutory capital

Supplementary contribution

Legal reserve

Investment fund

Current balance for the financial year

Total

Given the need to adjust the companys capital structure and build its borrowing capacity in light of future challenges, the proposal was presented, in Decision8/2010, to increase the statutory capital of Sonangol - EP to AKZ1,000,000,000,000 (one trillion Kwanza). Such an adjustment, through the incorporation of asset inflows and reserves, was approved by the shareholders in letter2344/66/01/GMF/2010of October14,2010.

Out of the total for adjustment, as at December31,2010 action had been taken in respect of AKZ900,000,000,000, leaving AKZ100,000,000,000 to be incorporated into financial year2011, based on the distribution of 2010 earnings.

By Presidential Decree42/10 of May10,2010 (setting forth the Policy on the Distribution of Earnings), the companys profits, after the deduction of withheld taxes, are to be distributed as follows:

(a)10percent for constitution of the legal reserve, whose cumulative value should not exceed 2percent of the statutory capital;

(b)At least 10percent for constitution of the fund to assess potential exploration for hydrocarbon resources;

(c)At least 5percent to the fund for other investments;

(d)Up to 5percent to the social fund;

(e)Allocation of individual incentives to workers and to members of the management body by way of their share in the profits, within the limitations set in the pertinent legislation; and

(f)Any other voluntary funds approved by the board of directors and agreed by the competent state bodies.

18. Provisions for risks and charges


Workplace accidents

Pension provisions

Abandonment provisions

- Block 2

- Block 3

Total

The amount shown above in Provisions for risks and charges includes Abandonment provisions. These consist of liabilities declared by the oil operators of various Blocks, for which funds (collected in the form of cost oil) are periodically transferred to the companys accounts. The funds in question are intended to cover future expenses related to the closure of oil wells and the removal of platforms and other installations when reserves run out.

The company currently records and recognizes abandonment provisions only in respect of Blocks 3/05 Canuku, Block2/85, and the now extinct Block3/80. The company is aware that substantial amounts are held in operators accounts for Blocks3/85, Block3/91, Block15 Xicomba, and Block 14 Kuito. As these amounts are not controlled by the company, it is also impossible to recognize them in the accounts.

As concessionaire, Sonangol - EP has used the provisions, making the funds available to Sonangol Pesquisa e Produo, as the pertinent operator, to meet the costs of dismantling the FPSO and of the environmental impact and inspection of the project for abandonment.

19. Other noncurrent liabilities and accounts payable

19.1 Other noncurrent liabilities

ItemMovementMaturity (months)

20102009

Sonangol Finance

- SNL Finance US$1 bn (SCB)

- SNL Finance US$3 bn (SCB)

- SNL Finance US$2.5 bn (SCB)- SNL Finance US$1.5 bn (CA-CIB)- SNL Finance US$1 bn (CDB & SCB)- SNL Finance US$2.5 bn (ICBC)

Subtotal

Subscription to be made

- Sonangol Gs Natural- PUAA

Subtotal

Total

This item records loans contracted by the company through its subsidiary Sonangol Finance Limited. Although recorded in Other noncurrent liabilities, the following notes are presented in accordance with the principles set out in the general chart of accounts.

19.2 Short and long-term loans obtained

19.2.1 Composition of loans

ItemAcqui-sition YearGross AmountMaturity (Months)

Initial BalanceIncreaseRepay-mentCurrent AmountNoncurrent Amount

Liabilities- SNL Finance US$1 bn (SCB)- SNL Finance US$3 bn (SCB)- SNL Finance US$2.5 bn (SCB)- SNL Finance US$1.5 bn (CA-CIB)- SNL Finance US$1 bn (CDB & SCB)- SNL Finance US$2.5 bn (ICBC)

Total

As a further increase was needed for Sonangol - EP to finance its capital structuring projects and other operating expenses under its annual budget for the financial year, in2010the company engaged in two new financing operations, as can be seen in the Increase column in Table19.2.1. The loans contracted were in the sums of $1,000,000,000 and $2,500,000,000, from consortiums led respectively by China Development Bank (CDB) in April and by Industrial and Commercial Bank of China (ICBC) in November.The financing mentioned above is guaranteed by the Gross Oil Income Contract between Sonangol - EP and Sonangol Finance Limited, under which the former is required to collateralize monthly income corresponding to 125percent of the monthly debt service, and a corporate guarantee in which financial accords require Sonangol - EP to observe the following:(a)The net position amount may not, in any circumstances, be less than AKZ750,000,000,000;

(b)The EBITDA/net debt ratio may not be less than 0.5; and

(c)The EBITDA/debt service ratio may not be less than 1.3.

In 2010 and as required by the reporting requirements that form an integral part of credit agreements, the company comprehensively observed the terms of the financial accords, as it is in compliance with all of them.

19.3 Composition of accounts payable

Item12/31/1012/31/09

Suppliers

Mining creditors

Other creditors and liability accounts

Transactions with the concessionaire


Other obligations

Total

19.3.1 CompositionItem12/31/1012/31/09

Suppliers

Domestic

Foreign

Mining creditors

Cabinda Association

Other creditors and liability accounts

Total

19.3.2 CompositionItem12/31/10

Transactions with the concessionaire

Oil taxes- Bonuses

- Price caps

- Concessionaires income

Transactions with the National Treasury- Taxes payable- Tax contingencies



Sonair

Sonangol Shipping (Angola) Luanda

Sonangol P&P

MS TelecomSONIP

Other obligations

FINA (minority shareholders)

Social and material incentives fundSomoilKotoil

OGE Dividends

OGE CustomsCapital investment tax (IAC)

Industrial Tax Law 7/97

FS/FST concession

Others

Total

The amounts payable to Somoil, Kotoil, and the FS/FST concession relate to the sale on their behalf, at end-2009, of crude oil, the delivery of which is confirmed during the subsequent financial year.19.3.3 Transactions with the National Treasury Transactions with the concessionaire

ItemGeneral Table of Transactions with the Concessionaire

Initial BalanceAmount PayableAmount ReceivableAmount PaidFinal Balance

Current

Initial balanceConcessionaires incomeExternal debt serviceTransfer to the concessionaireNovas CentralidadesOthersSubtotal

BonusesPrice capsSubtotal

Total

As regards transactions with the government, the concessionaires income represents the value of profit oil from the various Blocks under production, which is settled in three forms: (i)payments directly to the accounts of the National Treasury; (ii)transfers to the accounts of the concessionaire; and (iii)payments representing government debt service. The total amount recognized as profit oil in2010was AKZ1,513,923,340,867. The sum of AKZ1,600,666,338,005 was validated in2010, but, from it, income for the year, net of payments related to2009 liabilities, stood at AKZ77,896,185,799.Accordingly, the liabilities pending settlement at December31,2010 were those established as at December2010 plus the Block17 liabilities for December2009. These liabilities were settled during the first quarter of2011.Based on the current legislation, the concessionaires income declared by the company is subject to review by the DNI; this explains the tax contingencies recorded as a liability for the company. The amounts posted in the amended accounts for FY2007 and FY2008 are shown under that heading.Under article 54 of Law13/04 on the Taxation of Petroleum Activities, payments from the national concessionaire revert to the General Government Budget. These are covered under price caps and bonuses (which include contributions to social projects, trade discovery, and signings) and relate to payments made by the companies for the development of oil operations.Sonangol - EP disbursed funds for the development of a housing project called NovasCentralidades, under the responsibility of its subsidiary SONIP. Those funds will be recovered, within the legal framework of the state, through transactions with the concessionaire.The amounts received from these companies operating in the oil sector are in the custody of Sonangol - EP, as concessionaire, and constitute a liability of Sonangol - EP to the National Treasury.19.3.4 Transactions with the National Treasury Oil taxes payable

ItemGeneral Table of Transactions with the National Treasury

Initial BalanceAmount Receivable/PayableAmount PayableAmount PaidFinal Balance

CurrentAdditional

Tax payable

- Production fee- Oil transaction fee- Oil income tax

Total

The amount of tax payable relates to the December liabilities that will be settled in2011, which include the adjustments made at the end of the period when the final returns are recorded.Under the legislation in force, the final tax declared by the company is subject to revision by the DNI. This explains the tax contingencies posted in the amended accounts for FY2002 to FY2008.19.3.5 Transactions with the National Treasury Tax contingencies

ItemGeneral Table of Transactions with the National Treasury

Initial BalanceAmount Receivable/PayableAmount PayableAmount PaidFinal Balance

CurrentAdditional

Tax contingencies

- Production fee- Oil transaction fee- Oil profit tax- Concessionaires income- Dividends for collection

Total

21. Other current liabilities21.1 Composition of other current liabilities

ItemMovement

20102009

Liquidity management

- Sonangol Distribuidora- Sonangol Logstica- MS Telecom

Total

This item includes the loans granted to Sonangol EP, relating to the investment of cash surpluses from the subsidiaries Sonangol Logstica, Sonangol Distribuidora, and MSTelecom. Those loans are subject to respective contracts.

21.2 Composition of short-term liabilities

ItemCurrent Amount

Sonangol Finance- SNL Finance US$1 bn (SCB)- SNL Finance US$3 bn (SCB)- SNL Finance US$2.5 bn (SCB)- SNL Finance US$1.5 bn (CA-CIB)- SNL Finance US$1 bn (CDB & SCB)- SNL Finance US$2.5 bn (ICBC)

Total

The above amounts represent contractual liabilities that the company must assume in2011to the financial institutions.

NOTES TO THE EARNINGS STATEMENT22. Sales 22.1 Composition, by area of business and by market

Area of BusinessDomestic MarketForeign MarketTotal

201020092010200920102009

Mining

Crude oil Associate

Crude oil - Concessionaire

Accessory products

Deliveries to refinery

Total

24. Other operating income24.1 Other operating incomeType12/31/1012/31/09

Income from secondary business

Sales of refined products

Marketing fees

Other

Total

Included in other operating income are operating costs collected from Sanha and the income related to bonuses paid for trade discovery.

25.1 Change in finished products and goods in the manufacturing process25.1.1 Composition of the change in the concessionaires stockItemInitial StockFinal StockChange/Year

Crude oil- Concessionaires stock

Total

The concessionaires stock item shows the concessionaires rights (profit oil) at the end of each period. This is recognized as the concessionaires asset and/or liability with respect to the Group. Accordingly, the change corresponds to any decrease noted in the final stock after deduction of the volume of exports for the year.

25.2 Surrender of proceeds from the concessionaires sales to the government

Concessionaires income12/31/1012/31/09

Concessionaire - Block 2-85





Concessionaire - Block 3 CanukuConcessionaire - Block 4

Concessionaire - Block 14




Total

The amounts involved represent income from crude oil salesthe rights of the concessionaire at least 90percent of which must, under article 55(2) of Law13/04 of December24,2004, be surrendered to the National Treasury. In the absence of a costing system that makes it possible to separate out the costs of exercising the concessionaire function, the company has opted for the largest deduction possible, constantly bearing in mind the charges that are legally eligible for such a deduction.

27. Cost of stocks sold and raw materials consumedAssociation Contract

Item12/31/1012/31/09

Production fees

Production costs

Production expenses

Marketing expenses- Associate- Concessionaire

Subtotal

Charges for refined products

Total

28. Payroll costs28.1 CompositionType12/31/1012/31/09

Wages and salaries

Special services

Subsidy for shift in function

Training expenses

Premiums and other additional remuneration

Family bonuses

Social gatherings and social action

Accommodation expenses

Medical expenses

Insurance expenses

Pensions

Uniforms

Other

Total

29. AmortizationAmount in AKZ

Type12/31/1012/31/09

Tangible assets

- Buildings and other construction

- Basic equipment

- Transport equipment

- Administrative equipment

Subtotal

Intangible assets


Subtotal

Investments in mining

Research expenses

Development expenses

Inventory material

Subtotal

Total

30. Other costs and operating losses30.1 CompositionType12/31/1012/31/09

Conservation and repairs

Representation expenses

Fuel and lubricants

Rent and leases

Communications

Insurance

Information technology hardware

Travel and accommodation

Fees and adjustments

Publicity and advertising

Surveillance and security services

Offers and grants

Taxes and fees

Specialized work

Hygiene and comfort material

Water and electricity

Auditors and consultants

Office material

Legal cases and notary services

Food products and meals

Books and technical documentation

Other

Total

31. Profit and loss account31.1 CompositionIn AKZ

Type12/31/1012/31/09

Profits and gains

Interest

Return on property investments

Return on equity investments

Positive exchange differences

Costs and losses

Interest

Banking expenses

Financing-related charges

Negative exchange differences

Provision for financial investment

Total

32. Balances with subsidiaries and associatesCompanySubsidiary AccountDividend ShareDividendPartnersIAC (10%)Dividend

Shareholder Equity2009 BalanceSonangol - EPHoldingsPaidOwed

SubsidiariesSonangol P&P

Sonangol Gs Natural


Sonangol Shipping

Sonangol Logstica


Sonangol Finance Ltd

Sonangol Holdings Ltda

Sonair

MST Telecomunicaes

Essa

Total Subsidiaries

Associates

Banco Millennium BCP

Total Associates

Grand total

This item concerns the amounts collected from the subsidiaries by way of dividends for the2009financial year, minus the capital investment tax (IAC), which is withheld by the subsidiaries.

33. Nonoperating balances33.1 CompositionIn AKZ

Type12/31/1012/31/09

Profits and gains

Gains on fixed assets

Adjustment related to previous years

Costs and losses

Provisions for doubtful loans

Losses on fixed assets

Irrecoverable debt

Adjustment related to previous years

Compensation

Discontinuation of operations (projects)

Other losses

Total

By management decision, provisions were made and recognized as irrecoverable debt with respect to amounts receivable from Sonangol Congo (50percent) and Kwanda Ltda (100percent).

34. Noncurrent balances34.1 Composition

In AKZ

Type12/31/1012/31/09

Noncurrent profits and gains

Other gains

Noncurrent costs and losses

Fines and penalties

Other losses

Total

35. Income taxUnder the legislation in force, the companys final income tax liabilities stood at AKZ102,902,461,541. This amount relates to oil income tax and the oil transaction fee.35.1 Adjustment to the companys tax liabilities35.1.1 Adjustment to the companys tax liabilities for 2010Tax ReturnAdditional Tax (-)/ Tax Credit (+)

TypeProvisionalFinal

Fees

Production fees

Taxes

Oil transaction fees

Oil income tax

Profit oil

Concessionaires income

Total

The table above shows the difference between the taxes recognized in the provisional tax returns and those in the final tax returns as at 12/31/10. The latter amount may be altered in the accounts by amendment of the Tax Assessment Committee, so that changes can be expected to the final tax.35.1.2 Production feesYearTax Returns

Final (Sonangol)Review CommitteeFinal (Min. of Finance)

2002200320042005200620072008

35.1.3 Oil transaction feesYearTax Returns


2002200320042005200620072008

35.1.4 Oil income taxYearTax Returns


2002200320042005200620072008

35.1.5 Concessionaires incomeYearTax Returns


2002200320042005200620072008

39. Balances with related entities39.1 Composition of current transactionsCompany12/31/09Loans GrantedRepayment12/31/10

SubsidiariesSonangol P&PSonangol Gs NaturalSonangol Shipping Holdings LtdSonangol LogsticaSonangol Holdings LdaSonairEssaSONIP

Total

39.2 Composition of noncurrent transactionsCompany12/31/09Loans GrantedRepayment12/31/10

SubsidiariesSonangol P&PSonangol Gs NaturalSonangol Shipping Holdings LtdSonangol LogsticaSonangol Holdings LdaSonairEssaSONIP

Total

Apart from the transactions with subsidiaries shown in this table, the company had already disclosed transactions with the National Treasury (see note 11- no. 53 and note16- nos. 65 and 66) as well as transactions with public enterprises (EDEL onlysee note11) and with associated companies (note 7).

41. PensionsThe company does not recognize any balance sheet liability as regards the defined pension plan, insofar as the general chart of accounts considers its recognition as a temporary exclusion. Nonetheless, the company is holding funds in its assets to cover future deficits in the cost of the pension plan.The funds being managed by Sonangol and AAA Penses show the following cumulative balances:

[Date]Cumulative Pension Plan Balance

AAA Penses Sonangol - EP

12/31/00

12/31/01

12/31/02

12/31/03

12/31/0412/31/0512/31/06

12/31/07

12/31/08

12/31/09

12/31/10

42. Financing guaranteeSonangol - EP is assumed to be the guarantor of external financing for the Republic of Angola from international financial institutions, in the sum of $4,500million. The guarantees in question are established through the earmarking of crude oil ladings/sales, in accordance with the pertinent contractual clauses.43. Events occurring after the balance sheet date43.1 Kwanza Sul Cement Factory (FCKS)By decision of the companys shareholders, the ongoing investment in the FCKS construction project will be called the Instituto de Desenvolvimento Industrial de Angola (Angolan Industrial Development InstituteIDIA). Disbursements made by the company to date under the Business Development Law 14/03 of July18,2003 will be recovered in accordance with the pertinent procedures.43.2 Sonangol Holdings Limitada (SHL)By decision of the companys shareholders, the financial investments secured by its exclusive subsidiary Sonangol Holdings in some of the associated companies will undergo adjustments, the nature and size of which are yet to be determined. Such adjustments will give legitimacy to the subsidiary in securitizing future income (dividends), with a substantial impact on its capacity to repay its liabilities to the company.44. Additional mining information44.1 Sonangols stake in joint ventures

Area/BlockPercen-tageInvestorStatusOperatorOther Companies

1. Concessions in Angola

Block 0 - Cabinda Areas A and B41Sonangol - EPProductionChevron TexacoTotal, Eni

Block01/0620Sonangol P&PExplorationTullow Angola BVProdoil, Force Petroleum

Block 2/8525Sonangol P&PProductionSonangol P&PBraspetrom BV, Chevron, Somoil, Poliedro Oil, Kotoil

Block 2/05 Morsa West70Sonangol P&PProductionSonangol P&PSomoil

Block 3/0525Sonangol P&PProductionSonangol P&PChina Sonangol, Ajoco, Eni, Somoil, Nafigas, Ina-Nafte

Block 3/85 and 3/916.25Sonangol P&PProductionTotalEni, Ajoco, Svenska, Nanaftaplun, Naftagas

Block 4 - Gimboa 50Sonangol P&PProductionSonangol P&PNorsk Hydro, Somoil, ACR

Block 5/0620Sonangol P&PExplorationVaalco AngolaInter Oil

Block 6/0620Sonangol P&PExplorationSonangol P&PFalcon Oil, Initial Oil

Block 8/0520Sonangol P&PProductionMaersk Oil & GasSvenska

Block 14Block 15/06

Block 162015

20Sonangol P&PSonangol P&P

Sonangol P&PProductionProduction

ExplorationChevron TexacoEni

Maersk Oil & GasEni, Total, PetrogalSSI, Total, Falcon Oil, Statoil, PetrobrasOdebrecht, Ocean Angola Devon

Block 17/ 0624Sonangol P&PExplorationTotalSSI, Falcon Oil, ACR, Partex, Somoil

Block 18/0620Sonangol P&PDevelopmentPetrobrasSSI, Falcon Oil, Grupo Gema

Block 2320Sonangol P&PDevelopmentMaersk Oil & GasSvenska

Block 2620Sonangol P&PExplorationPetrobras

Block 3120Sonangol P&PDevelopmentBPEsso, Marathon, SSI, Statoil

Block 32Block 332020Sonangol P&PSonangol P&PDevelopmentExplorationTotalTotalEsso, Marathon, Petrogal, SSIFalcon Oil, NIR, GALP

Block 3420Sonangol P&PExplorationSonangol P&PNorsk Hydro, Phillips, Braspetro, Shell

2. International concessions

Blocks in Brazil

Block C-M-498100Sonangol P&PExplorationSonangol P&P Brazil

Block C-M-622100Sonangol P&PExplorationSonangol P&P Brazil

Block S-M-22560Sonangol P&PExplorationSonangol P&P BrazilPetrobras

Block ES-T-410/Espirito Santo50Sonangol P&PExplorationPetrobras

Block ES-T-401/Espirito Santo50Sonangol P&PExplorationPetrobras

Block REC-T-166Block REC-T-130Block POT-T-749Block POT-T-794Block POT-T-748Block BT-REC-18-Maritaca Field575030303050Sonangol P&PSonangol P&PSonangol P&PSonangol P&PSonangol P&PSonangol P&PExplorationExplorationExplorationExplorationExplorationDevelopmentSonangol P&P BrazilSonangol P&P BrazilSonangol P&P BrazilSonangol P&P BrazilSonangol P&P BrazilSonangol P&P BrazilSomoilPetrobrasPetrobrasPetrobrasPetrobrasSomoil

Block BT-REC-7/Cambacica Field25Sonangol P&PDevelopmentPetrobras

Block BT-SEAL-18/Aracuo Field30Sonangol P&PProductionSonangol P&P BrazilPetrobras

Block BT-REC-19/Guanambi Field20Sonangol P&PProductionPetrobras

Iraq Block75Sonangol P&PExplorationSonangol P&PNajmah & Qaiyarah

Iran Block20Sonangol P&PExplorationSonangol P&PSouthpars 12 & Petropars

Gulf of Mexico Blocks20Sonangol P&PExplorationCobalt

Sudan Block30Sonangol P&PExplorationSonangol P&PHS Resources & other entities

3. Gas consortium

Open Area40SonagsExplorationSonagsENI, Gas Natural, GALP, EXEM

4. Angola LNG Project

Zaire Soyo22SonagsDevelopmentAngola LNG LDTENI, BP Angola, Total

Information in addition to mining data relates to the stake of Sonangol - EP in Block0, as an investor, and its indirect stake in the other blocks through its subsidiary Sonangol Pesquisa e Produo.

44.2 Summary of crude oil and natural gas reserves(Thousands of barrels)Units

Reserves at January 1, 2010

Revisions

Purchases

Sales

Production

Reserves at December 31, 2010

This information, concerning proven reserves, relates solely to claims secured by Sonangol - EP, as investor in Block0, and by Sonangol Pesquisa e Produo, as investor and operator in the other blocks, as shown in note 42.1- Sonangols stake in joint ventures.

As a result, the stakes of Sonangol EP, as concessionaire, are not included, owing to the characteristics of the production sharing agreements, which determine the degree of predictability of the oil resources.

/s/

Jacinto Manuel VelosoChief, Accounting Department

/s/

Raquel Rute da Costa David VungeDirector of Finance

/s/

Mbiavanga FilipeDirector of Internal Control and Audit

Seen and approved

/s/

Francisco de Lemos Jos MariaExecutive Director

/s/

Manuel Domingos VicenteChairman of the Board of Directors

Documents

Sonangol Fin Stmt 2010_Jul11_Eng