NOGintelligence Annual Review 2013

UPSTREAM

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MIDSTREAM

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DOWNSTREAM

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REGULATORY

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FINANCIAL

www.NOGintelligence.com

All the news and events of the year, plus:

LEGAL | LOCAL CONTENT | CSR | ENVIRONMENT | COMMUNITY RELATIONS | HSE

CONTENTS 4

EDITOR’S MESSAGE

6 Events

6 EVENTS 8

UPSTREAM NEWS

18

PROFILE: PELICAN ATLANTIC

20

MIDSTREAM NEWS

24

COMMENT: MERGERS AND ACQUISITIONS

25

COMMENT: INVESTORS’ VIEWPOINT

26

DOWNSTREAM NEWS

29

GAS: BOOM OR BUST

32

FEATURE: MARGINAL FIELDS

40

FINANCIAL NEWS

46

REGULATORY NEWS

52

LEGAL NEWS

54

COMMENT: FINANCIAL ACQUISITIONS

56

OIL AND GAS CIRCUIT

62

LOCAL CONTENT NEWS

64

CORPORATE SOCIAL RESPONSIBILITY NEWS

66

ENVIRONMENTAL NEWS

67

COMMUNITY RELATIONS NEWS

68

HEALTH AND SAFETY NEWS

2

9

Upstream News

The scramble for Chevron assets

18

Profile

Pelican Atlantic

CONTENTS Upstream News 10 20

Midstream News

Dangote signs EPC contract for new refinery

29

Force majeure declarations

43 Financial News

Gas

Boom or Bust

32

Guide to 2013 Marginal Fields Bid Round

50

Regulatory News

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EDITOR’S MESSAGE Dear Readers As the year draws to an end, I am really excited to be writing this message. It has been an eventful year in the Nigerian oil and gas world and in this bumper edition we cover all the main events of the year.

Upstream, many large divestments took place giving indigenous companies a chance to gain a foothold in the established e&p space. The icing of the cake was the announcement of the long-awaited marginal fields licensing round with 31 fields up for grabs.

Next year promises to be a year of upstream deals. Once the marginal fields are awarded there will be a spate of farmouts as the awardees try to reduce their risks in the cash-intensive upstream world. Yet others will be trying to cash out in a year of presidential election campaigning.

Holders of nonperforming marginal fields from the previous licensing round in 2003 will be getting very nervous. Government has given a clear indication that it will not wait forever for those fields to be brought on-stream. There could be some deals to be done there, although some seem to be much more interested in having marginal fields on their business card than in producing oil.

Let’s hope they see the light soon.

It is not just marginal fields that are at risk. Many oil prospecting licences are also at risk for their failure to perform, with some blocks held for over 5 years without a well drilled. With these pressures it is likely that licence holders are will become more realistic about their demands for a multi-million dollar “signature bonus” from potential investors.

For these nonperformers a new realism will create the opportunity for even more upstream investments, particularly as disappointed losers in the marginal fields round who had lined up the finance to back the bidders, begin to look around for other opportunities for their investment ready dollars.

US discovery of shale oil continued to pose a threat which Renaissance Capital (RenCap) reiterated in a special report earlier this year, telling Nigeria to provide a favourable regulatory environment to encourage more investment in the oil and gas sector or risk losing out in the face of US shale oil. It’s either no one is listening or the threat seems so far long-term that the current short-term thinking does not warrant taking immediate steps to counter the threat.

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Midstream, the talk earlier in the year was about Dangote’s plan to double Nigeria’s refining capacity as his plans to build Nigeria’s largest refinery, with a capacity for 400,000 barrels per day got underway. Will Africa’s richest man succeed? He certainly has the financial muscle and the political clout to get things done going by his success in commodities and manufacturing. Some say he is ruthless about getting his way.

The soft-spoken gentleman business mogul certainly knows how to get things done, as he has proven time and time again. The only problem is that the regulatory environment is not conducive to the success of private refineries in Nigeria.

Deregulation is crucial but makes a government unpopular. So, will he be able to find a way to soften regulation in his favour?

His financial backers certainly think so after a record fund-raise, which he achieved at jaw-breaking speed, netted him funding of $3.3 from a consortium of foreign and Nigerian banks. It’s time someone got him a cloak as he begins to look every inch a superhero.

The other refinery story was the announcement late in the year that the State-owned refineries are up for sale.

Unions are up in arms about it. But what choice is there but to privatise them?

Government has not been good at managing

the refineries. The Honourable Minister of Petroleum admitted that herself when she announced that they were up for grabs. But cynics do not believe it is quite so simple with some saying the refineries have been run down to enable them to be sold at knockdown prices to political cronies.

Whatever the case, it is clear that the only way Nigeria can begin to meet the refined products needs of its populous nation is to have functioning refineries. The current position is draining the nation of valuable revenue that should be spent on improving crucial infrastructure.

Downstream, crude oil allocations stalled as NNPC was accused by an international financial watchdog, the Berne Declaration, of colluding with Swiss oil traders and their Nigerian counterparts to defraud the nation of billions of dollars in oil revenues. The House of Representatives has ordered an investigation while some of those named in the report are threatening to sue.

Oil theft remained the greatest menace to the industry in 2013 as an estimated 150,000 barrels of oil a day is said to have been lost to oil theft. The Joint Task Force which was set up to fight the growing problem is inadequately equipped to fight the seemingly futile battle with what has been described as “princes and principalities.”

With over 1000 Nigerian oil and gas news stories now posted on our website, NOGintelligence is fast becoming the mustread source of weekly news on the industry Some of their officers have even been accused of colluding with the oil thieves. A case of if you can’t beat them, join them?

In the financial world, acquisitions were the name of the game as Nigeria, particularly the prolific Niger Delta continues, to attract investors. The upstream play there represents some of the most attractive, in spite of the high e&p cost. Although many oil plays are opening up around Africa, particularly West Africa, Nigeria’s e&p industry remains of great interest to investors because the maturity of the industry often means a shorter time to first oil. The trend for IOC divestment onshore is also opening up a lot of possibilities. Nigeria is definitely the flavour of the month for upstream acquisitions.

The Petroleum Industry Bill (PIB), which has been many years in the making dominated the regulatory agenda for much of the first half of the year and then seemed to die a natural death as the year drew to a close.

There is now very little chance of passing the ill-fated PIB into law next year as the campaign for the presidential elections kick-off in earnest early next year. It seems it may be back to the drawing board as a

newly elected government will want to put its own stamp on things. In the meantime, billions of dollars worth of investment in the upstream industry are being withheld by the international oil companies who are not willing to invest in the risky and capital intensive deep offshore, the key to increasing our rapidly declining reserves. The long-term outlook is very gloomy indeed unless the new government takes matters in hand very quickly.

One suggestion is to hive off the part of the PIB that deals with fiscal issues and enact that into law. And if the terms are favourable, it will enable the IOCs to move forward with FIDs and the planned investments that are currently being withheld.

In this issue, we give gas separate coverage as we feel it deserves separate treatment.

In spite of President Goodluck Jonathan’s Power Agenda, it seems no one is giving much thought to how the gas will get to the power generation companies. With a lack of adequate infrastructure to support gas development, together with a harsh regulatory environment, upstream operators are not being encouraged to produce gas.

NOGintelligence is published by: NOGintelligence Limited Plot 9, Gabriel Olusanya Street, Lekki Phase 1, Lagos Telephone: +234 807 839 1416 To subscribe: info@NOGintelligence.com To advertise: advertise@NOGintelligence.com Press release: newsdesk@NOgintelligence.com General enquiries: info@NOGintelligence.com

This does not bode well for Jonathan’s power agenda and it not clear how the situation will improve unless some drastic measures are put in place to encourage gas production.

Moving on to NOGintelligence, it has been an eventful year in which we too have made tremendous progress. With over 1000 Nigerian oil and gas news stories now posted on our website, NOGintelligence is fast becoming the mustread source of weekly news on the industry.

NOGintelligence sent out its first newsletter on the 18th of May 2012. Barely a year later, we published our first print magazine.

After a difficult start in the print world, from January, we will be publishing our NOGintelligence magazine every month. Our staff is also growing as we build a stronger team. We are moving to bigger offices in Lagos and also opening representative offices in Abuja and Port Harcourt. This will enable us to have much better access to news, information and industry intelligence as we strive to continue to break industry news to you every week, whilst bringing you longer features in our monthly magazine.

As the year draws to a close, I would like to thank our sponsors and advertisers for making all of this possible. My thanks also go to all our readers for making time for NOGintelligence in your busy schedules.

Please keep your feedback coming as it helps us to improve. I would also like to thank my staff for their tirelessly effort to support the NOGintelligence dream.

2013 was a tremendous year for us and I hope it was for you too. We look forward to an even better 2014 in which we can all join hands to make our industry bigger and stronger but mindful of the need to continue to work with our host communities to ensure that the oil producing regions are also beneficiaries of the riches of their land.

Watch out for some interesting new developments here at NOGintelligence in 2014. I can’t say much now, but watch this space!

To a wonderful 2014!

Best wishes, Remi Aiyela Editor-in-Chief Email: editor@NOGintelligence.com

Stay in touch: @ NOGintelligence

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EVENTS JANUARY 2014 11th Protech Oil and Gas Exhibition and Conference Greater Noida, India 12-15 January www.petrotech.in International Petroleum Technology Conference (IPTC) 2014 Doha, Qatar 19-22 January 2014 http://www.iptcnet.org/2014/ doha/ Powering Oil and Gas Fields Conference London, United Kingdom 21-22 January www.ibcenergy.com

Aberdeen, Scotland January 22 - 23, 2014 www.Globalenergycareerexpo.com Offshore Security in Oil and Gas Lagos, Nigeria 23-24 January www.nispana.com Oilfield Mineral Outlook Abu Dhabi, United Arab Emirate 27-29 January www.metalbulletin.com

FEBRUARY 2014 Myanmar Oil and Gas Week Yangon, Myanmar 24-27 February www.myanmar-oilgas.com

Nigeria Oil and Gas Conference Offshore West Africa Abuja, Nigeria Accra, Ghana 24-27 February 21-23 January 2014 www.cwcnog.com http://www.offshorewestafrica.com Global Energy Career Expo

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Energy Institute International Petroleum Week London 17-19 February 2014 http://www.energyinst.org/ events/ip-week

MARCH 2014 3rd Arctic Region Oil and Gas Conference Stravanger, Norway 4-5 March www.ar-oilgas.com East Texas Oilfield Expo Texas, United State 5-6 March www.easttexasoilfieldexpo.com 13th Georgian International Oil, Gas Infrastructure and Energy Conference Tbilisi, Georgia 26-27 March www.giogie.com

EVENTS APRIL 2014 13th Turkish International Oil and Gas Conference Ankara, Turkey 9-10 April www.turoge.com Western Africa Oil, Gas & Energy Conference Windhoek Namibia 14 - 16 April 2014 http://www.petro21.com Eastern Africa Oil, Gas & Energy Conference 28-39 April 2014 Nairobi, Kenya http://www.petro21.com

MAY 2014 Oil Technology Conference Houston, USA 5-8 May www.otcnet.org

JUNE 2014 21st Caspian International Oil and Gas Exhibition Baku, Azerbaijan 3-6 June www.caspianoil-gas.com

JULY 2014 Oil and Gas Africa 2014 Dates: 2 to 4 July, 2014 Venue: CTICC Cape Town http://www.fairconsultants.com

NOVEMBER 2014 East Africa Oil and Gas Exhibition and Conference Dares Salaam, Tanzania November www.eastafrica-og.com Africa Oil Week Cape Town November 2014 http://glopac.mbendi.com/

UPSTREAM NEWS

ACQUISITIONS

2013 turned out to be another bumper year for acquisitions. A licensing round has been a long time coming and while the regulatory authorities were sitting on their hands the indigenous companies have had to make do with the International Oil Company (IOC) divestments. What this means is that every time an IOC sell-off takes place they are inundated with applications with more and more credible indigenous players starting to emerge as they gain more and more e&p experience. The two big sell-offs for the year were Chevron and Shell.

The scramble for Chevron assets When word went round that Chevron was putting OMLs 52, 53 and 55 up for sale the upstream world was buzzing with excitement. Whilst the e&p companies, investors and their advisers were still rubbing their hands in glee, Chevron threw in OPLs 83 and 85 situated in shallow water offshore Bayelsa State in the Niger Delta, in what the American giant described as “a move to prioritize [its] portfolio.”

General Manager, Policy, Government and Public Affairs, Deji Haastrup, denied any move out of Nigeria, saying: “Our interests in oil and gas continue to grow with new projects such as the EGTL coming on stream soon.”

To kick off the process, Chevron had quietly sent invitations to 20 companies to bid for the assets but very quickly had to open the sale up after receiving hundreds of applications. The three blocs are said to have total oil reserves of around 134 million barrels and five trillion cubic feet of gas, with the

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combined values of the three blocks being estimated currently at between US$500mn and US$600mn.

Watchers began to predict a huge bidding war, after Chevron instructed BNP Paribas to run the sale of 52, 53 and 55 first. The global advisory firm managed to secure a bid of $1.7 billion for ConocoPhillips from Oando last year.

By mid-August, Chevron had shortlisted its preferred bidders for the three assets.

The company was initially keen to secure one buyer for all three assets, just as ConocoPhillips had done. Among the selection criteria it would use, financial strength and ability to close quickly were going to be crucial.

On the shortlist were the usual suspects including Seplat, First Hydrocarbon, Amni and Seven Energy. Marginal field operators Britannia-U and Sogenal, also got in. Eland, Network E&P, Shoreline and Sapetro, partnering with Niger Delta were also said to be on the shortlist.

Just as the shortlist was revealed, party poopers, Nigerian National Petroleum Corporation (NNPC) waded in with a warning notice about operatorship.

Winners should not assume that operatorship of the blocks would transfer to them automatically from Chevron, they said. In 2012 the wrangle over operatorship had significantly delayed the Shell divestment.

Luckily, the bidders were not deterred by the “Caveat Emptor” notice. These kinds of blocks do not come on the market often and so operatorship, or not, it seemed buyers were still lining up. Final bids were slated for 30th September with 15 per cent of the bid price to be paid as a deposit.

By October, sources close to the transaction revealed that Britannia-U was the highest bidder with a whopping $1.6 billion for all three assets although neither the Chevron nor Britannia-U would confirm it. They are said to be talking to First Bank of Nigeria, Diamond Bank and Ecobank to syndicate the finance.

UPSTREAM NEWS Shell cast off its eastern assets

MUTIU SUNMONU, COUNTRY CHAIR OF SHELL

Following its Western Niger Delta divestments, in June, Shell turned to the East as it sought to continue what it has called its “strategy of selective divestment” of its onshore portfolio.

Managing Director, Mutiu Sunmonu stressed that: “Nigeria remains an important part of Shell’s portfolio, with clear growth potential, particularly in deepwater and onshore gas. This strategic review marks another step in re-focusing the SPDC portfolio.”

It was rumoured that shallow offshore OMLs 13 and 16 as well as OMLs 71 and 72 were on the chopping block but when Shell sent out invitations to bid to prospective buyers, it was for OMLs 18, 24, 25 and 29, located in Rivers State, which together are said to have produced 70,000 barrels of oil last year.

Also up for sale was the Nembe Creek Trunk Line (NCTL), a vital oil pipeline, which has frequently been targeted by oil thieves. Given the history of the pipeline, it is not surprising that Shell has put it up for sale together with the oil blocks that feed into the pipeline. Nevertheless,

Shell was inundated and NOGintelligence understands that Shell received close to 500 applications.

Shell’s partners in the sale are Total and Eni. The Nigerian National Petroleum Corporation (NNPC) owns 55 per cent in the joint venture (JV) while Total and Eni have a 10 per cent and 5 per cent stake respectively. Shell owns the remaining 30 per cent interest.

The Shell joint venture has sold a series of blocks since 2010 for more than $2 billion, but the latest sales will represent the largest so far in terms of production.

In November Shell shortlisted the candidates and at the time of going to press there was no confirmation of the final shortlist, although it is understood that the figure will still be cut to around 10-15 of the most credible bidders who will then be allowed into the data room for more in-depth analysis of the assets before the submission of final bids takes place. FBN Capital is advising on the sale. Financial analysts believe the sale should fetch between $2 billion and $3 billion for Shell and its partners.

Shell is also looking to sell off OMLs 71 and 72 at a later date.

As time went on, Chevron notified the losers but continued to drag their feet over declaring Britannia-U the winners.

As the fully indigenous company waited, sources say it came to their notice that Chevron was talking to Seplat. The matter is now the subject of litigation after Britannia-U, which is led by the formidable Uju Ifejika, secured a High Court injunction, preventing Chevron from transferring the assets to Seplat or any other bidder. They have asked the court to order Chevron to declare them the winners of the auction, having put in the highest bid.

UJU IFEJIKA

Chevron had always said it wanted to complete the sale by the end of the year but as the year-end approached, it seemed to be getting cold feet about accepting the winning bid of $1.6 billion. Going through their mind would have been the chances of things going wrong. Would Britannia-U succeed in getting the funding? Was it worth the risk? Why not take the nearest

bid of $900 million from Seplat for OML 53, Amni for OML 52 and Belema Oil for OML 55 - who had agreed to work together? A $700 million dollar price difference is a lot to chew over. Naturally, Oando’s protracted journey to complete the acquisition of the ConocoPhillips assets would have been playing on the company’s mind in terms of Britannia-U’s offer.

In view of the litigation, neither Chevron nor its advisers BNP Paribas were willing to discuss the matter. The industry waits with baited breath to see if the parties can come to a quick resolution or whether it is going to be a protracted dispute.

One thing is for sure, CEO of Britannia-U, Ifejika is no push over. Although she apparently needs to find about $1.2 billion to complete the deal, sources close to her say she is confident of securing the funding. As they say in the opera world: “It ain’t over till the fat lady sings.”

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UPSTREAM NEWS

OTHER SALES & Oando Inched towards the finish line Oando said it was close to the completion of its acquisition of ConocoPhillips’ entire oil and gas assets in Nigeria for a reported $1.7 billion.

The company which is acquiring the assets through its e&p subsidiary paid an initial $435 million deposit for the transaction with a balance to pay of approximately $1.22 billion. In November it released more details of how it is financing the deal.

The company said it had so far received commitment letters for up to $815 million of bank credit facilities.

Of this amount, $465 million came from a Reserves Based Lending Facility, internationally placed and led

by BNP Paribas, Standard Bank, and Standard Chartered Bank. Another $350 million came from a Senior Secured Loan, jointly arranged locally in Nigeria, by FBN Capital and FCMB Capital Markets.

Although some have criticised Oando’s bid price, others say that Oando Plc has made an investment in the high margin upstream division that will transform the business significantly and increase value creation for the shareholders. It also extends its footprint into the liquefied natural gas (LNG), as well as power generation.

The transaction was due to close at the end of November but Oando won a 60-day reprieve, which allows it to close at the end of January but at the cost of an additional $15 million deposit plus another $10 million per month.

Oando remains bullish about its chances of closing the deal. The downstream giant, which is now looking to change its upstream game expects to go from its current daily production of 4,500 bpd to 45,000 bpd. This will make it one of the largest indigenous producers. By the time they are there they will be getting ready to move into their brand new 15 story glass tower on Ozumba Mbadiwe.

A befitting edifice for the soon to be indigenous upstream titan.

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In March, Alternative Investment Market (AIM) listed Eland Oil secured an option on Oil Prospecting Licence 452 owned

by Amalgamated Oil Company of Nigeria (Amocon). The exclusive option will enable it to acquire a 40 per cent stake from Amocon after technical due diligence on the onshore block which is located on the eastern side of the Niger Delta.

UPSTREAM NEWS

ACQUISITIONS Afren increased its stake in First Hydrocarbon to become the majority shareholder with a stake of 54.8 per cent. The additional 10.4 per cent cost it $37 million.

First Hydrocarbon has a 45 per cent interest in OML 26 onshore with production of 10,000 barrels per day from the Ogini and Isoko fields.

AIM-listed Lekoil farmed into offshore OPL 310 owned

by Afren and Optimum Petroleum. Following the farmin, the shares in the company were adjusted to Optimum: 60 per cent; Afren: 22.86 per cent; Lekoil: 17.14 per cent. Lekoil however has a 30 per cent economic interest while Afren has 40 per cent.

Buoyed by its OPL 310 success, Lekoil went shopping again. It concluded a deal with Norwegian exploration and production company, Panoro Energy ASA to acquire Panoro’s 6.502 per cent participating interest (representing about16.3 per cent cost interest and about 12.2 per cent. revenue interest) in OML 113 for $30 million.

OML 113 contains the Aje oil and gas field, with estimated unrisked 2C Contingent Resources of 198.7 mmboe, comprising gas, gas liquids and condensate, as well as a significant oil leg in one of the reservoirs.

After acquiring a 38.67 per cent participating interest in OML141 in a 2011 farm in Oryx Petroleum Corporation Limited filed a preliminary prospectus with the securities authorities in Canada towards an initial public offering (IPO) on the Toronto Stock exchange. The IPO was underwritten by RBC Capital Markets, Barclays Capital Canada Inc. and Merrill Lynch Canada Inc.

After nearly a year, TSX Venture Exchange listed Canadian company, James Bay Resources Limited finally received ministerial approval for the assignment of a 47 per cent interest in the Ogedeh marginal field to the company by Bicta Energy. Ogedeh, which was carved out of a Chevron block was awarded to Bicta in the 2003 marginal field licensing round.

The company paid a farm in fee of $2.5 million for its 47% interest, which is to be made in stage payments. The Company will be get an economic interest of 80% of the available crude until cost recovery while the remaining 20 per cent will be divided between both companies proportional to their participatory interest.

London Stock Exchange listed Heritage signed a Memorandum of Understanding (MOU) in November with the Bayelsa State Government. Together establish an indigenous Nigerian oil company called Petrobay Energy Limited in which Heritage will have a 45% equity stake.

Oryx’s Jean Claude Gandur, founded Addax Petroleum, which he sold to Chinese state-owned Sinopec in 2009 for a reported $9.8 billion.

Green Energy/All Grace Energy: FBN Capital conducted a hush hush sale of Green’s Otakikpo marginal field in OML 17 and All Grace’s Ubima marginal field in OML 11. The muted sale is unsurprising given the controversial discretionary awards in non-competitive allocations in 2010.

Petrofac Ltd, a FTSE 100 company, and Taleveras Energy Resources, a South African oil service company, have signed a Memorandum of Understanding with the Nigerian Petroleum Development Company (NPDC) under which they will give funding, technical support, training services, and asset development/ management support on a risk service contract for OML 119.

They will also explore other options.

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UPSTREAM NEWS

PROJECTS

Some of the more notable projects for 2013 were: Subsea 7 Clinched ExxonMobil’s Erha North Contract

Luxembourg-based Subsea 7 SA was awarded a contract for the development of Erha North deepwater field in Nigeria

by Esso Exploration and Production Nigeria Limited (EEPNL), a subsidiary of ExxonMobil. The field was converted from OPL 209 to OML 133 in March 2006 after it came on stream.

The Erha North project had been stalled for several years due to the inability of NNPC and its IOC partners to reach an agreement on costs.

NLNG looked to raise $1.6 billion to purchase 6 carriers

Nigeria Liquefied Natural Gas Company (NLNG) instructed GTBank to raise $1.6 billion for the purchase of 6 LNG carriers.

The purchase of the ships will enable NLNG to upgrade its dedicated fleet.

Esso awarded subsea contract to Cameron

Esso Exploration Nigeria Limited (EEPNL) awarded an important contract for the provision of sub sea production systems to Houston-based Cameron Systems.

Shell announced FID on Trans Niger Pipeline Loopline

Shell announced that final investment decisions (FIDs) have been taken for the Trans Niger Pipeline loop-line (TNPL) and the Gbaran-Ubie Phase Two projects.

The total capital investment for the two projects is around $3.9 billion.

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Total awarded Egina Field umbilical supply contract to Technip Total continued to award contracts for the development of its Egina Field on Oil Mining Lease (OML) 130, with the announcement that the contract for the supply of umbilicals to the Egina field had gone to French oil services company, Technip.

Mart continued construction of Umughini Pipeline

Mart Resources continued construction work on Umugini pipeline TSX Venture Exchange listed Mart Resources released construction work on its Umugini Pipeline and Trans Forcados Export Pipeline was progressing. The company said clearing of the right of way, stringing, welding and field joint coating of the pipeline had been completed on approximately 17 kilometers of the 51-kilometer pipeline by June. Mart is involved in a joint venture with Midwestern Oil and Gas (the operator) and Suntrust Oil in the Umusadege Oil Field onshore Delta State.

The Gbaran-Ubie Phase Two project consists of five gas supply and infrastructure projectswhich are critical for continued gas supply to the Nigeria Liquefied Natural Gas (NLNG) plant and the Gbaran-Ubie domestic power plant (IPP).

Total and Samsung sealed $3bn FPSO deal

Total awarded Samsung the contract for the construction of a $3.1bn Floating Production, Storage and Offloading (FPSO) contract for the Egina deepwater oil field

Total’s process platform set sail for Nigeria The Ofon Phase 2 process platform (OFP2) left Korea to head for the Ofon field located in the OML 102, 50km off the coast of Nigeria in 40m water depth. The project was initially sanctioned in December 2006 and two contracts awarded in 2007: the EPCC1 to Hyundai Heavy Industries (HHI)

of Korea for the construction of the OFP2 deck, and T&17 to Technip for the deck’s transportation and installation.

Agip extended Abo FPSO contract Nigeria Agip Exploration, extended the contract for the Floating Production, storage and offloading unit (FPSO) Abo with BW Offshore, which means the FPSO will remain in place till the end of Q2 2014.

Accugas raised $225 million for gas pipeline FBN Capital assisted Accugas, a subsidiary of Seven Energy, in arranging finance from four banks First Bank of Nigeria Limited (FBN), United Bank for Africa (UBA), First City Monument Bank (FCMB) and Stanbic IBTC for a gas infrastructure financing deal worth about $225. The project is for a gas pipeline in Akwa Ibom.

UPSTREAM NEWS

FIELD DEVELOPMENT Allied Energy, operator of Nigerian deep water blocks Oil Mining Leases (OMLs) 120 and 121, signed a deal with Transocean for the Sedneth 701, mid-water semisubmersible, to drill the Oyo No. 7 well in OML 120. Oyo-7 is expected to both significantly increase oil production from the currently producing reservoir and de-risk much of the unrisked resource potential in the field. Oyo, the first deepwater discovery in Nigeria, has been online since December 2009.

OML 120 has proven oil and gas in the shallow part of the Oyo Field.

The field contains more than 50 million barrels recoverable reserves of light 34.5 degree crude oil, and significant volumes of natural gas reserves. Identified crude oil reserves potentials for both OML 120 and the adjoining OML 121, are estimated at some 2 billion barrels.

Earlier in the year, Afren stated that it was on schedule to commence drilling two explorations wells in OML 115 Ufon prospect, offshore Nigeria.

Afren farmed into the block as operator early in 2010 under a joint venture agreement with Oriental Energy Resources (OER) and Energy Equity Resources (EER).

The block adjoins the Ebok and Okwok development areas. The success of the Ebok and Okoro fields have helped the company go from 19,000 barrels per day (bpd) to 43,000 bpd boosting its share price on the LSE along the way.

Mart Resources and partner Midwestern commenced UMU-11 well drilling operations on August 14, 2013 and reached a final total drilling depth of approximately 8,910 feet on September 27. Drilling activities have progressed very well from early in September when drilling had reached 1,100 feet.

The Umusadege marginal field is located within OPL 283 onshore, in Delta State.

Commercial production commenced from 2008 and as at May 2011 the field had reached an average production of 10,735 barrels of oil per day (bpd) climbing to 12,638 bpd during October 2013.

The discovery in the Ogo prospect was made during drilling of the Ogo-1 well in partnership with Afren’s partners in the block, Optimum Petroleum and Lekoil.

Based on the well data, the partners now estimate the P50 to P10 gross recoverable resources range to be 774 to 1,180 mmboe significantly ahead of pre-drill expectations of 202 mmboe.

Ogo-1 continues Afren’s winning streak with significant recent discoveries in Okoro Field Extension, Ebok North Fault Block and Okwok in Nigeria.

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The company moved the Depthwizeowned swamp barge Majestic to Ango-2, to appraise the deep oil zones it tested in Ango-1 Sidetrack 3.

The company said it also planned to do even more drilling on its OPL 290 where it is drilling the Mbuotidem Deep1x in shallow water off the south-eastern part of the Niger Delta using Seawolf’s Oritsemehin Jack Up. The depth of the well in April was about 12,100ft.

The company has a production of 25,000 barrels per day mostly from its Otuo South field.

The main objectives for the UMU-11 well are to appraise and produce proven oil reservoirs encountered but not completed in the UMU-9 and UMU-10 wells.

Afren’s Nigerian success continued with the announcement of a giant discovery in OPL 310 offshore Nigeria. Afren said the discovery was above expectations and some are even suggesting it could be one of the most important finds in recent West African history.

produced in excess of 2,000BOPD of light oil. The tested reservoirs are located at a depth of over 5,400ft.

In April, Conoil was appraising its two discoveries at Ango, an area with the thickest sedimentary sequences and one of the deepest pay zones in the Niger Delta. The flow test in one of the two reservoirs, Ango-1 Stk 3 in OML 5

Energia Limited, the operator of the successful Oando/Energia-owned Ebendo/ Obodeti marginal field, announced that it was on course to complete its Ebendo 6 well in July. The company said it was expecting to add additional 2,000-3,000 bpd in July 2013 after another successful drilling and completion of their Ebendo 5 well in March 2013. The company was expecting to ramp production up to 8,0009,000 bpd upon completion of well-six.

The company uses the export line to Brass terminal, which it said does not have sufficient capacity. As a result, the company embarked on the construction of a 53-kilometre pipeline from Umusadge to Eriemu in partnership with Midwestern Oil as an alternative.

The company also embarked on plans to build a refinery with the marginal field cluster group of Midwestern Oil and Gas, Pillar Oil, Platform Petroleum and Chorus Energy. The refinery will have an initial capacity of between 10,000 and 15,000 barrels of crude oil per day. Energia also has a 30 MMSC.lllFD gas processing plant.

Energia has a 55 per cent stake in the field while Oando has 45 per cent.

UPSTREAM NEWS

The deepwater field was discovered in 2003.

It is located in water depths of around 1,600 meters, some 200 kilometers offshore Port Harcourt and 20 kilometers southwest of the Akpo field, which is also located on the same licence and has been in production since 2009.

Bakers Hughes announced in May that it would be offering one stop integrated services to the Nigerian oil industry. The intention, the company said, was to be responsible for every operation from reservoir to production.

Heritage Oil issued an update regarding production levels in OML 30, which had fallen below 20,350 bpd due to a faulty manifold as well as labour issues. Production soon returned to 35,000 barrels per day (bpd), its pre-acquisition level.

The company said it had ambitious plans for the second half of the year with the long term aim of reaching an ambitious 300,000 bopd gross.

Total, the operator of the OML 130 block and owner of a 24 per cent interest finally got the go-ahead from Nigerian National Petroleum Corporation (NNPC) to award the main EPC contracts for the development of the offshore Egina field.

The field development plan will see 44 wells drilled, which will be connected to a 330 meter-long floating production, storage and offloading (FPSO) vessel with a storage capacity of 2.3 million barrels. First oil is expected end of 2017, with output expected to reach 200,000 barrels of oil per day at plateau.

First Oil on Reopened Wells Delayed To October 16 August Issue 64 Eland Oil extended its estimates for first oil in OML 40 in which it has a 45 per cent stake.

The company bought the stake for £112

million, which it raised from AIM last year.

Eland Oil had expected to bring one of the two wells on the field, which were shut down in 2006, on stream this summer had to revise estimates. Initially flow is expected at 2,500 barrels per day although the plan is for an incremental production.

Newcross suspended drilling of its wildcat Efe-1ST, which encountered 16 hydrocarbonbearing sands with gross hydrocarbon thickness of 648ft (200metres) true vertical depth TVD. The company said that work was going on to determine the size and commerciality of the discovery. They will now move ahead to drill Efe-B. The well is located in OML 283.

Transnational Corporation of Nigeria Plc (Transcorp) revealed that it expects to begin production in 2014 from its OPL 281.

Transcorp’s partners in the block are Sacoil Holdings Limited (Sacoil) and Energy Equity Resources limited.

Mira Resources, the owners of a 48 per cent interest in marginal field, Tom Shot Bank in OML 14 confirmed they were planning to take the field to production. They decided to stop their search for an equity investor and instructed First Energy Capital to halt the proposed sale.

The field has over 22 MMBO in independently verified 2P Resources and additional resource upside potential. Mira’s Nigerian partners in the field are Associated Oil and Gas and Dansaki Petroleum.

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UPSTREAM NEWS

DECLARATIONS OF FORCE MAJEURE Oil theft through vandalized pipelines continued to push production figures down. It is estimated that the nation is losing 150,000 bpd to oil theft. As the onslaught on oil pipelines continued with consequential shortfalls in production targets it quite quickly became clear that the country would fall far short of its production target of 2.48 million bpd.

The vandalisation caused a number of force majeure declarations over the course of the year including: n ExxonMobil – supply disruptions due to Qua Iboe; n ENI - force majeure on Bayelsa State

Swamp area activities in March known to produce 35,000 to 40,000 bpd; n Shell – disruptions to Bonny Light Exports due to closure of Nembe Creek Trunkline resulting in the deferment of 150,000 bpd; n Shell – disruptions to gas supplies following a leak in its Eastern Gas Gathering System (EGGS-1) right-of-way (RoW) pipeline near Awoba in Rivers State leading to shut down of gas production at Gbaran Ubie gas plant in Bayelsa State and reduced production at its 1.5 billion standard cubic feet per day (SCF/D) Soku gas plant in Rivers State;

n Shell - Trans Niger Pipeline (TNP) shut in following an explosion and fire at a crude theft point on the 28” section of the facility at Bodo West in Ogoni land with 150,000 barrels of oil per day deferred as well as the shut down of the 624 mega watt capacity Afam VI Power Plant due to shortage of gas as a direct result of the closure; n Shell – force majeure on supply of gas to Nigeria Liquefied Natural Gas (NLNG) as a result of another shut down of the TNP, the fifth since July, involving new crude oil theft leaks at Bodo West and Oloma. Some 150,000 barrels of oil and 500 million standard cubic feet of gas per day were deferred as a result.

MARGINAL FIELDS Marginal Fields Licensing Round Kicks Off The long awaited marginal fields licensing round finally kicked off on the 28th of December, 10 years since the first marginal fields licensing round in 2003 and 3 years since the government took the decision to hold another licensing round. The first marginal fields licensing round was an experiment designed to bring indigenous players into the

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upstream play. Fields that were deemed uneconomic by the IOCs were thrown open to Nigerian companies. 24 marginal fields were awarded in the first licensing round, out of which only 8 are currently producing.

the remaining 15 are in shallow water offshore. The DPR has already completed the road show in Lagos, Port Harcourt, Abuja and Kaduna to brief the public about the process for the licensing round.

This time there will be 31 marginal fields, 16 of which are onshore while

See pages 31-34 for our special focus on the marginal fields bid round.

UPSTREAM NEWS

NORTHERN BASINS EXPLORATION Governors of the northern States continued to hope for significant oil find in the Northern Basins as the Federal Government confirmed it was earmarking $100 million for exploration for oil and gas in Lake Chad and other northern hydrocarbon basins in 2013.

Professor Jerry Gana, Chairman of the Northern Economic Summit gave a progress update at the meeting of the group earlier in the year. The sum is an improvement on the $70 million, which the Federal Government budgeted for each of 2011 and 2012.

Industry experts do not expect the $100 million to go very far. It is unlikely to achieve much, they say, given the vast area that is to be explored. Acquisition of 2D seismic, together with the processing and interpretation of the seismic is likely to cost somewhere around $45,000 per kilometre, meaning that the entire sum will only enable the acquisition of less than 2,500 kilometres of 2Ds. Moreover, drilling a well will cost somewhere between $25 million and $30 million so

you could only drill 2 or 3 wells with that sum.

Investors are unfortunately not rushing in with funding. With the kind of successes that are being discovered in the wellexplored and prolific Niger Delta, the investing public does not seem to have much appetite at this time for the Northern Basins.

Professor Gana remained optimistic and reported that the government was in the process of awarding contracts for airborne gravity, magnetic and electromagnetic exploration surveys of the basins. By July, there was some encouraging news after Niger State announced the preliminary findings of the committee set up by the State Government to fast-track exploration for hydrocarbons in the State. The Secretary of the Committee, Mr Yabagi Sani said that the samples obtained from the Bida Basin showed a higher hydrocarbon content than hydrocarbon deposits in the Niger Delta.

Mr Sani said that the analysis of the

source rock, after the drilling of two shallow wells in Agaie and Kudu in the State, revealed that there was a 30 per cent presence of oil and 70 per cent presence of gas deposits while in the Niger Delta the ratio was 25 per cent oil and 75 per cent gas. The geo-chemistry analysis of the Toxic Content (TOC) showed that the deposit of hydrocarbon in the basin was above 0.5 per cent, an indication that the deposit was of high quality. The committee said it would proceed to use Full Tensor Gradiometry technology to acquire more data on the area of the deposits.

American companies, Midland Refinery and Petro Chemical Company and Midland Petro-gas Resources Limited were said to be working on the fast-track project to develop the State’s oil and gas resources.

The Northern States are intending to come together to form an inland hydrocarbon basins exploration association in the North. An international workshop to encourage investors is planned.

RIG COUNT In spite of the stalled Petroleum Industry Bill (PIB) Nigeria’s rig count of 43 in August 2013 accounted for more than a third of Africa’s total rig count of 125. The Nigerian chapter of the International Association of Drilling Contractors revealed the details of the following rig count: International Oil Companies (IOCs): Shell: 9 rigs (3 swamp, 5 land and 1 deepwater)

Agip (local subsidiaries of ENI): 6 rigs (4 onshore and 2 deepwater)

ExxonMobil: 4 rigs (shallow offshore)

Nigerian indigenous companies: Seplat Conoil Pan Ocean

Energia Frontier Network

Total: 4 rigs (3 deepwater and 1 land) Newcross NPDC NDPR Addax: 2 rigs (offshore) but with access to 2 more rigs, one in maintenance and the other just arriving on location.

Drilling activity is expected to go up significantly once the elusive PIB is finally passed into law.

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PROFILE

PELICAN ATLANTIC ONE TO WATCH

The indigenous E&P space is becoming more and more interesting. What with the big IOC divestments and other less high profile acquisitions, local players are getting more and more of the action. So it is not surprising to find new companies being formed. What is different about this new entrant into the E&P space is the calibre of people that have come together to form this new entity. The promoters of PelicanAtlantic E&P are no ordinary people. They are leading technocrats and high achievers from the oil and gas sector each with significant and extensive experience in oil and gas operations.

Among the promoters are the directors of an oil services operator, rig contractors, an EPIC contractor, one of Nigeria’s foremost reservoir scientists, an exSchlumberger senior executive, a leader in drilling waste management, a former chief executive of an IOC, a leading corporate lawyer, a medical doctor, a drilling contractor, a production engineer, and former general manager of drilling and completions for an IOC, a rig equipment manufacturer and a production optimisation engineer.

The company’s vision is big, but given those behind it, they can be expected to dream big. They are looking to build PelicanAtlantic up to become a significant force in indigenous exploration and production in Nigeria and Africa. But they are not stopping there. PelicanAtlantic E&P has plans beyond the upstream business.

The company says also intends to be involved in integrated project management, marketing, and transportation of oil and gas resources in the Nigerian oil and gas theater of operations.

The powerhouse behind the company is Casimir Maduafokwa, who was responsible for assembling the impressive cast of technocrats. Maduafokwa is no newcomer to the industry. He left the banking world in 1989/90 to establish Cosmocorp Holdings – a company engaged in Strategic Investment and Assets Acquisition business. He became the President/Chief Executive Officer of Tecon Oil Services Limited in 1991 when Cosmocorp Holdings acquired the company.

His companies Tecon Oil Services and Niger Blossom are currently providing well decommissioning and restoration contract services, 1000HP land workover rig and integrated drilling tools rental services and other regular oil tools to SPDC, ExxonMobil, Total, NAOC/ENI, Chevron, etc., under NAPIMS-approved contracts.

The Tecon group also has operations in Congo Brazza (Eni Congo workover), and a contract pending with SONANGOL Angola for offshore well workover optimization.

For Maduafokwa, the key thing was bringing in seasoned professionals not just with upstream experience, but also in the service sector. “You need the executive capacity plus the planning and visioning and contracting capacity you gain from these,” he said. “We believe if you pull these together and of course if you add financing capacity then you’re able to do exactly what you want to do,” he added.

Director, Chima Ibeneche said there was a deliberate attempt to try to make sure that the membership reflected different capabilities. That, for him was the differentiating factor. He said: “What we consider differentiating here is the rounded capabilities we bring together and hopefully that should differentiate this company from every other one which is out there.”

The company is all set to go and is looking at some targeted plays but doesn’t want to say too much at the moment. They are certainly aiming high and do not see the IOC divestments as being out of reach. They do however want to go for low-hanging fruit - proven fields that will get them quickly to much needed cash flow. Given the financial and human resources they have behind them, it is only a matter of time.

For 2014, Pelican Atlantic is definitely going to be one to watch.

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CASIMIR MADUAFOKWA, DIRECTOR, PELICAN ATLANTIC

What we consider differentiating here is the rounded capabilities we bring together and hopefully that should differentiate this company from every other one which is out there

MIDSTREAM NEWS Private refineries, new and old, were very much in the news in 2013.

Nigeria, Africa’s top producer is unable to meet the refined product needs of its populous nation and relies on fuel imports to service about 70 per cent of local requirement. Port Harcourt is the largest of the three national refineries with a processing capacity of 210,000 barrels while Warri is next with a capacity of 125,000 and Kaduna can process 110,000 barrels. They have all been functioning at only a fraction of their capacity for many years.

Dangote signed EPC contract for new refinery As he celebrated his 55th birthday early in May, Africa’s richest man, Alhaji Aliko Dangote disclosed his intention to build a 400,000 bpd capacity refinery at the cost of $8 billion although a few months later, the cost was revised upwards to $9billion.

Barely a month after announcing his intention, the businessman confirmed that he had secured $4.25 billion in bank loans to finance the refinery project, which he hopes will be completed in 2016.

The project includes a refinery, which is expected to double Nigeria’s capacity, a petrochemical and a fertiliser plant. The refinery will produce petroleum products including diesel, kerosene and flurry. The petrochemical plant will produce polypropylene, while the fertiliser plant will produce urea and ammonia for use in agriculture. It will be located in Olokola Free Trade Zone OFTZ in Ondo State.

Association of Private Refineries Owners of Nigeria complained about government policies The Association of Private Refineries Owners of Nigeria (APRON) accused the Federal Government of frustrating the take-off of private refineries by introducing policies that are not favourable to the projects. The Chairman of the Association, Justice James Ilori, said that the government granted licenses to 18 private firms to build and operate refineries, which have now been revoked by the Department of Petroleum Resources (DPR) for their failure to meet the 18-month deadline to build the refineries.

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The construction contract went to Fortune 100 company, Honeywell International. It will be executed by its subsidiary, UOP, which was commissioned in India’s very first refinery in the state of Assam.

Engineers India (EIL) was awarded the Engineering, Procurement and Construction Management (EPCM) contract. They will also give Project Management Consultancy (PMC) services in a deal that is valued at $139 million, EIL’s largest single consultancy assignment.

On the difficult issue of subsidies, which has created the non-conducive climate that has kept others away from building refineries, Dangote said he does not intend to sell his products from the refinery at subsidised prices. It will be up to marketers purchasing the products at market rates, he said, to apply for and obtain their subsidies from the government.

MIDSTREAM NEWS Government announced refinery sell-off While Dangote was busy putting finishing touches to his plan for a new refinery, the government announced its decision to sell off state owned refineries before the end of the first quarter of 2014.

The Minister of Petroleum Resources, Diezani Alison-Madueke, who disclosed this said that because the government had not done a good job of running major infrastructure entities, it was now imperative to see major infrastructural entities such as refineries moving out of government hands into the private sector.

Last year, the 22-man National Refineries Special Task Force headed by a former Minister of Finance, Dr. Kalu Idika Kalu, found that the stateowned Nigerian refineries had not been efficiently and safely operated and maintained for more than 15 years.

The Task Force found that although Nigeria had the largest production capacity in Africa, at 445,000 barrels per day between the traditional refineries, the country had an average utilization of just 18%, in the year of the study, making them the worst performing of Africa’s 42 refineries.

The state refineries are located at Warri, Port Harcourt and Kaduna.

Other private refineries planned or in progress Up till now, private refinery projects have seemed very much an elusive dream but that is all about to change as private refineries, some on the drawing board, and others under construction, come onstream. Among those planned or in construction, apart from the Dangote refinery, are: n Orient Refinery and Petrochemical’s 55,000 barrels per day refinery. The refinery will be supplied by production from the two oil blocks, OPLs 915 and 916 owned by its sister company Orient Petroleum Resources. This is likely to be the first of the new refineries to be completed. n Qua Petroleum Refinery financed by Singaporean finance firm, Eton Group, to be built at the cost of $1.7 billion in Ibeno local government area of Akwa Ibom State. The project is for an initial 100,000 barrels per day, with further expansion to 200,000 barrels. There is a further plan to

Oil and gas workers unions opposed refinery sell-off Oil and gas workers were not very receptive to the idea of the sell off. The workers under the aegis of Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and the National Union of Petroleum and Natural Gas Workers (NUPENG) vowed to oppose the plan. The two trade unions, which together represent a large number of industry staff, said that the planned federal government sell-off plan is not in the national interest. They are now threatening a national strike if the sell-off is not cancelled.

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construct a 10 million ton capacity plant to process both LNG and other petrochemicals (methanol, urea and mixed alcohol). The refinery will produce LPG, petrol, kerosene, diesel, heavy fuel oil, lubricating oils, greases and bitumen. n The marginal field cluster group of Midwestern Oil and Gas, Pillar Oil, Platform Petroleum and Chorus Energy refinery with an initial capacity of between 10,000 and 15,000 barrels of crude oil per day. The idea of the refinery was in response to the “staggering level” of crude oil theft they had experienced. n WaltersmithPetroman Oil Ltd, the wholly indigenous operator of the Ibigwe marginal field, 5,000 barrels per day capacity minirefinery around the oil field located in Oil Mining Lease (OML) 16 in the eastern Niger Delta. The proposed refinery will provide alternative an alternative income stream. The minirefinery will produce diesel, jet fuel, kerosene and naptha.

MIDSTREAM NEWS

Warri refinery caught fire Towards the end of the year, Warri refinery, which is amongst those to be sold off by the government, caught fire, with the Movement for the Emancipation of the Niger Delta (MEND) claiming responsibility for starting the fire. Operations resumed at the refinery some six weeks later and full-scale production expected to resume as NOGintelligence went to press. Nigerian National Petroleum Corporation (NNPC) was at pains to dismiss the incident, which it says did not cause any injuries, as a minor one.

NNPC Group Executive Director elected President of ARA The African Refiners Association, ARA elected Nigerian National Petroleum Corporation (NNPC) Group Executive Director (GED) for Refining and Petrochemicals, Anthony Ogbuigwe as its new President. Before being appointed GED of NNPC, where he oversees the operation of the four refineries in Nigeria, Ogbuigwe was the Managing Director of the Port Harcourt Refining Company Limited.

ANTHONY OGBUIGWE, GROUP EXECUTIVE DIRECTOR, NNPC

Chevron withdrew from OKLNG Following mounting speculation, Chevron Nigeria Limited, confirmed its withdrawal from the Olokola Liquefied Natural Gas (OKLNG) project in mid July. The company said its decision was as a result of a review of its investment portfolio following continuous delays on a Final Investment Decision on the major project over the last 8 years. The company had a share of 22.74 per cent of the project. Chevron’s withdrawal was a blow to the project, which could now be in jeopardy as a result.

However, the government is putting a brave face on it saying that the Federal Government and NNPC remain committed to the OKLNG project.

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COMMENT

MERGERS & ACQUISITIONS At a recent industry event, Bex Nwawudu, a director at CBO Capital Partners spoke about equity trading in the oil and gas industry especially at the upstream end. Nigeria’s capital market, he said, is not witnessing a lot of activity in terms of investment unlike other developed countries.

He said: “Unlike Canada and Norway whose capital markets remain a source of financing to their own economies and that of other countries, in Nigeria’s capital market, despite the significance of oil to the economy, it has no representation.”

While the oil and gas market capitalisation accounts for 46 and 39 per cent respectively for Norway and Canada, he said it is disturbing that the market capitalisation for Nigeria is just 2 per cent As for mergers and acquisitions, he said the turnover of Canada and Norway is 21 and 4 per cent respectively while that of Nigeria is a dismal 1 per cent. He said this was unacceptable if comparison was made of the value of the reserves of the three countries.

He therefore called for more information and transparency in the industry as these are the drivers of the overseas market.

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BEX NWAWUDU, DIRECTOR, CBO CAPITAL

COMMENT

INVESTORS’

VIEWPOINT We asked two investors who are looking at the Nigerian oil and gas space what they thought about investing in the oil and gas industry in Nigeria. Here’s what they had to say:

Shola Adeniran, Director of CPS Energy

Faced with all of this, and decline production due to a lack of exploration activity the Government should really be reconsidering at the very least the performance bond policy, and looking at ways to make it more financially attractive as an investment destination for oil and gas.

Investing in upstream assets as a junior these days is hugely exciting. There is an old Chinese saying “May you live in interesting times,” and the times now, are extremely interesting. Iran looks to be reopening up and Iraqi opportunities are there. Meanwhile the US is rapidly moving up the global oil and gas production charts thanks to Shale.

Most of the companies in the e&p world risk space are western companies, however over the last decade a lot more domestic companies are appearing, mainly from Asia, with some appearing from Africa. The key difference in the e&p space as a junior is access to capital. It’s hard enough putting together a team, learning about geological profiles of regions, figuring out the local politics etc. You then have to put it all together in a format that will allow you to access international capital markets as local risk capital appetite is extremely low. That is the main reason for the success of Western companies in the upstream asset acquisition space, and the rise of the Asian juniors (thanks to state sponsored capitalism).

African juniors have multiple challenges on their hands, and the competitive

Yet there is an attitude of “we have the oil, they will come”. They will come, but only if it continues to make financial sense. And bearing in mind technological advancements in fracking, enhanced oil recovery and seismic acquisition in America in particular which is now spreading to countries with friendlier property rights and tax regimes, as well as lower levels of disruption events, who are hungry for investment, the Nigerian government really needs to consider their oil strategy going forward. threats from shale oil and gas, and the future coming volatility in oil pricing is one that’s not on the horizon of most African companies, or even their governments.

Take for example Nigeria, which is probably the most attractive geological location for hydrocarbons in the world in my mind.

You have the local politics, the Niger Delta militancy, lack of infrastructure, Boko Haram in the North, as well as government that has an unhelpful performance bond policy.

We have for instance been looking at other African countries whose net taxation and royalties are in the low twenties to mid 30s, who allow greater cost recovery, over a longer period, and less barriers to entry.

We’re really hoping the Nigerian government do bring some stability, and make it a more investor friendly country before “things fall apart.”

David Robinson, Business Development Director for Horizon Petroleum PLC The Nigerian upstream oil & gas sector continues to have tremendous potential – the proven and prospective reserves are significant, and the infrastructure is good and improving.

A discouraging aspect, however, of trying to invest in the upstream sector in Nigeria is that the government has been too lackadaisical, allowing license holders to continue to hold their licenses even though they have missed numerous deadlines; this keeps the license out of the system, rather than making it available to a company that can truly do something with it.

Also discouraging is that many license holders, and most of whom are indigenous, are completely unrealistic in their expectations of value, and so acquisitions or farm-ins by outside parties cannot get completed, which further leads to the license not being explored and developed.

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DOWNSTREAM NEWS NNPC invited applications for crude oil term contracts

In May, the Nigerian National Petroleum Corporation (NNPC) announced the beginning of the application process for its annual round of term contracts for lifting Nigerian crude oil for the period starting 1st August 2013 to 31st July 2014.

The term contracts are generally intended to be awarded to refinery owners or retail outlets and large volume traders. Foreign applicants have to show details of their facilities, markets and volume of crude processed over the previous 3 years or, in the case of traders, evidence of their global networks, activities and volume of crude oil handled over the previous 3 years.

Last year, to the surprise of many industry observers, and in spite of the $600 million annual turnover requirement, Nigerian firms including Oando, Masters and Sahara, won a large share of the contracts. Almost half of the $60 billion worth of oil contracts went to Nigerian companies.

Nigeria normally allocates about 75% of its daily production for sale through term contracts that last for a year. About 580 million barrels of oil a day will be sold through term contracts while the rest of its oil is sold through its production sharing partners, the large international oil companies.

DPR sealed 23 Petrol Stations in Abuja, Kogi The Department of Petroleum Resources (DPR) mounted a crackdown in Kogi State on petrol stations engaged in product diversion, shutting down 23 petrol stations in the process.

PEFMB commenced e-tracking of products distribution In a bid to combat the high incidence of fraud in the movement of petroleum products around the country, the Petroleum Equalization Fund (Management) Board (PEFMB) commenced electronic monitoring of product distribution from its depots to other areas in the country.

The PEFMB’s role is to equalise the transportation differentials in product marketing in the country by ensuring that marketing companies comply with the laws regarding the management of the transportation equalisation process, and to The fund has provided a way to equalise the price differential in transportation costs incurred by marketers moving products from the coastal parts to other areas of the country. Without the Fund, products would be more expensive the further away from the depot the area is. This would mean that the north would end up paying much more for petrol than the south.

The system has been prone to abuse and the electronic monitoring system was brought in to make it easier to monitor the distribution of products.

US imports of Nigerian crude continued to decline Imports of Nigerian crude from the US continued the sharp decline that began in 2012.

Drilling in shale-rock formations has led to significant increases in US crude production.

As a result of the rise in US output, Nigeria had to look to other markets and Asian refineries rushed to fill the vacuum. India’s increasing interest in Nigerian crude was confirmed by the revelation that State-owned Indian refinery, Mangalore Petrochemical and Refinery Ltd (MRPL) with a capacity for 300,000 barrels per day, had bought its first cargo of Nigerian crude. The refinery bought a cargo of 650,000 barrels of Okoro crude from BP for a June lifting.

South Africa was another beneficiary of the declining US interest in Nigerian crude particularly after the Iranian oil sanctions began to bite.

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DOWNSTREAM NEWS NIMASA began a protracted dispute with NLNG The long drawn out battle between Nigeria Liquefied Natural Gas company (NLNG) and Nigerian Maritime Administration and Safety Agency (NNIMASA) over a controversial claim for payment of fees by NIMASA began earlier in the year.

The dispute arose when NIMASA sought to impose some levies on NLNG, including a Sea Protection Levy, 3% freight levies on cargo exports and a 2% Cabotage levy.

NLNG maintained that it was expressly exempted from payment of such levies by the NLNG Act. NIMASA then took matters into its own hands by mounting a blockade on early in May, preventing vessels from leaving or entering the Bonny Channel.

As the dispute took a turn for the worse, NLNG vessels were detained at the Bonny Channel by operatives of the maritime agency. One of those vessels was Gaz Providence laden with LPG or cooking gas for domestic consumption, which triggered an LPG gas crisis. During this period, prices of LPG escalated as the 12.5kg cylinder of gas, which was sold at N2, 800 was being sold at between N3, 500 and N4, 500.

The Nigeria Liquefied Petroleum Gas Association (NLPGA), the umbrella body of LPG suppliers to the domestic market in the country said the blockade had brought supplies down by 90%. They urged the government to intervene to prevent a national disaster.

NLNG is the major producer of LPG for domestic consumption and has been supplying the local market for the last six years after committing 150,000MT per annum of its production to the domestic market.

As a result of the dispute, NLNG had to declare force majeure on its supplies of domestic LPG After some long weeks of negotiation and deliberation, NLNG paid the claim and NIMASA lifted the blockade.

Despite the payment of the outstanding levies NLNG said it would continue its substantive case in court for a judicial interpretation of the conflict between the two Acts.

NLNG increased domestic LPG supply During the year, NLNG increased the quantity of liquefied petroleum gas (LPG), popularly known as cooking gas that it has reserved for the domestic market.

In a bid to encourage a switch by the general population to LPG, the company increased the supply from 150,000 metric tonnes per annum (MTPA) to 250,000 metric tonnes per annum (MTPA) The General Manager, External Relations, of NLNG, Kudo Eresia-Eke, said the decision was taken after a survey conducted by NLNG discovered that domestic consumption of LPG had exceeded 150,000 MTPA. This represents a 43 per cent increase in demand from 2008 when NLNG began to supply LPG for local consumption.

West African Gas Pipeline repairs was completed Repairs to the West African Gas Pipeline (WAGP) were completed in mid July. The vital West African pipeline had been shut since the 28th of August 2012 when it was damaged after incurring extensive damage in the Lome area following a collision between a Togolese naval vessel and another craft. The pipeline project, a joint venture between public and private sector companies from Nigeria, Benin, Togo and Ghana was set up to transport natural gas from Nigeria to the partner countries who make up the customers. An extension of the pipeline to the Jubilee field in Ghana will see Ghana soon adding to Nigerian supply to the company’s customers.

The increase in demand is good news for the Federal Government, which has been trying to encourage the switch to the cleaner fuel from firewood and other environmentally harmful sources.

The figure is however abysmal in comparison with the population of the country, the largest producer of LPG in West Africa.

Oando revealed plans for new state-of-theart mega stations

NLNG, which supplies about 70 per cent of Nigeria’s LPG for local consumption, is a joint venture between the Nigerian National Petroleum Corporation (49 per cent), Shell (25.6 per cent), Total LNG Nigeria Limited (15 per cent) and ENI International (10.4 per cent). Nigeria’s gas reserves are estimated at around 187 trillion cubic feet.

Oando revealed that its marketing subsidiary, Oando Marketing, was planning to build 50 new mega stations over the next 5 years in major cities across the country. The company said this move would enable it to consolidate its position as a downstream market leader.

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DOWNSTREAM NEWS OPEC, EIA blamed Nigeria for decline in crude oil supply Crude oil production from OPEC fell in March to its lowest level in the last two years.

Both Libya and Nigeria saw their output cut by 500,000 barrels according to an OPEC report.

The decrease, the report noted, was due to oil theft in the Niger Delta, which resulted in several force majeure declarations by oil companies operating in the country.

Ibori accused of having “substantial shares” in Oando Former Gorvernor, James Ibori who is currently in prison in the UK after being convicted of money laundering was accused of owning “substantial” shares in Oando. Oando denied the accusations and published its share holder list to support its position.

Demand for OPEC oil OPEC forecasts continued to predict a fall in demand for OPEC crude to 29.61 million barrels per day (bpd) in 2014, down 320,000 bpd from 2013, due to rising non-OPEC supply.

The OPEC report said that worldwide oil consumption would rise this year by 800,000 bpd, or 0.9 per cent, revised down from 840,000.

The report disclosed that demand for OPEC’s own crude is forecast to drop to 29.75 million barrels a day this year, compared with 30.16 million in 2012.

The United States based EIA, which provides independent energy information also downgraded its

worldwide consumption estimate by 50,000 bpd to 960,000 bpd.

Meanwhile, the International Energy Agency (IEA) predicted that 2013 would be the third consecutive year of weak growth in demand, adding only 795,000 barrels per day (bpd), according to the April Oil Market Report (OMR) published on Thursday.

IPMAN threatened to shut petrol stations selling kerosene above N50 per litre The Independent Petroleum Marketers’ Association of Nigeria (IPMAN) gave a stern warning to its members that fuel stations found to be selling kerosene above N50 per litre would be shut.

IPMAN was collaborating with the Nigerian National Petroleum Corporation (NNPC) in this initiative to ensure that Nigerians did not face unnecessary hardship in obtaining the product.

OPEC left production output uncut Ministers from the Organisation of Petroleum Exporting Countries (OPEC) met in Vienna on the 4th of December at their quarterly gathering, having agreed once again to leave their official production target at 30 million barrels per day (bpd) until at least June next year. The Ministers from 12 member nations of the OPEC, which together supply 40 per cent of the world’s oil agreed that leaving production uncut will keep prices high, something they are keen to maintain.

28

Crude oil output from OPEC had dropped to 30 million bpd its lowest in two and half years. Geopolitical tensions have led to a drop in production in Libya, Iran and Iraq. Nigeria is also contributing to the production outage as oil theft continues to spiral out of control.

At the meeting in December, the tenure of Libyan representative, Abdalla El-Badri as Secretary-General was extended by one year, while Mr Daisani Alison-

Madueke was appointed alternate president.

Introduced on 16 June 2005, the OPEC basket is currently made up of the following: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).

GAS

GAS:

BOOM OR BUST

In this interview, Gbite Adeniji, energy sector specialist and a Partner at Advisory Legal Consultants, examines the role of gas in Nigeria’s economic survival.

Adeniji begins by pointing out the part gas has played in the policies of past presidents. Gas reforms, he says, have been corner stone policies of the last three presidents.

Obasanjo initiated gas and power reforms. President Yar’Adua’s 7-point agenda had an energy component - he approved the Domestic Gas Supply Obligations.

President Jonathan was not left out as he made the power sector reform his own cornerstone policy.

As such, the gas revolution became part and parcel of his cornerstone policy.

risks to the process. Current gas demand is approximately 1 bcf per day but we don’t even have half of that supply available, which is shocking in a country with 187 tcf of resources.

The power sector agenda kicked off with privatization but the availability of gas poses one of the biggest

Gas is needed for the development of industries, the agronomy and

Continues on page 30

29

GAS

Continued from page 29 crucially, electricity. These in turn lead to jobs and wealth creation. They are the real drivers for significant economic growth. So without gas, there will be no economic growth. Given the crucial role that gas has to play in the economic development of the country, Adeniji feels the situation is serious enough to warrant a declaration of a State of Emergency in relation to gas.

He predicts that the policy choices or failures with gas will determine the economic direction of Nigeria.

The problem, says Adeniji is not with the gas master plan which he believes is very sound but is not sufficiently supported by the legislative and regulatory framework that will make that work complete. He stresses the sound thinking behind the gas master plan. By now, he says, there should have been a published gas policy, a clear legal framework to support the country’s gas aspirations, including a specific gas sector regulator. These are all well overdue, so while the master plan is moving, the policy and the legislative and regulatory work needed to support the master plan has been slowed down by the last two governments. “That just shows poor thinking,” says Adeniji.

Adeniji suggests that the only way forward is to move forward very quickly with the enactment of legislation that will support the gas master plan.

Given the inadequate treatment of gas in the PIB, he says there is a need to urgently de-couple gas from the Petroleum Industry Bill (PIB) and enact a gas-specific legislation.

30

The situation is serious enough to warrant a declaration of a state of emergency in relation to gas Adeniji is also concerned about gas infrastructure. The gas infrastructure projects that have been done in the last 5 years were done by the Nigerian National Petroleum Corporation (NNPC). But, he points out, when you look at the infrastructure blueprint within the gas master plan, it will need so many billions of dollars of investment, which is well beyond the capacity of government. The fact, he says, is that if you structure the sector properly, the private sector will participate in it. He stresses that there has to be a favourable fiscal and regulatory regime to encourage private sector investors to get involved, whether alone or in association with NNPC. But, he adds, it is not right for government to do it alone. Those days are over.

The reason, he says, is that it is the market that drives infrastructure development and currently, the market is very strong for gas. With non-aggregation gas currently fetching $2.50 in the market, this means that demand for gas is effective.

Adeniji also comments on the state of liquefied natural gas (LNG) production.

He does not find the situation very encouraging. In spite of all the millions of dollars spent on OKLNG the government of the day literally put a stop to it and said, let’s develop Brass LNG project.

He noted that it takes a long time to realize such a project given the planning that has to be done from the upstream through the contracting, commercial negotiations and regulatory

GAS

GBITE ADENIJI

processes such as EIAs, local content and customs procedures.

Adeniji turns his attention to the longawaited Train 7 of the NLNG company. Why, he asks, should Train 7 of NLNG be on ice?

He insists that there should be an enquiry on that issue; after all it is a mature LNG project. NLNG company, he points out, is one of the top LNG companies in the entire world which needs that extra train to sustain its position in a fast changing global LNG market. But it is on ice because, the government says, we must do a Brass LNG project.

Adeniji wonders how the entire LNG business has been so messed up that that there is a strong chance that among three projects we might not get one done. He says we are losing our share of the market and even our regional opportunities are slipping. Give it another year, he says, and Ghana will start importing LNG because we’re not giving them gas into the West African Pipeline Company (WAPCO). “So the Ghanaian government has gone to very advanced stages of contracting LNG imports and they’re going to say to us, sorry we no longer need your gas,” he adds.

Finally Adeniji turns his thoughts to Liquefied Petroleum Gas (LPG) popularly known as cooking gas. Nigeria is trying to turn its huge population

away from fossil fuels to the cleaner LPG but the penetration has been rather slow.

However, he sees a huge latent demand for LPG in the country, which due to under-investment suffered from lack of supply. However, following government intervention compelling NLNG to put aside part of its production for the domestic market plus new gas processing projects under way, the supply gap is now closing.

“More investment in the LPG sector will definitely happen and that’s where the private sector comes in,” he adds.

On a general note, Adeniji says, the transfer of power generation assets to the private sector and the development of IPPs plus the desire of Nigerian entrepreneurs to develop gas-based projects will put unprecedented pressure on the Government for gas supply.

He concludes by saying: “We must also not forget the significant commitments that Nigerian banks have already made to some of the power Genco transactions.

So, whether Government likes it or not, accelerated gas development across the upstream and midstream and supply must now happen in response to pressure downstream. Its an emergency and also a perfect storm. It could lead to a boom if the proper policy decisions are taken; or bust if not.”

31

MARGINAL FIELDS

GUIDE TO THE 2013

MARGINAL FIELDS BID ROUND GEORGE OSAHON, DPR DIRECTOR

The long awaited marginal fields licensing round finally kicked off on the 28th of December 2013. At the time of going to press the list of 31 marginal fields and the application forms had still not been released but it is likely that they will be drawn from the fields list below.

NOGintelligence has prepared a Briefing Note for the bid round which can be downloaded from our website www.NOGintelligence.com

OPERATOR: Shell Petroleum Dev. Co of Nigeria Ltd (SPDC): Field Name

OML

Location

Igbomotoru North 1 Egbolom 1 Benin Estuary 1 Baniele 1 Osuopele Southwest 1 Emohua 1 Obuzo 1 Ofemini 2 Korolei 2 Igbomotoru 1 Uzuaku 1 Okiori 1

33 23 43 11 46 22

Onshore Onshore Offshore Onshore Onshore Onshore Onshore Onshore Onshore Onshore Onshore Onshore

11 46 33 11 29

Oil Recoverable MMbbl 6.5 52.2 10.4 8 3.8 4.4 4.6 4.5 8.1 6.5 8 5.1

Gas Recoverable MMscf 94500 210000 67000 75000 75000 65000 50000 50000 7000 13500 4000 3000

Cond Recoverable MMbbl 3.5 1.3

Oil Recoverable MMbbl 18 25 20 15 20

Gas Recoverable MMscf 100000 250000 250000 220000 140000

Cond Recoverable MMbbl

Total Recoverable MMboe 34.67 66.67 61.67 51.67 43.33

Oil Recoverable MMbbl 5.5 3.2 15.3 21 115 6 3 2.7

Gas Recoverable MMscf 177500 157000 73000 6500 4500 8000 6000 5500

Cond Recoverable MMbbl

Total Recoverable MMboe 35.08 30.37 27.47 22.08 115.75 7.33 4 3.62

Gas Recoverable MMscf 74000 2000 20000

Cond Recoverable MMbbl

Gas Recoverable MMscf 5000 45000 15000 0.01 3000

Cond Recoverable MMbbl

1.2 1.3

0.1

Total Recoverable MMboe 25.75 88.5 21.57 20.5 17.5 16.53 12.93 12.83 9.27 8.85 8.67 5.6

OPERATOR: Mobil Producing Nigeria Unlimited: Field Name

OML

Location

Udara 1 Udibe 1 Ekpat 1 Amaniba 1 Ibom 1

70 70 57 67 70

Offshore Offshore Offshore Offshore Offshore

OPERATOR: Chevron Nigeria Ltd (CNL): Field Name

OML

Location

Iheoma 2 Olure 1 Kudo 1B Oloye Aluoma 1 Meta 1A Bime 1 Shango 1

53 49 89 95 53 95 49 95

Onshore Onshore Offshore Offshore Onshore Offshore Onshore Offshore

1

OPERATOR: Nigerian Agip Oil Co Ltd (NAOC): Field Name

OML

Location

Azuzuama Odimodi 1 Ajaketon 1

63 62 63

Onshore Onshore Onshore

Oil Recoverable MMbbl 20 5

0.3

Total Recoverable MMboe 32.33 5.33 3.63

OPERATOR: Total E&P Nigeria Ltd (TEPNG): Field Name

OML

Location

Akamba 1 Ikong 1B Usoro 1 Ibiom 1 Asasa West 1

102 70/100 106 100 102

Offshore Offshore Offshore Offshore Offshore

32

Oil Recoverable MMbbl 15 15 20 10 5

Total Recoverable MMboe 15.83 22.5 22.5 10 5.5

MAP

NIGER DELTA

34

MAP

OIL FIELDS

Source: IHS

35

MARGINAL FIELDS Scorecard of the First Marginal Field Round • Ten years after the award of the first round of marginal fields, 8 of the 24 fields awarded are producing.

• Over 40 new wells have been drilled by the awardees representing a four-fold increase.

• Reserves have increased by just over 100 million barrels of new resource volumes to 326 million barrels. This represents a three-fold increase in the nation’s resources.

Bid Information Package • Guidelines for 2013 Marginal Fields Award Exercise • Requirements for Pre-Qualification, Technical and Commercial Bidding • Application and Prequalification forms • Marginal Field Location Map of fields on offer • Conditions for Online Data Room and Physical Data Room Visits

Bidding process will be in 4 stages: • Pre-qualification • Technical & Commercial Tender • Oral Presentation • Winners Announced

• Leasing Rules

Applicable Fees • Data Prying fee: $3,000 per field

• Processing fee: N300,000 per field (foreign: £1,500 or $3,200 per field)

• Data Leasing fee: $15,000 per field

• Fees for applicants from outside Nigeria:

• Data Management Services fee: $2,0000 per field (optional)

SCHEDULE OF ACTIVITIES

• Application fee: N200,000 per field (foreign: £1,000 or $1,600 per field)

36

Activity

Duration

Dates

Public announcement and Promotion

1 day

28 November

Road Show

2 weeks

4 - 12 December

Submission of Applications and Prequalification

3 weeks

16 December to 3 January

Evaluation of submitted Prequalification Applications

2 weeks

6 - 17 January

Notification of Pre-Qualified Companies by Email

1 week

17 - 24 January

Online Data Room (ODR)

1 week

24 - 31 January

Physical Data Room (Data Prying)

3 weeks

31 January – 21 February

Data Leasing

2 weeks

21 Feb – 07 March

Submission of Applications

3 weeks

21 Feb – 07 March

Final Bid Evaluation

3 weeks

7 March – 28 March

Presentation by Qualified Bidders

2 weeks

28 March – 11 April

Submission of recommendation by Committee

1 day

11 April

PRODUCING MARGINAL FIELDS FROM THE FIRST MARGINAL FIELDS LICENSING ROUND

MARGINAL FIELDS BIDDING PROCESS FLOW

15,000

13,000

Marginal field round announced; DPR goes on road show to enlighten the public on the application process

q

Procure application form from DPR and return with evidence of payment of application and processing fees

12,000

q

Collation of submission by applicants

q q

9,000

Prequalified applicants are notified

q

Prequalified applicants pay fees to gain access to online and physical data rooms

q

6,000

2,100

2,200

3,000

q

2,700

3,500

Applicants visit online data room and select fields of interest (limit of 3 fields per company)

3,700

Total Output (BOEPD)

Evaluation of submissions and pre-qualifications of applicants by DPR

Applicants visit physical data room and lease data on fields of interest (all companies must lease data)

q

Applicants evaluate leased data and submit Technical and Commercial bids

q

Technical Committee evaluates bids and shortlists 5 candidates per field

0

q

1

2

3

4

5

6

q

Rank Indigenous Company

Umusadege

WalterSmith

Ibigwe

Energia/Oando

Ebendo

Pillar Oil

Umuseti

Brittania U

Ajapa

7 Frontier Oil

NOTES

Field

Midwestern/Suntrust/(Mart)

Platform Petroleum

Each company can bid for a maximum of 3 fields.

No individual is allowed to hold more than 25% equity in any applicant company.

Selected candidates (not more than 3 per field) make presentation to Technical Committee

Egbeoma 35MMscf/d (Gas)

Report of the Technical Committee sent to Honourable Minister for approval

q

Government approval of final list of candidates

q

Successful applicant are informed and announcement of result made

q

Successful companies negotiate farmout agreement with lease-holders

q

New marginal field operators briefed about commitments to operation and the environment

Applicants must be Nigerian companies with: • At least 51% of the beneficiary interest owned by Nigerian citizens • MEMARTS clearly indicating oil & gas exploration & production as one of the major areas of operation • Demonstration of technical ability with regards to the evaluation and development of the assets • Access to funding or evident relationship with a technical partner with adequate capacity and financial resources to operate the field

37

ok ce B o p la ur ay yo tod

FINANCIAL

COMPANY PERFORMANCE

While the Nigerian Stock Exchange continues to try to attract Nigerian oil companies to list, many have fared well in the past 18 months on the floor of the London Stock Exchange (LSE).

Notable Nigerian exploration and production companies that have listed on the LSE include Afren with a market value of $2.263bn, Eland Oil & Gas with $257m, Heritage Oil with $587m, Mart Resources with $524m and MP Nigeria with $508m. In total, Nigerian oil exploration and production companies trading on the London Stock Exchange and its growth market, AIM, are now worth $4.2bn (N649bn).

Although London Stock Exchange listed Afren’s halfyear profits were down 16 per cent from $311 million to $260 million revenue rose by a slight 2 per cent from $778 million to $797 million. The company is likely to end the year much better after Okoro field discovery in Oil Prospecting Licence (OPL 310) offshore, at the end of the year sent its shares soaring 9 per cent, reaching 161p on the 19th of November.

Analysts have described the giant discovery as possibly one of the most important finds in recent West African history.

U.S.-based exploration and production company, Camac Energy Inc, whose Chairman and Chief Executive Officer is Nigerian-born business man, Dr. Kase Lawal, announced a net loss of $3.8 million, or $(0.02) per diluted share for the quarter ended March 31, 2013. For the same period in 2012, Camac Energy reported a net loss of $1.3 million, or $(0.01) per diluted share. The company says net loss for the current period increased primarily due to lower operating revenues.

The United States oil giant, reported earnings of $7.2 billion for the fourth quarter of 2012 compared with $5.1 billion in the 2011 fourth quarter.

Production ramp-ups in Nigeria helped the company in its efforts to deliver another strong year.

40

The challenges in the downstream operating environment seem to have left Conoil Plc unscathed as the company announced that its profits have risen to N1.6 billion from N450.9 million in 2012, representing an increase of 255 per cent. The company said its turnover had risen from N76.2 billion to N79.6 billion in the corresponding half-year period.

London Stock Exchange’s Alternative Investment Market (AIM) listed Eland Oil & Gas Plc. released its audited results for the year ended 31 December 2012 revealing that the Group had reduced its loss position from $17.7 million (2011) to $14.2 million (2012). However, loss before tax and for the year from continuing operations narrowed to $14.19 million from the prior year’s $17.69 million. Eland listed on AIM in 2012 after concluding a capital raise of £118 million.

Forte Oil Plc (formerly African Petroleum Plc) announced a whopping 63 per cent rise in profits for the half year to June 2013. Profits after tax rose to N1.39 billion from N855 billion in the same period in 2012. Revenue for the company rose to N59.9 billion from N49.7 billion in 2012 representing an increase of 21 per cent. Gross profit dropped 14 per

cent from N5.73 billion to N6.65 billion.

Administrative expenses were down.

By the end of the year, Forte Oil Plc was outperforming other stocks on the market as its shares continue to rise. The indigenous oil marketer recorded a growth of 1,395 per cent year-to-date (mid-November) growth on the Nigerian Stock Exchange (NSE) against an All-Share index year to date growth of 37.39 per cent. At the beginning of the year the company’s share price was N7.73 naira and by Tuesday 12th November it had risen to N115.64.

The company’s soaring fortunes have been aided by a 258 per cent increase in profits before tax for Q1-3, which rose to N3.2 billion from N900 million in the corresponding period of 2012. Profits after tax rose 317 per cent to N2.7 billion from N700 million in the corresponding period last year.

FINANCIAL

Early in the year, Heritage Oil found the funding for the development of Oil Mining Lease (OML 30) onshore in the Niger Delta by disposing of its remaining 49% interest in the Miran Block in the Kurdistan Region of Iraq, bringing the total disposal proceeds generated

by Heritage from asset sales to over $2 billion.

By November, the company was reporting that its revenues had been transformed with production up 60 per cent compared to the first half of the year. It is clear that the decision to plough its receipts from the Kurdistan divestment into its Nigerian assets proved to be a good one. The company’s investment in Nigeria in Oil Mining Lease (OML 30) through Shoreline Natural Resources is key to the dramatic improvement in the company’s fortunes. The company generated total revenues of $49.1 million in the third quarter 2013 ($2.1 million, Q3 2012), of which $46.4 million was from the interest in Shoreline Natural Resources Limited.

Heritage is dually listed on the Main Market of the London Stock Exchange (it is also on the FTSE 250 Index) and the Toronto Stock Exchange.

Further funding came from a five year $500 million senior secured revolving facility for its Nigerian operations. The reserves based lending facility acquired through its special purpose vehicle, Shoreline Natural Resources Limited, formed between Heritage and local partner, Shoreline Power Company Limited can be increased up to $600 million based.

Another beneficiary of the giant OPL 310 find is Lekoil, which farmed into the block in May this year. The company, which is listed on the Alternative Investment Market (AIM) saw its shares rise 16.16 % to 57.50p on the 19th of May. Lekoil was admitted to AIM earlier this year raising approximately $50 million, which gave it a market capitalisation of $112.1 million at admission.

The company’s 4.5 billion shares rights issue to raise funds earlier in the year was said to have been oversubscribed by 14 per cent.

Oando shares took a knock earlier in the year following allegations that former Governor James Ibori who is currently serving a prison term in the UK had significant share in the company. Oando denied this strenuously and rode out the storm. Shares prices later

bounced back towards the end of the year after the company announced that it had won a 60-day extension for the $1.79 billion acquisition of ConocoPhillips assets.

Oando’s Q2 profits after tax slid to N4.3 billion from N6.6 billion last year. Turnover also declined from N350.6 billion in 2012 to N280.32 billion.

The company, which is heavily leveraged was able to reduce its total debt from N236 billion in 2012 to N289 billion.

The company’s partners in Oil Mining Lease (OML 141) were pleased that the company has succeeded in raising $249.7 million in an initial public offering. It sold 16.7 million shares for $14.86, a little less than the price of $19.81 to $22.78 dollars it had been hoping for. Oryx is understood to have reduced the size of the sale after originally announcing its intention to raise $346 in the IPO.

41

FINANCIAL

MADE IN AFRICA FUND Sovereign Wealth Fund

Oil tycoon, Kola Aluko and fashion designer, Ozwald Boateng launched a $500 million fund for African infrastructure investment in October. The launch of the Made in Africa Fund, which took place at Nasdaq in New York is co-founded by the African Development Bank (AfDB), which they will co-manage.

Ofdb will invest $50 million while Aluko will invest $50 million. The ambitious founders had already raised a record $250 million by the date of the launch.

p $2bn

External reserves

Nigeria’s external reserves rose to $49 billion in March 2013, from $47 billion in February.

In June, Nigeria’s $1 billion Sovereign Wealth Fund (SWF) prepared to begin investing. The Nigerian Sovereign Investment Authority (NSIA) said it would allocate 32.5 per cent of the fund to infrastructure investment, and the same for a future generations savings pot. Two per cent, it said would be used to protect against commodity price shocks, while 15 per cent would remain unallocated.

NNPC and bond market funding The Nigerian National Petroleum Corporation (NNPC) brainstormed with its Joint Venture partner, Mobil Producing Nigeria Limited (MPN) and announced it was considering going into the bond market as an alternative source of funding. NNPC said that for the years 2013 to 2015 they would continue to use the external financing option but by the year 2016 they would go into the bond market for funding.

Oil benchmark The oil benchmark continued to provoke heated debate between both houses of parliament and their last meeting on the issue ended in deadlock. While the Senate insisted on $76.5 per barrel of crude oil, the House of Representatives held on to its earlier stand of $79 per barrel. The inability of the two chambers to shift ground could stall President Jonathan’s attempt to present the budget this year.

43

FINANCIAL

OIL REVENUE National oil revenues continued to decline as Q2 reports revealed that gross oil receipts of N1,813.77 billion, which constituted 76.5 per cent of total revenue declined by N35.7 billion representing 1.9 per cent below the preceding quarter except domestic crude oil and gas sales.

As a percentage of projected second quarter 2013 nominal GDP, oil revenue was 25.6 per cent.

Crude oil and natural gas production decreased by 5.9 per cent to 1.93 mbd (175.63 million barrels) compared with 2.05 mbd (184.5 million barrels) in the previous quarter.

Average crude oil prices, including the price of Nigeria’s reference crude, Bonny Light (37o API) also fell in the international crude oil market in Q2 2013. Bonny Light fell by 8.8 per cent from the level in the preceding quarter.

The average price of other competing crudes, namely UK Brent and Forcados also declined to $103.14 and $106.46 per barrel respectively from $113.68 and $116.89 per barrel in the preceding quarter, while the West Texas Intermediate (WTI) at $93.97 recorded a slight increase of 3.2 per cent.

Oil Contribution

Crude oil exports also recorded a decrease in Q2 2013. Exports achieved an estimated 1.48 mbd (134.68 million barrels) compared with 1.60 mbd (144.0 million barrels) in the previous quarter, representing a decline of 7.5 per cent.

Similarly, the average price of OPEC’s basket of 11 crude streams, at $100.90 per barrel declined by 7.8 per cent and 4.9 per cent, compared with the average of US109.48 and $106.08 per barrel in the preceding and corresponding quarter of 2012 respectively.

CBN attributed this development to the “incessant pipeline vandalisation resulting from crude oil theft in the Niger Delta.”

The fall in prices was attributed to the on-going Eurozone economic turmoil and high record levels of the US oil inventories.

to GDP

The GDP contribution of the oil and gas industry dropped by 6.65 per cent as the contribution fell from 15.8 per cent in the first quarter of 2012 to 14.75 per cent in Q1 of 2013 according to the data released by the National Bureau of Statistics.

CRUDE OIL PRICES ON THE INTERNATIONAL OIL MARKET

150

120

90

60

30

0

Q2-11

Q3-11

Bonny Light

44

Q4-11

Q1-12

OPEC Basket

Q2-12

Q3-12

Q4-12

Q1-13

Q2-13

REGULATORY NEWS NNPC indebtedness rose to N142.7 billion

Niger Delta Amnesty deal continued to hold

The Niger Delta Amnesty was threatened a number of times and though there have been small-scale attacks the amnesty seems to be holding and the year ended without major incident. The Federal Government’s Amnesty Programme restored peace to the troubled region in 2009.

In March it was revealed by the House of Representatives Committee on Finance that the Nigerian National Petroleum Corporation (NNPC) indebtedness to the Federal Government had risen to the tune N142.7 billion.

At one time the ex-militants threatened to return to the creeks unless the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke and Mr. Godsday Orubebe, Nigeria’s Minister Niger Delta Affairs were sacked.

Chairman of the Committee, Abdulmumin Jibrin, said the Corporation realised N1.9 trillion in 2011 and by July of 2012 it had made N259billion as its Internally Generated Revenue. But between 2009 and 2012, he said, the Corporation remitted nothing out of the N6 trillion it generated.

A delay early in the year in the payment of stipends and allowances to the delegates also threatened to set them off but the government managed to get the situation under control.

The Corporation denied the allegations saying that after arranging a visit to the Corporation for a reconciliation of the accounts the members of the Committee failed to show up.

Petroleum Industry Bill stalled The big item on the regulatory agenda as the year began was the Petroleum Industry Bill (PIB). Numerous workshops were held to help the public gain an understanding of the cumbersome piece of legislation intended to harmonise and consolidate about 16 existing laws governing the oil and gas industry, some of which go as far back as 40 years. Almost every week there was one organization (governmental and non-governmental) or association or another with a seminar on the PIB. The International Oil Companies (IOCs) mounted a strong campaign under the auspices of the Oil Producers Trading Section of the Nigerian Chamber of Commerce. They complained about a lot of the provisions but were particularly concerned about the fiscal terms. They are threatening to move their capital elsewhere if the terms are not revised. They have said that $66billion investment in the deepwater is in jeopardy if the bill is passed into law without changing the fiscal provisions to

46

ANDREW YAKUBU, GGM, NNPC

NNPC $1.5 billion loan deal criticised The plan by the Nigerian National Petroleum Corporation (NNPC) for a $1.5 billion syndicated loan to help it pay debts to international fuel traders generated controversy in one of the first of many situations that pitted the National Assembly against the executive arm of the Federal Government.

DIEZANI ALISON-MADUEKE, MINISTER OF PETROLEUM RESOURCES

make them more favourable.

Others are concerned about the wide powers given to any sitting Minister of Petroleum Resources, the President’s power to make discretionary awards of oil blocks, the unbundling of the Nigerian National Petroleum Corporation (NNPC) and the Petroleum Host Community Fund, which gives host communities a 10% share of the oil producing companies’ net profit.

The two houses have held their debates, constituted their committees, held their public consultations but still, the will to pass the vital legislation into law remains lacking and so the PIB is now stalled, probably until the next government. At that stage, it may be a return to the drawing board.

The loan, provided by several Nigerian and international banks and brokered by Standard Chartered Bank Plc was to be paid back over five-and-a-half years. NNPC put up 15,000 barrels per day of its oil production as collateral. Foreign banks in the syndicate included BNP Paribas, Natixis, Afrexim Bank, a local unit of Standard Bank and Korea’s MMC while the Nigerian banks were United Bank for Africa, Ecobank, First Bank and Union Bank.

The loan was for the purpose of paying debts to major foreign oil traders, including Glencore and Mercuria, who NNPC was said to be owing around $3.5 billion for products purchased by NNPC. The House launched an investigation into the matter.

NEITI began audit of oil funds spending Nigeria Extractive Industries Transparency Initiative (NEITI) began auditing the flow of oil funds to state governments, the Central Bank of Nigeria, the Niger Delta Development Commission and the Petroleum Technology Development Fund. NEITI signed a contract worth N140 million with an indigenous tax firm, SIAQ, which will carry out the audit.

The Executive Secretary of NEITI, Mrs Zainab Ahmed, said the exercise was intended to provide information on how oil revenue is being spent.

REGULATORY NEWS

Malabu oil deal investigated The controversy over Oil Prospecting Licence (OPL) 245 continued well into the year after both chambers of the National Assembly decided to investigate the controversial transaction. Things escalated as the Committee decided the police should be called in to investigate. Later on in the year, it turned out that the British police was also examining the deal for any money laundering contraventions.

The background to the transaction was that Malabu was allocated OPL 245 in April, 1998 and appointed Shell as its technical partner.

Shell took a 40 per cent participating interest in the venture. The licence was subsequently revoked by the Federal Government on July 2, 2001.

Malabu petitioned the House of Representatives Committee on Petroleum to look into the matter.

The Committee found no rational basis for the revocation and directed the Government to withdraw the re-award of the block, which it had, in the meantime, made to Shell Nigeria Ultra Deep Limited, which brought ENI’s local subsidiary, Nigerian Agip Exploration Limited into the block.

Malabu also instituted a suit before a Federal High Court in Abuja, and later an appeal at the Court of Appeal in Abuja. An amicable settlement was entered between Malabu and the Federal Government before the appeal was heard. In compliance with the settlement agreement executed on November 30, 2006, OPL 245 was to be fully and completely restored to Malabu in consideration for Malabu withdrawing its appeal.

A new settlement was reached on April 29, 2011 between the Federal Government and Malabu Oil & Gas Limited under which Malabu agreed that in consideration of the company receiving compensation from the federal government, it would settle and waive any and all claims to any interest in OPL 245.

In furtherance of the Resolution Agreement, Shell and ENI agreed to pay Malabu through

the Federal Government acting as an obligor, the sum of US$ 1,092,040,000 in full and final settlement of any and all claims, interests or rights relating to or in connection with OPL 245 and Malabu consented to the re-allocation of Block 245 to Nigerian Agip Exploration Limited (NAE) and Shell Nigeria Exploration and Production Company Limited (SNEPCO).

In consequence, there was effectively a purported sale of OPL 245 to the Shell/Agip consortium for the sum of $1.092 billion and immediate transfer of the entire sum to Malabu Oil and Gas Limited, an indigenous oil company as compensation for its alleged prior interest in the Oil block.

In another development, the House of Representatives is investigating a letter purportedly written by the Attorney General of the Federation and Justice Minister, Mohammed Bello Adoke regarding the letter to a foreign NGO that had asked questions of Adoke. In the letter, he allegedly said he had been investigated by the House and cleared of any wrongdoing in relation to the deal, which he brokered on behalf of the government.

The House insists it did not give any such clearance and up till the end of the year, was insisting that Adoke must explain why he said he had been cleared.

Pipeline protection contract generated controversy NNPC was in hot water once again after the discovery that it awarded contracts worth N5.6 billion for the protection of pipelines to some private companies, some owned by ex-Niger Delta militants. One of the contracts involve the one awarded to Global West Vessel Specialist Limited (GWVSL), a firm believed to be owned by a former leader of the Movement for the

Emancipation of the Niger Delta (MEND), Chief Government Ekpemupolo, popularly known as Tompolo. The contract is said to be worth $103.4 million for the supply of 20 vessels to secure the waterways. The House of Representatives launched an investigation, but as usual, nothing seemed to come of it and the matter seems to have died a natural death.

Senate misunderstood the NNPC and Atlantic Energy deal NNPC was again in trouble with Senate over Shell’s divestment of Oil Mining Leases (OMLs) 26, 30, 34 and 42. The Chairman of the of the Senate Committee on Petroleum, Senator Emmanuel Paulker, summoned NNPC to come before it to defend the sale of four OMLs outside of a competitive bidding process to Atlantic Energy. The accusation stems from the protest held

by Delta State Oil Producing Communities (made up of the Itsekiri, Ijaw, Urhobo, Isoko and Ndokwa ethnic communities in Delta State) over the award.

The lawmakers however got it wrong. The oil blocks in question were not awarded to Atlantic Energy as NNPC retained ownership. The role of Atlantic Energy was purely the provision of funding, in return for a share in production. While some may find the deal controversial, the fact is that Atlantic Energy did not acquire any equity interest in the blocks in this deal.

Nigerian Navy launched oil theft information website The Nigerian Navy launched a new website on crude oil theft and pipeline vandalism as part of a new phase in its war on crude oil theft. The website www. cot.navy.mil.ng is intended to be a means of providing information to citizens and stakeholders on the growing menace of crude oil theft. The Navy explained that the website serves as a platform to share information, exchange ideas with the international community and reports of suspicious activities. The website, he said, also generates the desired global awareness on the scourge of oil theft and pipeline vandalism.

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REGULATORY NEWS NEITI presented its Audit Report for 2009-11 The Nigeria Extractive Industries Transparency Initiative (NEITI) presented its audit report the period 2009 to 2011 for the oil and gas sector.

The highlights of the NEITI report include the following findings: n The disparity between subsidy claims paid from the Federation account and that made by the Petroleum Products Pricing Regulatory Agency (PPPRA) was N175.9 billion during the period. n The subsidy payments made through NNPC increased from N198 billion in 2009 to N416 billion in 2010 and nearly doubled when it rose to N786 billion in 2011. n During the same period, subsidy paid through PPPRA increased from N208 billion in 2009 to N278 billion in 2010 and also increased astronomically to N1.12 trillion in 2011. n Over 136 million barrels, which estimated at $10.9 billion was lost to crude oil theft and sabotage as well as about 10 million barrels valued at $894 million as a result of pipeline vandalism in downstream.

This amount was 7.7% of the total revenue

accrued to the federation. n Inadequate funding of JV operations was one of the reasons for the decline of government crude oil productions, crude liftings and revenues accruable to the Federation. n All refineries were operating below their name-plate capacities The combined loss to Nigeria in the Offshore Processing, Crude and Products Exchange within the period under review was over $866 million. n The MOUs for joint venture partners JV’s, which expired in 2008 were yet to be renewed. n There was no agreed pricing methodology between NNPC and the companies for the determination of fiscal values for royalty and PPT computations. n Other key findings included poor inventory management, which accounted for the difficulty in determining depot balances for imported products. n The amount of N4.423 billion being over-recovery of subsidy payments collected from some marketers was yet to be remitted to the Federation account

by PPPRA while NNPC and two other

Over

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State Governors continued to demand more from the Excess Crude Account, threatening to go to the Supreme Court for a resolution.

The NGF was unhappy with the way in which the Federal Government had made deductions from the ECA including the use of $1 billion from the ECA to offset fuel subsidy costs.

barrels estimated at $10.9 billion was lost to crude oil theft and sabotage

Subsidy payments resumed

As a result marketers said, they were losing a lot of money in bank interest and foreign exchange, making it very difficult for marketers to continue imports of fuel.

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President Jonathan later directed the Secretary of the Federation, Senator Anyim to constitute a high-powered committee to assist NEITI in recovering the outstanding $9.8 billion identified by them as being due to the Federation Account.

State Governors demanded more from Excess Crude Account (ECA)

million

By mid-July, the tense stand off between the Federal Ministry of Finance and petroleum marketers began to cool off as the Ministry began to make payments to marketers, first of N192.5 billion and then N48 billion.

The Ministry had been unwilling to make payments while claimants for the subsidy were being investigated. By July, figures of subsidy claims owed to the Major Oil Marketers Association of Nigeria (MOMAN) members, revealed that Oando has total outstanding claims of N26.736 billion; MRS, N8.506 billion; Mobil, N8.523 billion; Forte, N7.747 billion; Conoil, N6.357 billion; and Total, N7.221 billion.

companies were yet to refund N3.715 billion. NEITI later reported that the missing amount had been traced to the Petroleum Support Fund (PST) account domiciled with the Central Bank of Nigeria. n Nigerian National Petroleum Corporation (NNPC) illegally paid itself the sum of N1.4 trillion between 2009 and 2011 in petrol subsidy, something, which NNPC vehemently denied. NEITI said NNPC used exchange rates lower than what was obtainable at the Central Bank of Nigeria (CBN) in its transactions. According to NEITI the foreign exchange process used by NNPC led to the loss of N98.3billion by the Federal Government between 2009 and 2011. n NNPC owed the Federation Account N1.3 trillion after subsidy claims by NNPC grew astronomically within the three years under review.

Things eventually improved when the Federal government constituted a committee to work with the Ministry of Finance to explore and reach agreement on how to fast track the payment of subsidy reimbursements on imported products to petroleum marketers.

As the year-end approached, the government said it was on course to reduce the total subsidy bill this year by 56 per cent from N2.2 trillion in 2011 to N971 billion this year.

The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi OkonjoIweala, explained that the government hired new auditors and put in place different checks and balances to reduce the subsidy bill.

REGULATORY NEWS

THE JOINT TASK FORCE (JTF) RELEASED FIGURES FOR RAIDS FOR JANUARY TO JUNE 2013 The Joint Task Force (JTF) said it made some significant gains in the period between January and June 2013 according to the JTF spokesman, Lt. Col. Onyema Nwachukwu.

He said they had arrested 608 suspected oil thieves in 594 raids code-named “Operation Pulo Shield,” carried out in the Niger Delta in that time.

Lt. Col. Nwachukwu gave more details about the raids, saying: “So far, we have carried out 594 illegal oil bunkering patrols, and several arrests have been made. In the two quarters we are talking about, we’ve scuttled about 748 illegal refineries within the region and we have impounded 24 sea-going vessels; we equally arrested 133 barges involved in

oil theft. And 861 giant open wooden boats popularly referred to as Cotonou boats have been scuttled over this period.”

“About 910 large surface tanks, which oil thieves engaged in illegal refineries use to reserve the crude have been scuttled. We’ve taken into custody about 608 suspects who are involved in oil theft and oil theft related cases,” he added.

Later the JTF reported that over 968 crude oil tankers successfully lifted just over 82 million metric tons of crude oil on behalf of the federal government between January and September 2013. This, they said, was due to the surveillance operations

It is estimated that there are over 5, 779 oil wells, 9, 717kilometres of pipelines, 112 flow stations, 16 gas plants and 126 production platforms, floating Production Storage offloading and Floating Storage offloading platforms, as well as other critical maritime assets and infrastructure

they mounted on oil installations in the operational areas, which meant that these tankers were able to ply their trade without any reported incidents from pirates or thieves.

The scale of the problem is enormous as Commodore Okojie explained: “It is estimated that there are over 5, 779 oil wells, 9, 717kilometres of pipelines, 112 flow stations, 16 gas plants and 126 production platforms, floating Production Storage offloading and Floating Storage offloading platforms, as well as other critical maritime assets and infrastructure”.

The JTF later complained that a lack of effective assault craft was hampering the fight against oil theft. They said that an adequate supply of such craft would be needed to support the renewed strategy of round the clock patrol of the creeks.

The Nigerian Air Force later joined the war on crude theft by agreeing to provide aerial surveillance support to the Nigerian Maritime Administrative and Safety Agency (NIMASA) after the two organisations signed a Memorandum of Understanding (MOU) to that effect. The Petroleum Technology Development Fund (PTDF) was to be used to fund the training of pilots for aerial surveillance of pipelines.

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REGULATORY NEWS DPR began marketers’ license renewals in October The Department of Petroleum Resources began the process for the renewal of oil marketers’ licenses. The renewal process which kicked off in October, 2013 will continue till February 28, 2014 for the 2014/2015 licensing period.

Report that Northerners own most oil blocks wrong Senator Ita Enang released a statement in which he said that Northerners owned 83 per cent of oil blocks in the country, calling on President Goodluck Jonathan to revoke the oil blocks. Niger Delta group echoed the call before it became clear, on close analysis, that Senator Enang’s statement was not factually correct. The Senator may have got things wrong, after seeming to confuse chairmanship with ownership.

Former Kano State governor Col. Sani

Bello (rtd) had to issue a denial after Enang claimed he was the owner of AMNI International Petroleum and Development Company, operators of oil mining leases (OMLs) 112 and 117. Although he is the Chairman of the company, he is only one of the three principal shareholders and owns 20 per cent of the shares. Bello said, “The fact that I am the chairman of the company does not mean I own it.”

NEITI won best implementing country award The Nigerian Extractive Industry Transparency Initiative (NEITI) was recognised with an award by the global Extractive Industries Transparency Initiative (EITI) as the “best extractive industry transparency implementing country.” Nigeria was voted the best implementing country among 39 member countries that have so far embraced the initiative across the world.

In another development, a member of the National Stakeholders Working Group (NSWG) of NEITI, Faith Nwadishi

House ordered investigation into alleged oil trading fraud The House of Representatives reacted swiftly to a report by an international financial watchdog, the Berne Declaration (BD), which accused NNPC of colluding with Swiss oil traders and their Nigerian counterparts to defraud the nation of billions of dollars in oil revenues. They say that the oil traders are buying Nigeria’s oil at below market value thereby depriving the nation of billions of dollars in revenue. NNPC swiftly denied the allegations while the traders threatened to sue the Swiss NGO.

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was nominated as a full member of the International Board of the Extractive Industries Transparency Initiative (EITI).

The move is largely seen as validation of the work being done by NEITI to achieve transparency and accountability in the Nigerian extractive industries, but due to its importance, the Nigerian oil and gas industry in particular.

Joint Task Force accused by NGO of complicity in oil theft A non-governmental organization (NGO) accused members of the Joint Task Force (JTF) stationed in the Niger Delta of complicity in oil theft. A report published

by Stakeholder Democracy Network (SDN) specifically points the finger at top military brass, accusing them of colluding with the oil thieves.

SDN accused JTF on two levels. Higher up the food chain they said, are the higher ranked JTF officers who own shares in the illegal tapping of crude pipelines.

“This research suggests that a relatively small number of senior officers must have criminal ties to the tap point owners, unions and camps managers as these are where most profits are made”, the report said.

On a lower level on the food chain, junior officers, says the report, are involved in extortion from vessels carrying illegal crude or refined products. They call the payments “transportation taxes”. The report explained: “Essentially a kind of protection money, these fees grant vessels open passage through the transport corridor. During their routine patrols of the inland waterways, officers will stop vessels and demand payments in cash.”

NNPC accused over “missing” N48 billion oil sales proceeds Only a few days after the dramatic revelation of a letter written by Sanusi Lamido, the Governor of the Central Bank of Nigeria (CBN) to the President accusing the Nigerian National Petroleum Corporation (NNPC) of failing to remit $48 billion to the Federation Account, he retracted his accusations.

In the letter, Lamido had accused NNPC of failing to account for crude oil sales receipts representing 76% of the value of crude oil liftings for the period from January 2012 to July 2013. Lamido concluded in the letter, which was leaked to the press, that the amount of $48 billion was missing.

Now, the CBN Governor says that all but $12 billion has been satisfactorily explained. Appearing before the Senate Committee on Finance, he explained: “About $24billion was actually not their crude but crude shipped on behalf of third parties like oil companies, tax in crude and also for third party financing and so, that already addresses half of the amount.”

Regarding the rest of the amount he previously reported to be missing he said: “the second half is the issues around domestic crude lifting of $28billion from which we feel there is a short fall, there is a general consensus among us on this even though the amount has been disputed.”

Although he confirmed that the amount of $12 billion is still unaccounted for from the point of view of CBN, he stressed that the reconciliation exercise is still on-going.

Sanusi Lamido said in the letter that he felt constrained to write to the President over the continued failure of NNPC to repatriate significant proportions of the proceeds of crude oil shipments in made, in gross violation of the law.

LEGAL Mark called for Death Penalty for oil thieves

Mittal v Varma The discretionary nature of the award of oil blocks came under scrutiny when Lakshmi Mittal, one of the richest men in Britain, worth over £12 billion, was to face cross-examination in a British High Court over his business dealings and political connections in Nigeria Mittal’s former friend Moni Varma accused him of reneging on an agreement that Varma says they had in which Mittal had agreed to pay him a commission for helping to secure oil block allocations in Nigeria. Varma claims to have provided Mittal access to the then Nigerian president, Olusegun Obasanjo as a result of which Mittal was awarded two deepwater oil blocks, OPL 212 and OPL 209 in 2005.

Later, Mittal and Varma settled out of court for an undisclosed sum.

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MEND leader Okah convicted in South Africa South Africa succeeded where Nigeria seemed wary to tread. Nigerian warlord, Henry Okah, was found guilty in a South African court of being the brains behind two car bombings in Nigeria. Okah is understood to be one of the leaders of the Movement for the Emancipation of the Niger Delta (MEND) which was responsible for a great deal of insecurity in the Niger Delta before an amnesty deal in 2009 brought resolution to the conflict which at its peak had slashed Nigeria’s crude oil production to about 1.3million barrels. Oil companies initially feared a resurgence of militancy in the area, but in the end there was no serious disruption.

Senate President, David Mark, called for the imposition of the death penalty on oil thieves and pipeline vandals but some local branches of the Nigerian Bar Association and the Legal Defence and Assistance Project, LEDAP were very much against the idea.

Activists failed in US action against Shell Activists in the case of Kiobel v. Royal Dutch Petroleum Co hoping to use the US Alien Tort Statute (ATS) to sue Shell over the death of nine protesters in the 1990s were stopped by the US Supreme Court from doing so. The plaintiffs had hoped to use the law to sue Shell for the death of the Nigerian activists known as the Ogoni Nine who protested against Shell’s operations in the Niger Delta and were tortured and hanged by Abacha’s military junta in 1995. They say Shell, operating in the Ogoni region at the time, was complicit in the torture and murder of the protesters.

The Supreme Court held that claims will generally not be allowed under the ATS if they concern conduct occurring in the territory of a foreign sovereign.

LEGAL Mobil ordered to pay $83.4 million education tax

Peak Petroleum denied liquidation Peak Petroleum denied that it is in liquidation following an advertisement by Mr Tamuno Nathan George of Tamumo George Chambers that he had been appointed as the liquidator of Peak Petroleum Industries Nigeria Limited. Dr Ayo Oluokun, managing director of Peak, the holder of Oil Prospecting Licence (OPL) 93 said the litigation was pending determination and dismissed the move by Nathan as “patently illegal and contemptuous.”

Meanwhile Shell put a notice in the papers warning potential investors in the block that it had an interest in the block. The MD of Peak denies this and says the indigenous company owns the block 100 per cent.

Shell began compensation talks over oil spills Towards the end of the year, Shell finally began compensation talks with thousands of residents of Bodo community 5 years after the oil spills from two pipelines in the Bodo and Gokana areas of Ogoniland, which villagers say wrecked their livelihoods.

London law firm Leigh Day which is representing the communities, said the local environment was devastated by the two spills, depriving thousands of subsistence farmers and fishermen of their livelihoods. About 15,000 residents of Bodo, in Rivers State, are seeking compensation over the oil spills, which occurred in 2008. They are said to be asking for $200 million in compensation. A settlement in this pollution case seems quite a long way away.

The Tax Appeal Tribunal ordered Mobil to pay $83.4 million to the Federal Inland Revenue Service (FIRS). The judgment by the Tax Appeal Tribunal represented Education Tax liability of the company to the Federation during the year 2008.

The company had denied liability for the tax after the liability assessment was first raised by FIRS and in 2011 it launched an appeal against the liability, claiming that the assessment was in breach of a memorandum of agreement (MOU) signed between the company and the Federal Government of Nigeria and the Nigerian National Petroleum Corporation in 1996.

According to the company the MOU

MUSTAPHA CHIKE-OBI, CEO, AMCON

was renewed in 2000.

The company claimed that under the MOU it could deduct taxes paid to other state agencies from the tax due to the Federal and State governments.

FIRS however argued that the MOU was for three years and that its validity had expired in January 2003 particularly in view of the Petroleum Profits Tax Act which replaced the MOU and under which the assessment was raised.

IFEANYI UBAH, FORMER CEO, CAPITAL OIL

AMCON took over Capital Oil management The Asset Management Corporation of Nigeria (AMCON)’s determined pursuit of Capital Oil and Gas Industries over a N48 billion debt finally paid off as AMCON took control of Capital Oil. AMCON, which is led by Mustafa Chike-Obi took over the executive management of Capital Oil and will remain for a period

of two years. AMCON says the resolution was reached following a settlement by both organisations. This meant that the flamboyant Dr Patrick Ifeanyi Ubah had to step down from his role as Managing Director and Chief Executive Officer of Capital Oil, paving the way for AMCON to put in new management.

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COMMENT

LEGAL AND PRACTICAL ISSUES in the Financing and Acquisition of Upstream Petroleum Assets in Nigeria

In this article, leading oil and gas firm Adepetun Caxton-Martins Agbor & Segun set out some of the legal issues to expect in transactions involving the financing and acquisition of oil and gas assets.

There has been a series of divestments and acquisitions in the Nigerian petroleum industry in recent times. These series of events and transactions have raised some important legal and practical contractual issues occurring in the acquisition of oil and gas assets, such as the obtaining of counterparty consent and the consent of the Minister of Petroleum Resources (the “Minister”).

Securing acquisitions: JV Blocks The main foundational instruments for the joint venture (JV) blocks include the Participation Agreement, which defines each party’s interest in the relevant asset and provides applicable restrictions and the Joint Operating Agreement (“JOA”), which defines the legal relationship among the JV parties.

The JOA will usually require the consent of counterparties from a divesting party and/ or grant pre-emption rights in respect of any divestment by a party and also the consent of counterparties to the creation of any “encumbrance” over a party’s participating or attaching contractual interests. The Nigerian National Petroleum Corporation (the “NNPC”) or its subsidiary is a key counterparty to such JOAs and its consent always constitutes a major step in the acquisition process.

Paragraph 14 - 16, first schedule of the Petroleum Act essentially provides that the prior consent of the Minister is required to an assignment of any power, right or interest in an an oil prospecting licence (“OPL”) and OML. The grant of such consent is discretionary and the Minister must

be satisfied that the acquirer is of good reputation; possesses sufficient technical knowledge and experience; has sufficient financial resources to effectively develop the acreage; and is in all other respects acceptable to the Federal Government of Nigeria (the “FGN”).

Thus, where the creation of security over oil assets to be acquired will require the transfer of a proprietary interest in an OPL or OML, ministerial consent would, by reasonable inference, be required at the creation of the contemplated security.

Ministerial consent and counterparty consents would also be required for enforcement of the security created over the oil assets (unless already given at the creation of the security).

The ministerial consent issue In practice, the above mentioned provisions of the Petroleum Act and the provisions of Paragraph 4(b) of the Petroleum (Drilling and Production) Regulations, have been applied by regulators and the FGN to mean that the consent of the Minister is required where a company sells or divests or transfers its upstream participating and proprietary interests in any manner. In addition and concerning the requirement that an assignee or acquirer should be a company with technical and financial capacity to undertake upstream petroleum operations, an enforcement issue arises to the extent that banks or financial institutions would not ordinarily qualify for ministerial consent in this regard.

In the decision of the Federal High Court of Nigeria in May, 2012 in the case of Moni Pulo vs. Brass & 7 Ors, it was held that the acquisition of “controlling shares” in a company with a participating interest in an OML will have the effect of a transfer or takeover of such interests and thus will require the Minister’s consent.

While this currently remains the only judicial decision on this issue, practice

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and the FGN’s policy seem to be in line with the proposals of the Petroleum Industry Bill (PIB) 2012 in this regard, which defines an ‘assignment’ for which ministerial consent is required as including “…where a licensee, lessee or production sharing or service contractor is taken over by another company or merges, or is acquired by another company either by acquisition or exchange of shares, including a change of control of a parent company outside Nigeria...’’

Where a borrower charges its shares (in an asset owning company) as security for a loan facility, the lender will also require the consent of the Minister for the enforcement of such security. It is noted that if the PIB is enacted in its current form, the consent of the Minister will also be required to effectively enforce a charge created over the shares of an offshore parent of the borrower in order that the ultimate beneficial interest in the relevant Nigerian oil industry asset may attach to the acquired shares. These are considerable issues that must be addressed by statute, clear regulation(s)

or firm judicial pronouncement.

Another challenge to obtaining Ministerial consent is the bureaucracy involved in the process, which may take up to 48 months. The process for application for ministerial consent begins with the seller’s application to the Ministry of Petroleum Resources through the DPR for “consent to assign”. The DPR then conducts requisite due diligence on the buyer of the asset and the DPR makes a recommendation to the Minister before a final decision on the asset transfer is made.

Practice and experience have shown that ministerial consent will not be granted (at least where requested) where the proposed assignee of an upstream petroleum interest and asset in Nigeria is a financial institution, thereby creating the need for the incorporation of a company which will serve as a special purpose vehicle for the purpose of regularizing the assignment.

Note: This write-up is meant for general information only and does not amount to legal advice.

COMMENT

Barristers & Solicitors

Adeptun Caxton-Martins Agbor & Segun is a leading energy and natural resources (“Energy”) law firm in Nigeria and advises on diverse transactions in Nigeria’s Energy sector.

From concession, licensing and acquisitions, midstream and downstream transactions to power, mining and related financing, the firm covers the entire Energy spectrum. n Lagos

n Abuja

n Port-Harcourt

Tel: +234-1-462 2094; 7406743; Fax: +234-1-4613140 Email: acas@acas-law.com / Web: www.acas-law.com Lagos Address: 9th Floor, St. Nicholas House Catholic Mission Street Lagos Island, Lagos State

Taiwo Afonja

Sola Adepetun

Felicia Kemi Segun

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OIL & GAS CIRCUIT Patriots for New Nigeria Initiative (PNNI) Public Dialogue on the Petroleum Industry Bill

Alhaji Rabiu Isiyaku Rabiu, Chairman, PNNI

PNNI President AU Mustapha

Dipo Salimonu (private sector)

Audience L-R (Hon. (Dr.) Ali Ahmed – National House of Representatives, Comrade Issa Aremu, AU Mustapha

Speakers (L-R: Comrade Issa Aremu NLC VP, Remi Aiyela NOG Intelligence, Segun Adeniyi Thisday Newspaper)

Audience

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L-R (AU, Remi Aiyela and Ali Ahmed)

L-R (Issa Aremu and Nuhu Koko)

Media

L-R (Segun Adeniyi, Hon. (Dr.) Ali Ahmed – National House of Representatives, and AU Mustapha

OIL & GAS CIRCUIT Society of Petroleum Engineers 37th Nigeria Annual International Conference and Exhibition

Above, from left, Mr Ben ObaorWekpe, Well Engineering Mgr Shell, Mr Tony Ogunkoya, Director SPE Africa Region, Prof Joseph Ajienka, VC Uniport and Mr Egbert Imomoh, SPE International President at the occasion Top right, from left, Mr Ciro Anthonio Pagano,Vice Chairman & MD NAOL, Engr Tolu Ogunkoya, Director SPE African Region, Mr Osayande Igiehon, Chairman SPE Nigeria Council, Engr Anthony Ogbuigwe, Group ED R&P NNPC and Engr Toni Ezeukwu, GM, Pan Ocean Oil Exploration at the occasion Above, from left, Mr Ciro Anthonio Pagano,Vice Chairman & MD NAOL, Engr Toni Ezeukwu, GM, Pan Ocean Oil Exploration, Engr Tolu Ogunkoya, Director SPE African Region, Mr Osayande Igiehon, Chairman SPE Nigeria Council and Engr Anthony Ogbuigwe, Group ED R&P NNPC at the occasion Left, from left, Engr Toni Ezeukwu, GM, Pan Ocean Oil Exploration, Mr Ciro Anthonio Pagano,Vice Chairman & MD NAOL and Engr Tolu Ogunkoya, Director SPE African Region at the occasion

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OIL & GAS CIRCUIT

2nd International Conference on Petroleum Refining and Petrochemicals

Registration of Participants

Prof. Goddy Igwe Welcoming Dr. Emmanuel Egbogah to the event

Prof. Goddy Igwe introducing the executive secretary PTDF, Dr Oluwole Oluleye to staff of IEPL

A view of stakeholders at the conference

L-R: Former G.M.D. NNPC, Dr T.M John, Prof.

Nimi Briggs, and Prof. Goddy Igwe

Mr. Manish Mundra during his presentation

L-R: Prof. Igwe, Prof. Ajienka, Dr. Umar Bindir and Dr. Ebogah

Dr T.M John

Group Executive Director, R&P, NNPC Engr.

Ogbuigwe Prof. Goddy Igwe, making his closing speech Standing ovation of participants at the end of Prof. Igwe’s closing speech

MD, IEPL, Mr Mundra & Colleagues

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OIL & GAS CIRCUIT Energy Institute (EI) Nigeria Downstream Forum

Dr Ibilola Amao (EI Nigeria committee member) moderated the event.

Mr Femi Abegunde (EI Nigeria committee member) delivered the welcome address

Mr Michael Nuber (Business Development Manager, Endress+Hauser Flowtec AG) dicussed methods of minimising custody transfer as it relates to operations in the downstream sector.

Speakers at the event

Mrs G.F. Odunuga from Department of Petroleum Resources discussed Policy Goals and Regulatory Environment.

Mrs Bashirat Odunewu (Head Institutional Banking, First Bank of Nigeria) delivered a paper on investing in downstream oil and gas projects.

Leading professionals in refining, trading, shipping, storage, distribution, regulation and downstream-related professional services had the opportunity to discuss and ask questions.

Far left, Mr Mahmud Moddibo, General Manager - Marketing, Eternal plc, spoke on specialty products market and challenges faced by such businesses in a white product-dominated environment.

Left, the Chief Executive Officer of Oando Downstream, Mr Abayomi Awobokun, also joined the panel session as a moderator.

Below, delegates at the conference.

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OIL & GAS CIRCUIT LAUNCHING OF AOS ORWELL NEW OPERATIONAL BASE, PORT HARCOURT

From left, Azad Shivdasani (Chairman, AOS Orwell), Engr.Ernest Nwapa (Exec.Sec.NCDMB), Constance Moro (GM JV, NAPIMS), Femi Omotayo (MD/CEO AOS Orwell)

From left, Otunba Iyabo Omotayo, Femi Omotayo (MD/CEO AOS Orwell), Prince Alex Woluchem (Rebisi Kingdom),Tunde Adelana (Director Monitoring,NCDMB), Mrs. Constance Moro (GM JV,NAPIMS).

From left; Femi Omotayo (MD/CEO AOSO),Tunde Adelana (Director,NCDMB),Peter Oviasu (GM Capacity Building,NCDMB),Mrs.Contance Moro (GM JV,NAPIMS)

From left, Femi Omotayo (MD/CEO AOS Orwell) & Engr. Ernest Nwapa (Executive Secretary NCDMB)

Above, Engr. Ernest Nwapa (Executive Secretary Above left, from left, David Somorin (Exec.

Director,AOSO),Henry Okolo (Director AOSO),Azad Shivdasani (Chairman AOSO),Ernest Nwapa (Exec.Sec/ CEO NCDMB),Constance Moro (GM JV NAPIMS),Femi Omotayo (MD/CEO AOSO),Gopi Chemmenkotil (Exec.Director,AOSO),Duncan McWilliam (Exec.

Director,AOSO),Tunde Adelana (Director, Monitoring & Evaluation,NCDMB)

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OIL & GAS CIRCUIT

Unveiling of CB Geophysical Solutions Ltd new headquarters

CB Geophysical Solutions’ New HQ

From Left Ofoezie of Total, Ezugworie (Shell), Razak (DPr), Bank-Anthony (CBGS CEO), Bayo Ojulari (Vice President - Shell)

Above, From Left Tunji - EGM GSR Total, Ben Akakaar TA GMD NNPC, Emeka Ene Petan, Chidi Offor CBGS, Charles Ngoka DMD Total, Adelana - Director NCDMB Unveiling CBGS - From Left CBGS MD (Chidi), CBGS CEO (Bank-Anthony), Chairman Petan (Emeka Ene), DMD Total (Charles Ngoka), Director NCDMB (Tunde Adelana), NAPIMS (Laura), NAPIMS GM FES (Dr Bako), Total EGM (Tunji), Shell Director (Bayo Ojulari), Former DPR Director (Osten Olorunsola)

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LOCAL CONTENT NIGERIAN CONTENT SCORECARD: Foreign Direct Investments (FDI) worth over

500

Certificates to Original Equipment Manufacturers (“OEMs”)

$500

million

30,000

Direct productive jobs

Kaztec Engineering won $84.5 million EPC from Shell Indigenous firm, Kaztec Engineering, a subsidiary of the Chrome Group, was awarded an $84.5 million Engineering Procurement and Construction (EPC) contract by Shell National Exploration and Production Company of Nigeria (SNEPCO) as part of the Trans-Nigeria Pipeline (TNP) Loop line Project.

The one-year contract, and the firm’s first from Shell, is for the construction of a 3-inch, 58-kilometre loop line from the Ogale manifold to Bonny Terminal, in the South-south region of Nigeria.

The oil servicing company has started building a fabrication yard at Snake Island in Lagos.

The Technical Director, Chrome Group, Adebanji Babarinde said the project, which is at an advanced stage is being developed along with its technical partners, Addax Petroleum Limited.

The fabrication yard in which the company will fabricate jackets, topsides and equipment will be completed in stages.

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Nestoil completed acquisition of IMPaC Oil In a move that provided a shot in the arm for local content expertise in the industry, indigenous oil services company, Nestoil acquired the Nigerian subsidiary of German engineering consultancy group, IMPac Oil and Gas Engineering. Following the acquisition, the current chairman of Nestoil, Ernest Azudialu-Obiejesi becomes the new chairman of IMPac Oil and Gas Engineering. The management of IMPac will stay on, enabling a smooth transition and, in due course, transfer of skills to Nigerians.

Rainoil acquired two new vessels for ship-to-ship transfer Rainoil Limited, a leading indigenous petroleum products marketing company, inaugurated two newly acquired oil vessels, the 20,000 tonne MT Adeline and the 15,000 tonne MT Emmanuel.

Rainoil expects the vessels to help boost petroleum products availability and distribution in the country. The company explained that the double-hulled vessels meet international standards and have world class facilities.

They will be deployed for quick ship-to-ship loading of petroleum products

LEE Engineering won Shell contract Indigenous firm, LEE Engineering and Construction Nigeria Limited has been awarded a major contract by the Shell Petroleum Development Company of Nigeria (SPDC) for reviving the power system of the 45,000 barrels of oil per day capacity Ogbotobo Flowstation in Western Niger Delta. This is a first step towards the rehabilitation of the facility, which was down to 10,000 barrels when it was shut down. Operations at the flowstation were suspended in the security crisis in 2006.

The contract covers the replacement of the station’s power generation and distribution system. It is planned to resume operations at Ogbotogbo Flowstation once the power system is up and running. The rehabilitation of the flowstation is in preparation for the resumption of oil production from the Ogotobo field.

LOCAL CONTENT Biometric registration for expatriates begins

350%

Increase in industry man-hours performed by Nigerians

87%

As part of the local content agenda, expatriates working in the Nigerian oil and gas industry will now be required to undertake biometric registration as part of the conditions they must fulfill before their organisations can secure expatriate quota approvals from the Board.

of the total contracts in the industry

NCDMB invited expressions of interest for applied research The Nigerian Content Development and Monitoring Board (NCDMB) issued a notice to interested professors, research fellows, postgraduate students and subject matter experts interested in conducting applied research in the Nigerian oil and gas industry for 2014 projects to submit Expressions of Interest (EOI) to NCDMB. The closing date was 28th October

Ocean Marine launched 2 crude oil tankers Indigenous company, Ocean Marine Tankers launched two 45 metric tons crude oil tanker vessels. The vessels, named MT Abiola and MT Igbinosa are to take over the supply contract the company has with the Warri and Kaduna Refineries.

Previously, the company fulfilled the contracts using foreign vessels but with the acquisition of its own tankers, the first Nigerian-owned tankers in the 17 years since the defunct Nigerian National Shipping Line, the company is now able to put the vessels to use immediately on the existing contracts, ensuring a more efficient and effective delivery of crude oil to the refineries.

LADOL won contract for Total FPSO Lagos Deep Offshore Logistics (LADOL) company won a contract under which Samsung Heavy Industries will build a 330-metre long FPSO at the yard. Samsung won the contract to build the FPSO for Total’s Egina deepwater field, which will use 75 per cent locally worked hours. The award to LADOL caused some controversy as many said they did not have the technical capacity to execute the project.

LADOL dismissed the accusations but it has concluded plans to enlarge its existing facility in Lagos for the purpose of the project.

LADOL received an award from the Nigerian Ports Authority (NPA) as part of the activities marking the Customer Service Week (CSW) 2013 of the Lagos Port Complex (LPC), Apapa.

AOS Orwell launched new operational base In a boost to local oil and gas capabilities, multi-disciplined indigenous oilfield services company, AOS Orwell launched a new operational base in Port Harcourt. The new base will enable the company to carry out its expansion plans. The company is one of the main contractors on Total’s $15 billion offshore Egina project.

Ogogoro Island oil and gas fabrication centre development contract signed Ogogoro Island, Lagos is to become an offshore facilities fabrication and maintenance centre following the signing of the contract between Digisteel Integrated Services Ltd and Dredging International Services Nigeria for the development of the Island. This will increase indigenous capacity in the vital area of fabrication and maintenance of Floating Production Storage and Offloading Vessels (FPSOs).

Shell began registration of local manufacturers In a bid to fulfill the Nigeria content development initiative, Shell began registering local manufacturers. The company said it wanted to identify in-country manufacturing and raw material production capability for the oil and gas sector.

The company called for companies involved in manufacturing, raw material extraction and production, assembly and maintenance, chemicals, machine parts and piping materials related to or which may have relevance to the Nigerian oil and gas industry. These may be local manufacturers of tools, goods and products that can be used in the oil and gas industry. It could also be companies that are involved in the extraction of raw materials, which can be used for end products in the oil and gas industry. The deadline for registration was 14th of June.

The company also signed a Memorandum of Understanding (MoU) with five financial institutions for a $5 billion support fund for Shell contractors in Nigeria. The five institutions, which will contribute to the fund are Fidelity Bank Plc, Access Bank Plc, First Bank of Nigeria Plc, Standard Chartered Bank Limited and DLR Integrated Services Limited.

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CSR NEWS

OIL COMPANIES TARGET TRAINING, EMPOWERMENT PROGRAMMES Most corporate social responsibility efforts of oil companies this year were geared towards sponsorship and provision of support for training and empowerment programmes unlike last year when the prime focus was on assisting flood victims with relief materials. A selection of CSR programmes this year follows below: As early as the beginning of the year, the various CSR activities were being rolled out for beneficiaries to enjoy what the companies were offering as a give back to the society.

The West African Venture (WAV) Group led the way with its support for the Down Syndrome Foundation of Nigeria. The oil service firm donated a brand new 18-seater bus to the foundation at its office in Lagos.

The CSR train later moved to Addax Petroleum Development Limited which disclosed that it empowered no fewer than 71 Niger Delta youths through its Technical Skills Acquisition Programme (TSAP), at a cost of over N514 million.

The company also announced that it had awarded 291 university scholarships, out of which 175 awards went to students from their host communities while the remaining 116 awards were spread across the country, under the national merit programme. About 165 scholarships were also awarded to secondary school students from the host communities.

Falcon Petroleum too was not left out of the CSR party as the indigenous company offered vocational training to 48 women from its host communities for its Ikorodu Phase II pipeline.

The women were given one-month’s industrial placement following the training. The training was intended to give them practical experience as entrepreneurs before starting their own businesses.

Not wanting to be left out of events, the Nigerian National Petroleum Corporation (NNPC) during the year also pledged support for the Kanu Heart Foundation

64

(KHF) in its quest to build a befitting hospital for heart surgery in the country.

The CSR fever also caught up with Chevron Nigeria Limited (CNL) who sponsored five Nigerian graduates to be trained in Scotland in the operation of remote operated vehicle, known as underwater robots a kind of technology used for deepwater operations.

The climax of the CSR events for the year was the award given to Shell Companies in Nigeria (SCiN) as the “Best Company in Education” at the annual Social Enterprise Report and Awards (SERAs) ceremony held in Lagos, the third time they are being recognised for a social investment programme on that platform.

They were nominated in four categories, and were the only oil and gas companies that won any award at the 7th SERAs. SCiN were cited for “determined efforts” to promote education in the Niger Delta and Nigeria through secondary and tertiary scholarship awards, sponsorship of eight university professional chairs

in diverse disciplines and innovative programmes for teaching and learning of core subjects in secondary schools. They were also mentioned for construction of information, technology and communication centres in primary schools and universities around the country.

SCiN won the SERAs for “Poverty Reduction” and “Child and Maternal Health” in 2010, ”Most Innovative CSR” in 2011 and in 2012, “Most Innovative CSR” and “Wealth and income Generation (Poverty Reduction)” awards.

Oando also got a gong, the prestigious Africa Oil and Gas 2013 Corporate Social Responsibility Initiative award. The award was given to Oando’s charity, the Oando Foundation for its commitment to the improvement of the learning environment in public schools across the nation.

The Foundation is also funding a scholarship progamme, teacher training programme, ICT creative centres as well as early childhood care development centres.

ENVIRONMENTAL During the outgoing year, one issue that became topical in the oil and gas industry was that of the environment as oil communities, oil firms and government agencies attempted to address and respond to some of the effects of oil and gas operations on the environment.

Eket communities rejected N2.5 billion ExxonMobil compensation offer A few weeks ago, some Eket communities in Akwa Ibom state rejected a N2.5 billion compensation offer from ExxonMobil for an oil spill in 2012.

HYPPR assessed oil spills in Arepo Earlier in the year, the Hydrocarbon Pollution Restoration Project (HYPPR), an interventionist unit within the Nigerian National Petroleum Corporation (NNPC), which was set up to handle environmental issues in the Niger Delta made an effort to assess oil spills and air pollution in Arepo Village in Ogun State.

NNPC gas pipeline leak caused concern The management of the Port Harcourt Refinery rushed to allay the fears of the people of IbuluyaOkrika, a community in Okrika Local Government area of Rivers State, who were worried that they were facing a grave risk of gas fire from the vandalized pipelines of the Nigerian National Petroleum Corporation (NNPC) in that area.

66

Dutch Court cleared Shell of responsibility for oil spills A Dutch Court ruled that Royal Dutch Shell Plc and its Nigerian subsidiary, Shell Petroleum Development Company of Nigeria Limited (SPDC) were not responsible for causing the oil spills that occurred at Oruma, Goi and Ikot Ada Udo between 2004 and 2007 in the Niger Delta area.

NOSDRA and SNEPCO ordered by court to agree Shell oil spill fine Shell Nigeria Exploration and Production Company (SNEPCo), the exploration and production arm of Shell Group of Companies in Nigeria got a reprieve on the $11.5 billion administrative fine imposed on it by the National Oil Spill Detection and Response Agency (NOSDRA) and Nigerian Maritime Administration and Safety Management Agency (NIMASA) over the oil spill that occurred from its Bonga field off the coast of Delta and Bayelsa States on December 20, 2011.

While NOSDRA fined SNEPCO $5 billion for the spill, NIMASA also fined the company $6.5 billion for the same incident. Lawmakers invited the two government agencies to explain how the amounts were arrived at.

The Bonga oil spill was said to have poured an estimated 40,000 barrels of crude oil across 950 square kilometres of water.

The District Court of The Hague (The Netherlands) held that the four oil spills in question were caused by sabotage. However, the court ruled in the case of the oil spill at Ikot Ada Udo, that they could have prevented the sabotage by plugging the well at an earlier stage.

NIMASA implemented oil installations levy The Nigerian Maritime Administration and Safety Agency (NIMASA) announced the implementation from April this year, of a Sea Protection Levy (SPL) which oil companies with offshore oil installations, including receiving buoys, oil rigs and pipelines will now be required to pay. Oil companies were informed of the implementation of new rules at a meeting held in Lagos with NIMASA. The new rules were announced in August last year, giving oil companies sufficient time to prepare for its implementation.

The levy payable for offshore installations is N15 million annually, for oil wells it is N10 million, while it is N1,500 per cubic metre of pipe line from the high water mark to the termination point offshore. The annual payments will take effect from the first of April each year.

The environmental campaign groups, under the aegis of Friends of the Earth, launched an online petition against Shell. The groups say that two years after the United Nations Environmental Programme (UNEP) Environmental Assessment of Ogoniland report exposed devastating degradation to Ogoniland from oil activities, the oil giant had not done enough to clean up its oil spills. 27,602 people have so far signed the online petition.

COMMUNITY RELATIONS

With the recent divestments, international oil companies (IOCs) are hoping to have less cause to deal with host communities as they concentrate their efforts on offshore operations.

As indigenous companies continue to grow in expertise, it is hoped that they will be in a much better position to reach better compromises with host communities and therefore reduce community agitation and crisis.

Some of the community crisis that occurred this year include the following: n Fresh crisis loomed in Burutu Local Government Area of Delta State as some Ijaw-speaking communities restated their resolve to shut down the operations of

the Nigerian Agip Oil Company (NAOC) for alleged failure of the company to implement the Memorandum of Understanding (MoU) reached with the people n Three communities comprising Oleh, Emede and Olomoro in Isoko South Local Govt of Delta State stormed the operations of the Nigerian Petroleum Development Corporation (NPDC)’s to voice their anger at the operations. They were angry that the new owners, NPDC did not enter into any meaningful agreement with them before commencing operations. n The Eket local communities in

Akwa Ibom State issued a demand to ExxonMobil regarding the N4 billion

compensation to be paid by the company following an oil spill in November 2012 which the communities say caused devastation and injury to their local communities. They want the oil company to pay the fine over to a properly constituted committee rather than the State government. n Two communities in the Niger Delta pledged to support Chevron’s pipelines running through their communities.

Community leaders from Benikuru and Kenyagbene communities in the Warri South-west Local Government Area of Delta State said that any one found to be vandalising pipelines in their communities will be given up to the authorities for lawful prosecution.

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HEALTH & SAFETY

Piracy continued to shift from East to West Africa as new oil finds spring up in the region. The vast Gulf of Guinea is now one of the most dangerous bodies of water in the world, home to pirates that attack oil tankers, raising fears that shipping lanes that have existed for 500 years could be permanently disrupted.

The piracy problem on the West African coast previously centered on the Niger Delta, but in recent years, it has expanded from the coasts of Nigeria to the shorelines of many of the 11 West African countries that border the Gulf where pirates seize large oil tankers, siphon the product into smaller vessels, refine it in illegal distilleries and quickly sell it, fuelling a regional oil black market.

The International Maritime Bureau (IMB) recently warned that the level of piracy off Nigeria’s coast and the Gulf of Guinea is threatening commercial shipping in the region. The IMB says that as a result of increased attacks in recent months, the cost of maritime insurance has also gone up. Vessels carrying gas and oil cargoes are most prone to attack due to their valuable cargo.

The IMB said that attacks have increased in recent months with pirates targeting ships

68

in the Gulf of Guinea. They said that in the first 9 months of 2013, 29 attacks were recorded against 21 for the whole of last year, with an estimated $100-million in oil products stolen since 2010.

The International Chamber of Commerce has set up a Piracy and Armed Robbery Prone Areas and Warnings section on its website www.icc-ccs.org/piracy-reportingcentre, where it details reports of incidents on piracy and armed robbery occurring anywhere in the world. It advises ships to monitor the IMB PRC broadcasts via InMARSAT Safety Net Service to be aware of the areas of risk and concern in order to maintain anti-piracy / armed robbery watches while in those waters.

Some of the incidents that were reported in 2013 were: n A fuel laden Nigerian tanker owned by Brila Energy was hijacked off the coast of Abidjan, in Ivory Coast, after being seized by armed pirates. n Nine people working for oil service companies, Octopus Clan Nigerian Limited and Deck Oil Services, were reported to have been kidnapped in Ilebiri Creek in Bayelsa State by gunmen while engaged in the repair of Agip structures.

A vessel, the Jascon, belonging to West African Ventures, a subsidiary of Sea Trucks sank off the cost of Delta State with a loss of 12 lives. The sinking of the Chevron-contracted tug boat was not been linked to pirates and appears to have been an industrial accident. The seas are said to have been particularly rough on the day of the tragic incident.

n

Four crew members, 3 Indians and 1 Russian were kidnapped by armed pirates from their vessel MDPL Continental One. The offshore fuel supply vessel was some 7 nautical miles off the Offon oil field when the boat, which was flying a Singapore flag was boarded by 14 armed men who arrived in speedboats.

n

Two US citizens were kidnapped from an oil supply vessel off the coast of Nigeria. The Movement for the Emancipation of the Niger Delta (MEND) claimed responsibility for the kidnap of the two American sailors from their vessel in the Niger Delta. The two sailors were on board a U.S.-flagged offshore supply vessel, which was attacked by pirates.

n

The kidnap victims are usually released without harm but normally after the payment of a negotiated ransom.

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