NOGintelligence June 2013

Intelligence

NOG Nigeria Oil & Gas Finance Edition

June 2013 www.nogintelligence.com

Report: President Jonathan’s Mid-Term Report on the Oil and Gas Industry Features: Top Banks in Oil and Gas Finance M&A: Unlocking the Hidden Value in Nigeria’s Oil and Gas Sector Profile: Dr Layi Fatona, MD Niger Delta E&P Ogbelle and What Inspires Him

OSCAR ONYEMA, CEO, NSE Attracting Oil and Gas Companies to the Nigerian Stock Exchange UPSTREAM | DOWNSTREAM | REGULATORY | FINANCE | LEGAL | ENVIRONMENT | LOCAL CONTENT | SAFETY

Editor’s Message Our cover story is the interview with Oscar Onyema, CEO of the Nigerian Stock Exchange in which he talks to NOGintelligence about what the NSE is doing to woo oil and gas companies.

We also feature the President’s Mid-Term Report on the government’s performance in the oil and gas sector. It makes interesting reading and gives you a chance to make up your own mind on whether or not this government is delivering its Transformation Agenda in this industry.

As if to anticipate our financial services edition, recent oil and gas events have focused on raising finance. UBA had Credit Suisse held a joint Breakfast Meeting highlighting the different financing structures available to the industry and the relevant financing structure for different stages of operations. FBN Capital held an oil and gas roundtable where they used the Afren story to highlight the kind of success that’s possible with the right advisory team. The law firm of Olaniwun Ajayi and the UK firm Herbert Smith Freehills held a joint seminar, which focused on Reserves Based Lending. WimBiz, the organisation which supports women in business held a seminar on Building the Petro-Dollar Woman in which the panellists made up of eminent oil and gas industry executives gave tips on opportunities in the oil and gas industry. Then just before we went to print, Energy Institute held a two-day event with the second day devoted to financing marginal field operations.

We are also pleased to include a firm favourite - our consolidated news section, which features a review of industry news for the last month.

We are excited to announce our monthly profile of an oil and gas personality every month, in which we do a personality profile to discover what makes that person tick. We kick off this month with Dr Layi Fatona. As Managing Director of Niger Delta E&P, he made time in his busy schedule to tell us what, apart from the thought of 8 million barrels of oil, gets him out of bed every morning.

This edition sees the debut contribution from Adrian Quine, ex BBC-broadcast and print journalist who has covered business developments around the world for over 25 years.

Next month’s edition will focus on Local Content and Corporate Social Responsibility. We will examine how international oil companies are developing local content and will also be looking at how the industry is giving back to their communities.

Do get in touch as soon as possible if you want us to consider your CSR projects. We also have advertising available to help you get your message out to the industry.

Remember that NOGintelligence is read in the corridors of power in Abuja and Government Secretariats across the country. This is a real opportunity to let the powers that be know what you are doing for your host communities.

Contact us as soon as possible for advertising deals in next month’s issue. Don’t forget that this is a free magazine and we rely on advertisements to produce and distribute the magazine.

Remi Aiyela Editor

We are excited to announce our monthly profile of an oil and gas personality every month NOG intelligence is published by: NOGintelligence Limited Address: Suite 3, Block C, 8b Fabac Close, Off Ligali Ayorinde Close, Victoria Island, Lagos Telephone: +234 807 839 1416 Email addresses: To subscribe: editor@NOGintelligence.com To advertise or sponsor: editor@NOGintelligence.com To send a press release or news item: newsdesk@NOGintelligence.com General enquiries: info@NOGintelligence.com Website: www.NOGintelligence.com

Contents 4 5 6 7 8 9

News: Upstream News: Upstream News: Downstream News: Regulatory News: Financial News: Other news

Breaking News: Introducing the New DPR Director

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Feature: Mergers & Acquisitions: Unlocking the Hidden Value in Nigeria’s Oil and Gas Sector Feature: Top Banks in Oil and Gas Finance

Cover Interview: Oscar Onyema, CEO, Nigerian Stock Exchange: Attracting Oil and Gas Companies to the Nigerian Stock Exchange

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Briefing: Guide to Listing on the Nigerian Stock Exchange Briefing: Guide to Listing on the Alternative Investment Market Feature: Preparing for an IPO Feature: Legal Issues in Oil and Gas Finance Briefing: Onne Free Trade Zone Briefing: Lekki Free Trade Zone Oil and Gas Circuit: UBA Capital, Olaniwun Ajayi, WimBiz, Energy Institute, FBN Capital

39 42 Feature: The Ogbelle Story 43 Tenders 44 Events

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Report: The Jonathan Government’s Mid-Term Report on the Oil and Gas Industry

Profile: Dr Layi Fatona, MD, Niger Delta E&P on Ogbelle and What Inspires Him

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NEWS

Upstream This month saw a lot of activity in the upstream world. There were new assets up for sale, new discoveries, new farm-ins, new FDI’s.

Unfortunately, oil theft continued to wreak havoc with Shell having to defer 150,000 bpd after the damage of the Trans Niger Pipeline.

As International Oil Companies (IOCs) continue the scramble to exit the troubled Niger Delta’s onshore and shallow water areas, Shell Petroleum Development Company (SPDC) has announced that it has begun a strategic review of the interests that it holds in selected onshore leases in the SPDC joint ventures. The company intends to exit more onshore leases from the Eastern part of the Niger Delta, subject to approvals from its partners and regulatory approvals.

SPDC says it has been following a “strategy of selective divestment” of its onshore portfolio.

Chevron to Sell Its Stakes in OMLS 83, 85, 52, 53 and 55

Deepwater Fields Attracted $48billion FDI in 20 Years

The top news for the month was the revelation that Chevron was putting up 5 oil mining leases for sale (OML) as the international oil company (IOC) exodus from the onshore area continues. The company is believed to have invited 20 companies to bid for the assets. The sale is being run by BNP Paribas which was able to secure a staggering $1.8 billion for the ConocoPhillips assets. Moyo Kamgaing, BNP Paribas Head of Corporate and Investment Banking for West Africa would not comment on the transaction. He was instrumental in winning the advisory mandate from ConocoPhillips and worked on the $1.6 billion advisory and financing mandate for Bonny Gas Transport. Recently, industry sources have linked him to Diamond Bank on a debut capital markets road show. With their recent success with ConocoPhillips, BNP Paribas is likely to recommend a single sale for the assets rather than breaking them up.

Deep water fields attracted foreign direct investment (FDI) of $48billion from international oil companies (IOCs) between 1993 and 2013 according to the Managing Director of Shell Nigeria Exploration and Production Company (SNEPCo), Chike Onyejekwe who was speaking at a forum.

The sale follows the onshore divestment by IOC trio, Shell, Total and ENI of their joint venture onshore interests. This was followed by the hotly contested competitive auction by ConcocoPhillips, in its case, divesting all of its assets in Nigeria. Total has also confirmed it is selling some of its assets and Shell is also considering putting up more onshore assets.

For some the trend is extremely worrying, but others see it as an opportunity for indigenous companies to enter the upstream play at a higher level than marginal fields. Already, First Hydrocarbon is said to be interested, after whetting its appetite with the Shell OML 26, which it acquired barely a year ago. Niger Delta E&P Omerelu field is on OML 53 and the company must surely be in interested in putting in a bid to consolidate the gas reserves on the block. It had to pull out of the ConocoPhillips race to concentrate on finalising the OML 34 acquisition, as part of the NDWestern consortium. Oando’s determined bid to up its game in the upstream sector could see it getting into the race. Certainly, its oversubscribed rights issue for the ConocoPhillips acquisition has given it real credibility.

Last year, Chevron’s net daily production in Nigeria averaged 238,000 barrels of crude oil, 165 million cubic feet of natural gas and 4,000 barrels of LPG. It is the operator of the prolific Agbami deep offshore block and also has interests in the Usan field, also offshore.

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Shell to Sell More Onshore Assets

He said that the investments came through deep-water projects such as Abo (Agip), Erha (Mobil), Bonga (Shell), Usan (Total), Agbami(Chevron) and Akpo oil fields. He said the investments were

pointers to the enormous opportunities presented by deepwater fields, especially in growing Nigeria’s economy.

The SNEPCO boss further said the International Oil Companies (IOCs) would invest about $165bn in the Nigerian oil and gas industry in the next five years, which is twice the value of the Nigerian Stock Exchange.

“A typical well in deep water costs about $150m and you will be spending another $500m for further appraisal.”

$165bn

Estimated investment in the Nigerian Oil and Gas industry in the next five years

James Bay Resources Completes Acquisition of Ogedeh Marginal Field Interest After nearly a year, TSX Venture Exchange listed Canadian company, James Bay Resources Limited has finally received ministerial approval for the assignment of a 47 per cent interest in the Ogedeh marginal field to it by Bicta Energy. James Bay intends to immediately re-enter the existing well on the block and begin commercial production soon after. The company will pay a farm in fee of $2.5 million in instalments for its 47% interest. It will 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. P1 reserves are expected to be in the region of 7 million proved recoverable barrels of oil.

Energia to Begin Production from Ebendo 6 Well in July Energia Limited, the operator of the successful Oando/Energia-owned Ebendo/Obodeti marginal field, is on course to complete its Ebendo 6 well this July. Upon completion of well-six, Energia is expected to produce 8,0009,000 bpd in July 2013 but says it has an aggressive drilling programme and intends to ramp production up to 15,000 bpd by 2015

The Ebendo/Obodeti Marginal Field (ex- Obodugwa/Obodeti Marginal field) located near Kwale, in Ndokwa West LGA, Delta State was awarded to Energia and Oando, in a 55%/45% equity split with Energia as the designated Operator in the 2003 Federal Government/DPR Marginal Field rounds

NEWS Heritage OML 30 Back On Track London Stock Exchange FTSE 250-listed Heritage Oil Plc, an independent upstream exploration and production company, has issued an update regarding production levels in its oil mining lease (OML) 30. This comes barely one month after the shares of the company, which is dually listed on the Toronto Stock Exchange, fell following revelations that OML 30 was not performing as expected. The company had been expecting to maintain production at the 35,000 barrels per day (bpd) pre-acquisition level but production had to be cut back due to repairs to a faulty manifold.

Labour issues exacerbated matters with production eventually down to 20,350 bpd prompting a share fall.

Gross production from OML 30 has now returned to rates of over 35,000 bopd and all of the key fields are in production. The company said that the temporary factors which caused lower than expected production levels over the first quarter had been successfully addressed.

Shell Shuts Pipeline, Defers 150,000 Bpd Due To Crude Theft

Afren and Lekoil Shares Rise with Significant OPL 310 Discovery

Shell Petroleum Development Company of Nigeria (SPDC) joint venture has shut the Trans Niger Pipeline (TNP) following an explosion and fire at a crude theft point on the 28” section of the facility at Bodo West in Ogoni land. This is a huge blow to Nigeria as the country’s production continues to decline as a result of oil theft.

London Stock Exchange listed Afren Plc’s shares are continuing to gain, at one time rising almost 30 per cent, on the 26th June announcement that it has discovered significant light oil accumulations in the Ogo-1 well on OPL 310. Newly Alternative Investment Market (AIM) listed partner, Lekoil’s shares have also surged on the news.

Oil was discovered at Ogo-1 at a depth of 10,518 ft (10,402 ft true vertical depth subsea) after a gross hydrocarbon section of 524 ft, with 216 ft of net stacked pay was encountered. The P50 prospective resources were estimated at 78 million barrels but that is now likely to be revised following indications that the resources are likely to significantly exceed previous estimates.

SPDC Managing Director, Mutiu Sunmonu said: “Unknown persons continued to reconnect illegal bunkering hoses at Bodo West even as our pipeline team were removing crude theft points.”

Shell Lifts Force Majeure on NLNG Gas Supplies The force majeure declaration by Shell Petroleum Development Company (SPDC) on its gas supplies to Nigeria Liquefied Natural Gas (LNG) has been lifted. In a statement to NOGintelligence, Shell spokesman, Precious Okolobo confirmed that the force majeure was lifted after repairs were completed. He added that normal gas supplies to NLNG had resumed.

With this discovery, Lagos State inches closer to becoming an oil producing state.

Lekoil Signs Agreement for Acquisition of Panoro Energy OML 113 Interest London-listed indigenous company, Lekoil has 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 oil mining lease (OML) 113 for $30 million. The acquisition will be made through its subsidiary Lekoil 113 Nigeria limited.

Total Begins Egina Field Development Total Upstream Nigeria Limited, the operator of the OML 130 block and owner of a 24 per cent interest has obtained the necessary approvals from Nigerian National Petroleum Corporation (NNPC) to award the main EPC contracts for the development of the offshore Egina field in water depths of around 1,600 meters, some 200 kilometers offshore Port Harcourt.

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.

Shell Takes FID On Trans Niger Pipeline The Shell Petroleum Development Company of Nigeria Ltd (SPDC), the operator of the Nigerian National Petroleum Corporation (NNPC)/SPDC joint venture (SPDC JV) 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.

Commenting on the projects, SPDC Managing Director, Mutiu Sunmonu said: “These investments will help to secure energy supplies for domestic and international markets.”

Total Awards Saipem $3 billion E&C Contract for Egina ENI subsidiary, Saipem, has been awarded a $3 billion contract for the subsea development of the Egina field, in Nigeria, offshore Port Harcourt, in oil mining lease 130. The field lies in water depths of up to 1,700 metres.

The contract is for engineering, procurement, fabrication, installation and precommissioning of 52 kilometres of oil production and water injection flow lines, 12 flexible jumpers, 20 kilometres of gas export pipelines, 80 kilometres of umbilicals, and of the mooring and offloading systems. The work is expected to be completed in the second quarter of 2017 when the field will become fully operational.

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NEWS

Downstream Oil prices finished the month high with the increasing unrest in Egypt, although the question that was on everyone’s mind earlier was whether OPEC would cut production or not at its scheduled annual meeting at the end of May. Some member nations had called for an emergency meeting even before that. The main issue worrying the members is the increasing self-reliance of the United States as a result of shale oil. This put pressure on the price of OPEC oil as some OPEC producers who were traditional suppliers to the US, particularly Nigeria and Algeria, have had to drop their prices to make their crude more attractive to distant Asian consumers as US imports continue to drop dramatically.

Nigerian has not exported oil to the US since February this year.

Many OPEC nations are heavily reliant on oil for their revenues and will be struggling

to balance their budgets with the recent trend below $100. The Nigerian Minister of Finance has had to deny publicly that the Nigerian economy is on the verge of collapse after rumours of some very terse closed door conversations in Abuja on this very issue.

At the OPEC meeting, the member nations decided that recent oil market developments, in particular supply/ demand projections, as well as the outlook for the second half of 2013, and the relative steadiness of prices during 2013 to-date were indications that the market was adequately supplied, the periodic price fluctuations being a reflection of geopolitical tensions. The Conference observed, however, that, whilst world economic growth was projected to reach 3.2% in 2013, up from 3% in 2012, downside risks to the global

89.7bn Barrels a day Expected demand for oil in 2013

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economy, especially in the OECD region, remain unchecked.

Moreover, while world oil demand is expected to rise from 88.9 million barrels a day in 2012 to 89.7 mb/d in 2013, driven almost entirely by the non-OECD regions, non-OPEC supply is projected to grow by 1.0 mb/d, and that OECD stock levels remain comfortable. Taking these developments into account, the second half of the year could see a further easing in fundamentals, despite seasonallyhigher demand.

In the light of the foregoing, the Conference again decided that Member Countries should adhere to the existing production ceiling of 30.0 mb/d. The next Ordinary Meeting will convene in Vienna, Austria, on Wednesday, 4 December 2013.

Regulatory This was a good month for the Nigerian Extractive Industry Transparency Initiative (NEITI) after it was named the “best extractive industry transparency. Nigeria was voted the best implementing country among 39 member countries that have so far embraced the initiative across the world.

The 6th Extractive Industries Transparency Initiative (EITI) Global Conference, took place in Sydney earlier in the month.

Chair of the International Board of EITI, Claire Short, commended NEITI’s implementation of the principles of transparency in the oil, gas and mining sectors describing it as the most comprehensive, courageous and ambitious.

Short said the award was in recognition of the increasing demands by Nigerians for accountability and massive reforms in the extractive industry.

The award, created by the world body is to encourage resource-rich countries to embrace the principles of transparency, accountability and prudent management of revenues from oil, gas and mining to aid national development and support poverty reduction.

The EITI International Board also expressed delight that as a result of NEITI’s interventions, the agency had succeeded in recovering the sum of $2 billion for the government and uncovering an outstanding sum of $9.6 billion as potential revenues for the federation account.

EITI also approved new reporting standards that will help it to achieve more transparency. The revised Standard to be implemented will

require more than just the disclosure of revenue data. EITI will now be required to obtain and publish information on: n How extractive industry revenues are recorded in national budges n An overview of licences and licence holders n Payments to government broken down by each company and by revenue stream n Production volumes n Transfers from central to local governments n Volumes sold and revenues received n Quasi-fiscal expenditures n Sale of state-owned assets n Financial transfers within the state Short commended Nigeria at the award ceremony, saying: “While implementation by other member countries was limited to reconciliation of revenue flows of what companies paid against what government received, the Nigerian government

NEWS

through parliamentary legislation extended the mandates of NEITI to include independent physical and process audits.”

One industry source commented on the new Standard, saying: “By including contracts and licenses, beneficial ownership, state-owned companies and production information, the new Standard could make EITI more effective in addressing the vast governance challenges facing resource-rich countries.”

Following the conference, the board and management of NEITI paid the President a visit and he has now given the order that NEITI is to receive high level co-operation in recovering the $9.6 billion uncovered by the audit.

President directed the Secretary to the Federation, Anyim Pius Anyim to set in motion the process of reconstituting the Inter Ministerial Task Team on the implementation of NEITI findings and recommendations. The team is to include requisite high ranking officers with the appropriate levels of authority.

The new Standard could make EITI more effective in addressing the vast governance challenges facing resource-rich countries.

Clare Short

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NEWS

Financial This month’s financial news seemed to be dominated by news of Nigerian oil and gas companies listed on the London Stock Exchange. Nigerian oil companies have generally fared well in the past 18 months on the floor of the London Stock Exchange (LSE) according to the Director of Canaccord Genuity, Mr. Tarica Mpinga. 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).

He revealed this at an Oil and Gas Roundtable in Lagos recently, where he said that although getting funding from the international investment market was difficult for African oil and gas companies generally, the story had changed for Nigerian companies in the past 18 months.

Mpinga further said Nigeria would play a bigger role in oil and gas development in Africa going forward, but emphasised the need for indigenous players to conservatively plan and map projections so that investors can clearly see and identify a trail for progress before putting their money in.

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To corroborate his claim that the mood of investors is changing towards Nigerian oil companies seeking funding in the international market, Impinga cited the example of Lekoil, a Nigerian company that was recently admitted to the LSE and raised $50m to fund oil and gas exploration in Nigeria.

For some though, it has been hard going. Shares in Heritage Oil plunged recently at news that it was not able to maintain its production targets but the shares have bounced back on the announcement of the new Ogo-1 find offshore Lagos.

Alternative Investment Market (AIM) listed Eland Oil & Gas 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).

Loss before tax and for the year from continuing operations narrowed to $14.19 million from the prior year’s $17.69 million. The major key factors contributing to the loss in 2012 were the $3.2 million of costs relating to admission to AIM, an increase in G & A costs as staffing numbers increased in Nigeria and the UK, additional legal and consulting expenses related to the debt agreement with Standard Chartered Bank and technical costs relating to their Competent Person’s Report.

Eland concluded a capital raise of £118 million in 2012, and listed on the AIM of the London Stock Exchange.

Eland, acquired a 45 per cent interest in Oil Mining Lease (OML) 40, located in the prolific Niger Delta, through its joint venture company, Elcrest Exploration and Production Nigeria Ltd, on 31 August 2012. The acquisition, secured for $154 million, was purchased from Shell Petroleum Development Company Nigeria Ltd (30 per cent), Total E & P Nigeria Ltd (10 per cent) and Nigerian Agip Oil Company (5 per cent). The Nigerian Petroleum Development Company (NPDC) is the operator of OML 40, which has a 55 per cent equity interest in the lease.

The company is maintaining a positive outlook, saying that it anticipates first oil from OML 40 in Summer 2013 with initial production of 2,500 bopd expected from the re-commissioning of the Opuama production facility and crude export line.

The initial two well drilling programme on Opuama has been agreed with NPDC and an updated Reserves and Resources report will be available mid-year 2013.

The company has also secured an option from Amocon to acquire a 40% interest in OPL 452, an exploration block, which is also located in the Niger Delta in Nigeria.

The option is open until 31 December 2013.

NEWS

Other News In legal news developments, Peak Petroleum has once again had to deny that it is in liquidation. This follows an advertisement by Mr Tamuno Nathan George of Tamumo George Chambers that he has been appointed as the liquidator of Peak Petroleum Industries Nigeria Limited. In the advert, he said that all debtors were directed to pay directly to the Liquidator, while creditors were to send proof of their claims.

Last year, Mr Tamuno George issued the same notice to say he had been appointed liquidator of Peak. At that time, Peak’s managing director, Dr Ayo Oluokun during an exclusive interview with NOGintelligence denied that a liquidator had been appointed. NOGintelligence also saw documents relating to a Court of Appeal order which ordered the respondent in the case to cease and desist from taking further steps in the execution of any order of court pending the determination of Peak’s application to the Court. Apparently, that application has not yet been disposed of, meaning that no further steps can be taken in the suit.

Responding to NOGintelligence by email, Dr Oluokun said of the latest notice: “It’s the same thing. There has been no new development. It is patently illegal and contemptuous.”

The company was awarded an Oil Prospecting Licence (OPL 93) in 1993. It was converted into an Oil Mining Lease (OML 122) in 2001. The OML has a 20-year lease expiring in 2021.

In labour news, the Nigerian Union of Petroleum and Natural Gas Workers (NUPENG) continued to threaten a strike after issuing a 14 day strike notice to oil majors, Shell Petroleum Development Company, SPDC, Chevron Nigeria Limited and Agip Oil Company.

President of NUPENG, Achese Igwe, is demanding a stakeholders’ national conference on oil and gas. He wants the conference to deal with labour issues in the sector. The Union is

accusing the oil giants of unfair labour practices which it says are worsening.

He said : “We are giving the Federal Government, the Ministry of Petroleum, the National Assembly among other well meaning Nigerians and groups, a 14-day ultimatum to intervene and summon an all embracing stakeholders national conference to address all labour issues in the industry failing which, we will declare an indefinite nationwide strike.”

Health and safety news included the tragic sinking of the Chevron-contracted vessel, the Jascon, belonging to West African Ventures, a subsidiary of Sea Trucks. It sank off the cost of Delta State with a suspected loss of 12 lives. Navy divers have recovered the bodies. It is not clear what the circumstances or cause of the sinking was. The incident has 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.

Local content received a boost with the revelation that oil and gas equipment manufacturers have pledged to invest $800 million in the oil and gas industry over the next three years. The statement came from the Nigeria Content Development Monitoring Board, (NCDMB) who said this it had issued more than 500 certificates to Original Equipment Manufacturers (“OEMs”) under its Equipment Component Manufacturing Initiative. NCDMB said that the initiative

is intended to get foreign OEMs to partner locally with Nigerian OEMs for the manufacturing of components and parts as well as the assembly of equipment in Nigeria.

The initiative is to be phased in with vital equipment being allowed only after

suppliers are able to convince NCDMB satisfactorily of its intention to manufacture components in Nigeria as soon as possible.

NCDMB’s target is to go from 10 per cent local content in 2012 to 50 per cent in 2015. NCDMB says it has also set itself the goal of obtaining 60 per cent Nigerian ownership of marine vessels by 2015.

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Breaking news

Great Expectations Introducing the New Director of the Department of Petroleum Resources (DPR) Mr George Osahon is the new Director of Department of Petroleum Resources after his appointment received presidential approval. He takes over from Osten Olorunshola who was appointed to the position in 2011 and leaves after serving for 19 months.

Osahon, who was the President of the Nigerian Association of Petroleum Explorationists (NAPE) is to bring to the new position his over 30 years experience in the petroleum sector. Previous positions held by the new DPR director include Group General Manager, National Petroleum Investment Management Services (NAPIMS); Managing Director, Nigerian Petroleum Development Company (NPDC).

George Osahon is also the Managing Director of Geo Concept Technical Limited, a company devoted to assisting assets holders and service companies in the upstream sector of the industry.

The company is involved in manpower supply, market trends and forecasts, HSE and community management and other advisory services.

Mr Osahon obtained a BSc degree in geology from Ahmadu Bello University, Zaria in 1974 and an MSc degree in Petroleum Geology from Imperial College, London in 1981. He joined NNPC in 1976 and rose to the position of Chief Geologist before leaving for the private sector in 1992.

Mr Osahon returned to NNPC in 2005 as the managing director of NPDC, then Group General Manager (GGM) of NAPIMS and lastly GGM Nigerian Content before exiting the Corporation in July 2009.

Industry insiders have welcomed the appointment. Biodun Adesanya, CEO Degeconek Nigeria Limited, a Fellow of NAPE said of the appointment: “It is a welcome development. I am sure the new Director has the capacity to deliver on the mandate given to him, given his long years of experience in the petroleum sector.”

brace up for the new challenge. “The task before him I would like to say is enormous but I am sure he is up to the task. So I would like him to start by hitting the ground running so that he would be able to make an indelible mark in his tenure as the DPR director,” he said.

Former NAPE President Jide Ojo commended his appointment urging him to

On the timing of his sudden appointment, industry commentators are saying

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There are great expectations of him, but we know he is up to the job

that it has everything to do with the marginal fields licensing rounds, which he will now oversee. Some are saying that Olorunshola parted ways with the Ministry over ideologies on the direction for the licensing round. Olorunshola had announced at the Official Launch of NOGIntelligence in March that the DPR was ready to hold the licensing round and was just waiting for the go ahead from the Presidency. That gave rise to feverish speculation that the announcement was imminent and the Minister in fact confirmed to NOGintelligence in May that the announcement would be within two months.

It is clearly going to be a big challenge to take over the Department and have a licensing round thrust on you shortly after, and especially coming just before the elections, but industry pundits say that if anyone can deliver, it will be Osahon.

One insider, who craved anonymity, said: “There are great expectations of him, but we know he is up to the job.”

INTERVIEW

Oscar Onyema, Chief Executive Officer, Nigerian Stock Exchange Oil and gas company sector representation on the Nigerian Stock Exchange has been disappointing so far. Only 10 companies are listed, most of them downstream, with a market capitalization of N235.17 billion, representing 1.49% of the total market capitalization. In this interview we ask Oscar Onyema to explain what he is doing to attract more oil and gas companies to the Nigerian Stock Exchange.

Do you think there is sufficient interest from oil and gas companies in listing on the NSE? If you look at the entire industry I would say that we are not seeing the kind of interest we would like to see. Having said that if you break it down to the upstream, downstream or midstream, we have a number of companies that are listed from the downstream sector.

From the upstream sector the one that is closest is Oando because it is an integrated oil and gas participant. So we would like to see a lot more activity from the upstream sector.

We have engaged a lot of the marginal field operators and we are encouraged by the responses we have got so far. A number of them are in the process and hopefully we should be able to get some listings from that area this year.

We are really encouraged by the Local Content Act. We think that the Act has help to bring expertise and local ownership and so the conversation we are having with the marginal field operators is more encouraging because they see the need to list not only to raise capital but to identify with other Nigerians and to diversify ownership.

What makes the NSE attractive to the oil and gas industry?

There are so many things that make us attractive. The first is the ability to raise capital. Oando just raised N2 billion with their rights issue and it was over- subscribed. That is on the rights issue. On the bond side most of the bonds issuance that have been done in the last 12 months have been oversubscribed. So the access to capital and the corporate governance requirement that we

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INTERVIEW enforced make us more attractive to these companies.

Don’t forget that this is an international market and a large proportion of the market is foreign and there are certain minimum standards that should be met with regards to corporate governance. It has helped the companies to become better.

We have value added services that we provide including institutional services, investor relation services and corporate access service.

So there is so much that comes with the listing and the fact that we are able to diversify the capital structure between them and equity.

We also looked at our listing standards and change them to benchmark them against the best capital market in the world. For example we are now looking at oil and gas companies’ technical Competence Persons’ Report. We are no longer looking for 5 years’ financials but 3 years’, in compliance with the International Financial Reporting Standards (IFRS).

There is a lock up period of 12 months up till 15 months. What this means is that for the principal that is coming to the market you can only sell 50 per cent. All of this is attractive because it means that you have skin in the game. Gone are the days when people will come and list in the market and before the general public can sell they would have already sold everything.

So, there are so many changes not only in the listing standards, but even in the market structure. We now have market makers that are making markets in these equities. Liquidity has really improved as a result.

Last year, we did $17 million per day worth of trading but this year it is more than $28 million. I believe if we update those statistics it should be over $30 million now. People can easily buy into these stocks.

The last thing is that the reputation of the exchange has greatly improved because of the strong regulatory environment. People want to identify with a good brand because listing is also a branding decision. A company wants to be amongst the best in the industry. It also would want to be associated with an Exchange that has credibility. All of these things that we have done have brought back confidence not only in the secondary market, but also in the primary market.

Why have Marginal Field operators not seen listing as a way of raising capital to address their funding challenges?

In the past, most of them were looking for listing on the London Stock Exchange (LSE) and other stock exchanges but I must say it is not that easy. When we came in 2011 we found out they were not looking at us and we had to make a lot of changes to make us an attractive listing destination and the conversation we are having now for those that have gone far in other jurisdictions, is a joint listing. But for those that have not gone so far it is single listing. In all cases we will be the primary market because we are making a point as part of the Local Content Act. For Marginal Field Operators, is listing possible at the early stages of their operations or do they have to reach first oil before listing?

The market is not sophisticated enough yet for companies to come at that early stage. We would expect that they raise their first round of financing, even second round before they come to the market to refinance or to diversify their finance. You don’t have to be producing oil but you must take full control of the asset.

You must put in place some of these things we are talking about before you can come to the market. In more sophisticated markets, you have what is called a Special Purpose Acquisition Vehicle (SPAV) and based on the reputation of the management they can come to the market and raise money and use the

money to do the bidding, but we are not there yet.

What do you think about the ability of advisory firms to advise companies especially those in the oil and gas sector on listing on the NSE? And how are these advisory firms regulated?

The advisory firms have actually been advising a lot of companies to slow down because they are looking to maximize value. We believe that sometimes it is good for a company to come in and not extract maximum value on the day of listing. But they want to list and expect the share price to go up pronto.

I know there are two categories of issuing houses. All of them are registered with the Securities and Exchange Commission (SEC). In addition to that registration, they are members of the Nigerian Stock Exchange.

At the Exchange we have a sales department called Listing Sales and Retention. Their job is to find prospects and pitch the listing proposition to determine if it’s right for them.

They work closely with the issuing houses and other professionals like the reporting accountants.

The interesting thing is that you find that more and more that we are engaging these companies. We have a good idea of the companies that have made the decision and are working towards it and have selected their professionals. We have moved up upstream a little bit, to engage the customers before they are ready - to nurture them and tell them the things they need to do.

For example one of the reasons why a lot of companies are not ready to come to the market is because they have to convert from Nigerian Reporting Standard to International Financial Reporting Standard (IFRS). You find that when we go to talk to companies and when we ask them if they are IFRS compliant, they are not aware. So now they are getting advice especially on valuation but we find that increasingly how to better these companies is by telling them things they need to do to meet the market target.

What kind of companies (in the oil and gas sector) do you want to attract?

If you are looking upstream oil and gas, there are a number of things we are looking for. We are looking for companies that have good corporate governance, companies that have verifiable reserves on the ground that are already producing. We are looking for companies that have a good strategic story to tell. What is the growth trajectory? If they are not already making profit, when are they likely to make profit? If they are making profit how are they going to grow it?

But I think the most important thing is that the people that are behind the company are credible and trust-worthy and that the assets they have are verifiable. So if we go there we will find out how many thousand barrels you produce in a day and how much you have in

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INTERVIEW

the ground. You won’t be the one to tell us, as a competent person would make us know this.

We want the investors to know that they are investing in an entity that is verified by a third party.

What do you mean by good corporate governance?

When we think of corporate governance there are many constructs. But generally corporate governance has to do with the methods and systems of organizing a company properly. The SEC has its own code of corporate governance, CBN has and PENCOM too has.

There is an effort to consolidate all of these under FIRC and have one national standard.

In terms of goal standards for corporate governance I think the one from South Africa is be a good one. They have evolved. There are other codes out there. There is the OECD code there is the United Nations code.

But the general idea is that the company must be properly organized. There must be check and balances. They must have an appropriate governance structure like a Board of Directors and committees that are tasked with certain things like governance, audit and risk management depending on the industry you belong to. Some people have a technical committee. There is the finance and generalpurpose committee.

These committees are supposed to oversee what management is doing and provide appropriate guidelines to make sure that these companies are run properly. If you

notice the imbroglio we had in this market some years ago – it was a breakdown of corporate governance. It is something we are taking very seriously. In fact we are now working with our partners to come up with a rating system for corporate governance for these companies.

We are creating an index for these companies to meet the minimum cut-off mark. The rating methodology is going to be publicly verified.

That is what we mean when we talk about corporate governance. The totality of the firm entails looking at the management, the way they are putting policies and procedures in place, its appropriate processes properly documented. Then it shows you that this is an institution, it is not around one individual. So the investor will know that his money is safe if he invests. If he loses his money it is because of market conditions not because somebody stole the money or somebody mismanaged the money.

Does the NSE feel threatened by the growing rate at which foreign stock exchanges like the LSE are wooing Nigerian oil companies? Or do you see them as allies?

The Nigerian opportunities are huge. We are not the only ones that recognise it. They too recognise it and are trying to take advantage.

From that perspective they are competitors.

They also recognize that we are stepping up our game and some of their tactics have become more of collaboration. So why don’t we partner and create a joint listing avenue for the market and raise funds simultaneously

here and there? We have always said we will partner with the best as long as the benefits do not go one way which is why we want a dual listing. Companies in those jurisdictions should also access the market here vice versa.

What are the advantages of a joint/dual listing?

When I was in New York we used to go to Isreal and Toronto. But people have different strategies. We went to these places and tried to partner with their exchanges. We wanted to dual list them. Other exchanges took the approach that they would go and take the companies.

We found that the dual listing approach was vastly more successful not only for the exchange but for the companies. The P/E ratio improved because you had new players coming into the system. You would expect that this would happen here as well. But the problem is fecundity.

We need to work on the post trade processes to make it such that I can buy in London and sell in Lagos or buy in Lagos and sell in Johannesburg. If we want to do that today it is quite clumsy. So those challenges needed to be properly addressed in order for companies to maximize the benefits of dual listing.

Be that as it may if you are just looking to access capital you can access capital in those places but the problem is can you do

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INTERVIEW a secondary trade/transaction and have liquidity in the system for post-listing? What we find is that most of companies that go and list in these markets are not big enough to transact on the senior board but on the junior board. If you look at it there is no liquidity in the system.

That is the advantage that we bring because if you are listed here you will see more activity here and we drive pricing here because the growth opportunity is in Nigeria and the activity is here. So when we cough here it affects not only the share price of companies that have dual listing, it even affects the share price of companies that have subsidiaries here.

What do you think is the level of sophistication of an average investor in oil and gas companies on the NSE? First of all Nigeria is an oil economy in the sense that most of our foreign earnings come from oil. Most Nigerians understand the value of the asset that we have. I think one of the benefits of listing is visibility.

Oando did not just become visible because of the name but because they are listed and people see their name everyday. The companies no doubt would have to do some marketing work. People understand the value of the assets they have in the grounds.

For most people buying into the upstream operations of Mobil, Chevron and other IOCs it is a no brainer. For the marginal field operators, most of them have very good economics because the exploration has been done.

Already it is just for them to maximize output from these fields.

What measures do you have in place for companies that breach NSE rules and regulations?

We have done a number of things. When we came in 2011 we found out that a lot of companies have not reported their financials and as a result we suspended 48 companies.

We started working proactively with them to meet the post-listing standards. Since then we have fine-tuned the process. The way it works is that we use a transparency tool that is called Ex-Compliant report. It is available on our website - it is a monthly report which shows the compliance level of each company.

Any company that has not submitted its financials you will see it there while the company that is restructuring will also be seen there.

Transparency is one way to address the problem. The second way is to have a clear and escalating roadmap with regard to enforcing corporate governance. So if a company does not file its financials there are monetary penalties and the longer it goes the higher the money becomes. We actually increased the penalty from N10,000 a week to N100,000 a week, making it painful for companies.

The third thing we did is that we said we will no longer use technical suspension as a first line of action. We will publish the list of those

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What I have to say to oil and gas companies is that NSE is here to make capitalraising a lot easier for them

Oscar Onyema

culprit companies and get them delisted. If a company is not ready to report their financials in the public market they have no business in the public market, because people cannot buy their shares without having visibility into what they are doing.

The other thing we have done is that we have introduced the Ex-Issuer portal to make it easy for companies to file their financials and forecasting and any market moving information. I believe the compliance rate in terms of using the portal is over 80 per cent.

We also call them two months before the due date to inform them that their financials would due by that time. This year we gave them additional one-month moratorium because every one was struggling with the IFRS conversion. We engaged FIRC to jointly

address this problem and that really helped and everybody appreciated it.

I can tell you that for the 2011 financial year the compliance level was over 95 per cent. For 2012 we are currently in the 78 per cent range and that is because most of the insurance companies have not reported their financials owing to contending issues.

What is your view about the NNPC not being listed, unlike other NOCs like Petronas and Petrobras?

With the way they are structured now they cannot list. But with the PIB calling for the unbundling of the Corporation, with good corporate governance, it will be possible for it to be listed. Because it is a national asset, it should be owned by all Nigerians and it can be transformational just as the listing of Petrobras and Sinopec and other NOCs was transformational for their countries. It has a multiplier effect that can be really positive for the economy.

What advice would you like to give oil and gas companies as regards listing on the NSE? What I have to say to oil and gas companies is that NSE is here to make raising capital a lot easier for them. We want to support their business strategies and make sure they have the necessary capital to execute and meet their vision and objectives. A listing route may be appropriate for them and we are happy to explore that with them to make sure they get the cheapest source of funds and diversify the sources of funds.

FEATURE

Mergers & Acquisitions Unlocking the Hidden Value In Nigeria’s Oil and Gas Sector The growth of M &A in the Nigerian oil and gas sector has been strongly influenced by two factors. Firstly, the international oil companies’ (‘IOCs’) need for global portfolio optimization, and secondly, the indigenization policy of the Federal Government of Nigeria. In this article, investment advisory and project development firm, CBO Capital give their views on how the hidden value in Nigeria’s oil and as sector can be unlocked through mergers and acquisitions and local listings.

Huge M&A Potential

Prior to 2010, mergers and acquisition (M&A) transactions in the oil and gas sector were few and far between, and information on such transactions was only available to a select few. However, the 2003 marginal field round raised local interest in the oil and gas sector (when 24 fields were awarded) and this was further stimulated between 2010 and 2012 when seven (7) notable transactions with values ranging from between US$100m, and US$2.5bn and a total a value of US$3.99bn were concluded.

Although positive, this growth in M&A remains significantly under developed, when compared with other oil producing countries.

Norway for example, with an oil reserve profile of just 6.9billion bbls, conducted US$3.6billion of M&A transactions, and Canada with an oil reserve profile, slightly higher than Nigeria’s, of 175.2 billion bbls, conducted 299 M&A transactions valued at US$64.8billion between 2011 and 2012 alone.

Using the average transaction run rate of oil and gas M&A in Norway, and Canada, the Nigerian oil and gas market has the potential to grow to a value of over US$9.72 billion annually.

Unlocking the value in this sector would possibly see US$2.9bn in equity, and US$6.08bn in debt being raised to finance these transactions. The potential for this growth is further underpinned by the announcement by Chevron Nigeria Limited (“CNL”) of its intention to divest from its interest in five onshore assets, indications by the Shell Production Development Company (“SPDC”) that it will undertake further asset divestment from 28 leases, and the anticipated, Marginal Field bid round, to be conducted by the Federal Government of Nigeria.

In so far as these figures are achievable, our concern is that a significant portion of the expected opportunity (economic multiplier effects) may be lost because of various gaps.

Gaps 1. The absence of local market place and financing market place for the sales.

2. The absence of information.

3. Nigeria’s cumbersome process of asset transfer.

↔ ↔

Local Listings and the Nigerian Stock Exchange

While existing oil and gas asset holders have shown significant interest in the possibility of monetizing their assets, a large number of license holders do not understand, or are unable to realize the value of the assets in their possession. This inability to access value (through a liquid and active exchange) has led to a depressed market value of assets, an undeveloped M&A market, and inadequate representation of the oil and gas sector on the Nigerian Stock Exchange (“NSE”). Imagine if the only way to sell your home in Nigeria involved organizing and financing the sale in London! Logistics alone would severely limit the volume of transactions that would occur.

Despite the significance of the oil and gas sector to the economy, and the potential of the upstream sector, it currently has miniscule representation in the Nigerian capital market. At the present time, there are no pure upstream players (mainly downstream operators), and when they are counted, their share of the market capitalization of the exchange is -2% (Export Earnings 95%, GDP 41%). This is a huge gap, when compared to countries with comparable resource production, and reserve profiles; the Norwegian oil and gas sector accounts for 46% of the Oslo Stock Exchange (“OSX”), while the Canadian oil and gas sector accounts for 39% of the Toronto Stock Exchange (TSX).

The lack of access to funding has limited the sector’s growth potential, starved local pension funds, and investors of upstream, oil sector growth investments, and has limited the sector’s impact on the Nigerian economy. This results, albeit, indirectly, in the overheating of the existing assets/ sectors that are represented in the markets.

The leadership of the NSE, and the Securities and Exchange Commission (“SEC”) is actively working to create an enabling environment for oil and gas listings, and it is expected that the transaction and approval process is equally being addressed at the Ministry of Petroleum Resources, the Nigerian National Petroleum Company and subsidiaries. Their efforts and progress are commendable, and it is expected that the moves towards transaction transparency and process simplicity will be used to drive the local, secondary M&A market which could unlock billions of dollars in hidden asset value in Nigeria.

Opportunities 1. Increased upstream oil and gas representation in the Nigerian Stock Exchange & debt markets as participants seek transaction financing.

2. Increased work, skill development and job creation in sectors that will service this M&A market.

3. Increase in government revenue from taxes, transaction fees etc.

4. Ease of oil asset monetization by licence holders.

5. Increased participation by Nigerian Entrepreneurs.

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FEATURE

Top Banks in Oil and Gas Finance From their initial status of just being lenders of soft loans, major commercial banks in Nigeria have become fully active in the provision of finance for oil and gas projects, particularly in the last two or three years. Buoyed by a capital base of close to $10 billion and Eurobonds these financial institutions have been involved in developing the industry, which is believed to be the country’s greatest foreign exchange earner.

Whether in the upstream, midstream or downstream sector, Nigerian banks are progressively becoming noticeable in the financing of the industry unlike previously when funding of oil and gas projects was the exclusive preserve of international finance institutions.

In this report, NOGintelligence presents some of the leading Nigerian banks that were at the forefront of oil and gas financing in the country last year.

Diamond Bank Diamond Bank’s recent recognition as the Best Oil and Gas Investment Company in 2012 for Africa by London based World Finance Magazine has once again confirmed its position as one of the leading financial institutions in Nigeria with a positive bias for funding of oil and gas projects.

One of the projects financed by the bank is Orient Petroleum’s Anambara River Production Facility in Aguleri Out, which was launched by President Goodluck Jonathan.

The facility is the first ever production facility of oil from an inland basin in Nigeria.

The bank said the award further shows its commitment and support for the development and growth of the Oil and Gas Industry over the years.

Earlier in the year, the bank had also said it planned to raise $550 million in debt or equity to expand its lending operations this year. The bank revealed that the funds would be used to increase lending to the oil and gas, power and infrastructure sectors in Africa’s second-biggest economy.

As one of the leading banks in Nigeria, the bank says it is committed to working with industry leaders to ensure that the energy sector is developed rapidly by lending full financial support to this all-important sector.

After a critical overview of the Oil and Gas industry, the bank took strategic steps to strengthen its presence and relevance in the industry.

This led to the bank’s energy business being restructured into four business lines - Oil and Gas Upstream, Oil and Gas Downstream, Maritime & Oil Services and Power - to enable the group to put more focus on deepening and growing relationships with the major local and foreign operators in the industry.

The bank has so far committed over $1.0 billion to Oil and Gas deals in the past one year. Among its recent oil and gas finance achievements are: n Financed the highest number of marginal fields of any bank. n Actively participated in the SPDC divestments. n Financed the highest number of rig acquisitions in Nigeria. n Financed the first Nigerian wholly owned jack up barge of over 200ft.

Speaking to NOGintelligence on the exploits of the bank, the Business Manager, Energy Division, Diamond Bank Plc, Olumuyiwa Lawal said that what Diamond Bank has been doing in the last two years to support the oil and gas industry is quite unprecedented, as it has made large chunk of the money its vaults available as for oil and gas companies and contractors to execute projects in the highly capital intensive industry.

Diamond Bank is in partnership with the Nigeria Content Development Monitoring Board (NCDMB) and the Nigerian Maritime Administration and Safety Agency (NIMASA) for the disbursement of the Nigerian Content Development Fund and the Cabotage Vessel Finance Fund (CVFF).

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FEATURE

Fidelity Bank Adjudged by the Project Finance Magazine, a publication of Euromoney Plc, United Kingdom as the winner of African Oil & Gas Deal of the Year 2012, Fidelity Bank Plc is another major financier of the oil and gas industry.

The bank, alongside other local and international banks and legal firms, won the award for the $1.5bn syndicated financing for the 2012 drilling programme of the Nigerian National Petroleum Corporation/ExxonMobil Joint Venture through their Special Purpose Vehicle, RDP Funding Limited.

This, the organisers said, was the most interesting financing to emerge not only from Nigeria, but also from the African upstream sector.

A statement from the bank said: “The $1.5bn deal builds on the JV’s earlier receivables-based deals, including the $600m satellite field financing, which closed in 2005 and backed the development of live specified fields, and the $1.42NGLII refinancing, which closed in January 2011.”

Just recently too, the bank signed a $500 million memorandum of understanding with Shell to finance its local contractors.

The bank has also asked Citibank

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to lead-manage a planned 5-year Eurobond this year that should come in at around $350 million to fund oil, power and infrastructure projects. The bank is targeting a 15 percent growth in its loan book for 2013, from its current 400 billion naira ($2.54 billion) value.

In February it launched a $100 million 2-year loan facility, also managed by Citi, which analysts said tested the water for possible bigger issuance.

The bank has supported several projects with dollar financing needs including two “significant size gas pipeline projects.”

Of the impact of the various projects being financed by the bank, the MD, Mr Fidelis Ihejiahi, said the bank had enhanced market competitiveness through improved infrastructure, quality service delivery system and increased nationwide spread.

He explained that Fidelity Bank had garnered a great deal of experience from its past involvements in oil and gas contract finance and promised to deploy this wealth of experience in the development of the local economy.

FEATURE

First Bank Just recently at an international oil and gas conference, the bank’s oil, gas financing portfolio was disclosed to have hit $3bn.

The Executive Director, Corporate Banking Group of the bank, Mr. Kehinde Lawanson, who said this, noted that the bank has participated immensely in both upstream and downstream transactions in the industry. The financing package represents 37.40 per cent of the bank’s portfolio.

The amount, the bank said represented its total financing activities for the upstream, midstream and downstream sub-sectors of the oil and gas industry.

Some of the company’s past and ongoing projects include the Otorogu Gas Plant rehabilitation and capacity expansion for Lee Engineering Limited; SSAGS/SPDC project for the provision of solar industrial gas turbine driver; Nembe Independent Power Project with Lee Engineering; and Forcados, Yokri Integrated gas pipeline project for OPI International Limited.

Others, include EPC for SPDC domestic gas pipeline project being handled by Makon Engineering Limited; total commitment of $1.2bn for the financing of importation of refined petroleum products and export of crude on behalf of the Nigerian National Petroleum Corporation; total commitment of over $650m to the funding of marginal field operations, as well as expending $270 million for offshore pipeline projects and $234 million as local contract support for specialized vessel acquisition scheme.

He added that some of the bank’s activities in the sector also included a vessel finance facility of $52m for the purchase of two jack-up barges to be leased to Mobil Producing for the execution of a contract. He further explained that the United States Exim Bank provided $36,021,786.55 for the project. In addition, the bank provided a $15.15m term loan to finance the acquisition of two vessels to service a five-year charter party contract awarded by Chevron Nigeria Limited to Fymak Marine and Oil Services Nigeria Limited, a wholly indigenous company, he said.

According to Lawanson, financing of the oil and gas sector can be achieved by healthy and sincere engagement with the industry operators and regulators with a view to understanding their transaction risks better and deducing possible mitigants.

$3bn First Bank’s oil and gas financing portfolio

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FEATURE

Skye Bank For Skye Bank, the bank’s loans exposure to the oil and gas sector is believed to have risen to $1 billion (about N159 billion) within 24 months.

Of the total $1 billion in loans, the upstream sector, including the sole financing of four marginal fields and part financing of an additional four, used up $700 million, downstream $200 million while total loans to oil service companies amounted to $120 million.

One of the more prominent projects it has financed is Pan Ocean Oil Corporation’s Ovade-Ogharefe Gas Processing Plant in the Niger Delta. The plant was designed as a Carbon Emission Reduction Project with the capacity of delivering 200 million standard cubic feet per day of gas (mmscf/d) of dry gas to the domestic gas market for power generation and industrial development.

Pan Ocean is the operator of the Oil Mining Lease (OML) 98, with 40 per cent equity, while the Nigerian National Petroleum Corporation (NNPC) holds the remaining 60 per cent. Skye Bank provided funding for Pan Ocean’s 40per cent equity under the Joint Venture with NNPC. In a statement, the bank said that the funding of OvadeOgharefe was another demonstration of the active support of the bank towards actualising the Federal Government’s local content aspiration in the oil and gas sector.

Access Bank Access Bank Plc is one of the leading banks in the country trading in ordinary shares and a three-year convertible bond listed on the Nigerian Stock Exchange and also an Over the Counter (OTC), Global Depository Receipts (GDR) traded on the London Stock Exchange which it exploits for financing major projects across the major segments of the economy. The bank says it intends to grow its loan book by 15 per cent this year, up from 5 per cent in 2012, channelling funds to oil and gas financing among other sectors.

Access Bank, which rates itself as Nigeria’s Corporate Bank Leader, plans to be “the world’s most respected African Bank” by 2018 but has set a mid-cycle goal post by 2015 of being a “high performing Nigerian diversified banking leader.”

Access Bank Plc has always looked capable, being one of Nigeria’s largest financial services provider with an asset base in excess of N2 trillion ($12.6billion as at February 2012). In common with four other banks, Access Bank has committed N160billlion ($1billion) towards a fund of N950billlion ($6billion) to provide finance for indigenous contractors of Shell Petroleum Development Company (SPDC). The fund will enable local contractors to execute large-scale projects in the local content drive.

The bank said it participated in this huge venture because of the abiding belief that contractors are key to the oil industry and also due to the bank’s commitment to delivering value. The bank also said it will participate in the financing of oil firms acquiring divested assets from

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Shell and Chevron, using some of the proceeds of its $350 million Eurobond sale.

“We have a balance sheet in excess of $12 billion, so, our capacity to take on huge financing in the oil sector is not in doubt. Oil and Gas is one of the ways we can truly kickstart the Nigerian economy, and we are solidly positioned in the sector. We have over 300 branch network in Nigeria plus others outside Nigeria especially in the UK,” the bank said in a statement.

Shareholders’ equity in the bank is valued at approximately N373.5 billion ($2.33billlion). After the successful acquisition of former Intercontinental Bank, the new Access Bank Plc had created an expanded bank, one of the largest four commercial banks in Nigeria with over 5.7 million customers, 309 branches and over 1,600 Automated Teller Machines (ATMs).

FEATURE

Stanbic IBTC With a wealth of experience in structuring and advising Oil and Gas Companies seeking to raise capital both locally and Internationally, Stanbic IBTC and the Standard Bank Group has built a strong reputation as a responsible and professional financial service provider to the Nigerian Oil and Gas Industry.

providing end to end cross border financial services and solutions to O&G companies. The banks product offering include: Project & Structured Trade Finance, Advisory and Capital Raising, Oil & Gas Asset & Trade Finance, Reserve Base Lending Development Financing and Transactional Service amongst others.

Stanbic IBTC Bank has successfully supported Nigerian and International companies in providing trade, asset acquisition and field development financing across the upstream, midstream and downstream segments of the oil and gas industry.

The bank has led a number of landmark transactions in the oil and gas industry and has been active in the transformation of the industry over the last couple of years with a bulk of the deals in the last 24months. This can be seen by its leading role in advising and financing indigenous player under the recent IOC’s divestment process.

Stanbic IBTC was involved in four of the five completed Shell transactions as: n Joint Financial Adviser in the Seplat $250 Acquisition Financing, n Joint Mandated Lead Arranger in the FHN $230m Reserves Base Facility n Co- Coordinating Mandated Lead Arranger in the Neconde $470m Reserves Base Lending Facility

As member of the Standard Bank Group, the bank can draw on its depth of experience from an international resources pool base in structuring and executing multifarious oil & gas transaction. The team is made of seasoned bankers with both technical and commercial industry experience with an average of over 30 years both locally and internationally in the

n Global Coordinator and Mandated Lead Arranger in the Shoreline Natural Resources (“SNL”) $550m Acquisition Bridge facility. n Joint Mandated Lead Arranger & Lender in the Indorama Eleme Fertilizer Company $1.2bn 8year Senior Secure Facility The bank over the years has also been active in providing working capital support and structured trade facilities to local players in the downstream sector to support importation of refined petroleum products. The aforementioned brings to bear the bank’s ability as one stop shop in offering a full suite of banking service to player in the Oil & Gas Industry.

Stanbic IBTC’s deep insights into the Nigerian Oil and Gas Industry is underscored by a strong transaction track record, deep industry relationships and extensive local & international coverage, have helped to cement the bank’s position as the go-to bank for innovative financial solutions.

Newcomer

Heritage Banking Company Limited vessels and barges for the IOCs and other indigenous companies. We also intend to assist in the acquisition of land and swamp rigs on behalf of our customers, finance EPC contracts and other contracts in the Oil Servicing space.

Heritage Banking Company Limited (HBC) is the latest entrant to the banking industry in Nigeria. The Bank which opened its doors to customers on March 4, 2013 presently operates from 6 “Experience Centres” with plans to close the year with over 16 Experience Centres.

As with most banks in the industry, HBC intends to deal in the financing of downstream activities such as importation and local trading of petroleum products.

Supported by our world-class technology and leveraging on our skills and expertise we intend to create a niche for ourselves in the Midstream, Upstream and Oil-Services

sub-sectors of the industry. The mainstay of our participation in the industry would include the financing of field development activities, construction of crude and gas pipelines, financing the acquisitions of

Apart from ensuring that the available funds are matched with the appropriate financing cycles, we pride ourselves to have invested a lot of energy, time and effort in understanding the peculiarities of each sub-sector within the industry in order to identify the funding requirements. In a bid to spread our risks, we plan to ensure we participate in as much syndicated loans as possible.

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REPORT

President Jonathan Government’s Mid-Term Report on the Oil and Gas Sector Key achievements of the oil and gas sector in the first half of the Presidency, all of it on Minister of Petroleum Resources, Diezani Allison-Madueke’s watch In line with the objectives of the Transformation Agenda, the government feels it has made substantial progress in the petroleum sector, “through current reforms to unleash the potential positive effects of the sector in mainstreaming the private sector as the engine of growth.”

Upstream

n The sector recorded an increase of 1.047 billion barrels in reserves to 37.119 barrels in 2012 from 36.042 barrels in 2011. n Crude Oil production (including condensate) averaging 2.30 Million Barrels per Day has been consistently maintained in spite of oil bunkering and pipeline vandalism; n Completion of the processing of about of 1,096km2 seismic data. Phase 5 seismic data acquisition commenced in Dec. 2012, while scanning and vectorization of 380,471.69 km 2D seismic section commenced in Oct 2012;

Midstream

There are gaps in the maintenance and efficient management of the four refineries in the country, which account for the poor performance of in-country refining; and in the enforcement of the Gas Flaring legislation of 2004.

There are also on-going negotiations to fully privatize all refineries by transferring ownership, management and finance of the refineries to the private sector. When completed, this will attract billions of dollars in foreign investment and further promote technical and skills transfer to Nigerians. This will also help save for the country significant foreign exchange, by the gradual containment of petroleum products imports.

Achievements in the sector include: n Revamping of the Fluid Catalytic Cracking unit (FCCU) in Kaduna Refinery after eight years in limbo, to boost local refining. Currently the Kaduna refinery is producing at 60 per cent of installed capacity; n On-going rehabilitation of the Port Harcourt and Warri refineries to meet at least 70 per cent of the country’s needs. This will save $3.5 billion in foreign exchange and enhance tax payment to treasury;

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Downstream

For a long time in Nigeria, the petroleum subsidy system had constituted a major financial drain on the economy. The Petroleum subsidy payments had grown sharply in recent years – from N256 billion in 2006 to N2,100 billion in 2011 – a 720 per cent increase.

Between January 2006 and August 2011, total Government expenditure on petroleum subsidies amounted to N3.7 trillion. In January 2012, an attempt was made to fully remove the subsidy, resulting, however, only in partial removal due to the robust public protest at the measure. Achievements in the sector include: n Reduction in the payment of fuel subsidy of over N2 trillion in 2011 to about N1 trillion in 2012 through the introduction of certified cargo inspection, and reduction in the number of participants by 67 per cent from about 128 in 2011 to 38 currently.

Gas Utilisation

Implementation of the Gas Master Plan (GMP) led to rapid development of the gas sector and increased industrial and domestic gas utilization. n A Gas Pricing Policy has been put in place as an incentive for upstream gas suppliers and to ensure predictability, affordability and availability of gas; n The actual gas flared stood at 20 per cent in 2012 as against 24.3 and 25.8 per cent in 2010 and 2011 respectively.

n The savings from the partial removal of subsidies are being used for projects to improve job creation and the inclusive growth policy of government, through the Subsidy Reinvestment and Empowerment Programme (SURE-P).

n Calabar-Umuahia-Ajaokuta-Kaduna-Kano Gas Pipeline - Trans-Nigerian Gas Pipeline (TNGP): Expansion of the existing western network system i.e. the Escravos Lagos Pipeline System (ELPS) and reinforcement of the Northern and Eastern network systems involving:

n Reduction of daily consumption of premium motor spirit (PMS) from over 60 million to about 40 million litres per day in 2011 and 2012 respectively, due to improved documentation process under project Aquila.

This has also led to a reduction in the subsidy gap, following the increase in pump price from 65 to 97 Naira/litre;

- Oben-Geregu: Construction of a 36” x 136 km gas pipeline from Oben to Geregu to address supply deliverability to Geregu power plant and future expansion work. The project was completed in November 2011;

n Project Aquila payment efficiency has encouraged increased investments of N53 billion in the downstream sector resulting in emergence of additional 27 new depots from 44 locations in 2010 to 71 depots in 2013, 1,000 new retail outlets and 800 new trucks; n Reduction in the payment of fuel subsidy of over N2 trillion in 2011 to about N1 trillion in 2012 through the introduction of certified cargo inspections, insistence on adequate documentation, reduction of the number of participants by 67 per cent from about 128 in 2011 to 38 currently;

- Itoki-Olorunshogo: A 24” x 31 km gas pipeline designed to supply gas to Olorunshogo PHCN/NIPP power plants has been successfully completed and is currently supplying gas to the plant; - ELPS A-Escravos-Warri: Construction of a 24”/30” x 104 km to address the effective evacuation of stranded gas in Escravos. 80mmcf/d is being currently supplied to the domestic market, while a further 70mmcf/d would be made available to the domestic market by October 2013; - Obiafu/Obrikom-Oben (OB3): A 48” x 127 km gas pipeline construction project awarded in April 2012.

The completion date is 2014; and ELPS 2-WarriOben-Lagos: An ongoing project for the construction of a 36” x 324 km gas pipeline to expand the current

REPORT gas supply from 1bcf/d to 2bcf/d by the second quarter of 2013. n Trans-Sahara Gas Pipeline (TSGP): As an offshoot of the Trans Nigeria Gas Pipeline, the 5-phase TSGP currently at the 3rd phase, is expected to be completed during 2013 – 2016. The overall project to be completed in 2018, is aimed at further transporting gas from Nigeria to Europe through Niger and Algeria; n Nigeria Gas Company (NGC) gas sales and transmission throughput grew from 722 mmscf/d in 2011 to about 800 mmcsf/d in 2012; n Completion and commissioning of a 45mmscf/d non-associated gas/associated gas processing facilities by an indigenous company. A gas flare penalty of $3.5 per 1000scf approved to further deter companies from gas flaring; n Reduction in gas flared from 25.3 per cent in 2011 to about 20 per cent in 2012, due to the government’s increased effort in implementation of programmes and projects in the Nigeria Gas Master Plan (NGMP) and Gas Revolution; n Inadequate distribution channels for LPG and high cost of cylinders has slowed down the growth of LPG.

Regulation

The Petroleum Industry Bill (PIB) seeks to establish a legal and regulatory framework, institutions and regulatory authorities for the Nigerian petroleum industry, to establish guidelines for the operation of the upstream and downstream sectors and for purposes connected with the same. The fundamental objectives include: vesting of petroleum and natural gas; allocation of acreage; government participation; environment and air quality emissions; community development; and Nigerian content. The PIB is therefore, in essence, a reform legislation which aims to replace the existing myriad of legislative and administrative instruments governing the petroleum industry by one omnibus legislation that establishes clear rules, procedures and institutions for the administration of the petroleum industry in Nigeria. The PIB is still awaiting passage in the National Assembly.

It is expected that once it is passed, the Act will revolutionize the petroleum industry in Nigeria and unlock billions of dollars worth of investments, which have stalled in the meantime.

Local content

n Increased indigenous participation in the oil and gas sector, leading to the establishment of the Ebok Terminal, with a current daily crude oil production of 7,000 b/d and a plateau production of 50,000 b/d at full capacity; n Niger Dock fabricated and completed the Abang and Itut oil production platforms, using 100 per cent Nigerian engineering and fabrication. The total investment in the facilities upgrade was estimated at above $2billion and has generated over 10,000 jobs;

Environment

n Establishment of the Hydrocarbon Pollution Restoration Project (HYPREP) in July 2012, to investigate and evaluate all hydrocarbon-polluted communities and sites in Nigeria, as well as

identify oil spill sites and assess the impact of spillage on the eco system in the Niger Delta region. Documentation of oil spill sites in 9 States of the region have been undertaken; n HYPREP robust programme has continued to restore the environment for healthy ecosystem, reduce draw-back in agriculture and fish farming which is a major component of Small and Medium Enterprise SME and is impacting positively on the health of the people; in the downstream sector, resulting in emergence of additional 27 new depots from 44 locations in 2010 to 71 depots in 2013, 1,000 new retail outlets and 800 new trucks;

Public Private Partnerships

Government is committed to promoting PPP in the oil and gas sector through the joint venture operations of NNPC and the oil majors such as SPDC, TOTAL, E&P, Chevron, NAOC, Addax Petroleum being administered by NAPIMS. The Onne Port Complex in Rivers State and INTELS Nig. Ltd pioneering the concept of an integrated One-Stop-Shop oil service centre attests to the workability of a Public Private Partnership (PPP).

Abandoned since 1982, the Onne Port complex has witnessed infrastructural investment in sacking areas, warehouse, quay apron and equipment, thus making it one of the world’s largest oil and gas Port. The Onne Oil and Gas Free Zone is also a success story of a PPP investment.

Several projects in the sub-sector such as the setting up of private refineries through Public Private Partnerships have been stalled or awaiting the passage of the Petroleum Industry Bill (PIB), the PIB would have facilitated the funding and investments in projects such as the Ajaokuta– Abuja–Kano Gas Project, Gas supply pipeline to PHCN Delta and the Obiafor Obirkum–Oben Gas Pipeline.

Education

n Six (6) University Upgrade projects have been completed and handed over to the beneficiaries, while others below 45 per cent completion are now at advanced stages of 60 per cent – 95 per cent completion. These include Federal Polytechnic, Ekowe Bayelsa State andMusa Yar’Adua University in Katsina;

n Under the Amnesty Programme in the Niger Delta, over 1,368 trainees and scholars have graduated in various disciplines, within and outside the Nigeria. About 1,696 are currently undergoing training with others numbering 110 to commence training n Increase in Local Scholarship Schemes run by Petroleum Training Development Fund (PTDF) from 10 to 19 universities, to enable more participation of qualified Nigerians. This is due to the positive impact generated by the Scheme;

Challenges

n Vandalization of oil pipelines and crude oil theft has adversely affected oil production.

Environmental pollution from gas flaring and oil spillage has continued. n High cost of capital, insecurity, inadequate local capacity and non-passage of the PIB, coupled with the slow pace of compliance with environmental regulations and initiatives by the oil majors to stop gas flare are major challenges. n The springing up of illegal small-scale petroleum refineries across the region is yet another major challenge facing the sector.

The future

“As we move into the second half of the Administration, our government will intensify efforts at building a stronger and stable economy that will promote enduring growth and prosperity. The gains already recorded at the macro and sectoral levels will be improved upon.

The Administration will continue to place national interest over and above any other sectional or personal interest. The Government will further strengthen efforts aimed at keeping our borders secure, as well as upscale the measures put in place to foster peace and public security, the necessary ingredients for growth and development.”

The Transformation Agenda The main thrust of the President’s Transformation Agenda (“TA”) was “to optimise the sources of economic growth for increased productivity and competitiveness.” Oil is without doubt the driver of the Nigerian economy, accounting for over 95 per cent of export earnings and about 85 per cent of government revenue, during 2011 – 2012. The sector contributed 14.8 and 13.76 percent to the GDP in 2011 and 2012 respectively.

The strategic goals and targets for the sector as highlighted in the Transformation Agenda included: n promotion of private sector investment in both upstream and downstream activities of the oil and gas industry; n deregulation of the industry and promotion of environmentally-friendly oil and gas exploration and exploitation methods; n strengthening capacity building programmes, especially in core technical areas; n provision of funding mechanisms for pre-

bidding geosciences and surveys of deepwater offshore; n reduction of gas flared to reduce pollution and increase revenue; n promotion of adequate gas supply for domestic use and power generation; n diversification of the mode of transportation of petroleum products – pipeline, railway and road haulage; n increasing oil reserves from 36 billion barrels in 2010 to 50 billion barrels by 2013; n raising in-country refining capacity to 0.75 mb/d by 2013 from 0.45 mb/d in 2009; n increasing local content in the industry from 35.5 percent in 2010 to 70 percent in 2013; n increasing proven gas reserves from of 187 trillion cubic feet (TCF) in 2010 to 220 TCF by 2013; and143 n Increasing the use of LPG for both domestic and industrial purposes to 1.0 kg per capita by 2013.

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FEATURE

Guide to Listing on the Main Board of the Nigerian Stock Exchange The Nigerian Stock Exchange was founded in 1960 as the Lagos Stock Exchange. It started operations in Lagos in 1961 with 19 securities listed for trading. In December 1977 it became known as The Nigerian Stock Exchange, with branches established in some of the major commercial cities of the country. The Nigerian Stock Exchange hosts about two hundred listed companies in twelve diverse sectors, including several global brands.

They service the second largest financial centre in sub-Saharan Africa and they are also the third largest stock exchange in Africa by capitalisation and the leading exchange in West Africa. Currently, they have 13 branches spread across key cities of Nigeria and the corporate headquarters is located in Lagos.

Listing criteria; Pre Tax Profits: Profit of at least N300mn for the last 3 years, with a pre-tax profit of at least N100mn in 2 of those years. N600mn within 1 or 2 years Market Cap: 4bn - option 3 for main board at the time of the initial public offering, based on the issue price and issued share capital.

Operating Record: 0 – 3yrs operating track record of company and/ or core investor.

Financials: 3 years’ financials and the date of last audited accounts must not be more than 9 months Public Float: Minimum of 20% of share capital must be offered to the public.

Public Shareholders: At least 300 for equity shares Accounting Standard: Amendment of accounting standard to IFRS Lock-up period: Promoters to retain 50% of shares held at IPO for first 12 months. Submission of quarterly, semi – annual and annual statements.

Exemption for E&P Companies:

Companies with 3 years’ operating track record require the provision of a Competent Persons Report (“CPR”) describing the company’s rights of exploration, reserves, estimates of volume, assumptions on forecast revenues and operating costs, etc. which should provide further insight into the company’s current operations and future prospects.

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Steps to Listing:

n Hold a board meeting and pass a Board Resolution to list. Call an EGM/AGM to obtain shareholders approval through a Shareholders’ Resolution n Initial Public Offer? Determine amount of capital to be raised with Financial Adviser. Increase Authorised Share Capital if necessary n Initiate the conversion of Accounts to International Financial Reporting Standard (IFRS) n File with the Corporate Affairs Commission (CAC) to convert from a Limited Liability Company (Ltd) to a Public Limited Liability Company (Plc) n Listing by Introduction? Increase number of shareholders to Board minimum (300 – MB, 51ASeM) n Contact your Financial Adviser/Issuing House to commence the process of listing on The Nigerian Stock Exchange All companies seeking to list must be introduced to the Exchange by a dealing member (brokerdealer), who acts as an intermediary between the company and the Exchange. Their duties include, ensuring that all companies comply with the listing requirements of the Exchange and other statutory provisions in the Investments and Securities Act 2007 and the Companies and Allied Matters Act 2004.

Benefits of Listing

n Growth – Access to long-term capital; can also facilitate lower cost of borrowing​ n Visibility – Inclusion in local and foreign indices and portfolios n Transparency – Greater public confidence through listing disciplines n Continuity – A basis for company valuation and existence beyond founders

n Sustainability – Spreads risk of long-term investment projects

Route to Listing

n Initial Public Offering (IPO) – A company offers shares to the public for the first time. Money paid by investors for the newly issued shares goes directly to the company to provide capital for future growth, or to refinance debt. A company may include an offer for sale element in its IPO, where funds will go to divesting shareholders – this helps to increase the public float. n Introduction – A company’s shares are “introduced” to the market with a pre-agreed insider sale for public float, having complied with the Exchange’s Listing Requirements.

Stages to Listing​

n Deliberation – Consultations and discussions held by the company with advisers (issuing house) on the prospects of listing n Decision – Formal discussions between the company’s executive committee and documentation of the resolution to list n Appointments – Formal selection and appointment of parties (advisers) to the listing n Application – Securing approval to list from the Securities and Exchange Commission (SEC) and The Nigerian Stock Exchange n Board meeting – All parties meeting to execute documents n Marketing – Promotion and distribution of the shares in issue to investors n Allotment – Analysis and allocation of shares by registrars n Undertaking – Declaration of compliance by the issuing company to the Exchange n Listing – Admission to the board and to the Daily Official List of the Exchange

Parties to a Listing Issuing House

n Overall co-ordination of IPO process n Co-ordination of due diligence and application document n Ensure compliance with applicable rules n Develop investment case, valuation and offer structure n Manage communication with SEC n Advise the company’s board

Stockbroker

n Prepares company for road show n Facilitate research

n Build the book pre-float n Acts as point of contact with NSE n Marketing and distribution n Pricing and allocation/ advice

- long term, short term and working capital reports

Investor Relations

n Legal due diligence n Draft and verification of application document n Corporate restructuring n Provide legal opinions

n Develop communication strategy to support pre-IPO process n Enhance market perceptions to develop liquidity and support share price n Pre- and post-IPO press releases after flotation

Reporting Accountant

Other Advisers

Solicitors

n Review financials – assess company’s readiness for IPO n Tax structuring n Financial due diligence

n Registrars n Receiving Bank n Trustees n Underwriter

FEATURE

Guide to Listing on London’s Alternative Investment Market The London Stock Exchange is becoming an increasingly attractive avenue for financing Nigerian oil and gas projects and since 2007, oil and gas companies have raised over $21.6 billion on London’s markets.

Listed Nigerian companies include Afren with a market value of $2.263bn, Eland Oil & Gas with $257 million, Heritage Oil with $587 million, Mart Resources with $524 million and MP Nigeria with $508m. Nigerian oil exploration and production companies trading on the London Stock Exchange and its growth market, AIM, are now worth $4.2 billion The main market may work for the Afren’s and Heritage’s but for many looking to raise capital on the LSE, the Alternative Investment Market (AIM) is going to be the more attractive option.

AIM is the international market for smaller, growing companies. Since it launched in January 1995, it has emerged as the most successful growth market of its kind. Since then, over 3,1000 companies have joined AIM and raised in excess of £65 billion. By the end of February 2011 it had a market capitalization of over £65 billion. It has developed rapidly both in terms of the number and the diversity of the companies admitted to the market. Of the nearly 1,200 companies trading on AIM in 2011, 225 were international companies. Only last month, Lekoil raised approximately $50 million and had a capitalisation of $112.1 million at admission. It is the largest capital raising on AIM this year, and the latest Nigerian firm to float in London following recent admissions by Zenith Bank and Eland Oil & Gas. The key to the success of AIM is its relatively simplified regulatory environment, which has been designed for the needs of smaller, emerging companies.

Simplified Regulatory Environment

AIM’s flexible approach is critical to its success.

Unlike most other markets, AIM has a flexible approach that does not stipulate minimum criteria in relation to company size, trading record or number of shares in public hands.

There is even a fast track route to joining for companies that are already listed on certain stock exchanges including Johannesburg and Toronto.

Prospective companies must appoint a nominated adviser (‘Nomad’) from an approved register. The Nomad is responsible for making sure that those entering the market are suitable and ready for admission to AIM. There is no requirement for a London office or even UK

resident directors although the Nomad may require a mix of executive and non-executive directors for corporate governance purposes so that it can ensure that there is appropriate quality control of the companies listing on AIM without being unduly restrictive.

The beauty of AIM is its simplistic listing rules.

To gain admission to AIM companies must in general produce an admission document that includes information about the company’s directors, promoters, business activities and financial position. This admission document is not, however, pre-vetted by the Exchange or even UK regulatory authorities but rather by the Nomad.

If a fund-raising is to be undertaken at the time of admission, the admission document will also be used for that purpose and the fund-raising is customarily structured as an institutional private placing to avoid any need to prepare a public offer prospectus requiring approval by the UK regulatory authorities.

The rules require certain pre admission filings and generally the process takes around 3 to 4 months to admission. Once shares are admitted to AIM, trading will commence and the AIM company’s share price will be visible across the Exchange’s information network of 90,000 terminals worldwide. Trading by investors is carried out through the Exchange’s network of member firms.

Eligibility criteria

For a company to list it must meet the eligibility requirements as set out in the AIM Rules and the main ones are: n Appointment and retention of a nominated adviser and broker who must be registered with the Exchange. n Production of an admission document n Preparation of financial information for inclusion in the admission document - Three years of audited financial information (if available) - If the financial information is more than nine months old, unaudited interim financial information with comparatives is required - At a minimum, the last two years of the financial information must be restated onto the basis to be applied in the issuers next annual accounts, being IFRS (or equivalent standards for non-EEA companies) n Sufficient working capital for at least 12 months from the date of admission n Adequate financial reporting procedures There are additional rules for oil and gas as well as investment companies.

Oil and gas companies:

n A recent competent person’s report on all material assets and liabilities should be included in the admission document n A qualified person (who may be from the issuer) with at least five years’ relevant sector experience should review and sign off on each resource or drilling update notified to the market

Investment companies:

n Minimum of £3 million in cash to be raised on or immediately before admission n Details of the investing strategy must be published in the admission document n Shareholders are required to approve the investing strategy on an annual basis until the company is no longer considered an investing company n Companies which become investing companies through divestment are required to make an acquisition within twelve months of the date of divestment n An acquisition which departs substantially from the stated investing strategy must be treated as a reverse takeover

Differences between AIM and the Main Market of the London Stock Exchange ALTERNATIVE INVESTMENT MARKET

MAIN MARKET

No minimum number of shares to be in public hands

Minimum 25% share are required to be in public hands

No trading record requirement (minimum three years if available)

Normally three year trading record required

Prior shareholder approval required only for reverse takeovers and fundamental disposals

Prior shareholder approval required for significant transactions, including significant acquisitions, disposals and related party transactions

Admission documents not pre-vetted by the Exchange. The FSA will vet an AIM admission document where it is also a Prospectus under the Prospectus Directive

Pre-vetting of admission documents by the FSA

Nominated adviser and broker required at all times

Sponsors needed for new applicants and significant transactions

No minimum market capitalisation

Minimum market capitalisation of £700,000

Appropriate corporate governance measures, as agreed with the nominated adviser – high standards are expected

Comply with UK Corporate Governance Code or explain why not

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FEATURE

Preparing for an IPO Initial Public Offerings (‘IPOs’) are among the most challenging transactions that a business can undertake. The decision on whether to list a company’s shares on a public market is a significant one; obtaining a public quote is a major milestone in any company’s life.

The process of going public is timeconsuming, but it is an opportunity for a company to critically examine itself.

A company, its management and its owners are likely to be in the public eye to a much greater extent than before.

A company’s decision to launch an IPO must be based on a realistic assessment of its business, its management resources, its stage of development and its prospects. Public ownership offers significant advantages, such as access to the public equity and debt markets to finance growth and strengthen a company’s financial position, as well as the creation of an open market for a company’s shares. However, a company will face heightened scrutiny and greater demands on its management.

Management team

A company’s management team will need to explain the business, its strategy and prospects to investors, and demonstrate knowledge of the sector, as well as its challenges, in order to gain the support and confidence of the market. The directors of a company will be accountable to its new and existing shareholders for the performance of the business when it is a public company.

Therefore, as a company prepares for its IPO it may need to ensure that its management has sufficient depth and breadth.

Planning is a key element in any IPO. In order to avoid unnecessary delays and distraction, which could be costly, management should evaluate in detail how it will commit adequate resources to meet the pressing deadlines of an IPO process.

The run-up to a company seeking a listing can be broadly divided into two phases – pre-IPO preparation and the IPO process itself. Pre-IPO preparation includes the critical review of a company’s business plan and growth prospects, assessing the management team, appointing an appropriate board, tightening internal controls, improving operational efficiency and resolving issues that may adversely affect the listing early on.

Pre-IPO preparation

Businesses often begin their preparations for becoming public companies well before they launch the IPO process. Typically, pre-IPO preparations take four to six months, but they can take considerably longer.

Advance preparation is a key success factor that allows for a smooth and efficient execution process and the ability to take advantage of market windows.

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Business plan

For the purposes of an IPO, a company needs a comprehensive business plan that sets out its products, markets, competitive environment, strategy, capabilities and growth objectives. Companies engaging in successful IPOs tend to have a clearly defined vision for the future performance of the business that can be articulated credibly, clearly and quantifiably.

Companies that are in mature or shrinking industries, operate within small markets, or provide a narrow range of products to a small and highly specialised customer base may be unsuitable for an IPO.

Financial performance

A company should expect to show investors a consistent pattern of top-and bottom-line growth and a sound balance sheet postIPO.

Growth prospects

Before investing in a company, most investors want to feel confident about its future growth prospects. A company should develop a financial model that quantifies its business plan and expected growth. The sponsor may work closely with management and external consultants/experts to develop this model and will conduct due diligence on the assumptions behind the model and stress-test the projections.

Raising funds

The majority of listings take place with a simultaneous share offering to investors. This can take the form of: n Raising additional capital for the business by issuing new shares in a company to new and existing shareholders (a primary offering) n Existing shareholders selling their shares to new or other existing shareholders, i.e. no additional capital is raised for the business (a secondary offering); or n A combination of both If existing shareholders intend to sell in the IPO, it is helpful to know the likely quantum early so that the IPO can be planned accordingly.

Use of proceeds

If a company is raising new capital, the use of proceeds should be clearly articulated and in line with its strategy. In many cases, the proceeds will be used to either pay down debt, fund capital investment or to provide working capital for expansion.

In determining the quantum of new capital, a company needs to consider its future capital structure and its ability to pay dividends at an appropriate level.

FEATURE

Financial controls

The market expects companies to have proper financial controls in place.

Companies contemplating a listing will therefore need to ensure that they have systems in place to ensure a flow of accurate, timely information.

Board

A public company needs to satisfy corporate governance requirements of the appropriate stock exchange. It is typically necessary to appoint new members to the board who are independent and to form new committees (e.g. audit and remuneration).

Identifying suitable candidates can take a significant amount of time. Potential directors often want to be involved in the IPO process at an early stage. The sponsor frequently assists in the recruitment and assessment of potential board members for a company seeking a listing.

Group reorganisation

The reorganisation steps undertaken in preparation for an IPO will vary, depending on the existing and intended group structure. One of the key steps is determining the jurisdiction of incorporation of the listing entity. At IPO it is essential to ensure that the group holds all assets, intellectual property and contractual rights necessary to carry on its business operations. Part of the group re-organisation may involve their transfer

if related parties outside of the group currently hold them.

Change may be necessary to optimise a group’s tax position, or to remove businesses or assets that are not part of the group to be floated. For example, companyowned horses, boats and so on are unlikely to be appropriate for a quoted company.

Determine employee and management compensation and incentive plans.

Many companies review the amount of equity owned by their top executives and employees as part of the IPO process.

Additional equity options or other incentives at the IPO may be granted to increase management and employee ownership and to align incentives from the IPO with a company’s new investors.

Remuneration consultants can advise on the structure of any schemes, as well as trends in the appropriate industry. The recommendations should be reviewed by the sponsor and bookrunner(s) to ensure that the awards are in line with market expectations.

In most situations, any special rights will be unwound and, where appropriate, a relationship agreement may be entered into as part of the IPO process to avoid potential future conflicts of interest.

Related-party transactions

Any internal transactions, compensation arrangements and relationships involving management or the board that might be appropriate for a private company but improper for a public company must be eliminated. A company should therefore consider whether any outside affiliations will be negatively perceived by the market.

Wealth management and financial planning

For many managers and owners of a business, an IPO is an opportunity to realise or transfer part of their wealth.

Early planning of their personal tax and financial affairs is advisable to avoid delay or difficulty in the final stages of an IPO.

Controlling shareholders

Potential investors may be influenced, negatively or positively, by the presence of a controlling shareholder. A company should assess what will happen with such shareholders post an IPO, i.e. whether they will sell down some or all of their holdings, continue to have board representation or maintain veto rights on certain company decisions.

Investor relations (‘IR’)

IR is the term used to describe the ongoing activity of companies communicating with the investment community. While the communication that public companies undertake is a mix of regulatory and voluntary activities, IR is essentially the part of public life that sees companies interacting with existing shareholders, potential investors, research analysts and journalists. Larger companies frequently create a separate IR function to meet the demands for information and to assist in all communications with the market.

We have the kind permission of the London Stock Exchange to publish this article which is taken from their Guide to Listing.

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FEATURE

Legal Issues in Oil and Gas Cheaper and more efficient technologies are reducing the cost of deep water exploration and production, at a time when increased bunkering and sabotage activities around onshore facilities and installations are making onshore oil and gas production less attractive to international oil companies (“IOCs”). The net effect is that IOCs are now encouraged to offload significant producing assets to Nigerian companies with limited access to the vast capital requirements for deep water operations and a better risk appetite for onshore operations.

whether the requirement actually covers all of these categories*. The major impact of this uncertainty on financing transactions is that lenders are unable to definitively be certain of approvals that are required for the creation, perfection and (where necessary) enforcement of security interests in respect of oil and gas assets. Furthermore, even where ministerial consent is adjudged to be required, the process of obtaining the consent is generally tedious and time consuming and as such discourages lenders from fully perfecting security interests.

One likely consequence of the increased participation of Nigerian companies in the oil and gas industry (the “Industry”) will undoubtedly be the greater contribution of the sector to Nigerian Gross Domestic Product growth which is evident in the increasing involvement of Nigerian banks in the recent spate of acquisitions by Nigerian indigenous companies. In the divestments by Shell Petroleum Development Company Limited (“SPDC”) and its joint venture partners, Nigerian commercial banks contributed more than a quarter of the over US$2 billion required to fund acquisitions and future operations of the Nigerian buyers. Nigerian banks are also likely to provide a significant portion of the funding for the acquisition of ConocoPhillips’ Nigerian assets and other assets earmarked for divestment by IOCs.

As with financing in other sectors, another major issue in oil and gas financing transactions is the level of transaction costs. Financing transactions typically involve huge stamp duties (between 0.375% and 1.5% of the secured amount), and Corporate Affairs Commission (“CAC”) charges of 1% of the amount secured in registration fees. Considered against the backdrop of a highly profitable industry with relatively low default rates, such high perfection costs can sometimes seem unreasonable and unnecessarily burdensome on Nigerian borrowers.

With the increased participation of Nigerian lenders in financing these acquisitions and further exploration and production activities, there is a growing focus on Nigerian oil and gas financing issues. As one might expect, financing oil and gas transactions in Nigeria is not without its peculiarities.

One of the main legal issues is the lack of clarity regarding regulatory requirements, occasioned mainly by the significant divergence between statutory provisions and regulatory practices. For instance, in relation to the transfer of interest in oil prospecting licences and oil mining leases, paragraph 14 of schedule 1 of the Petroleum Act (“PA”) provides that the prior consent of the Minister of Petroleum Resources is required for any assignment or transfer of a licence, lease or any associated right, power or interest. The extent of the requirement for ministerial consent has however been the subject of much debate.

The general consensus is that the requirement is relevant in circumstances where there is an actual transfer of the licence or lease or an interest therein. In practice however, the requirement is in most instances extended to the transfer of interest in production sharing contracts, marginal field farmout agreements and transfer of shares in companies which hold such licences and leases (including share transfers which do not necessarily entail a change in beneficial ownership). There is no general consensus as to

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Perhaps as a result of the tedious ministerial consent approval processes and the high transaction costs, offtake contracts and related production evacuation agreements such as Crude Handling Agreements and Gas Transportation Agreements tend to play a critical role in oil and gas financing transactions.

Lenders will normally be particularly concerned about the subsistence, tenure and key terms of product evacuation and offtake contracts. Oil and gas financing transactions generally include the execution of a forward sale agreement in respect of production volumes from the relevant asset and or an assignment agreement in respect of offtake contracts. In contrast to standard lending security (i.e. charges and mortgages), these are relatively cheap and easy to perfect as they do not require ministerial consent or registration at the CAC. Also, the contracts will normally include requirements for payments to be made directly into designated accounts controlled by a lender, affording even further security in respect of revenues deliverable from an asset.

Despite the issues, and other identified challenges there remain viable options for structuring oil and gas transactions. As more Nigerian indigenous operators and Nigerian financial institutions enter into the oil and gas space, it is expected that even more sophisticated structures and perhaps, more clarity will be established in relation to financing transactions in the Nigerian oil and gas industry. *In the recent case of Moni Pulo Limited vs. Brass Exploration Unlimited and 7 others, the court ruled that the consent requirements applied to share transfers which resulted in a change of ownership.

FEATURE

Financing in Nigeria With the increased participation of Nigerian lenders in financing these acquisitions and further exploration and production activities, there is a growing focus on Nigerian oil and gas financing issues

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BRIEFING

The Onne Oil and Gas Free Zone The Onne Oil and Gas Free Trade Zone (“Free Zone�) is the first free trade zone in the world to focus exclusively on the oil and gas industry.

The Free Zone was opened by the government early in 1997, in a bid to draw in fresh investment into the country and promote local and regional economic growth.

The Free Zone is supported by an Oil Service Centre and other facilities to provide oil companies and service companies alike with virtually everything they need to operate. Most importantly, the Free Zone offers a highly competitive range of tax concessions plus other investment incentives including minimal bureaucracy, to ease the flow of business.

The initiative has proved popular so far and is expected to play an important future role in meeting the needs of domestic and foreign firms within the oil and gas sector. Onne Oil and Gas Free Zone is now the largest and fastest growing oil and gas transit and supply base in the world today.

West Africa is expected to see a phase of unprecedented growth over the next few years fuelled by developments in the energy sector.

International companies, attracted to the region by its status as a major low cost oil producer and seduced by the growing potential of natural gas, are becoming increasingly interested and ready to commit levels of funds previously unheard of in the African region. But the window of opportunity is open now and companies will need to be in position early to take advantage of any future growth.

The most attractive economic benefit of being located in an Free Zone however is the reduction in transaction costs that a company will enjoy through tax exemptions. The Act specifically exempts all entities operating within the zone from all Federal and State taxes, levies and rates. A company operating in the zone is generally exempted from paying Companies Income Tax, Withholding Tax, Value Added Tax, Petroleum Profits Tax, among others.

The Oil & Gas Free Zone Authority (OGFZA) is responsible for the effective management of the Free Zones.

Onne Oil and Gas Free Zone includes: n A Free Port. n A Free Trade Zone. n A Specialized Export Processing Zone.

Onne Oil and Gas Free Zone Facts and Figures

1997 Officially opened

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International and gas companies operating

30,000

Direct and indirect jobs for people, both skilled and semi-skilled.

$6 billion

(N930 billion) cumulative investment to date

150

Companies operating

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BRIEFING

Lekki Free Trade Zone

The Lekki Free Trade Zone (FTZ) is buzzing with activity. It is reported to have already attracted over N170bn though still at its nascent stage. It has about 50 investors already committed to investing in multi-million dollar projects in the zone and has a varied array of investors in comparison to other FTZs.

Mr Thompson, DMD, Lekki Free Zone

Although the Nigerian Export Processing Zone Authority (NEPZA) excludes oil from being imported or stored in the zone other than as the Minister determines, the 2010 Lekki Free Trade Zone Regulations allow for the storage and use of petroleum products within the zone. The regulations were made pursuant to authority granted to the Minister in sections 16 and 27 of the NEPZA Act.

Facts About Lekki Free Zone Lekki Free Zone (LFZ) comprises 16,500 hectares to the southeast of the city of Lagos, two peninsulas of infinite opportunities bounded by the Lekki lagoon and the Atlantic Ocean. The free zone was launched in 2004 as a vehicle to fully utilize the investment and tourism potential of Lagos. Â The Lekki free zone is a multi-use

facility with zones for different kinds of activities, including a zone for oil and gas.

The proposed land use master plan for the LFZ subdivides the area into four main quadrants each having its own land use and consequently its own theme, the most relevant to oil and gas activities being:

South West Quadrant (SW) - General mixed industries, including light and medium engineering with a large part dedicated for logistics and distribution, potentially serving both the international and national markets.

South East Quadrant

(SE) - petro chemical related industries and port facilities, if approved a methanol plant will be located in this area

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OIL & GAS CIRCUIT

UBA Capital and Credit Suisse Outline Funding Options for Marginal Fields Finance With the Nigerian government poised to announce the first marginal fields bid round since 2003, international banks are showing increased interest in potential joint deals with prospective oil companies. But as Adrian Quine reports on the recent UBA Capital/Credit Suisse joint breakfast meeting in Lagos last month, financiers are increasingly cautious about whom they lend to.

The availability of future funding for the oil and gas sector in Nigeria was the subject of a special seminar in Lagos recently. Attending the high profile event were most of the key players in the industry along with many aspiring companies keen to take advantage of the government’s local content strategy whereby indigenous companies are being encouraged to enter the upstream sector of the industry.

Key speakers at the recent event included senior figures from UBA Capital and Credit Suisse, who had flown in executives from London and Dubai.

The banks broadly welcomed the further opening up of the industry but stated that global finance was now less readily available with new stringent parameters and a much greater reliance on solid due diligence. With a continuing global credit squeeze, obtaining finance for large-scale capital projects is proving challenging for all but the most established players.

The Nigerian government wishes to see more indigenous companies take advantage of the vast untapped natural resources. With no bidding round for a decade, prospective Nigerian companies are eagerly awaiting news of when the proposed marginal fields round will be announced.

Currently indigenous companies hold over 50% of acreage awarded in Nigeria while they account for less than 10% of daily production. With global energy prices high, Nigeria’s untapped potential is vast.

well in the eyes of global financiers. Key areas of concern include: n Dispute of ownership rights n Partnership disputes – non-alignment of interests. n Gap in skills As well as political and logistical issues there are also financial bottlenecks, which are posing issues for fledgling companies including: n Sub-optimal and isolated structures across the value chain n Lack of experience and track record in monetising assets n Lack of brand credibility n Weak capital market

The indigenous players will emerge into dominant players in Africa Wale Shonibare, UBA Capital

A reliance on international collaboration is critical if Nigeria’s ailing infrastructure is to be made more efficient and new fields are to be exploited.

The two banks clearly see rich pickings and are keen to form the right local alliances. The partnership between these two key financial players has the potential to work well for new operators. UBA Capital traditionally provides bespoke services to corporate clients on a local level whereas Credit Suisse provides access to wider global funds.

With the federal government having outlined an ambitious plan to increase reserves from 37 to 40 billion barrels by 2020, the banks are keen to see serious players take advantage of these new opportunities but reiterated that quantifiable research is critical at an early stage.

UBA Capiital through its collaboration with Credit Suisse is offering clients access to Project Finance Advice specifically designed to aid the due diligence process and ensure that proposals are compliant with banking rules.

UBA Capital Group CEO, Rasheed Olaoluwa said: “We can offer a strong partnership encompassing the very strong local knowledge that UBA Capital brings together with the global strengths of Credit Suisse.”

UBA Capital is certainly bullish about the prospects not just for the oil and gas sector but the spin off it will have for financial services across the continent. “We have a vision to be the leading financial services investment group in Africa,” said UBA Capital’s Managing Director of Investment banking, Wale Shonibare. He added: “Through our joint venture with Credit Suisse we are looking to offer a very strong platform to our clients.” UBA Capital believes that a blend of local and global knowledge is essential in pulling together future lucrative oil and gas deals.

With Nigeria already the largest producer of oil and gas in Africa, the banks are keeping a watchful eye on the sector. Despite a growing interest in the on-going developments, the banks are treading carefully and taking an increasingly guarded approach. The relative inexperience of some indigenous players doesn’t always bode

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Mr Shonibare added: “We are all aware of the developments of the Petroleum Industry Bill’, [that has] been dragging on for a while, but it’s inevitable that it will be signed sooner or later. The indigenous players will emerge into dominant players in Africa because a number of these Nigerian companies are also looking at opportunities in other African countries.”

UBA operates in 18 countries across the continent as well as Nigeria and is keen to take advantage of this well-founded footprint. It sees rich pickings in other oil and gas hotspots such as Mozambique and Niger and believes that indigenous Nigerian companies are well placed to capitalise on these Pan African opportunities. Both banks stated that they were confident that with the right strategic partners indigenous companies could become dominant players in the industry.

Sounding a note of caution however, Laurent Quelin, Head of Commodity Financing and Structuring at Credit Suisse said: “For a lot of projects we have looked at in Nigeria recently, our clients think that just because they have proven reserves they can simply raise funding, but it’s important to have a development plan.”

He added: “What will they do with the finance?

Where are they going to drill? It’s important to structure the project in such a way that it is bankable. Once you can prove there is a business plan then you can start to access bank lending.”

The two banks outlined the different methods of finance that might be available at the different stages of petroleum operations: Phase 1: Acquisition of Licence Overview: Payment for concession/grant/right of exploration and/or production Phase 2: Exploration and Appraisal Overview: Investment to determine the existence/ extent of hydrocarbons Phase 3: Development Overview: Investment in production Phase 4: Production Overview: Investment in bringing the hydrocarbons to the surface and transport for export or refining Mr Quelin told the meeting that in most cases he would expect to see negative cash flow for around 5-7 years, as the initial phase was an expensive one with high one-off capital costs such as drilling wells. Prospective companies were encouraged to look closely at budgetary cash-flow projections that show how debt can be repaid. They were

OIL & GAS CIRCUIT

L-R: Aliyu Jimeta, Finance Director - Talevaras; Rasheed Olaoluwa, Group CEO - UBA Capital Group, Kalapo Joseph, Head Project Finance - UBA Capital Group

L-R: Kalapo Joseph, Head Project Finance - UBA Capital Group; Wale Shonibare, Managing Director, Investment Banking, UBA Capital Plc; Cees Uijlenhoed, Executive Director - Commercial CFO, First E&P

L-R: Mustapha Fasinro, MD/CEO - Linetrale; Ebele Okeke, Head of Commodities CEEMEA Credit Suisse, Guillaume Coupez, Taleveras

L-R: Festus Oluwaseun, Group Financial Controller Global Energy Company Ltd; Reginald Crawford, Vice President, Commodity Financing - Credit Suisse and Chukwudi Dioka, Director, General Services - GEC Petroleum Development Company Ltd

also told they must be able to shoulder inevitable cash-flow shortages at the development stage.

Given the stipulation that there be a significant equity cushion in place, most international banks are not leveraging above 60%, leaving it up to shareholders to fill the gap.

As all banks become increasingly risk aware, the

L-R: Laurent Quelin, Head of Commodity Financing and structuring - Credit Suisse; Ugo Okafor, President - Suntrust Oil

L-R: Wolemi Esan, Partner - Olaniwun Ajayi LP; Oluwayemisi Diya, Senior Associate - Olaniwun Ajayi LP; Demola Alabi, CFO - Frontier Oil Ltd, Wale Ariyibi, CFO - Transitional Corporation of Nigeria Plc; Abdulrasaq Isa, Chairman/CEO - Waltersmith

L-R: Kolapo Joseph, Head Project Finance - UBA Capital Plc; Dr. Tony Nwadei, Chief Technical Officer (consultant) - Suntrust Oil; Seyi Banigbe,Legal - Suntrust Oil

L-R: Abdulrasaq Isa, Chairman/CEO - Waltersmith; Tim Ogunbiyi, MD/CEO - Afrique Energie Corporation; Oluwatoyin Sanni, MD - UBA Trustees; Remi Aiyela, Editorin-Chief, NOGintelligence

L-R: Ugo Okafor, President - Suntrust Oil; Mustapha Fasinro, MD/CEO - Linetrale

L-R: Rasheed Olaoluwa, Group CEO - UBA Capital Plc, Obinna Ufodo, President - Transitional Corporation of Nigeria Plc and Wale Shonibare, MD Investment Banking - UBA Capital Plc.

financial climate and ability for companies to raise finance has become much more challenging. A recent deal was cited at the meeting where $750 million was required for a project, but the finance needed to be split between 9 or 10 banks. In today’s climate banks prefer to lend between $50 and $75 million as part of a syndicate rather than taking on the whole risk themselves.

Despite the tightening of global finance and a greater awareness of the risk profile associated with large capital projects however, UBA Group CEO, Rasheed Olaoluwa sees enormous potential and believes that well run indigenous Nigerian companies can be optimistic about the future and at the forefront of this exciting growth.

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OIL & GAS CIRCUIT

Legal Experts At Olaniwun Ajayi And Herbert Smith Freehills Explain Reserves Based Lending Leading law firm, Olaniwun Ajayi Law recently organized a seminar for oil and gas operators and financial institutions to keep them abreast of current developments regarding oil and gas financing in Nigeria.

The seminar, which focused on Reserves Based Lending (RBL) financing, had international advisors and the firm’s in-house specialist give presentations on this financing concept which is yet to gain a foothold in the oil and gas industry in Nigeria.

Partner and Head, oil and gas practice of the firm, Tominiyi Owolabi, said the objective of the seminar was to educate operators and financiers on the effectiveness of the RBL financing scheme.

He said: “RBL is a form of financing that has been used largely in the developed world. It started in the US, while the European version followed suit. But in Nigeria, we are not taking this advantage.

So we thought as a firm that has been involved in some of this type of financing that we should contribute to the development of the knowledge base on RBL in Nigeria.”

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RBL is a form of financing that has been used largely in the developed world Tominiyi Owolabi

Co-presenting was John Baldson, a partner at UK law firm, Herbert Smith Freehills, which has been responsible for 25 per cent of RBL market outside the US.

Contingent Reserves. They usually lend against a portfolio of assets with the flexibility to add/remove fields.

Baldson said that what makes the RBL concept different is that unlike other project finance schemes, it is usually suitable for multiple assets. He noted that the concept has shorter tenors, more liberal covenants packages and account structures, with revolving facilities usually, rather than term loans.

The seminar covered RBL basics, comparison to other financings, financial ratios, financial covenants, the projection, the covenant package, the security package, due diligence and corporate requirements.

Speaking on how RBL can work for indigenous companies, Owolabi said: “The idea is that for contiguous fields and reserves that are not of commercial quantities, they can be brought together as portfolio. So what this implies is that if you have multiple field operators even if one fails, the others can be relied on.

Therefore in a way, RBL is seen to thrive on portfolio and not necessarily on one field” he said.

Baldson explained that RBL involves lending against development and producing fields (not exploration or appraisal).

Banks lend against Proven Reserves or (sometimes) Probable but not Possible or

Owolabi believes RBL has a place in the finance of operations in the industry. He said: “I think it can be used as a veritable tool for maximizing production in Nigeria in the immediate and distant future.”

OIL & GAS CIRCUIT

Investment Opportunities Outlined for the Petro DollarWoman at WimBiz Breakfast WimBiz, an organisation that supports women in business held a seminar recently aimed at highlighting opportunities for investment in the oil and gas industry. The high-powered panellists included Catherine UJu Ifejika, CEO of Brittania-U, Salma Okonkwo, CEO of UBI Group, Nkechi Obi, Executive Vice Chairman of Techno Oil, Osten Olorunshola, former Director of the Department of Petroleum Resources, Sola David-Borha, CEO Stanbic IBTC and Tonye Cole, Managing Director, Sahara Energy Group.

The event started with the panellists giving the high achieving female audience “tips, skills, and life’s lessons” but things soon turned much more focused as the event was steered towards identifying specific opportunities.

Each speaker took it in turn to let the women into interesting opportunities, some of which were termed “low hanging fruit” by an audience member.

L-R: Catherine UJu Ifejika, CEO of Brittania-U, Salma Okonkwo, CEO of UBI Group, Nkechi Obi, Executive Vice Chairman of Techno Oil, Osten Olorunshola, former Director of the Department of Petroleum Resources, Sola David-Borha, CEO Stanbic IBTC and Tonye Cole, Managing Director, Sahara Energy Group

Tonye Cole urged the audience to read the Local Content Act, which he says lists up to 100 opportunities available in the industry. He described the Sahara Group as an incubator, saying that the company is prepared to collaborate with people who come with good ideas that are viable.

Mr Olorunshola described the opportunities in the forthcoming Marginal Fields licensing rounds. He urged the women to start working on getting their consortia right if they wanted to participate in the bidding round.

This includes getting the right funding and technical partners.

L-R: Nimi Akinkugbe, Salma Okonkwo(Panelist)

L-R: Ifeyinwa Ighodalo, Osten Olorunsola (Panelist), Funmi Roberts

Mrs Ifejika mentioned the vast opportunities that exist in shipping support for the industry and suggested that the women should consider banding together to buy vessels.

Mrs David-Borha talked about the kind of financing that was available, but she advised the women to seek equity funding for early stage finance. She said that debt funding was available for more developed projects but provided everything stacks up. She said that banks expect the owners of the project to have some skin in the game in terms of equity. The banks will also look for what kind of technical support you have, your track record, your board, your corporate governance, and what collateral you have available. She mentioned that Reserves Based Lending could be available for more developed upstream projects. She said there were also opportunities in downstream projects.

L-R: Roli Eyide, Helen Majemite, Eniye Okoye

The women were also reminded about power and alternative energy, as the opportunities in those sectors. In power, for example, the privatisation exercise provides opportunities such as helping the successful bidders find finance, especially since they only have a few weeks left in which to pay the balance of the government fee.

The event ended with everyone feeling that they had taken something away, and one particular delegate commenting that she got 5 concrete business opportunities from the seminar that she would take away to work on.

L-R: Foluke Aboderin, Adeola Azeez, Yemisi Ayeni

L-R: Nike Ogunlana, Adeola Azeez, Taba Peterside

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OIL & GAS CIRCUIT

Energy Institute Hold Their The recently concluded Energy Institute’s 1st Marginal Field forum in association with UK Trade and Investment (UKTI) and Marginal Field Operators Group created an opportunity for marginal field operators, to come out and share their experiences and also get information and advice on how to secure funding, one of the greatest challenges that they face in their quest to produce fields that international oil companies (IOCs) have deemed too marginal to be economical.

The first day saw a number of presentations by marginal field operators including Dr Layi Fatona, Managing Director of Niger Delta E&P, Seye Fadahunsi, Executive Director of Pillar Oil, Ade Afolabi, CEO of Dansaki Petroleum, Dada Thomas, MD/CEO of Frontier Oil and Gas, Adams Okoene, CEO Mid Western Oil and Debo Fagbami, General Manager of Xenergi Limited.

The Panel Discussion featured a lead paper presented by the new Director of the Department of Petroleum Resources, George Osahon. The Panellists included Dada Thomas, Emeka Ene, Chair of PETAN, Austin Avuru, MD of SEPLAT, Bayo Adarelegbe, Partner at Babalakin & Co, Alex Neyin, an oil and gas consultant and other representatives of NAPIMS, NSE, Parliament, NNPC. The second day concentrated on Marginal Field finance. Speakers included Isa Abdulraqaz, Chairman and CEO of Waltersmith Petroman, who told the Waltersmith story in public for the first time ever. Abolore Solebo, Head of Upstream Division, Fidelity Bank spoke about the bank’s offering for marginal fields finance; Femi Abegunde, the new Country Chair for Deloitte Akintola Williams outlined and analysed the Fiscal Regime issues; Val Ojuma, MD FBN Insurance summarised the importance of securing good insurance either through an insurance broker or contractors; Taba Peterside, GM Listings and Sales of NSE gave some guidance on listing on the Nigerian Stock Exchange; while Dr Ibilola Amao, Principal Consultant of LONADEK Oil and Gas Consult spoke about the importance of human capital, outlining their resources for developing oil and gas professionals.

Ron Clark from Ernst & Young gave an outsider’s perspective of what international investors are looking for when they commit capital to Nigeria and we reproduce below, extracts from his presentation.

Ron Clark, Partner & EMEIA Leader Oil & Gas Transaction Advisory Services, Ernst & Young: Some Perspectives on What International Investors Are Looking For

Clark began with some perspectives on how investors are looking at the universe. He stressed that investors are only going to invest in Nigeria if they are going to get the returns they are looking for, otherwise they will go elsewhere. Investors are not going to invest in Nigeria just because they like Nigeria. They will only invest in Nigeria rather than in Canada if they are going to get a better return in Nigeria.

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However, he says Africa, is firmly on the investors’ agenda with ten of the largest discoveries in 2012 in Sub-Saharan Africa. He sees Africa remaining important in 2013 with oil and gas spending in Africa increasing from $23.6 billion to $24.6 billion from 2012 to 2013, with upstream attracting the most investment. He sees the focus of investment shifting from East to West. Their research shows that the exploration wells planned in the East are in Kenya, Tanzania, Mozambique, Madagascar, while in the West, they are planned in Nigeria, Gabon, Angola, Namibia, Ghana, Cote d’Ivoire, Mauritania and Morocco demonstrating a clear shift. In his presentation, Clark gave an international perspective of what providers of capital are looking for when they invest.

Quality of assets

The return drivers for all providers of capital will begin with the quality of assets according to Clark.

One of the things that every private equity investor I’ve ever worked with has asked me to do is an exit review. They will not make an investment until they’re convinced there’s an exit route.”

Ron Clark

Quality of management

But it’s not enough just to have a good asset.

You have to make sure you build a team that is specific to the project and the type of investor you are trying to attract. That means that their capabilities have to match the kind of work you are doing. You have to have the management team that will communicate effectively to the investor that you know what you are doing.

Realistic and executable strategy

Once you’ve built your team, you now need a strategy that can effectively give the investor clear visibility of how you are going to make money and an ability to communicate that strategy. He explained: “Investors are not interested in the money they give you. They’re interested in the money you give to them. This is what is really important to talk about.”

Quantifiable and manageable risk

It’s not enough to have good assets, drill some wells, a mini refinery. It is more about how you will bring your asset to the market and how you will monetise production.

Legal protection

For an investor, it is important that they understand and are comfortable with the legal framework within which you are operating. They want to know about the legal status of your asset

base: your title, whether there are any third party claims, what commitments you have both in operational and financial terms, such as your Joint Operating Agreements, and dispute resolution mechanisms and their enforceability.

Both equity investors and loan providers want to know what legal protection they have in terms of shareholder and loan provider protection. They also want to know about the legal framework on a wider level. He stressed the importance of being able to get together and understand the issues and to interact with government to make the industry’s view known to them and lobby for changes where change is needed to help attract investment. One example he cited was the timescale for processes where ministerial approval is required.

Clark said that an investor is likely to put his money in a jurisdiction where the legal processes enable business to be done quickly. He would have had in mind, the issues in Nigeria with securing the necessary approvals for an equity investor.

For example, Ministerial consent is required for a transfer of equity here in Nigeria but the process is known to take between 6 and 12 months, which is very frustrating for any investor with money that’s burning a hole in their pocket.

Clark commended the Marginal Fields Forum, saying: “I think it’s terrific that there’s a forum like this for the marginal field operators to get together and to speak with one voice and talk about what is important to you in how you operate so that the legal framework you’ve got in place works for marginal field operators to trap investment.”

Access to cash flows:

For debt providers, this is absolutely essential Clark stressed. Debt providers want to get their money back - that is their first focus. The only way they get their money back is if you generate cash flows so they are going to want to know how is that money going to come to you, when is that money going to come to you, the order in which they get paid relative to other debtors.

“It is actually terribly important to the lending bank because they want to be first in the queue,” he said.

For equity providers, cash flow is less important.

They are not even looking for a dividend. “If you pay a dividend, you start to give cash flow to equity providers. They will interpret that as you saying you’ve got nothing better to do with the money, so giving cash flow to equity investors is not always a good thing to do.”

Longer term equity investors need to know that money is coming back to them and that you can grow the value of the money, not necessarily the dividend stream. The shifting market is what makes Nigeria more attractive to equity investors, who are looking for yield. He said: “There’s a big quest for yield at the moment, and the downturn in opportunities in Europe. If you put your money into German government bonds and if you adjust for inflation, you’re making a loss on your money by doing that, so investors are looking for other ways to get capital.”

OIL & GAS CIRCUIT

First Marginal Field Forum

R-L: Dr. Bayo Adaralegbe (Partner, Babalakin & Co), Mrs. Yewande Abiose (Business Development Manager, Energy Institute Nigeria) and Hon Patricia Kenneth-Divine (Trade development Manager, British Deputy High Commission, Lagos)

Liquidity

Liquidity is about how an investor will monetise his investment and this is probably more important for equity investors, although still of potential importance to debt providers. Some lenders might like to give you the entire $100 million that you are looking for but still want to sell it on or bring other lenders into that syndicate. So the ability to be able to sell it on is very important for a bank. On the other side, you as a borrower must be aware that banks may want to do that. “It’s something you need to think about very, very carefully, because the people who that debt gets sold on to may have a very different view of the world to the bank you talked to and they may be hedge funds who want to use the debt to trade around so you’ve got to be quite careful around debt sell-on and how you control whose money you’re effectively looking after.”

On the equity side, this is precisely why equity investors invest because they want to be able to get more than they put in.

They want to know what the end market for securities is. If you are listed, they want to know about trading in those stocks and what restrictions there are in trading those stocks. This is particularly important for private equity investors because their exit route may be through listing. He said: “One of the things that every private equity investor I’ve ever worked with has asked me to do is an exit review. They will not make an investment until they’re convinced there’s an exit route.”

Listing

R-L: Mr. Effiom Edet CEng FEI, Chairman, EI Nigeria, Mr. Jon Clark (Oil & Gas Leader Advisory EMEIA), Mr. Marcus Bailey (Oil & Gas Leader Assurance EMEIA), Dr. Bayo Adaralegbe (Partner, Babalakin & Co)

statements. A Reporting Accountant will issue a short form report, working capital reports and long term reports.

During the Execution and Due Diligence Phase (6-24 weeks before admission) your sponsor is responsible for guiding the directors and coordinating the work of other professionals. This is also the stage at which you get your Competent Persons Report Ready. The Marketing Phase is the final phase (0 to 6 weeks before listing) and at that stage you need a broker to test the market, identify investors and go on a road show and also, importantly, price your shares. Lawyers are also vital at that stage to do the legal due diligence and also material contracts.

Transparency

Clark stressed the importance of being able to tell your story in a transparent way. In a world where there is so much competition for capital, transparency is a differentiator, he said.

Bias

For debt, the bias is likely to be defensive while private equity is looking more for growth.

Asset maturity

While the exploration and appraisal phase is more suitable for private equity investment, producing assets will be more likely to attract debt funding.

Cost of capital

He pointed out the differences between debt and equity finance.

Clark spoke about the wide range of advisers that are relevant where you’re trying to raise finance.

He said: “There are actually a lot of other people that you need to tell your story to in a convincing way during the course of raising capital to get them to effectively invest their time and effort and relationships into your business so they can go and help you to raise that money.”

For debt finance, he said you might be looking at 5 or 6 per cent above Libor in London – it depends on how big your asset base is. “If you’ve got one asset and you’re a small company the money will cost more because you’re more of a risk than a big company with broad asset base and broad in different companies as well,” he said.

For a London Stock Exchange listing he sees the Preparation Phase (12 months plus before admission) as the period in which you consult your Auditor to issue an audit opinion on your financial

He pointed out that equity investors will be more prepared to put money into exploration and appraisal assets but in exchange for that risk they will expect to get a significant multiple of their

DR Timothy OKkon - Executive Director (Corporate Planning & Strategy) NNPC money. “Private equity investors are probably looking for an annualised return of 25-30 per cent so if you get the money to drill an exploration well you want to be converting that into capital very quickly,” he said. That can make it hard to obtain equity investment in Nigeria where some marginal fields have taken 2 years to bring to market, while even more have not even managed it after nearly 10 years. He cited North America as an example, where in two years a company a company could raise money, drill its wells, and get sold. “So the time value of money is something you must not underestimate when you’re trying to raise money and that’s one of the disadvantages of Nigeria,” he explained. He urged the industry to make the process move more quickly to help attract equity investors.

Conclusion

In his concluding remarks, Clark stressed the importance of communication, saying that how you tell your story is massively important. The key differentiator he says is how transparently you communicate your story. “When you’re first meeting a potential investor, you may only have 10-15 minutes to get your story across so that point about communication is absolutely critical,” he said.

He also stressed the importance of understanding your potential investor and anticipating their particular concern. Investors come with a pretty wide base of knowledge but it’s not spread equally.

“They’ll be more comfortable with the area they think they can understand,” he said.

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OIL & GAS CIRCUIT

R-L: Kayode Akinkugbe, MD FBN Capital, Taiwo Okeowo, DMD FBN Capital, Tarica Mpinga, Director Canacord Genuity, Sanmi Famuyide, Head OCC FBN Capital

Kayode Akinkugbe - MD FBN Capital

FBN Capital and Invited Speakers Discuss Raising Equity/Mezzanine Capital for Indigenous Oil and Gas Companies FBN Capital Limited, the investment banking and asset management subsidiary of FBN Holdings Plc, hosted its maiden Oil and Gas Roundtable recently.

The event themed ‘Raising Equity/ Mezzanine Capital For Oil and Gas Companies’ is the first from FBN Capital, and brought together industry players, bankers, consultants, lawyers and other key stakeholders to discuss from different professional and experienced perspectives what it takes for emerging indigenous upstream independent oil & gas companies to raise equity and mezzanine capital for asset acquisition and development.

Headlining speakers included Tarica Mpinga, Director at Canaccord Genuity; Sola Adepetun, Partner at Adepetun Caxton Martins Agbor & Segun Barristers and Solicitors; Deji West, Director of Finance for Afren Nigeria; and Dapo Okubadejo, Partner at KPMG Professional services.

Speaking on the event, the Managing Director of FBN Capital, which recently won the 2012 EMEA Finance awards for Best Local Currency Bond House and Best PPP Deal in Africa, Mr Kayode Akinkugbe, said, “We consider ourselves to be innovators in the financing space and if we are able to assist indigenous entities in better understanding what it takes to arrange finance from an early stage, we believe we would have added true value. We have focused on equity/mezzanine capital for the oil and gas industry because we believe there is a huge need for this type of capital.” The bank also won the Global Finance award for Best Investment Bank in Nigeria 2013.

In his presentation, Tarica Mpinga of Cannacord Genuity highlighted the stages of financing for oil and gas companies. He stated “Nigeria will play a bigger role in oil and gas development for Africa”. Speaking further, he highlighted the importance

R-L: Sanmi Famuyide, Head OCC FBN Capital Deji West, CFO Afren Plc & Speaker at the event

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of players conservatively planning and mapping projections so that investors can make informed decisions based on information provided.

The event also featured a case study on the growth transition of Afren Plc, an indigenous oil and gas company. The roundtable speakers shared perspectives on how capital raising can be successfully achieved, and Dapo Okubadejo of KPMG commented on the steps that are taken into account from a consultant’s perspective.

Sanmi Famuyide, Head of Origination and Client Coverage for FBN Capital who moderated the session, touched on FBN Capital’s role in making these opportunities real for indigenous companies. “It is important that companies understand the requirements and considerations of a successful capital raising exercise, and appreciate the importance of specialists, consultants and other professional parties.”

R-L: Sanmi Famuyide, Head OCC FBN Capital Kayode Akinkugbe MD FBN Capital-1

PROFILE

Dr Layi Fatona, MD of Niger Delta E&P Ogbelle and What Makes Him Get Out of Bed Every Morning Editor of NOGIntelligence, Remi Aiyela, interviews Dr Layi Fatona, MD of Niger Delta E&P to find out more about the man, his life, what shaped him and what makes him get out of bed every morning, other than 8 million barrels of oil a day.

Dr Layi Fatona is a man whose life is premised on doing things in such a way that if he had to do it again, he’d do it the same way, which is just as well as he has, together with his partners managed to turn 2 million barrels of oil on Ogbelle field into 8 million so far, and counting.

He says, “I’m slow at taking decisions but I always put myself in life in a situation where if I had a chance to do it again, I’d probably do the first thing.”

Fatona is the managing director of Niger Delta E&P, the first company to embark on marginal field operations. At that time it was a pioneering decision, a real leap of faith. But he is a geologist and so he followed his hunch. He insists: “Remember I’m a geologist. We live on hunches and our hunches are always right - so my first professor of geology told me.”

Just as with Ogbelle, Fatona has never been shy of taking chances, often, he says, from sheer ignorance of the consequences. He has been very fortunate to have the support of those that have allowed him to live his dreams, including his wife. He recalls: “I’ve been very explorative in my attitude and I think all my life I’ve been indulged.

I went to University, went to Shell, walked out of Shell, no qualms.”

Fatona’s passion for geology began quite by chance. On his very first day at Comprehensive

High School, Aiyetoro, where he went to study for his A’levels there was a careers’ counsellor who went through the usual list of professions to pursue. He’s not a man to do things just because other people are doing it, so the usual professions like law, medicine, engineering all held no appeal for him. But when the counsellor mentioned geology, it piqued his interest because no one he knew was doing that. It became even more interesting to him when he was told of the 3-dimensional nature of geology. His counsellor said to him: “You see the earth when others don’t see it. You’re able to think in three dimensions.

You’re able to imagine things. Engineers see in “X” and “Y” axis whereas for a geologist there is a “Z” axis, the imaginary axis which you must also be able to think about.”

He recalls thinking how different, how fascinating, it was. It wasn’t about seeing mountains or being able to see rocks. The excitement was about what’s below, what’s not known. “It was different. It was not being a doctor, or a lawyer or an engineer. I think it was that part of me wanted to be what other people are not.” In his class, he was the only one to become a geologist, confirming his non-conformist nature.

But what sealed it for Fatona was a short conversation with his brother who was in school in the US. He arrived home excited after the careers’ talk and called his brother to tell him

I always put myself in life in a situation where if I had a chance to do it again, I’d probably do the first thing.”

Dr Layi Fatona

about his career decision. Fatona’s brother who was most amused at the thought of his skinny little brother becoming a geologist responded: “Do you know what geologists are? They climb rocks, you know. You can’t do that.” He said to his brother: “Just you wait and see” - exactly what he said when Chevron told him many years later that he couldn’t get more than 2 million barrels out of Ogbelle.

From then on, it was all about geology. He went to University of Ibadan for his first degree in geology. Fatona recalls his first day at university when he was handed the key to the cupboard and his excitement at seeing all the things that were going to help him on his quest to become a geologist. He recalls: “Everything was there – microscope, test tube, hammer, binoculars, everything, required to be a good geologist.”

From there he went on to do a master’s degree in petroleum geology at Imperial College, London.

But he didn’t stop there. He proceeded to study for a doctorate, obtaining a PhD also from Imperial College. Asked if he found any part of his university education difficult, he says no.

“Once I decided that I was going to be a geologist, my mind was completely open to get as much and to learn as much as possible. And it was fun, the lecturers were good, they were friendly, they wanted us to succeed. I never struggled with any subject. I always had enough to get me excited about the subject.”

Even outside of his working life, he lives geology every day. When he drives out of Lagos, to Ilesha and sees the big rocks, he asks himself, “What is below these rocks, 2,000 feet below? Who knows if there’s a big tranche of gold or something?”

But no one needs to get worried about what he might do, because in spite of his explorative nature, he’s not about to go and dig for gold outside Ilesha.

“I’m not likely to go and dig under them because I know how they are formed. There’s a limitation to what crazy things I can do. But each time I get out of Lagos, and I see the expanse of

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PROFILE land and resources and I can’t but ask myself, what is below?” That informs his outlook on life and work. “Take the Ogbelle story,” he says, “when Chevron gave us the field, they told us we couldn’t produce more than 2 million barrels.

We’re on our 8th million barrels now and the field is still going. There’s so much that is there. It’s the whole thing about life. Who says that your son or daughter can’t be President. The possibilities are infinite. That is one of the things that geology has taught him.

Although Fatona breezed through school, it wasn’t through lack of hard work. He went through the discipline of a Catholic school run by Irish reverend fathers where every single waking hour was packed with activity. You woke up in the morning at 5 o’clock, had a cold shower, then went to chapel, served on the altar. Then you had your breakfast, morning assembly, lunch, siesta and then your studies, then games or house work – cut grass, do the lawns. He recalls: “There was never an idle time. From the first hour of the first day of boarding school till the last hour of end of term.” His eyes mist up when he reminisces about his childhood. For him, the experience of childhood was a blessed one.

And so it continued, through his first degree, his masters’ and even his PhD. He is quick to point out that he is not especially gifted. He stresses that he is lazy and so has had to compensate for that. He says: “Because I’m lazy, I know my limitations. I didn’t miss classes. When I hear things, it sticks. So while my colleagues could afford to miss classes, I couldn’t. I just wanted to hear the lecturers because that probably gave me about 40% of my effort.”

He is also a voracious reader, something he says, tongue in cheek, that doesn’t go down well in the office. He says: “Even in this office today, people don’t give me things to read because they know I’ll read it. I read anything that comes my way, good things, bad things, useless things.”

Fatona is a man who likes to have things under control, which is probably why he has been so successful at the helm of Niger Delta E&P. Even his wedding was kept under control. He had a budget and was determined to stick to it come what may. He laughs when he recalls how ignorant he was of the repercussions of trying to limit the numbers to 100. He comes from a royal family and when they tried to hijack the event, he told them: “I have a hundred cards, to distribute.

If anyone wants to invite people beyond this, I don’t want to be part of it.” Although he had the

Dr Fatona & NDEP Plc Staff at Chief David Richard’s send forth

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support of his father, there was a great deal of animosity from relatives, who fortunately forgave him in the end. He laughs at the memories: “You can do a lot of things very stupidly, not knowing the cost. It probably cost me a lot of animosity but because I was completely oblivious of it, it just didn’t matter.” And his marriage has been a happy one and produced 3 boys, the eldest of which is now 30.

His happy family life is why Fatona goes home to find serenity. “Once I get into my house, I’m completely surrounded by peace. That’s when I’m most constructive and that’s when I’m most destructive in that I can tear any thoughts into shreds inside me.”

Leaving Shell was a decision that could have gone terribly wrong. He puts it down to ignorance rather than courage. He recalls: “It was youthful exuberance. I was in my early 30s. With a good education, I just didn’t think about the serious possibility of failure. You know when you are ignorant about anything, ignorance is bliss.”

He was also able to do it because his wife was very supportive. When he plucked up the courage to tell her that he was leaving Shell – the easy life, the nice work place, experienced people to work with, at the top of his game - he recalls how she asked him whether he was likely to retire in Shell. His answer was an unequivocal “no”. She reasoned that if he was bound to leave Shell then it was better to do it now rather than later. So he walked out of Shell with no qualms.

He went on to Geotrex Systems Ltd where he eventually rose to become Chairman. From there they began to formulate the concept of developing a marginal field. Finally, they approached Chevron to buy one of their marginal fields. They were offered 15, out of which they chose Ogbelle. Fatona’s geologists’ hunch must have come in useful then. They formed Niger Delta and chose Ogbelle field. For Fatona, Niger Delta has been fun but also hard, hard work. He says: “There was no chance of failure. Even now, I still live under the trepidation of if something goes wrong, so it’s very hard.”

Fatona’s passion for Ogbelle runs deep and you hear the emotion in his voice when he talks about the worst day of his life when they had a rig collapse. The pictures of that day remain imprinted on his mind, not least because there was a fatality. Even though the company

was not to blame for the death of the contractor on that day, it is something he carries in his mind and something he says that will always be part of him.

The success of Ogbelle as the poster child for Marginal Field operations is something he could not have done alone. Fatona is quick to point out that the credit goes to the team. He extols the virtue of building a team to support your goals, saying: “You always need a team to achieve anything, it doesn’t matter how small. And that’s one thing that I’ve always learnt because if you put two or three people in a room they may want to achieve the same thing or different things. But it is the ability to make them first of all see that they are all going to the same destination and for me, when I have a team, I always tell them that each and every one of us has a small bit of us that is our best and if each of us can only see that then you have a team. So for me, the most that I’ve learn is that to achieve anything significant, you always need a team. Anything we’ve done, we’ve done simply because of the team that was involved.”

Fatona’s belief in Ogbelle is palpable. He feels there is still plenty to achieve. “I still believe there’s a treasure in Ogbelle. I think we can turn Ogbelle into a real model industrial petrochemical hub, a thriving city and I would like to see that in the next 20 years. Go back and say, wow, this is what has become of this docile, rural, obscure land and I just hope we can still do that in 20 other places.”

If he were to live his last day, Fatona would like to spend it walking through the village in Ogbelle unrecognised. He would like to see what positive impact their presence has brought to the ordinary folk who walk the street. He says: “I want to see it myself. I would like to spend a whole day to myself there and just see what it is and that would allow me to see what next, what small thing can we do? It’s usually the small things that make the difference. There’s always one thing that positively impacts the ordinary person.”

PROFILE

Fatona’s Wisdom On what he couldn’t live without: “My brain. I’ve always felt that if you took everything away from me, stripped me naked and just let me walk out into the street, leave me still with my brain. I think I couldn’t do without it.”

On his friends: “My friends are also very close to me. They are very few. I don’t think I can do without them.

There’s always something or other that brings us together. One of them is driving down the street and parks his car and knows there will always be a bottle of groundnut, so he comes in, takes the ground nut, and that’s it. There’s nothing formal that holds us together but when we’re together we’re it.”

On what his friends would say about him: “My friends would say I am a nitpicker – in a positive way – they’d say I’m a perfectionist and that I am restless and I’m quite energetic and a loyal person. I’m very loyal to my friends.

People find me a very strong confidante and I am one person you can entrust a secret with and it remains a secret.”

On colleagues: “I’ve worked with people I got on with. My working life at Shell, two times over, my Geotrex, my Niger Delta, I think I’ve worked with people and we’ve had this open environment where you can walk into an office and you don’t know who the boss is. And it has been so all my life, even at Shell. You work in an environment where you call your bosses on first name basis.

So I think the environment and the people you work with seem to have some kind of positive influence on what you can achieve and how you can achieve it and for me I think all these little added up to whatever it is today that we have managed to do.”

On his motivation for getting out of bed in the morning: “It’s the belief that there’s so much to do for oneself, for country, for people around you, for profession that make me get out of bed in the morning. I think life itself, makes me bouncy. I strongly believe that there’s so much to do and so much that is possible.”

On being lazy: “I’m a very lazy person, so I try to create things around me that will make me work and keep me motivated. I don’t overextend myself. I always take things in bits and in tranches that I think I could actually deal with. And I’m very lucky because my wife indulges me.”

On his greatest influence: “My dad - he was a man of the future. He lived all his life thinking about the future.”

On who he would most like to meet: “I would love to meet Mandela. I read his book, “A Walk In Life”. It was captivating. The thing

about him that I would like to share is his sense of humour.

He’s a very humorous man.”

On religion: “I’m a practising Catholic. This Pope is a Pope of change.

As he was described by a journalist, he is changing the church from the renaissance to today. That’s a real big leap. Because, for him to change the way he wants to change the church, it’s a very big turn, and I think the world could be better for it.”

On changing the country: If we all had a bit of respect for ourselves, I think we could induce change. So if I could change things in this country I would start with the people and get everybody to think there’s something respectable about. You’ll be surprised what kind of refinement this can bring.”

On advice for the young: I would tell them first to aspire to have a very good education.

Because there are a lot of people who have been to university and have a certificate but there’s nothing in that certificate. They haven’t had any courage to ask themselves, do I really deserve what I’m peddling? That’s one. So my first advice is for them to be convinced that what they get out of university really belongs to them. Then they can face the rest of the world. Then the next thing is think through what you want to do.

There should be no follow-follow in young people. You must be clear in your mind what you want to do.”

On mentoring: “I spend time making myself available and talking to young people and making them feel and believe in themselves that whatever we have done, they can do better. I do careers’ talks at University of Ife every year. I taught the MSc in Petroleum Geology on a free basis for a couple of years at OAU. I’m very passionate about my link with young people. I do a bit of mentoring at NAPE during the annual conferences. Two years ago, my wife and I adopted my primary school in Abeokuta. The building had collapsed and we re-built the classrooms. The school authorities told me that that has led to a 400% increase in enrolments and they’ve had to turn kids away. Mentoring for me is not just about being a geologist. It is about anybody whom I can positively influence.”

On what else he would like to do: “I’ve always thought about doing a programme about young people.

I want to go to a primary school and tell the kids, any one of you can be president of Nigeria and track them for about 20 years. It would be very interesting to see if planting that in their minds will put them on a part to self-actualisation.

Maybe that’s one way to grow Nigeria’s future leaders, tell them they shouldn’t think they cannot be.

I really believe that anybody can be anything in this country.”

On his epitaph: “Do it so that it lasts forever – anything that is.”

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FEATURE

The Ogbelle Story A Presentation by Dr Layi Fatona at the NAPE Technical Meeting in June

The Nigerian Association of Petroleum Explorationists (NAPE) Technical Meeting in June was a lively affair, with a huge turnout. Many came to hear the story of Ogbelle, told by the Managing Director of Niger Delta Exploration and Production, Dr Layi Fatona. It was a story of pioneering spirit, true grit, team effort and sheer determination. He received a standing ovation for his presentation which took the delegates through the Ogbelle journey, from the conference presentations from which the idea was borne, to arrival on site and ending up today with has become a truly integrated oil and gas company. Following below is an abstract from the presentation.

Following the grant of Presidential consent in April 2000, the NNPC/Chevron Joint venture and a Nigerian independent oil company, Niger Delta Petroleum Resources Limited (“NDPR”) jointly execute the first ever commercially negotiated transfer of a dormant and idling small sized asset under

the Ogbelle Field Farm-out Agreement. This subsequently became the template for the Nigerian government’s Marginal Oil Field Policy and consequently, the vehicle for the birth of a new set of independent “home grown” oil and gas producers.

The presentation outlined the transformation of Ogbelle from a field with booked reserves of 5 million barrels of oil into an integrated asset with proven recoverable reserves of 23.6 million barrels of oil and condensate and 295.72 billion scf of gas. It also detailed the many milestones achieved, including the addition of a 1,000 barrels per day mini refinery, which now sells diesel commercially to the public and a 100 million scf per day of gas processing plant which currently delivers 28 million scf of gas per day to the Bonny NLNG plant. In addition, the plant recently commenced the production of Propane and LPG. With the additional facilities the gas resources of the Ogbelle field are now fully monetised and commercialised in compliance with the gas “flare-out” policy of the Nigerian government, a feat accomplished while promoting local content development, growing local human capacity and supporting rural economic development in NDPR’s host communities.

The Ogbelle story is a pioneer’s story, and a true Nigerian success story of what is possible, and achievable.

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TENDERS CHEVRON- Supply of Automotive Gas Oil (AGO) Chevron Nigeria Limited invites interested and prequalified companies to respond to the opportunity for the provision of AGO to support oil field operations in Escravos. The contract is proposed to commence on November 2013. The scope of service comprises the delivery of AGO to CNL storage tanks at CNL Escravos location. Only tenderers who are registered with NJQS product/category 2.07.02 (Petroleum product (gas, oil, fuels) shall be invited to submit technical bids. The closing date for this opportunity is 5th July 2013.

SPDC/SNEPCO- Provision of Three Units Deepwater Mobile Drilling Units Shell Nigeria Exploration and Production Company Limited (SNEPCO) invite interested and prequalified companies with proven experience in supply, operation and maintenance to respond to the opportunity for the provision of deepwater mobile drilling units. The contract is proposed to commence between the 4th quarter of 2014 and the 2nd quarter of 2016. The scope of service comprises the provision of two (2) Deepwater Mobile Drilling Units and one (1) Top Hole Drilling unit and services. Only tenderers who are registered in the NJQS Drilling Rigs (Semisubmersibles/Jackups/Others) category (product code 3.04.01) shall be invited to submit technical bids. The closing date for this opportunity is 8th July 2013.

ExxonMobil- Provision of Confined Space Entry Standby Rescue Team Esso Exploration and Production Nigeria Limited (EEPNL) invites interested and prequalified companies to respond to the opportunity for the provision of confined space entry standby rescue team call-off services to support EEPNL’s deep water offshore operations including the maintenance of FPSO (floating, production, storage and offloading) located within the NNPC/EEPNL Production Sharing Contract (PSC) acreage.

The contract is proposed to commence on the 3rd quarter 2014. The scope of service comprises the provision of Crude oil cargo tank inspections, regulatory marine class (DNV) and FIMS requirements. Only tenderers who are registered with rope access services 3.05.16 (NJQS Product/Service category) shall be invited to submit technical bids. The closing date for this opportunity is 8th July 2013.

ExxonMobil- Provision of Equipment And Personnel For Rig Positioning Esso Exploration and Production Nigeria Limited (EEPNL) invites interested and prequalified companies to respond to the opportunity for the provision of equipment and personnel for rig positioning and other associated services on its offshore locations within the NNPC/MPN Joint Venture (JV) acreage. The contract is proposed to commence on the 2nd quarter 2014. The scope of service comprises the provision of equipment and personnel for rig positioning and other associated services. Only tenderers who are registered with 30906 rig positioning of NJQS category shall be invited to submit technical bids. The closing date for this opportunity is 12th July 2013.

oration – Consultancy Nigerian National Petroleum Corp of IT Assets it Aud ve ensi to Carry Out Compreh ion (NNPC) orat Corp m oleu Petr onal Nigerian Nati table Information repu and invites interested competent ualify for pre-q to ts, ultan cons (ICT) and Technology nical Tech ve ensi Consultancy to Carry out Compreh ion mat Infor C’s NNP of ation Audit and Financial Valu including ts asse l nica tech )’s (ITD ion Divis Technology ve Radio Systems, Fiber Optic Cable Network, Microwa dby Power Systems, Stan nt, pme Equi Switching Network s, various types of various Licences for Radio Spectrum Access Control ork Netw and IP Systems and Servers of pre-qualification n issio subm for date ing Systems. Clos documents is 7th July.

CHEVRON- Provision of Non-Destruc tive Testing (NDT) Services Chevron Nigeria Limited invites inter ested and prequalified companies to respond to the oppo rtunity for the provision of non-destructive testing services . The scope of service comprises the provision of necessar y equipments, tools, consumables and qualified personne l (as maybe listed in the project specific technical requ irement and project specification documents) at all CNL facility location. Only tenderers who are registered with NJQS Product/Category 3.07.01 (Non-Destructive Testing (NDT ) Services) shall be invited to submit technical bids. The closing date for this opportunity is 11th July 2013.

TOTAL- Provision of One Deep Offshore Drilling Rig For OML 138 Total E&P Nigeria Limited (TEPNG) invites interested and prequalified companies to respond to the opportunity for the provision of one deep offshore drilling rig for the USAN Field Development and other drilling activities on OML138. The scope of service consists of drilling and completing mostly deviated and some sub-horizontal wells. Only tenderers who are registered with Drilling Rigs (Semisubmersibles / Jackups / Others) 3.04.01 NJQS Product/Service category shall be invited to submit technical bids. The closing date for this opportunity is 14th July 2013.

TOTAL- Provision of On e Deep Offshore Drillin g Rig For OML 130 Total Upstream Nigeria Limited (TUPNI) invites interested and prequalified compan ies to respond to the opp ortunity for the supply of One De ep Offshore Drilling Rig for the AKPO Field Development and other drilling activit ies on the OML130 license. The scope of service consis ts of drilling and completing mostly deviated and som e subhorizontal wells. Only ten derers who are registered with Drilling Rigs (Semisubm ersibles / Jackups / Oth ers) 3.04.01 NJQS Product/Service cat egory shall be invited to submit technical bids. The closin g date for this opportuni ty is 19th July 2013.

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EVENTS

SEPTEMBER JULY 37th Nigeria Annual International Conference & Exhibition Lagos, Nigeria 30 July – 1 August www.spenigeria.spe.org

AUGUST International Conference on Petroleum Refining and Petrochemicals Port Harcourt, Nigeria 28th – 29th August 2013 goddy.igwe@ipsng.org; goddy.igwe@uniport.edu.ng; goddyigwe@aol.com Offshore Patrol Vessels (OPV) Africa Lagos, Nigeria 27th – 29th August 2013 www.offshorepatrolvesselsafrica. com

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East Mediterranean Oil & Gas Conference Paphos, Cyprus 4 – 5 September www.eastmed-og.com Oil and Gas Conference & Exhibition Aberdeen, United Kingdom 3 – 6 September www.offshore-europe.co.uk

OCTOBER Oil &Money London, United Kingdom 1 – 2 October www.oilandmoney.com World Energy Congress Daegu, South Korea 13 – 17 October www.oilgas-events.com Deep Offshore Technology International Houston, United State of America 22 – 24 October www.deepoffshoretechnology.com OTC Brasil Rio de Janeiro, Brazil 21 – 29 October www.otcbrasil.org

NOVEMBER 4th Annual World Shale Oil & Gas Conference & Exhibition Texas, United State of America 4 – 7 November www.world-shale.com Deepwater Operations Conference & Exhibition Galveston, United State of America 5 – 7 November www.deepwateroperations.com NAPE 31st Annual International Conference & Exhibition Lagos, Nigeria 10 – 14 November www.nape.org.ng Practical Nigerian Content Yenagoa, Nigeria 12– 14 November www.ncipnc.com

Conference & Exhibition

Organised by:

Southern AfricA oil & GAS Summit 2013 co-hosted with:

WeSt coASt AfricA: DeepWAter AnD pre-SAlt oil & GAS Summit and the

AfricA Oil & GAs AwArds 2013

www.southernafricaoilandgas.com

October 8th & 9th, Cape Town

3 Huge Events over 2 Packed Days ConfErEnCE 2:

ConfErEnCE 1:

West Coast Africa: Deepwater and Pre-Salt Oil & Gas Summit

Southern Africa Oil & Gas Summit Following on from last year’s highly successful event we are delighted to be hosting the 2nd annual southern africa Oil & gas summit. Ths is the only event of its kind in the world to focus entirely on opportunities in the Oil & gas sector of the southern africa region.

Key topics to be covered include: • Uncover the outlook for e&P across the entire southern africa region

Africa Oil & Gas Awards 2013

From Morocco in the north West all the way down to Cape Town in the south West of africa, the “West Coast africa: deepwater and Pre-salt Oil & gas summit” will be covering offshore Oil & gas opportunities along the entire Western Coast of africa.

• extensive networking opportunites with government Ministries, iOCs, and investors

• network with large numbers of government Ministries, Oil and gas companies and investors from across the region Countries covered include: Botswana, Dr Congo, Madagascar, Mozambique, namibia, South Africa, Tanzania, Zambia

Match Making BuSineSS

The africa Oil & gas awards 2013 is set to be africa’s leading annual oil & gas awards ceremony. This is the only awards ceremony for africa that consists of a judging panel of african Ministries of energy and oil & gas operators.

Service

Featuring Over 50 Top Level Speakers Honourable Minister Mr. John Bande, Minister, Minister of Mines (Malawi) Muzi Mkhize, director general Hydrocarbons, department of energy south africa Honourable Minister Ms. rajo Daniella randriafeno, Minister of Mines, (Madagascar) David van der Spuy, resource evaluation Manager, Petroleum agency sa (south africa) norman nadorff, senior Councel, bP angola (angola)

John Llanghus, Commercial director, sunbird Petroleum (south africa) robert Mwanachilenga, Country Manager, Chariot Oil (namibia) Trevor ridley, Managing director, Thombo Petroleum Ltd (south africa) Dionisio fonseca, Lawyer & adviser to the Vice President (of angola), sonangol (angola) Paul Eardley-Taylor, Oil & gas Coverage, sa & southern africa, standard bank (south africa) Michael Bagraim, President, Cape

• Uncover deepwater opportunities and developments across the gulf of guinea • gain full insight into angola and south West africa’s pre-salt boom • Country-by-country guides and networking opportunities to the entire West Coast of africa Countries covered include: Angola, Benin, Cameroon, Congo, Equatorial Guinea, Gabon, Ghana, Guinea-Bassau, Ivory Coast, Liberia, Mauritania,Morocco, nigeria, Senegal, Sierra Leone, Togo

Chamber of Commerce (south africa) Anselme Agbahoundo, Managing director of Hydrocarbons, Ministry of Hydrocarbons benin Colin featherstone, Offshore PM, Petrosa (south africa) Mthozami Xiphu, executive director, south african Oil & gas alliance (sOaga) francis ogaree, general Manager, international Venture Opportunities, nigerian national Petroleum Corporation

Plus Many more to be announced

CONTACT charlotte@oliverkinross.com