Nogintelligence Annual Review 2015 by NOGintelligence Magazine

UPSTREAM

MIDSTREAM

www.NOGintelligence.com

DOWNSTREAM

REGULATORY

XXXXXX

FINANCIAL

Annual Review 2015

ANNUAL REVIEW

2015 NIGERIAN OIL AND GAS INDUSTRY NEWS, INTERVIEWS, ANALYSES AND REPORTS

PLUS EXTENDED FEATURE:

QUARTERLY NEWS REVIEW Need to know what’s really going on in the Nigerian oil and gas industry? You need NOGintelligence. Fact.

2016 Editions: April – July – October

BOOK YOUR ADVERTISING NOW! Email: advertise@NOGintelligence.com

NOGINTELLIGENCE The leading source of news, data and intelligence on the Nigerian oil and gas industry. Email: info@NOGintelligence.com / www.NOGintelligence.com

CONTENTS

22 INTERVIEW: TONYE COLE, EXECUTIVE DIRECTOR, SAHARA GROUP

INTERVIEW: CECILIA AQUA UMOREN, CEO, MILLENNIUM OIL & GAS

INTERVIEW ON PIPELINE INSECURITY: DR LADI BADA, CEO, SHORELINE NATURAL RESOURCES

4 6 11 22

EDITOR'S MESSAGE 2016 EVENTS UPSTREAM NEWS INTERVIEW: TONYE COLE, EXECUTIVE DIRECTOR, SAHARA GROUP 24 INTERVIEW: CECILIA AQUA UMOREN, CEO, MILLENNIUM OIL & GAS 26 DOWNSTREAM NEWS 36 REFINERIES 42 INTERVIEW: DOLAPO ONI, HEAD OF ENERGY RESEARCH, ECOBANK 43 OPEC NEWS 49 INTERVIEW ON PIPELINE INSECURITY: DR LADI BADA, CEO, SHORELINE NATURAL RESOURCES 51 GAS NEWS 2

INTERVIEW: DOLAPO ONI, HEAD OF ENERGY RESEARCH, ECOBANK

INTERVIEW: AYO AJOSEADEOGUN, CHIEF STRATEGY OFFICER, OANDO PLC

62 INTERVIEW: AYO AJOSE-ADEOGUN, CHIEF STRATEGY OFFICER, OANDO PLC 63 INTERVIEW: GBITE ADENIJI,CHIEF CONSULTANT, ADVISORY LEGAL CONSULTANTS 65 FINANCIAL NEWS 78 FALL OF AFREN 82 INTERVIEW: TOLU OSUNIBI, EXECUTIVE DIRECTOR, FCMB CAPITAL MARKET 83 INTERVIEW: WALE SHONIBARE, MANAGING DIRECTOR, UNITED CAPITAL INVESTMENT BANKING 84 MERGERS & ACQUISITIONS NEWS

CONTENTS

INTERVIEW: GBITE ADENIJI, CHIEF CONSULTANT, ADVISORY LEGAL CONSULTANTS

INTERVIEW: TOLU OSUNIBI, EXECUTIVE DIRECTOR, FCMB CAPITAL MARKET

INTERVIEW: WALE SHONIBARE, MANAGING DIRECTOR, UNITED CAPITAL INVESTMENT BANKING

EXTENDED FEATURE: DR IBE KACHIKWU: MAKING WAVES AT NNPC

92 92 96 100 104 108 118 129 130 132

NIGERIAN CAPITAL MARKETS REPORT

NIGERIAN CAPITAL MARKETS REPORT LEGAL OVERVIEW OF M&A REGULATORY NEWS PWC AUDIT OF NNPC EXTENDED FEATURE: DR IBE KACHIKWU: MAKING WAVES AT NNPC LEGAL NEWS RENEGOTIATION OF NIGERIA'S PRODUCTION SHARING CONTRACTS TWO OPTIONS FOR CONVERTING NPDC'S UNICORPORATED JOINT VENTURES REVIEW OF THE PETROLEUM INDUSTRY GOVERNANCE AND INSTITUTIONAL FRAMEWORK BILL

108

NOGINTELLIGENCE ROUNDTABLE

160

133 MEDIATION: A TOOL FOR RESOLVING OIL AND GAS DISPUTES 134 LOCAL CONTENT NEWS 137 PERCEPTION INDEX SURVEY 138 ENVIRONMENTAL NEWS 141 CORPORATE SOCIAL RESPONSIBILITY NEWS 146 HUMAN CAPITAL NEWS 150 HEALTH AND SAFETY NEWS 151 COMMUNITY RELATIONS NEWS 152 TECHNOLOGY NEWS 154 MOVERS 158 AWARDS 160 NOGINTELLIGENCE ROUNDTABLE 164 OIL AND GAS CIRCUIT

EDITOR'S MESSAGE Dear Readers

“AT NEARLY 180 PAGES, WE HAVE MANAGED TO CAPTURE EVERYTHING OF CONSEQUENCE THAT HAPPENED IN THE INDUSTRY OVER THE COURSE OF 2015”

Welcome to our Annual Review 2015, which covers the Nigerian oil and gas industry. It comes at a time when the oil industry is going through a crisis that many of our Nigerian independents have not experienced before. Nevertheless, there is a stoic resignation among them and I believe that, even though there may be one or two casualties, most of them will survive and will emerge leaner but stronger than ever. This is our third Annual Review and this year, we have made spectacular strides. At nearly 180 pages, we have managed to capture almost everything of consequence that happened in the industry over the course of 2015, plus lots of interviews, analyses and reports. You won’t find more comprehensive coverage anywhere. 2015 was a very difficult year for the oil industry as oil prices continued sliding all year and each time you thought it had bottomed out, it went even lower. And so it continued until the end of the year, ending up hovering just over $30 a barrel. This was quite a shock for some of the Nigerian independents who had never experienced oil prices this low. Whilst all the predictions are for a very difficult year in 2016, it will nevertheless be another learning curve for the industry as a whole, which is going to have to figure out how to turn a profit in a lean environment. Those who don’t manage to do so will either go under or be taken over. A mergers and acquisitions boom is predicted for 2016 as those with ready cash will be able to take advantage of the opportunity the current situation presents. Our 2016 Events Listing has all the important events coming up this year so you can plan your diary for the year. All the top oil and gas events around the world are listed although we concentrate on those events that are more pertinent to the African region. Upstream, in spite of low prices, there were a few new field development projects, some of which progressed to production. Among the addition to Nigeria’s production were Otakikpo marginal field and the rather larger Bonga Phase 3 project. Others, including Aje field, offshore Lagos, missed their first production targets, but were expecting to be in production early in 2016. We have interviews with co-founder of Sahara Group, Tonye Cole who shared his thoughts on how the independents will weather the oil price crisis as well as his reactions to the cancellation of the now infamous offshore processing agreements (OPAs); and with Cecilia Aqua-Umoren who has just taken over the helm at Millennium Oil and Gas Company where she is expecting to bring the Oza marginal field, which the company operates,

to first production next year. She shared her views on the importance of good business ethics in the present economic climate. Downstream, the news was dominated by NNPC’s cancellation of its offshore processing agreements (OPAs) with a handful of trading companies, then the invitation for new tenders for new OPAs and the cancellation of those tenders after the bids were received and evaluated. There were the tenders for crude oil term contracts, which NNPC managed to whittle down to 21 offtakers from 278 bids. Another important event that was to have a huge impact on an already depressed crude market was the lifting of the ban on US exports of crude oil. You can also read about the chronic fuel shortage that blighted the last 3 months of the year. Other issues in the news were the commencement of operation at the national refineries after a “90-day fix or shut to fully fix programme.” Dolapo Oni, Head of Energy Research at Ecobank shares his views on where he sees oil prices in 2016. John Hall, Chairman of Alpha Energy took a look at what was behind the decision at the last meeting of OPEC Ministers for the year, to maintain production at the same level. Dr Bada, CEO of Shoreline Natural Resources talks about the devastating effects of pipeline insecurity, using the Trans-Forcados pipeline, which came along with their acquisition of oil mining lease 30 in 2012, as a case in point. This year saw a lot happening on the Gas front, as oil prices continued to drop. The increase by the government of the domestic tariff for gas was helpful even if producers say it is still not enough of an incentive. The gas landscape was littered with news of new

developments and some of the highlights included news of Total achieving flare out on its offshore Ofon Field and Shell’s indication that it was reviewing large onshore gas projects. Two NLNG projects, Brass and Train 7 of NLNG, were confirmed to be on track towards achieving FIDs soon. Much of the story of gas for the year was however dominated by Seven Energy, an indigenous company that is committed to helping Nigeria achieve its gas to power aspirations. Dayo Adesina, President of the Nigerian Liquefied Petroleum Gas Association talks about the low and high points of 2015 for LPG, while Ayo Ajose Adeogun, Chief Strategy Officer for Oando Plc spoke about investment opportunities needed in the mid term to achieve Nigeria’s power and domestic gas demands. Gbite Adeniji, Chief Consultant, Advisory Legal Consultants also gives us his views on the progress of the country’s gas to power aspirations and what we can look forward to in 2016. Although Finance became more and more difficult for exploration and production projects as the year went on, there were some notable exceptions including, Oando’s oversubscribed rights issue, Seplat’s $1 billion from Nigerian and international banks, Seven Energy’s $445 million senior debt facility, Jehata’s $3 billion loan facility for a gas production plant, among others. NNPC’s alternative funding arrangement with Chevron for 36 wells signaled a way forward for NNPC to fund its costly cash calls for its joint venture assets. Nigerian banks’ exposure to the oil and gas sector rose to N3.24 trillion leading the Central Bank of Nigeria to advise banks to strengthen their contingency plans and conduct regular stress tests so as to be

EDITOR'S MESSAGE able to mitigate the impact of the crash in oil prices on their balance sheets. We have a feature on the fall of the London Stock Exchange FTSE 250 company, Afren Plc and the unauthorized payments scandal that contributed to the crash of the former African oil and gas success story. Tolu Osinubi, Executive Director, FCMB Capital Market Ltd tells us where funding is likely to come from for the exploration and production sector in 2016, while Wale Shonibare, Managing Director, United Capital Investment Banking, shares his thoughts on the kind of oil and gas finance we are likely to see in 2016. There were a few Mergers and Acquisitions although rather fewer than might have been expected, given the opportunity created by sliding oil prices. Seplat closed the acquisition of OMLS 53 and 55 from Chevron, while Shell completed its sale of oil mining leases 18, 24 and 29. While all eyes were on the legal dispute between Brittania-U and Chevron over the sale to Seplat, First E&P quietly swooped on the American giant’s OMLS 83 and 85. Chevron also put OMLs 86 and 88 up for sale. Another notable event was the Helios and Vitol joint venture acquisition of 60 per cent of Oando’s downstream business as the latter tried to streamline its activities following the Conoco Phillips acquisition the previous year. The UK Government’s Emerging Capital Markets Task Force completed its Nigerian Capital Markets report, which Samallie Kiyingi summarises for us while Elizabeth Uwaifo explains the relevance of the report to the oil and gas sector. Both are co-authors of the report. Tom Pipe and Omosuyi Fred-Omojole give us a detailed legal overview of M&A and financing transactions in Nigeria’s oil and gas sector. This is timely as many M&A transactions are expected to take place this year. The Regulatory sector was dominated by news of Dr Ibe Kachikwu and the waves he is making at NNPC. The corporation has been rocked in the past by scandal after scandal and we report on his attempts to clean house and entrench a culture of transparency. We have an extended feature on the PWC Report, pre-dating Kachikwu, on what was to have been an audit into missing funds but which fell short of the requirements of an audit due to NNPC’s failure to submit all the information

that was required of it. Extracts from NNPC’s monthly financial reports gives us a snapshot of the national production statistics. As always, there were a number of Legal disputes. One of the most important was Shell’s agreement to pay an out of court settlement of £55 million to members of the Bodo communities after two oil spills in 2008. Another notable law suit was James Bay’s suit on behalf of the Crestar SPV over its failed bid for Shell’s oil mining lease 25, after the Minister of Petroleum directed NNPC to exercise a right of pre-emption to acquire Shell’s interest in the lease. James Bay alleges this unusual exercise of the right of its preemption was out of time. Addax Petroleum reached a settlement with NNPC over its long running royalty dispute, which has far reaching implications on the computation of tax for deepwater production sharing contracts going forward. The UK Crime Agency’s arrest of Diezani Alison-Madueke on suspicion of money laundering and other crimes caused a flurry of lurid headlines, while the Brittania-U case headed for the Supreme Court. A London court refused former Petroleum Minister, Dan Etete’s attempt to unfreeze $85 million from the proceeds of the controversial oil prospecting licence 245 deal that has been described as a “smash and grab raid” in which Shell and Eni paid $1.1 billion for the assets. Some of the oil and gas law firms contribute to the discussion analyses on various issues. Templars discusses some of the issues raised by the proposed renegotiation of the fiscal terms of deep-water production sharing contracts. Adeoye Adefulu explores two options for converting from unincorporated joint ventures to incorporated joint ventures (IJVs), while Banwo & Ighodalo considers the salient provisions of the Petroleum Industry Governance and Institutional Framework Bill 2015. Local Content capability continued to come on in leaps and bounds. Some of the notable achievements were Aveon Offshore’s completetion of the sail away of the Erha North Phase 2 subsea structures as well as Oil Tools first fully in-country fabricated wellheads for FMC Technologies. In commemoration of the 5th anniversary of the Nigerian content law, Borderless – a Nigerian

NOGintelligence is published by: NOGintelligence Limited

content advocacy group – carried out the “Looking back, looking forward” survey on the progress of Nigerian content. Kentebe took over the role of Executive Secretary to continue the laudable achievements of his predecessor, Ernest Nwapa Environmental news was dominated by oil spills which continued to blight the environment but many of these were due to pipeline breaches by oil thieves. Some good news for the environment was Buhari’s approval of the framework to kick start the Ogoni Cleanup, as well as Total’s achievement of a flare out on its Ofon Field. There’s plenty more news to read under Corporate Social Responsibility, Human Capital, Health and Safety and Community Relations. Our Technology section focuses on the OTC Spotlight on New Technology Award, while Movers covers senior company and regulatory appointments and retirements. The Awards section documents the various gongs given out to individuals and companies and finally, in Oil and Gas Circuit we have a small cross section of events from this year, including the roundtable conference organized by NOGintelligence at which the former Executive Secretary of NCDMB, Ernest Nwapa met with CEOs of indigenous producing companies. As we go into 2016, it is clear this will be a sink or swim year – hopefully for us all, we will manage to keep our heads above water. I hope you enjoy the read. Please give us feedback by emailing me at: editor@ NOGintelligence.com. We’d love to know your thoughts on how we can do it better next time. I would like to thank the sponsors of this edition, without whom this Annual Review would not have been possible. I would also like to thank our readers. Your unstinting support and appreciation for what we do makes it all worthwhile. With very best wishes, Remi Aiyela Publisher/Editor-in-Chief, NOGintelligence

1st Floor, 9 Gabriel Olusanya Street, Lekki Phase 1, Lagos, Nigeria Telephone: +234 807 839 1416 To subscribe to our newsletter: mailinglist@NOGintelligence.com To advertise in our newsletter, magazine or on our website: advertise@NOGintelligence.com To send your press release: newsdesk@NOGintelligence.com General enquiries: info@NOGintelligence.com Our website: www.NOGintelligence.com

EVENTS

OIL AND GAS EVENTS 2016 3RD ANNUAL EPC CONTRACTS & RISK MANAGEMENT CONFERENCE 12-14 January 2016 Houston, USA www.marcusevans-conferences-northamerican.com

OFFSHORE WEST AFRICA CONFERENCE 26-28 January 2016 Lagos, Nigeria www.offshorewestafrica.com

WORLD FUTURE ENERGY SUMMIT 18-21 JANUARY 2016 Dubai, UAE www.worldfutureenergysummit.com

GLOBAL OIL & GAS MIDDLE EAST & NORTH AFRICA

LNG BUNKERING SUMMIT

18TH ANNUAL E&P INFORMATION AND DATA MANAGEMENT CONFERENCE 3-4 February 2016 London, United Kingdom www.smi-online.co.uk

26-28 January 2016 Amsterdam, Netherlands http://www.lngbunkeringsummit.com/

PIPELINE PIGGING & INTEGRITY MANAGEMENT CONFERENCE

WORLD LNG FUELS 2016

8-11 February 2016 Houston, USA www.clarion.org

2-4 February 2016 Houston, USA www.worldlngfuels.com/

24-26 January 2016 Cairo, Egypt www.global-oilgas.com

ENERGY INSTITUTE’S INTERNATIONAL PETROLEUM (IP) WEEK 9-11 February 2016 London, UK www.energyinst.org

www.cape-africa.com

organised by

CAPE VI National Host

Silver Sponsor

CoNfirm your PartiCiPatioN today: Register online at www.cape-africa.com

EVENTS

THE 4TH EAST AFRICA OIL & GAS SUMMIT & EXHIBITION (EAOGS)

31ST WORLD PETROCHEMICAL CONFERENCE & WORKSHOPS

10-12 February 2016 Nairobi, Kenya www.eaogs.com

15-18 March 2016 Texas, USA www.ihs.com

INTERNATIONAL GAS TECHNOLOGY GAS PROCESSORS ASSOCIATION CONFERENCE ANNUAL CONVENTION 17-18 February 2016 Dubai-UAE www.europetro.com

10-13 April 2016 New Orleans, USA www.gpaconvention.org

4TH ANNUAL FLOATING LNG CONFERENCE

4TH KUWAIT OIL & GAS SUMMIT

17-18 February 2016 London, United Kingdom www.smi-online.co.uk

11-12 April 2016 Kuwait www.cwckuwait.com

5TH MOZAMBIQUE MINING, ENERGY AND OIL AND GAS CONFERENCE AND EXHIBITION 27-28 April 2016 Maputo, Mozambique www.mozmec.com

2016 OFFSHORE TECHNOLOGY CONFERENCE 2-5 May 2016 Texas, USA www.2016.otcnet.org

ENERGY EFFICIENCY GLOBAL FORUM 10-11 May 2016 Washington D.C, USA www.eeglobalforum.org

PROCUREMENT IN OIL AND GAS

UPSTREAM WEST AFRICA SUMMIT 2016

18-19 February 2016 Moscow, Russia www.icenergy.co.uk/

18-20 April 2016 Abidjan, Cote D’Ivoire www.upstreamwestafrica.com/

5TH OIL SPILL CONFERENCE NIGERIA

6TH ANNUAL WORLD REFINING TECHNOLOGY SUMMIT

7TH GHANA SUMMIT

24-26 May 2016 Abuja, Nigeria www.oilspillconferenceng.com/

24 February 2016 Las Vegas, USA www.refining-technology.com

THE OIL & SERVICES CONFERENCE 14 9 March 2016 San Francisco, USA www.theoilandservicesconference.com

ANNUAL GAS TO LIQUIDS NORTH AMERICA EVENT 9-10 March 2016 Houston, USA www.smi-online.co.uk

20-21 April 2016 Accra, Ghana www.cwcghana.com

INTRODUCTION TO PETROLEUM REFINING 26-27 April 2016 Lagos, Nigeria www.NOGintelligence.com

OIL AND GAS SAFETY CONFERENCE AND EXHIBITION 25-27 April 2016 Houston, USA www.oilandgassafetyconference.com

14TH AFRICA INDEPENDENTS FORUM London, UK 25-26 May 2016 http://www.globalpacificpartners.com/

11TH ANNUAL FLOATING LNG CONFERENCE 6-9 June 2016 London, UK http://www.icbi-events.com/

6TH AFRICA PETROLEUM CONGRESS 14-17 March 2016 Abuja, Nigeria http://cape-africa.com/

EVENTS 5TH EAST AFRICA OIL AND GAS EXPO 10-12 June 2016 Nairobi, Kenya http://www.expogr.com/kenyaoil/

SPE NIGERIA ANNUAL INTERNATIONAL CONFERENCE AND EXHIBITION 2-4 August 2016 Lagos, Nigeria www.spe.org

23RD AFRICA OIL WEEK Cape Town, South Africa 31 October-04 November 2016 http://aow.globalpacificpartners.com/ events

NIGERIA OIL & GAS CONFERENCE & 12TH ANNUAL GLOBAL LOCAL EXHIBITION 13 - 16 June 2016 CONTENT SUMMIT Abuja, Nigeria

INTERNATIONAL PETROLEUM TECHNOLOGY CONFERENCE (IPTC)

OIL AND GAS COUNCIL AFRICA ASSEMBLY

PRACTICAL NIGERIAN CONTENT

www.cwcnog.com/

London, United Kingdom 20-21 June 2016 http://www.oilandgascouncil.com/events

FLOATING LNG WORLD CONGRESS Singapore 21-22 June 2016 http://www.flngworldcongress.com/

OIL AND GAS AFRICA Cape Town, South Africa 13-15 July 2016 http://www.exhibitionsafrica.com/

27-28 September 2016 London, UK http://www.localcontentsummit.com/

OIL AND GAS COUNCIL WEST AFRICA ENERGY ASSEMBLY Lagos, Nigeria 01-02 October 2016 http://www.oilandgascouncil.com/events

GLOBAL OIL & GAS MYANMAR CONFERENCE Yangon, Myanmar 19-20 October 2016 www.oilgas-events.com/

14-16 November 2016 Bangkok, Thailand www.iptcnet.org/

Yenagoa, Nigeria 15-17 November 2016 www.cwcpnc.com/

NIGERIA ASSOCIATION OF PETROLEUM EXPLORATIONISTS (NAPE) 34TH ANNUAL CONFERENCE AND EXHIBITION Lagos, Nigeria 13 – 17 November 2016 www.nape.org.ng

5th edition Mozambique Mining, Oil & Gas and Energy Conference and Exhibition

27-28 April 2016

Joaquim Chissano International Conference Center • Maputo confirmed sponsors

ORGANISED BY

www.mozmec.com

Bringing you the best in News, Entertainment & Sports on digital. WWW.NGRGUARDIANNEWS.COM

ngrguardian

guardiannewspapersng

guardiannigeria

ngrguardiannews

PIN: C002642B8

UPSTREAM NEWS

JANUARY-MARCH LEKOIL REVEALED NEW RESOURCE TO RESERVE CONVERSION AT OTAKIKPO Nigeria and West Africa focused Lekoil revealed details of the completion of an addendum to its Competent Persons Report (CPR) on the Otakikpo marginal field located on oil mining lease (OML) 11 offshore Nigeria, which it farmed into in May 2014. The addendum was produced for the London Stock Exchange’s Alternative Investment Market (AIM) listed company by AGR TRACS International Ltd, the authors of the original CPR, in September 2014. Highlights of the addendum include: n Phase 1 gross 1P Proved Reserves of 8.43 mmbbls (net to Lekoil: 3.03 mmbbls); n Phase 1 gross 2P Proved and Probable Reserves of 14.99 mmbbls (net to Lekoil: 5.40 mmbbls);

n Phase 2 gross 2C unrisked Contingent Resources of 41.61 mmbbls (net to Lekoil: 14.98 mmbbls). Lekoil Nigeria holds a 40 per cent economic interest in Otakikpo, which is located within oil mining lease (OML) 11, offshore Nigeria, adjacent to the shoreline in the eastern part of the Niger Delta. The Company holds 90 per cent of the economic interests in Lekoil Nigeria. Lekoil’s effective economic interest in Otakikpo therefore equates to 36 per cent. Back in December 2014, the company said that based on its own internal analysis and assumptions it would break even at an oil price of less than $30 per bbl (life of field

NDPR CONTINUED WINNING STREAK WITH NEW OGBELE DISCOVERY Niger Delta Petroleum Resources (NDPR) continued its winning streak after striking oil in its Ogbele 9 appraisal well located on oil mining lease (OML) 54. The company began working towards completing Ogbele 9. Two more wells are planned, Ogbele 10 and 11, in its aggressive development plan. Only recently, the company announced it had discovered 387 feet net gas sand in Ogbele 8. They are hoping to boost their current Ogbele production of 3,500 barrels per day (bpd) to 10,000 bpd by the time the new and planned wells are complete. The new discoveries should enhance the company’s valuation given that it is seeking to raise funds after managing to sweat the Ogbele marginal field to extract maximum value out of it. Last year, the parent company, NDEP Plc revealed it planned to raise $450 million through a “public offer or special placement of shares.” The company said it intended to use the funds to redevelop and ramp up production in Ogbele field and to develop its newly acquired Omerelu Field located in Chevron’s OML 53. It also said it would also use some of the funding raised to increase the capacity of their gas plant on Ogbele, refinance existing debt and look at new projects and acquisitions. The company was considering international acquisitions, particularly in South Sudan and Zambia. NDEP’s growing portfolio includes a 100 per cent interest in Ogbele marginal field; an 18.75% participating interest in the onshore producing OML 34 in 2012; a 100% participating interest in the onshore Omerelu Field located within OML 53; and a 6% participating interest in OPL 227. Other assets are a 25,000 barrels per day (Mbopd) flowstation; a 1,000 bpd mini refinery (Diesel Topping Plant), which is currently the only privately owned and licensed producing refinery in Nigeria; a 100 MMscf/d gas processing plant (Ogbele Gas Plant) and a 20 km 12” gas pipeline built to deliver 26 MMscf/d from Ogbele through the NLNG manifold at Rumuiji to the Bonny NLNG plant.

basis) after finding that the indicative costs to first oil would be substantially lower than expected due to more favourable service costs in the tenders received. This analysis did not even include the impact of the Pioneer Tax status, which they have applied for. Lekoil paid a signature bonus of $7 million for its interest in Otakikpo in 2014, contingent on production and ministerial consent. A further sum of $4 million is to be paid as a production bonus on commencement of production. Lekoil will fund costs to first oil and will be entitled to recover its expenditure preferentially from 88 per cent of production cash flow from Otakikpo.

QUA IBOE FIELD COMMENCED COMMERCIAL PRODUCTION AT 2,150 BOPD Oando Energy Resources (OER) and its partners, Network Exploration and Production commenced commercial production on Qua Iboe Field after completing civil and pipeline works for the field. Associated crude delivery and sales infrastructure has also been completed for the field, with initial production at 2,150 barrels of oil equivalent per day (boepd). OER, the technical service provider for the field, holds a 40% working interest in the field, while Network, the operator of the field, holds the balance. The crude processing facility for the field was commissioned in the fourth quarter of 2014 but they had to delay commercial production until the completion of the associated cluster crude delivery and sales infrastructure into the Qua Iboe Terminal. Pade Durotoye, CEO of Oando Energy Resources (OER) said: “We are delighted to have achieved this milestone, having taken this field through the full cycle of asset development, from drilling to facility engineering, construction and commissioning, and also increasing our organic production contribution from our portfolio.” They will be exploring a multi-well drilling strategy to ramp up production, in the hope of emulating OER’s success with Ebendo field where production increased from 900 barrels of oil per day (bopd) (gross) at inception to over 7,500 bopd (gross) through the identification and drilling of new reservoirs in the field. OER farmed into the asset as technical partner in 2012. It is funding most of the costs of exploration and in return will get 90 per cent of Network’s 60 per cent equity crude until cost recovery with an additional 10 per cent premium on its costs. Qua Iboe is located at the mouth of the Qua Iboe River in the eastern Niger Delta and covers an area of 14 km2 (3,459 acres). The field is immediately adjacent to ExxonMobil’s Qua Iboe Terminal.

UPSTREAM NEWS

APRIL-JUNE NPDC HIT 200,000 BPD PRODUCTION Oil production from the Nigerian Petroleum Development Company (NPDC), which operates joint venture assets on behalf of the Nigerian National Petroleum Corporation (NNPC), hit production of 200,000 barrels per day (bpd) from 130,000 bpd. Domestic gas supply from the national operator also went up to about 600 million standard cubic feet of gas per day. It supplies gas to the Oredo, Ughelli and Utorogu gas plants. With declining oil prices and a looming election, NPDC Managing Director at the time, Anthony Muoneke, was under pressure to ramp up production. It seems he managed to deliver, giving then Minister of Petroleum Resources, Diezani Alison-Madueke added impetus as she sought to defend her Ministry’s 2014 performance and the budget for 2015, before the House of Representatives Joint Committee on Petroleum Resources Upstream, Downstream and Gas Resources.

TOTAL REVEALED PLANS TO ADD 60,000 BPD FROM OFON PHASE 2 IN 2015 Total revealed that it intended to add 60,000 barrels of oil per day (bpd) to its production in 2015 from Phase 2 of the Ofon Field development. This is part of a $20 billion investment plan fro 2010. Other major projects, which were also progressing and remaining on track included the upgrade of oil mining lease (OML) 58 and the development of the Egina deepwater field located in OML 130. Total’s Ofon Field, which has been on stream since 1997, is located about 60 kilometers from Port Harcourt in 40 meters of water. The second phase of the field development will raise output from the current 30,000 barrels of oil equivalent per day (boe/d) to a total of 90,000 boe/d of oil, gas and condensate. The company said it had deployed an array of technical innovations and had implemented its most extensive local content programs in the country to date during the field development phase. On completion, 3,000,000 cubic meters per day of the gas will be exported to the Nigerian Liquefied Natural Gas plant at Bonny, while 800,000 cubic meters per day will be injected into the wells to enhance oil recovery and some 500,000 cubic meters per day will be use for power generation to supply electricity to the Ofon facilities. The onshore lease OML 58 upgrade project will increase the capacity of the block’s production facilities and keep local communities closely involved in the project, the company said. Total is the operator of the additional condensate gas development project on OML 58. The company says that upgrading the facilities of OML 58 was consistent with its strategy of maximising production. The completion of the upgrade will raise the condensate gas treatment capacity from 10 to 15 million cubic meters per day (Msm3/d). This will entail building a second treatment train at the Obite Treatment Centre, modernizing the facilities of the Obite gas plant, and building a 42-inches/45-km gas pipeline to handle the new volumes for export to the Bonny LNG plant. The Egina project located 130 km from shore in a water depth of 1,750 m, is a deepwater project, which takes technology to a new level, drawing on the full benefit of Total’s deep offshore experience and expertise. The project currently under development will have a production capacity of 200,000 barrels per day (b/d). The field infrastructure consists of a subsea production system tied in to a Floating Production Storage and Offloading (FPSO) vessel with a processing capacity of 200,000 b/d and a storage capacity of 2.3 million barrels. All the basic engineering work was done locally - a first in Nigeria.

OANDO ENERGY RESOURCES ANNOUNCED SIGNIFICANT INCREASE IN RESERVES Oando Energy Resources announced a significant increase in both Proved (1P) and Proved and Probable (2P) Reserves following the independent reserves and resources evaluation undertaken by DeGolyer and MacNaughton. It came as no surprise however, in view of the ConocoPhillips (COP) acquisition. In the period under review (December 2013 versus December 2014) proved net reserves (1P) increased by 78% to 288.5 MMboe, while Proved and Probable net reserves (2P) increased by 82% to 420.3 MMboe. Best Estimate (working interest) Contingent Resources (2C) correspondingly decreased by 78% from 547 MMboe to 122 MMboe as a result of the conversion of approximately 190 MMboe of 2C Resources to 2P Reserves due to the rebased evaluation utilizing the economic life of the producing fields. Also, net negative revisions of 246 MMboe occurred due to the current crude oil price environment, which has deemed certain contingent developments uneconomic. Unrisked and Risked Mean Estimate Prospective Resources also decreased to 957.1MMboe and 229.6MMboe, respectively. The economic value (NPV 10% of Future Net Revenue) of the Proved and Probable Reserves (2P) increased by $545 Million (+44%) to$1,785 Million, largely due to the ConocoPhillips acquisition. Speaking about the report, Pade Durotoye, CEO of Oando Energy Resources, commented: “We are very pleased with the new 2014 Reserves Numbers that confirms our thesis at the time we embarked on our transformative COP acquisition.” “This large Reserves base gives us significant scope and opportunity to even further enhance production over the coming years and pursue in-field exploration opportunities that will further increase our Resource Base.” OER currently has a broad suite of producing, development and exploration assets in the Gulf of Guinea (predominantly in Nigeria) and its sales production was 52,734 boe/d for the month ending February 28, 2015.

UPSTREAM NEWS SAHARA MOVED CLOSER TO PRODUCTION ON OPL 274 WITH OLUEGI-1 DISCOVERY Sahara Group gave an operational update on its oil prospecting licence (OPL) 274. The energy group, which owns a 100 per cent working interest through its affiliate, Enageed Resources, says it is making good progress with its activities there. It is continuing to press towards optimizing opportunities in the block where it hit first oil. In 2014, Sahara’s upstream division doubled its certified 2P reserves in the Oki-Oziengbe South field in Edo State, Nigeria, making a new commercial discovery with the Oluegi-1 exploration well. According to Segun Ogunwumi, Managing Director of Enageed Resource Limited, the Sahara Upstream company operating OPL 274, the company has continued to witness steady positive outcomes in its activities in OPL 274 preparatory to moving on to the phase of commercial production from the field. He said: “We are doing very well with our timelines and remain focused on the target ahead. We remain confident that we will achieve our timelines and ultimately extract maximum value from what has been a historic success so far in OPL 274.”

Oluegi-1 was drilled directionally to a total depth (TD) of 14,887 ft. measured depth (MD) with a horizontal displacement of 2.7 km north of the wellhead and encountered five hydrocarbon zones, totaling 110 ft. of net pay. Sahara also drilled two successful appraisal wells, Oki-Oziengbe South 4 and 5. Oki-Oziengbe South 4 drilled directionally to TD at 12,520 feet MD 1.1 km SW from the well head, logging 211 feet of net pay in 13 hydrocarbon bearing zones, seven of which were new. The well flowed 43-44° API oil to surface on two tests at rates of 2400 and 3200 barrels of oil per day, with no water, on a one-half inch choke. Oki-Oziengbe South 5 also drilled directionally, to TD at 12,873 feet MD 1 km south of the wellhead. It logged 298 feet of net pay in 19 reservoirs, 15 of which were oil-bearing and seven of which were new. Sahara’s successful

drilling program followed a two year long, two-phase, land-swamp 3D seismic survey in the 871 km license. Sahara’s seismic and drilling program achieved nearly two million man-hours LTI-free operation. Enageed is now completing engineering tie-in to existing facilities, allowing first oil production to begin from Oki-Oziengbe S4 and S5 wells. Two pay zones in each well are being connected via flow lines to the Oziengbe S flow station some 3 km away. There, oil, gas and water can be separated. Since starting operations in 2004, Sahara has grown its upstream portfolio, building a strong foundation in a number of West African basins. It operates through a number of affiliates, including Enageed Resources which owns a 100 per cent interest in OPL 274, Sahara Energy Exploration & Production Ltd (SEEPL) which owns 45 per cent and 26 per cent interests respectively in deep offshore OPLs 284 and 286 and Sahara Energy Field Ltd (SEFL) which has a 51 per cent interest in the Tsekelewu Marginal Field located onshore on OML 40. It also has interests in Ghana and Ivory Coast

AFREN COMPLETED OKWOK-13 FLOW TEST Not knowing what lay in store for them later in the year, investors in London Stock Exchange listed Afren Energy Resources were relieved to hear some good news for a change following the completion and flow testing of their first development well, on the Okwok Marginal Field which they farmed into in 2008 as Technical Advisors. Oriental Energy is the original licensee and Addax is also a joint venture partner in the Field. The completion followed an extensive field appraisal programme, the acquisition and processing of a 4-component OBC seismic and the approval of the Field Development Plan (Okwok FDP) by the Department of Petroleum Resources (DPR) in early 2014. Okwok is located approximately 45 km off

the Nigeria coast, due south of Calabar, in water depths ranging between 35 m and 50 m. The field lies within ExxonMobil’s licence area OML67, immediately to the south of OML123, and covers an area of 22,500 acres (91 km2). Work started on Okwok in earnest after the Department of Petroleum Resources (DPR) approved the Field Development Plan (Okwok FDP) early in 2014. The Okwok-13 development well was drilled in early 2015 to a total measured depth of 9,212ft and was completed with over 1500 feet pay section. Following the completion, the well was successfully tested to reconfirm commercial deliverability and reservoir

connectivity. The well flowed at 5,400 barrels per day (bpd) with an API of 24.5 degrees. The test data showed no evidence of depletion and preliminary analysis indicated significant reserves addition. The well was suspended while the planned Mobile Offshore Production Unit (MOPU) and the Okwok crude oil sales export pipeline were installed. The Okwok wellhead jacket was installed late 2014 allowing the drilling of this first development well to take place early this year. The processed crude will be piped to Oriental’s Ebok Terminal some 15 kilometres away, once the pipeline is installed.

UPSTREAM NEWS DAWES ISLAND MARGINAL FIELD ANNOUNCED PLANS FOR FIRST OIL BEFORE YEAR END Petralon Energy, the indigenous exploration and production company in Nigeria that farmed into the Dawes Island Marginal Field located in Oil Prospecting Licences (OPL’s) 2005 and 2006 announced that it was targeting first oil before the end of this year. The Chief Executive of the company, Ahonsi Unuigbe said that they were anticipating a base case initial production from the field of 1,500 barrels of oil per day (bopd), ramping this up to 3,000 bopd by the end of the year. The company, which was formed by former Shell Petroleum Development Company Managing Director and Country Chair of Shell Companies in Nigeria, Mutiu Sunmonu and former Chief Executive of Access Bank, Aigboje Aig-Imoukhuede,

farmed into the marginal field in July 2014. Of the immediate $13 million CAPEX requirement for the project, Petralon had already raised $10 million to cover their own share. They agreed to fund 63 per cent of all capital expenditure and are entitled to a 35 per cent interest prior to cost recovery and 21 per cent post cost recovery. They are reported to have raised up to $50 million in funding for this project and other prospective acquisitions. Tako E&P Solutions, an indigenous company, will provide the drilling services for the project, for which it will take a 14 per cent interest pre-cost recovery and a 28 per cent interest post cost recovery. Dawes Island, located in swampy terrain, some 14 kilometres outside

Port Harcourt, was previously owned by Chevron as part of oil mining lease (OML) 54. Chevron drilled a discovery well which did not progress beyond a depth of 10,355 feet. The marginal field was awarded to Eurafric Energy Limited in the 2003/4 marginal fields licensing round. The partners believe this asset to be on target to become the 10th marginal field to enter into production. Ahonsi Unuigbe, who was founding executive of Afren spin off, First Hydrocarbon Nigeria, (where he was chief financial officer) remained optimistic about the prospects of Dawes Island. He said: “I am confident that our dynamic approach coupled with our experience and expertise will make this project a success.”

ERIN ENERGY COMMENCED PRODUCTION FROM OYO-8 WELL Early in May, Houston based Erin Energy Corporation (formerly Camac Energy) announced the commencement of production from the Oyo-8 well located in oil mining lease (OML) 120 located offshore in water depths ranging from 200 to 500 metres, 75 km (46 miles) from the coast. The New York and Johannesburg Stock Exchanges listed company is the operator of the Oyo field and has a 100% interest in OMLs 120 and 121, which are located next to each other. The Oyo Field commenced production in December 2009. Oyo-8, was drilled in the third quarter of 2014 to a total depth of approximately 6,100 feet (1,850 meters), and was successfully completed horizontally in the Pliocene formation. Oyo-8 is located in approximately 1,000 feet (300 meters) of water and is producing into the Floating Production Storage and Offloading (FPSO) vessel, Armada Perdana. Production stabilised at a rate of 7,080 barrels of oil per day. Segun Omidele, Senior Vice-President of Exploration and Production said of this development: “We are quite pleased with the initial well performance and will be working over the next few days to optimize the flow rate.” A month later, Erin Energy announced it had commenced production from the Oyo-7 well, also located in the same block. Oyo-7 was drilled to a total depth of approximately 8,000 feet (2,438 meters) and was successfully completed horizontally in the Pliocene formation. The well is located in

FPSO Armada Perdana

approximately 1,000 feet (300 meters) of water and is producing into the FPSO vessel. The Oyo-7 is expected to produce approximately 7,000 barrels of oil per day following optimization of choke size, doubling the current production at Oyo Field. Erin Energy drilled the Oyo-7 with two planned objectives. The primary objective was to target the Pliocene formation from which it is now producing. The secondary objective was to test the deeper Miocene formation for hydrocarbon potential. The Oyo-7 successfully confirmed hydrocarbon in the Miocene formation, which was previously undrilled on the block. This successful test de-risked the Miocene in Erin Energy’s offshore Nigeria blocks and provided valuable data for the Company’s planned Miocene exploration program, which targets recoverable P50 resources

of nearly 3 billion barrels of oil equivalent. Drilling of the Company’s first Miocene exploration well was slated for 4Q 2015. CAMAC Energy changed its name to Erin Energy Corporation in April and announced it would henceforth trade under the new ticker symbol “ERN” on both the New York and Johannesburg Stock Exchanges on which it is listed. The company concurrently implemented a reverse stock split of its common stock. Following the split, six of its common shares were converted to one share of common stock. The change of name was done concurrently. The company’s Nigerian founder, who is the Chairman and Chief Executive Officer, said the rebranding exercise was in line with the company’s transformation into a focused, world-class, international exploration and development company.

UPSTREAM NEWS

UNIVERSAL ENERGY COMMENCED PRODUCTION FROM STUBB CREEK MARGINAL FIELD

TRANSCORP ANNOUNCED PLANS TO BEGIN EXPLORATION ON OPL 281 IN 2015 Chairman of Transcorp Plc, Tony Elumelu, revealed that its subsidiary Transcorp Energy was planning to start exploratory drilling on its oil prospecting licence (OPL) 281 before the end of 2015. Transcorp Energy, which is focused on upstream petroleum development owns OPL 281, located onshore in Delta State. Elumelu was keen to re-assure shareholders at the company’s 9th Annual General Meeting that everything was on track to commence the exploratory drilling programme before the end of the year. Addressing shareholders, Elumelu said, “We are in the final stage of securing approval to commence our drilling programme. We expect to begin exploratory drilling on our oil block, OPL 281, before the end of 2015.” He continued: “Our ambitions are clear in this space as we want to build a fully integrated energy company, owning, producing, distributing and utilising the gas that is Nigeria’s most valuable long-term natural resources for significantly enhanced power generation.” Elumelu also disclosed that Transcorp and Nigerian National Petroleum Corporation (NNPC) had finally signed the production sharing contract (PSC) for the development of the oil block. In spite of the good news, there was a cloud on the horizon. South African company, Sacoil had farmed into the block some years earlier and having reviewed its portfolio decided in early 2015 that it was going to pull out of Nigeria. After terminating its agreement with Transcorp, the two were, by the end of the year in a legal dispute over the refund of $12.5 million, which Sacoil paid towards farm in fees. Read more about the dispute in the Legal News section of the Annual Review 2015.

In May, Seven Energy’s subsidiary, Universal Energy Resources commenced production from the Stubb Creek marginal field, in oil mining lease (OML) 14 in Akwa Ibom State with an initial gross production of 2,000 barrels per day (bpd). The field, which lies at the mouth of the Cross River, was brought into production using an Early Production Facility (EPF) at Unyenge, Mbo Local Government Area capable of processing oil at a gross rate of approximately 2,000 bopd. Evacuation will be through a 23 kilometre pipeline to ExxonMobil’s Qua Iboe Terminal. There were plans to increase production to 8,000 bpd once the processing capacity of the EPF was upgraded to handle that capacity. In view of Seven Energy’s gas focus, intends to develop the field’s gas resources in the future and to drill a non-associated gas appraisal well.

The development plans for the gas at the Stubb Creek Field were yet to be finalised. Universal Energy has a 51% licence interest in Stubb Creek, one of the marginal fields awarded in the 2002 licensing round and is the Operator of the field. Sinopec holds the remaining 49% interest in Stubb Creek. Universal Energy is a 62.5% owned subsidiary of Seven Energy. Commenting on the development, Chief Executive Officer of Seven Energy, Phillip Ihenacho said: “In the long term it will bring additional gas production into our existing processing and distribution infrastructure, and so further deepen the growing Nigerian gas market. Production at Stubb Creek is also important because it marks the attainment of first oil at one of the marginal fields allocated to indigenous companies.”

NNPC CEDED OML 40, 42 OPERATORSHIP TO ELCREST, NECONDE The Nigerian National Petroleum Corporation (NNPC) agreed to transfer operatorship of oil mining lease (OML) 40 to Elcrest Exploration and Production, the SPV for the Eland and Starcrest joint venture that acquired an interest in the block from Shell in a 2011 divestment. It will also similarly give operatorship of OML 42 to Neconde, the SPV for the joint venture partnership between Nestoil Group, Aries E&P Company Limited, VP Global, Kulczyk Investments and Kulczyk Oil Ventures, which also acquired an interest in the block from Shell. NNPC claimed operatorship at the time of the acquisitions saying that under the joint operating agreement, following the divestment of its interest by Shell, the operatorship of the blocks would revert to it rather than transferring to the new buyers. In policy change, confirming its lack of technical and financial ability to operate

the assets, NNPC agreed to transfer operatorship to Elcrest and Neconde. Elcrest confirmed that it had to pay a premium and fees of $2.3 million, in relation to its appointment as operator of OML 40 for a minimum period of 10 years. A Joint Operator Model Agreement will be signed by the parties.

UPSTREAM NEWS

JULY-SEPTEMBER LEKOIL AcHIEVED FIRST OIL IN OTAKIKPO MARGINAL FIELD Early in September, Lekoil hit first oil on the Otakikpo Marginal Field. The company, which is listed on the Alternative Investment Market of the London Stock Exchange said first oil flowed following the successful re-entry of the Otakikpo-002. The Otakikpo-002 well produced from only the first of four planned production strings, and flowed oil at various choke sizes for over 24 hours at a peak rate of 5,703bopd at a 36/64 inch choke, significantly ahead of expectations. In January, the Addendum to the Competent Persons Report prepared by AGR TRACS International Ltd released by the Company on 21 January 2015 indicated that it expected to produce around 6,000bopd from the four strings at Otakikpo-002 and -003. Based on these preliminary results, Lekoil said it believed that this guidance was likely to be exceeded substantially, although further testing and analysis would be required.

was expected to come on stream around year-end.

Lekoil took just nine months to get to first oil after entering into a joint venture with Green Energy International as Financial and Technical Partner in December 2014. Ministerial consent for the acquisition was granted in June 2015. Green Energy, who was awarded the field under the controversial discretionary basis. The company was very fortunate to have landed Lekoil, which has been very good at raising finance, even with sliding oil prices. The phenomenal speed at which they reached first oil (within 16 months of starting operations) will have bolstered investor’s confidence in the Lekoil. The second production well, Otakikpo-003,

Lekan Akinyanmi, Lekoil’s CEO, said, “ We are delighted to announce that Lekoil is now an oil producer. We always believed in the potential of Otakikpo but the production rate from the first re-entered well has exceeded our expectations. This is a real achievement for the Otakikpo Joint Venture.” Phase 1 of the Field Development Plan consisted of two phases: the recompletions of two wells, Otakikpo-002 and Otakikpo-003 with the installation of an Early Production Facility of 6,000 bopd capacity and export via shuttle tanker. Phase 2 covered the subsequent incremental development of the rest of the field with a new Central Processing Facility and seven new wells expected to come on stream during 2017.

EXXON MOBIL STARTED PRODUCTION AT ERHA NORTH PHASE 2 PROJECT AHEAD OF SCHEDULE

CONOIL FOUND HYDROCARBON SANDS IN OPL 290 Conoil encountered hydrocarbon sands in about eight levels in its Anim-1 well located offshore on oil prospecting licence (OPL) 290. Five of those sands in OPL 290 were at least 40 feet thick, while the rest were between 20 to 25 feet. The result of the geological analysis revealed that the reservoirs were part of the Biafra sands sequence natural to the offshore south-eastern flank of the Niger Delta. The well was drilling with Depthwize’s Monarch rig and was projected to reach a depth of 12,500 feet. The exploration activities of the site are continuing. The ongoing subsurface evaluation identified 5 leads / opportunities in addition to three (3) existing discoveries of Mboutidem (oil / gas), Isantim (oil) and Uwana (gas). Conoil holds the licence for the 531 square kilometre block under a production sharing contract (PSC).

Exxon Mobil’s subsidiary, Esso Exploration and Production Nigeria Ltd, started production ahead of schedule at the Erha North Phase 2 project offshore. Peak production from the expansion which came in $400 million under budget, was estimated at 65,000 barrels of oil per day and was expected to increase total Erha North field production to approximately 90,000 barrels per day. The project will develop an additional 165 million barrels from the currently producing Erha North field. The Erha North Phase 2 project is a deepwater subsea development located 60 miles offshore Nigeria in 3,300 feet of water and four miles north of the Erha field, which has been producing since 2006. The project includes seven wells from three drill centers tied back to the existing Erha North floating production, storage and offloading vessel, reducing additional infrastructure requirements. “Executing successful projects such as Erha North Phase 2

ahead of schedule and under budget results from ExxonMobil’s disciplined project management approach and expertise,” said Neil W. Duffin, president of ExxonMobil Development Company. “We are able to create additional shareholder value by optimizing existing infrastructure, which reduces capital spending requirements and improves capital efficiency.” Duffin said the project, which was also started up ahead of schedule, was supported by strong performance from Nigerian contractors, which accounted for more than $2 billion of project investment for goods and services, including subsea equipment, facilities and offshore installation. The Erha North field was discovered in 2004 and initial production commenced in 2006. Operator Esso Exploration and Production Nigeria Limited holds a 56.25 per cent interest in Erha North Phase 2, while Shell Nigeria Exploration and Production Company holds the remaining 43.75 per cent share.

UPSTREAM NEWS

OCTOBER-DECEMBER SHELL BEGAN PRODUCTION FROM BONGA PHASE 3 OFFSHORE Early in October, Shell Nigeria Exploration and Production Company Ltd (SNEPCo) announced the startup of production from the Bonga Phase 3 project. Bonga Phase 3 is an expansion of the Bonga Main development, with peak production expected to be about 50,000 barrels of oil equivalent. The crude will be transported through existing pipelines to the Bonga floating production storage and offloading (FPSO) facility, which has the capacity to produce more than 200,000 barrels of oil and 150 million standard cubic feet of gas a day. The Bonga Field located on oil mining lease (OML) 118 began production in 2005. It was Nigeria’s first deep-water

development in depths of more than 1,000 metres. Bonga has produced over 600 million barrels of oil to date. Andrew Brown, Shell’s Upstream International Director, said: “This new start up is another important milestone for Bonga, adding valuable new production to this major facility.” The Bonga project is operated by SNEPCo as contractor under a production sharing contract (PSC) with the Nigerian National Petroleum Corporation (NNPC). SNEPCo holds a 55% contractor interest. Its other co-venturers are Esso Exploration & Production Nigeria Ltd (20%), Total E&P Nigeria Ltd (12.5%) and Nigerian Agip Exploration Ltd (12.5%).

AJE FIELD OPERATORS ANNOUNCED PREPARATIONS FOR FIRST OIL IN JANUARY 2016 Earlier in the year, Aje Field Development Plan (FDP) was on track for production by the end of this year as drilling on the Aje 5 Development Well commenced. Aje Field is located on oil mining lease (OML) 113 offshore. The Scarabeo 3 semisubmersible rig was mobilised from its location near Lagos to conduct the drilling of Aje 5, which was to be followed by the drilling of Aje 4 as a re-entry production well for Phase 1 of the development plan. The ultra deepwater 6th generation semisubmersible drilling rig was expected to take 70 days to complete the Aje 5 drilling programme. The rig is able to operate at water depths of up to 10,000 feet (3,000 m). The partners in the Yinka Folawiyo operated field were targeting first oil in December 2015 with gross production for the first two wells expected to reach 11,000 barrels of oil per day (bopd) in the first phase of a three phase development programme. Production was expected to go up to 19,000 bopd in phase 2, with an additional development of two wells. OML 113 covers an area of 835 sq km offshore Nigeria close to the Benin border and holds the Aje field as well as a number of exploration prospects. Later in the year, the company said it was now expecting to come onstream in January 2016. The Aje-5 production well had been completed successfully.

Meanwhile, Saipem Scarabeo 3 semisubmersible had been moved to re-enter Aje4 well, which is to be completed as the Field’s second production well. Work and costs were said to be on schedule with key equipment including the FPSO moorings and turret buoy, the production manifold and flowlines already in place. By year end, following the completion of Aje-5, they had also successfully completed the Aje-4 well as an oil production well. Aje Field was discovered in 1997, in water depths ranging from 100-1500m. Unlike the majority of Nigerian fields, which are Tertiary sandstones, Aje has multiple oil, gas and gas condensate reservoirs in the Turonian, Cenomanian and Albian sandstones, and as such has more affinity with the recent Jubilee and Tweneboa discoveries offshore Ghana. Four wells have been drilled to date on the Aje Field. Aje-1 and -2 tested oil and gas condensate at high rates. Aje-4, drilled in early 2008, logged significant pay and confirmed the presence of four productive reservoirs and the field has full 3D seismic coverage. Aje 5 is a twin to the legacy Aje 2 well which was production tested at the Cenomanian level in 1997, flowing approximately 3,700 bopd. It is being drilled from a seabed location close to Aje 4 in 300 meters water depth and

will produce to the Floating Production Storage and Offloading vessel (FPSO), the Front Puffin, which was being refurbished in Singapore ahead of installation and commissioning. The partners in the field had expected to complete the installation of the production manifold, flowlines, umbilicals and risers in time for commencement of production by the end of 2015. The government approved the Aje Field Development Plan (FDP) in March 2014, following which work progressed towards a Final Investment Decision (FID) on the project. The FDP describes a development of the Aje Cenomanian oil reservoir via two subsea wells and a leased FPSO. The FDP mid-case reserves are 32.4MMbbls with production starting at a plateau of 8,000 bbls/day. The joint venture partners in OML 113 are Vitol, First Hydrocarbons Nigeria (a subsidiary of Afren), Energy Equity Resources, Panoro Energy and Jacka Resources, and the operator, Yinka Folawiyo. MX Oil has recently agreed to invest in a 5% revenue interest in OML 113 via Jacka Resources. FHN completed the acquisition of its own interest in July 2013. Once production commences at Aje Field, Lagos State will join the league of oil producing Nigerian States.

UPSTREAM NEWS

AITEO TOOK OVER OPERATORSHIP OF OML 29 Aiteo Exploration Eastern Exploration and Production took over operatorship of oil mining lease (OML) 29. Aiteo, together with its partners, acquired a 45 per cent interest belonging to Shell, Total and Eni in 2014. The Nigerian National Petroleum Corporation (NNPC) holds the remaining 55 per cent interest in the asset. At the time of the divestment by Shell and its partners, OML 29 was said to be the choice asset of 4 on offer at the time. Output from the block however dropped from 50,000 barrels of oil per day (bopd) in mid 2015 to 35,000 bopd at the time of transfer of operatorship. In previous divestments, NNPC had insisted that the joint venture (JV) contract with the IOCs required operatorship to revert to it following divestment but in a significant u-turn, operatorship of the divested assets were slowly being given to those who acquired the interests after it became clear that NNPC’s exploration and production subsidiary Nigeria Petroleum Development Corporation (NPDC) did not have capacity to operate the assets. The industry will be watching with interest to see if Aiteo will be able to take production back up to what it was earlier this year.

ELCREST INCREASED PRODUCTION IN OPUAMA FIELD BY 50% TO 4,400 BPD London Stock Exchange listed Eland Oil & Gas announced in an operational update in November that it had materially increased current production rates in Opuama Field located on oil mining lease (OML) 40. The company said that following the successful workover of the Opuama-1 well, the Opuama field was now producing from 4 strings from 2 wells. This successful intervention had resulted in an increase in average gross production output to 4,400 bopd (1,980 bopd net to Elcrest Exploration and Production Nigeria Ltd, Eland’s joint venture company). This represented an increase of over 50% from previously announced production levels according to the company. George Maxwell, CEO of Eland Oil & Gas said: “Having stabilised production and uptime on Opuama field earlier in the year, we placed renewed focused on low cost workover potential in the field. It is most welcome that we are starting to see the production increase from this initiative. With further work planned, we have a number of options to

continue these production increases prior to commencement of the drilling campaign. Elcrest is in a joint venture on the block with the Nigerian National Petroleum Corporation (NNPC). Earlier in the year, in a major shift in policy position, NNPC transferred operatorship of the block to Elcrest. The company revealed that the new NNPC management under Dr Ibe Kachikwu, had confirmed that Elcrest remained lead operator of OML 40, pending the review and execution of a new Joint Operating Agreement, Elcrest said: “We are actively working with NNPC to accelerate this process to complete as soon as possible and continue with the development drilling campaign.” OML 40 has gross 2P oil reserves of 81.4 mmbbl found in the Opuama and Gbetiokun fields. It has a significant, only partly developed reserve base with outstanding upside of 41.2 mmbbl gross 2C resources and 254.5 mmbbl gross best estimate prospective resources.

NIGERIA GREW CLOSER TO CHAD BASIN OIL FIND The Group General Managing Director of the Nigerian National Petroleum Corporation, Dr Ibe Kachikwu revealed that Nigeria was getting closer to commercial oil find in the Chad Basin. In a presentation delivered to the Petroleum Club in Lagos, Dr Kachikwu said that the country was on the verge of a significant oil find in the Lake Chad area based on the analysis of recent seismic 3D data generated from the Chad basin. He said: “There are signs from the latest 3D seismic studies that oil may well be very close to being found now in Lake Chad after many years of trials.” Kachikwu added that the Nigerian National Petroleum Corporation (NNPC) was injecting a lot of energy into oil exploration in the Chad area to ensure success.

quarter of 2016. The chairman, Alhaji Bashir Dalhatu, said the company was collaborating with its technical partners and NNPC, on the expertise and budgetary requirements for the take-off of the project, which was expected to cost $20 for the exploration phase.

Kachikwu’s statement came as the Chairman of the Northern Nigeria Development Company (NNDC) announced that the company would begin exploration in the North East in the first

The company’s Group Managing Director (GMD), Alhaji Ahmed Musa, said NNDC would begin exploration in the four oil blocks allocated to it in the Lake Chad Basin. It plans to acquire four more oil blocks in the region. Insecurity in the region as well as finance had delayed the commencement of exploration, but he said exploration would now begin in earnest

UPSTREAM NEWS

ORIENTAL ENERGY RESOURCES TOOK OVER CONTROL OF EBOK FIELD FOLLOWING AFREN INSOLVENCY Following Afren’s insolvency, Oriental Energy Resources, commenced the implementation of the Ebok Transition Plan. This Plan would enable it to take over the operatorship of Ebok and the role of Technical Advisor from Afren, following Afren’s farm in 7 years ago. Afren farmed into the Ebok field as Technical Adviser, offshore Nigeria in 2008, operating the field on behalf of the partners. The offshore Ebok project is believed to have the largest offshore electrical submersible pump (ESP) operation in Africa. Oriental agreed the Ebok Field Transition Plan with Afren in April when Afren’s financial position was becoming more and more precarious. Afren’s insolvency at the end of July triggered the coming into effect of the Transition Plan. The Plan was developed to ensure the orderly and orderly handover of executive control of the Ebok Field petroleum operations, including the production, storage and offloading of crude oil to Oriental. Oriental will also handle sale of the fields production of 30,000 barrels of oil per day under the Transition Plan. The Transition Plan transferred the balance of the duties, rights, and obligations of the operator to Oriental. This process included the renegotiation and reassignment of all of the Ebok Field contracts with suppliers and contractors to Oriental. Under the Transition Plan, Oriental would be able to retain as new employees and contractors those previously employed and engaged by Afren to encourage a smooth and effective and complete handover of the Ebok Field operations. Oriental said it had already assembled and/or secured key personnel to staff the transition of operations, drilling, production and facilities, subsurface and reservoir, finance and accounting, administration and legal, and supply chain and logistics teams under Oriental’s banner at Ebok as a first priority because of Ebok field’s current production operations. However, the Okwok field and OML115 teams woul include virtually all of the same Ebok field personnel. Oriental revealed that the implementation of the Okwok Field Development Plan (“FDP”) was also well underway with all major components of the FDP in process, although the same necessity for Afren to handover Okwok to Oriental was not yet certain.

In a further update in December, Oriental confirmed it had completed the Transition Plan and taking full operational control of Ebok from Afren. It was providing working capital to fund all operations whilst absorbing key operations personnel, ensuring that the company had the technical capability to operate the asset independently and safely. Oriental said it had assumed full responsibilities for funding the field operations. The employment of 100 key Afren commercial, legal and technical and operational staff Employees had been transferred to Oriental directly who had assumed direct responsibility for their upkeep and for the London and Houston

offices. Oriental said it was in the process of completing the transfer of all technical and contractual agreements related to the Ebok Field and that it had assumed responsibility for all cost for field operations from 1 August 2015. Oriental believes its swift action to implement the Transition Plan meant that the dissolution of Afren would have no material impact on the safe operations and that production and development work would continue as planned. Exxon Mobil and NNPC are the farmors of the Ebok and Okwok Fields. Oriental Energy Resources, has a 60% Participatory Interest in the Okwok and Ebok fields.

UPSTREAM NEWS GE COMPLETED FIRST LOCAL REFURBISHMENT OF SUBSEA PRODUCTION TREE GE Oil and Gas completed the first refurbishment of subsea production trees at the Onne facility in Nigeria, where GE said its engineers worked hard to deliver the subsea tree back to Shell Nigeria Exploration and Production Company (SNEPCo), so that it could return to service. Thousands of man hours were used to refurbish the subsea tree, with more than $1.5 million invested to procure hundreds of spare parts from Nigerian sub-suppliers. GE’s team of engineers and technicians successfully disassembled the subsea tree to component parts, before repairing and rebuilding it in accordance with SNEPCo’s requirements. Each step of the process, from the incoming deck testing to the integrated performance test after refurbishment, required dedicated, skilled technicians. “The delivery of the first fully refurbished subsea tree system in Nigeria is another example of how we can deploy partnerships to strengthen local capacity

in the country’s subsea oil and gas sector,” said SNEPCo Managing Director, Tony Attah. He added; “We’re indeed pleased to be part of this pioneering effort which promises to deliver projects on time, safely and within cost estimates.” Last year, GE expanded its local team with an additional thirty engineers and technicians hired to support this programme, a key part of GE’s localisation strategy for Nigeria. Some of the engineers were sent to GE facilities in Brazil for training to ensure optimum knowledge

and skills, which opened the door for high-quality employment opportunities for these new recruits. “GE Oil & Gas is continuously seeking to increase the competitiveness of the solutions for the Nigerian oil and gas industry,” said Lazarus Angbazo, President and CEO of GE Nigeria. “The Tree Refurbishment Program will give Nigeria-based operators the opportunity to buy locally, avoid delivery delays and save costs, while supporting the growth of the Nigerian oil and gas industry.”

INDIGENOUS PRODUCTION Indigenous players in the exploration and production (E&P) value chain of the oil and gas industry account for

300,000 2.2 million out of about

barrels (bbls) of oil produced daily in the country.

INTERVIEW

TONYE COLE, EXECUTIVE DIRECTOR, SAHARA GROUP In this interview, Tonye Cole shares his thoughts on how the independents will weather the oil price crisis, the cancellation of offshore processing agreements and Kachikwu’s performance so far.

"THIS IS THE FIRST TIME THAT THE INDEPENDENTS AND THE REGULATORY SIDE WILL HAVE TO COME TOGETHER TO DISCUSS HOW TO OPERATE AND STAY ACTIVE IN THIS KIND OF ENVIRONMENT, SO IT’S ALL ABOUT LEARNING. EVERYONE HAS TO LEARN."

How is the future looking for Nigerian independents? It’s a very tough market. It’s probably the first time that Nigerian independents are having to operate in this kind of environment which means that we’re all having to learn and learn very quickly and making extremely hard decisions in this market. Like everybody knows, you have to begin looking at cost. Nigeria has always tended to be a high cost environment because of all the ancillary things that have to happen, communities, dealing with them and all sorts of road blocks and hurdles that come in. Now you have to manage all of that, manage the expectations of all your stakeholders in the community and all of that and at the same time keep costs and operations alive, so it’s pretty tough. It’s something that one has to learn. This is the first time that the independents and the regulatory side will have to come together to discuss how to operate and stay active in this kind of environment, so it’s all about learning. Everyone has to learn.

Will all the independents still be here in 2 years time? A: The answer is unlikely that they will all be there. Will some survive? Definitely, it always happens. Human beings are very resilient. When push comes to shove they begin to find ways to survive. I think they would survive, but it means they have to sit down and work out the survival techniques within the environment and those who are unable to will fail. So some will fail, but some will survive.

Is experience the key to the survival of the independents? It’s one of those yes and no questions. Yes, experience helps all the time in helping you figure things out or see things before they happen, you’ve already been there before so you know exactly what to do. So, on that part yes. The no part is that when you’re nimble and you can move quickly so you’re not bogged down by “oh, this is how it’s always done” then you’re able to react quicker or better, so I think it’s going to be a mixture of both. The original question is that will they have to re-organise. Definitely, even if you’re a long term experienced person, your organization changes. A lot of the IOCs put people aside. So the shape of every organization is going to change in this period if they’re going to survive. Now, whether the experience will help you do things quicker or the inexperience means you’ll be more nimble as to how you do it, time will tell.

How do you feel about the cancellation of the offshore processing agreements (OPAs)? I think my feelings have been publicly made. All through the process we were careful to put out press statements that highlighted our position throughout. We have a clear disclosure policy in Sahara so that people know. It’s very easy for people to speculate and make a lot of statements without getting the facts, so we were careful to put the facts out. With all contracts, every single contract on earth, at the time when the contract is instituted it serves a particular purpose. At any time during the contract it can be re-negotiated, it can be changed, the environment might be different, and the environment was

definitely different at the time when the government changed hands. One of the things they did was let’s sit down and take a look at this. It’s six years since the beginning of that contract. Is it the same environment? Are prices the same? Have things changed? So we did that. In all of this, there was a lot of noise that really did not make sense, but the good thing which has always worked for us is that we’re always extremely careful about our contractual terms and how we operate within those contracts so that when there’s any panel or any investigation, any checks, we can always come out at the end of the day with our heads held high that we did not flout any rules, that we performed exceptionally well. I think that’s the evidence that we have today that we still work within the same business and NNPC will still continue to operate as we’ve always operated with our own efficiency. We’re not in jail. Once everybody calms down and they take a look at every thing that has been done, the only thing they can say is well. That is my satisfaction. I don’t bother to listen to a lot of what they say, a lot of times those who don’t know the facts just speak out of the limited information that they have. The bottom line is that our contract was operated well within the boundaries of the contract, under the terms that were agreed in that contract, was executed efficiently on everything that we had to deliver. Even, we went beyond our call of duty, by far beyond to ensure that Nigeria had the petroleum products it needed at the time. And we have no regrets whatsoever.

INTERVIEW

If you had to give a report card on the NNPC Group Managing Director’s performance so far, what would you say - pass, fail, could do better? I think he’s on track. One of the things that I would say in his case is that he’s brought a sense of belief back into the industry – belief that things can be done quicker, better, and that you don’t have to waste so much time. For everyone in the industry it was that level of uncertainty about when anything would get done that probably frustrated everyone the most. In the past, you could negotiate a basic contract that should be done in 2, 3 weeks and yet it would take 3 years, and you still didn’t know when it was going to be done. That was very frustrating for everyone, so for him, the fact that he has brought that level of discipline back is a good omen. Nigeria is not an easy country anyway and the oil and gas industry in Nigeria could have been easier but it’s not, so we all have to put our hands on deck to help. So thus far, his work is not easy but it’s moving along.

Still on the report card, which areas do you think warrant a “could do better”? There are two distinct areas. One is upstream. It is one of the areas that most definitely needs clarity on what fiscal regime we are working with. That’s something that needs to be addressed. They’re trying to address it by going back into the House and trying to work on the PIB. I think it’s taking too long. So one

“THE SHAPE OF EVERY ORGANIZATION IS GOING TO CHANGE IN THIS PERIOD IF THEY’RE GOING TO SURVIVE.” TONYE COLE of the things that you probably need to do today, which would have helped the industry especially in this environment that we are in, which needs clarity is probably, to say that while the PIB is going on, this framework is what we’re going to work on, so we’re operating within this and everyone knows. We’re still in limbo. People don’t know if they are operating on the old one, is it going to change, is the new one coming in and changing everything and how soon. That uncertainty is not good, especially now. So if I were to hazard a guess as to what the industry would probably like to hear it’s “Okay, for the period of time that it’s going to take for the changes to come in, this is what we’re going to work with and it is going to be sacrosanct. Nobody is coming back to change it and from this point we agree that’s what we’re going to move forward with.” I think that kind of statement is necessary to help everyone move forward. That’s as far as the upstream in concerned.

The downstream is one thing alone. At some point, I think they have to deregulate. He said that’s the way he would like to go. Everyone agrees that’s the way it should go. It’s amazing that the general public think that marketers and those who are involved in the downstream prefer to have subsidy. Frankly, nobody prefers to have subsidy. For those of us who operate in this business it’s a pain. The subsidy never comes on time and the banks owe you. Everyone is chasing everyone and by the time all the payments come in, if you have broken even, you have tried. That’s why a lot of companies come, they start, they go under and they just disappear. They come and go. The pain that subsidy has caused to those who are in the business is by far more than the benefits of it, so we would always say, let’s control our destiny within our own hands. I don’t know if Nigerians are ready for it. Let’s see.

INTERVIEW

INTERVIEW CECILIA AQUA UMOREN, MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, MILLENNIUM OIL AND GAS COMPANY LIMITED Cecilia Aqua Umoren speaks to NOGintelligence about the importance of good business ethics in the present economic climate. An accomplished lawyer, Cecilia Aqua Umoren ran a successful law firm before getting the thirst for oil and gas. She was founding partner of the law firm Cecilia Okafo and Associates now (Sapphire Partners), a full service corporate and litigation firm. There, she cut her teeth on local and international commercial transactions. In time she was to act for many foreign oil service companies eventually deciding to join the oil and gas race herself. She joined Emerald Energy Resources Limited (EERL) in 2001 as a founding Executive Director. Today she sits on the Board of Directors of EERL as well as on the Board of successful marginal field operators, Waltersmith Petroman Oil Limited. She is also on the Board of Governors of The Petroleum Club, Lagos. But now, she has a chance to instil her own brand of leadership in a company that is poised to bring the Oza Marginal Field, which it operates, into production soon. She took over the reigns at Millennium Oil and Gas Company Limited (MOGCL) in July 2015 and in this interview she tells us more about how she intends to lead the company through the lean times. "Any company that can find the will and the strength to get through this period will emerge better and more robust. The current low oil price presents obvious challenges as well as unique opportunities. With oil services at record low costs, this is a good time to carry out our planned field development activities. Raising the necessary capital is an obvious challenge as most financial institutions are already over exposed to the oil sector and the instability makes them wary. However we have found that there are quite a number of private equity firms who are excited at the current opportunities and consider this a good time to invest in near producing assets such as ours”.

“More importantly, this is a good time to embed positive change in the company culture. Good business ethics is the most crucial driver of business success at a time of economic downturn. There is no better time to refocus and sharpen employees to develop a new business outlook in order to build a lean, efficient, transparent and accountable company. We have the opportunity to push for perfection in all aspects of our operation and drive sustained growth”. “At MOGCL, our goal has become much bigger than reaching commercial production. We want to impact social change by nurturing our employee’s skills to evolve into the next generation of business leaders. We are committed to building a new model of indigenous oil company: a company that has zero tolerance for corruption and genuinely embraces a culture of transparency”. “I believe that we will succeed in these objectives and at the same time, guarantee a good return for all our investors and shareholders. It is this conviction that drives me."

"WE ARE COMMITTED TO BUILDING A NEW MODEL OF INDIGENOUS OIL COMPANY: A COMPANY THAT HAS ZERO TOLERANCE FOR CORRUPTION AND GENUINELY EMBRACES A CULTURE OF TRANSPARENCY” CECILIA AQUA UMOREN

MILLENNIUM OIL & GAS COMPANY LIMITED OPERATORS, OZA MARGINAL FIELD (OML 11) Millenium Oil & Gas Company Limited (MOGCL) operates the Oza marginal field with her JV partners Emerald Energy Resources & Hardy Oil Nigeria. Oza is located in OML 11 in Ukwa West Local Government Area of Abia State, Nigeria. Field development activities have since commenced and are at an advanced stage to put the field on production. The overall development concept is to produce from the existing wells via an Early Production Facility and hook up to the SPDC nearby facility. The dedicated production wells â&#x20AC;&#x201C; 2 out of 3 existing with 3 production strings â&#x20AC;&#x201C; have been re-entered and tested. The gathering manifold, flowlines and crude delivery pipelines have been installed. Presently, MOGCL is constructing an EPF to receive the Oza well streams for processing. A Lease Automated Custody Transfer (LACT) Unit has been fabricated and will soon be installed and commissioned.

Left, Oza 1; Above Oza 2 below left, Oza 4

MOGCL has a crude handling agreement with SPDC and the estimated production of 2,000bopd is expected to commence from Below, Oza LACT Unit after Q3 of 2016. Produced gas handling is planned for an off-taker to take fabrication; Right, Manifold feed gas for 3rd party utilization. A substantial amount of funding has been invested in the field development and MOGCL plans to carry out further field development activities that will include studies to evaluate upside opportunities. A work over of well 1 and recomplete as dual producer shall follow immediately production commences. In-filled wells shall be drilled to adequately convert prospective resources to reserves targeted at boosting production to about 10,000bopd.

OZA

Location of Oza Marginal Field 25

DOWNSTREAM NEWS

JANUARY-MARCH ERIN ENERGY AND GLENCORE AGREED OFFTAKE AND PREPAYMENT AGREEMENT US OPENED DOOR TO LIGHTLY PROCESSED CRUDE EXPORTS A new US Department of Commerce guidance that effectively opened the door to US exports of ultra light crude was announced sending panic waves through the Nigerian oil industry. In view of the clarification, producers in the US, once Nigeria’s largest crude oil importer, could now be able to sell lightly processed crude abroad. After approving the export application of two Texas producers, the door to US condensate exports was now firmly unlocked. The US guidance stated that the decades old ban on the export of crude oil, stemming from the Arab oil embargo of the 1970s, remained in place but condensate that had been processed through a crude oil distillation tower was a petroleum product and so was not subject to the ban on crude exports. Analysts were predicting that with the opening up of US condensate exports, oil prices were unlikely to make a recovery anytime soon.

Houston based Erin Energy Corporation announced that it had agreed to heads of terms on a commercial arrangement with an embedded prepayment element with Glencore Energy, a subsidiary of Swiss commodity trading giant, Glencore Plc. The offtake agreement would allow Glencore to undertake the lifting of Oyo crude from the FPSO Armada Perdana for a minimum term of two years. The embedded prepayment element worth $150 million would provide proceeds in two tranches beginning upon the completion of the company’s Oyo-7 well. The initial tranche would be available in two equal drawdowns totalling up to $50 million, and would depend on Erin Energy’s ability to meet certain production targets. The second tranche would be an inventory revolving facility of up to $100 million. Kase Lawal , Chairman and CEO of Erin Energy commented: “We are pleased to be working with Glencore as our commercial partner to further our development work offshore Nigeria. This prepayment facility would provide us with additional working capital and is a strong endorsement of our offshore Nigeria assets.”

APRIL - JUNE CONOIL DOUBLED JET FUELLING MARKET SHARE WITH NEW AIRCRAFT FUELLERS Indigenous downstream giant, Conoil Plc revealed it had placed orders for two new world-class, state-of-the-art bowsers to deepen its quality service delivery to leading domestic and international airlines operating in the nation’s airspace. The company said in a statement that its new bowers would have a combined capacity of 62,000 litres enabling it to offer improved fuelling times for aircraft at 1,500 litres per minute. Conoil said that with the new bowsers, its capacity for Jet A1 fuelling would increase by 100 per cent from 10 million litres to 20 million litres per month. The bowsers, which were manufactured by Flightline UK, used the latest technology and were certified by international aviation control bodies including, the Joint Inspection Group (JIG) and the International Air Transport Association (IATA). In addition to robust safety features, including international standard filters, the bowsers also had automatic ticket printers, to show the amount of fuel being delivered into the aircraft. The substantial increase in Jet A1 sales, according to Conoil, is projected to boost the company’s bottom-line by over 25 per cent over the next one year while also increasing significantly its market share in the aviation fuel segment.

DOWNSTREAM NEWS

JULY- SEPTEMBER FYNEFIELD OIL DEPOT OPENED IN CALABAR Fynefield Petroleum opened its 40 millionlitre capacity petroleum product depot located at the Calabar Free Trade Zone in Cross River State. According to Fynefiled, the facility, which was unveiled by the Governors of Cross River and Delta Sates, was built in accordance with international standards. The depot has a combined capacity of 40,734,724 litres storage. Of that, it has capacity to store 20,413,594 litres, 10,157,073 litres of

kerosene and 10,164,057 litres of diesel. The investment was described as a significant milestone and a big boost to Cross River and the nation’s economy in the terms of employment opportunities and distribution of products across the country. Commenting, the Managing Director of the firm, Gabriel Ogbechie, said the facility was built to enrich the distribution chain of petroleum products in the country as

the depot would serve Cross River State; neighbouring states like Akwa Ibom, Abia, Imo, Taraba, Plateau; and some states in the North East and the northern part of the county at large. The company said the N3bn investment would provide direct employment to over 50 individuals and hundreds indirectly because tank trucks would come to the facility from all over the country to lift petroleum products.

OANDO COMMISSIONED UPGRADED SERVICE STATION

FORTE OIL TERMINATED CONTRACT WITH FRANCHISED STATIONS SEALED BY DPR

Oando Marketing commissioned its Kaduna service station in August after an upgrade. The company said the station was one of a new era designed to have state-of-the-art technology including the latest technology in fuel pumps with the capability of dispensing fuel to a minimum average of 1,200 vehicles daily. The station also has a modern autocare centre and will be able to deliver all round professional car care.

Forte Oil said it had terminated its contracts with four franchised service stations after they were found by the Department of Petroleum Resources (DPR) to have manipulated their dispensing pumps, in addition to selling over the regulated price. They were among 12 petrol stations sealed by DPR following an inspection round.

Oando Marketing Plc plans to equip all its service stations with state-of-the-art equipment and advanced technologies to meet the dynamic needs of today’s customers as well as to upgrade its facilities in line with highest international standards.

In a statement, Forte Oil’s Head of Corporate Communications, Akinleye Olagbende, drew attention to the

fact that the non-compliant Forte Oil stations that were sealed by DPR were franchised stations and not owned by Forte Oil. He said Forte Oil had a robust compliance system ensuring that all stations branded under their name complied with all the regulations applicable to the downstream petroleum sector. Non-compliance with these terms gave Forte Oil grounds to instantly terminate the agreements.

OCTOBER-DECEMBER NNPC RECEIVED 101 BIDS FOR OFFSHORE PROCESSING AGREEMENTS TENDERS The Nigerian National Petroleum Corporation (NNPC) received 101 bids for tenders for Offshore Processing Agreements (OPA’s). The successful bidders will be responsible for taking crude oil allocations for the national refineries and sending them offshore for processing and returning products to Nigeria in exchange. The results of the bid were opened by NNPC General Manager, Supply Chain Management, Sophia Mbakwe in a live telecast as a testament to the new era of openness and transparency in NNPC processes. The bidders were mainly traders and included well known downstream companies such as Forte Oil, Sahara Energy, Oando as well as some international oil companies’ downstream arms, including Total and Eni and Shell. Not long after his appointment as Group Managing Director of NNPC, Ibe Kachikwu had cancelled the NNPC’s existing Offshore Processing Agreements with Sahara Energy, Aiteo Oil and Gas

and Duke Oil saying that the terms of the contracts were so skewed in favour of the traders that they were largely uneconomic for Nigeria. NNPC said that the value of product delivered was significantly lower than the equivalent crude oil allocated for the programme.

DOWNSTREAM NEWS NNPC RECEIVED 278 TENDERS FOR CRUDE OIL TERM CONTACTS The Nigerian National Petroleum Corporation (NNPC) tender for offtakers of about 950,000 barrels per day of the national share of crude oil production under new Crude Oil Term Contracts closed. NNPC revealed that 278 firms applied for the contracts, which are due to commence in January and will last for a year. In the new era of transparency, Nigeria Extractive Industries Transparency Initiative (NEITI) was among the independent assessors present at the event, as the bids were opened by Sophia Mbakwe, General Manager, Supplies Chain at NNPC. The Group Managing Director (GMD), Dr. Ibe Kachikwu, was determined to conduct the process as transparently as possible. He insisted that NNPC would be impartial in choosing the successful applicants.

NNPC REPLACED OPAS WITH DIRECT SALE/PURCHASE MODEL The Nigerian National Petroleum Corporation (NNPC) ditched the controversial offshore processing arrangements (OPAs) in favour of a direct sale direct purchase (DSDP) model. The decision came barely one week after NNPC received 101 bids in the tender process for the OPAs. Under the new arrangement, NNPC would sell the crude itself and purchase the petroleum products directly from credible refineries. The state corporation said the new process was “a major steer designed to enshrine transparency and eliminate the activities of middlemen in the crude oil exchange for product matrix.” The move would save the country about N41.4 billion in six months. In a statement, Ohi Alegbe, Group General Manager of NNPC explained that the evaluation of the pre-qualified bidders had revealed that most of the shortlisted companies were not refineries but only had affiliations to refineries. This would

have introduced a toll on the value chain. NNPC would have found itself right back where it started with the discredited OPAs. NNPC intends to engage the refineries that were prequalified in the tender evaluation process in the direct sale-direct purchase mode after completing due diligence on the refineries identified.

The NNPC team had their work cut out for them as they were due to whittle the 278 applications down to 16. Kachikwu had previously indicated that he would be reducing the number of offtakers by a third from the current 43 to about 16. The Corporation explained that the new terms were introduced to bring more commercial certainty in the market. Explaining further, the Group General Manager, Crude Oil Department, NNPC, Melee Kyari said that with too many offtakers, it was hard to monitor supply and guarantee delivery to endusers. He said: “As you are aware, we have clear objectives and that is to make sure that our crude oil ends with the ultimate end user.” Other issues that created uncertainty in the past included fake supply gluts as a result of offtakers lifting cargoes when they had no buyers. This situation, he explained, had created oversupply situations that did not exist but which the market reacted to, with a negative consequence on Nigerian crude prices. NNPC said it was working to ensure that the new contract is in place for the lifting regime from January 2016. The new contracts are expected to be more robust than previous contracts and of international standard.

PPRA APPROVED 19 COMPANIES FOR Q4 IMPORT OF PMS The Petroleum Products Pricing Regulatory Agency (PPPRA) approved the importation of 1.5 million metric tonnes of premium motor spirit (also known as PMS) for the last quarter of 2015. A total of 19 downstream companies were granted allocations. MRS got the most - 200,000 metric tonnes, Total Nigeria Plc got 120,000 metric tonnes, while NIPCO Plc and Forte Oil Plc got 100,000 metric

tonnes each. FEL got 90,000 metric tonnes while Oando, Conoil, Rainoil, Blufin, Masters Energy, Sahara Energy and Swift Oil got 60,000 metric tonnes each. Matrix Energy and AA RANO got 50,000 metric tonnes each. Mobil Oil got 45,000 metric tonnes and Heyden Petroleum and Integrated got 40,000 metric tonnes each. Shorelink got 30,000 metric tonnes while NEPAL got 15,000 metric tonnes.

DOWNSTREAM NEWS NNPC AWARDED TERM CRUDE OIL LIFTING CONTRACTS TO 21 OFFTAKERS In December, the Nigerian National Petroleum Corporation (NNPC) announced the winners of the bid exercise, which began in October for its 1-year crude oil term contracts. In spite of the steep qualification criteria, 278 bids were received for the 26 Nigerian crude oil grades on offer. The bids were opened publicly in a new era of transparency under the new Group Managing Director, Dr Ibe Kachikwu. Out of the 278 offers, only 21 offtakers were successful in getting allocations for the 991,661 barrels of Nigeria’s equity crude oil on offer. The successful companies were split into five categories: refineries, international trading companies, trading affiliates of international oil companies (IOCs), Nigerian downstream players and NNPC affiliates. Four refineries won 24 per cent of the crude on offer. The refineries were Emirates

National Oil Company (ENOC), Indian Oil Corporation, Spanish CEPSA Refinery and Italian Sara SPA Refinery. Each of the four refineries, which got 60,000 barrels of oil per day (bpd) each, were current offtakers of Nigerian crude and they were said to have the capacity to process all Nigerian crude grades. The three successful Swiss traders were Trafigura, Mercuria and Vitol. The three got 32,000 bpd of crude each. NNPC said they were selected based on their pedigree as large-scale buyers of Nigerian crude. They also had the structure for short-term freight intervention and storage. The total volume awarded to the three companies amounted to about 10 per cent of the total crude on offer. IOCs whose trading affiliates also got allocations were ENI, Total, Exxon and Shell. The affiliates, ENI Trading and Shipping

SPA, Total Oil Trading SA, Exxon Sale and Supply LLC and Shell Western Supply and Trading, each got 32,000 bpd, representing 13 per cent of the total crude on offer. Nigerian downstream players were selected on the basis of their wide experience and large asset base. Together they got 405,000 bpd representing 41 per cent of the total crude on offer. The successful companies were: Sahara Energy Resource Ltd and MRS Oil &Gas Company Ltd, Oando PLC with 60, 000 bpd each, whilst A.A. Rano Nig. Ltd, Northwest Petroleum and Gas Ltd, Forte Oil, Eterna Oil and Emo Oil and Petrochemical Company who teamed up with Chinese traders and refiners, ZhenHua each got a 45,000 bpd allocation. Finally, NNPC trading companies got a combined allocation of 122,000 bpd, with 32,000 bpd going to Calson/Hyson got 32,000 bpd and 90,000 going to Duke Oil.

NIGERIAN LUBRICANT PRODUCTION WAS AT A THIRD OF INSTALLED CAPACITY Lubricant engineer, Kayode Sote, revealed that Nigeria was producing lubricating oils at an average of 40 per cent of installed capacity. He was speaking at a media briefing ahead of the 2nd Nigerian Lubricants Summit 2015. He also said that the Nigerian lubricant industry was employing over 5,000 Nigerian workers even though it had a potential to generate over 50,000 additional jobs with the plants working at full installed capacity. Sote also revealed that the country was awash with sub-standard and offspecifications imported lubes as the market had become a dumping ground for products of questionable quality. There were 32 registered and other illegal blending plants in the country with a total installed capacity of about 965 million litres per year according to one news report. Sote pointed the finger at the inefficient regulatory structure and the poor implementation of policies by the regulatory agencies, which allow these practices to go on. At the Summit, the Minister of State, Ministry of Petroleum Resources, Dr. Ibe Kachikwu urged both the Department of Petroleum Resources (DPR) and the Standards Organisation of Nigeria (SON) to monitor the influx of imported lubricants into the country due to the widely reported cases of substandard lubricants in the market.

US LIFTED CRUDE EXPORT BAN In December, President Barack Obama signed legislation lifting the fourdecade old ban on exports of US crude oil as part of a spending and tax package. Republicans have been keen to get the export ban lifted to give American oil producers access to international markets at a time of low oil prices. The US ban came into force in the mid-1970s during the Arab Oil Embargo when oil prices rocketed and fuel had to be rationed in the US. Barely two weeks following the lifting of the ban, the oil tanker Theo T was loaded with light crude for ConocoPhillips Co. at NuStar Energy’s North Beach Terminal in the Port of Corpus Christi, 160 miles north of the Texas border with Mexico. The oil was shale from the Eagle Ford Shale of South Texas. Oil trading powerhouse Vitol Group, was the buyer of the cargo of crude. Vitol was also expected to buy Enterprise Products Partners’ cargo that will ship from Houston in the first week of January. Vitol is one of the largest international traders of Nigerian crude. Already, Nigerian buyers were looking at US shale as an alternative to Nigeria’s light crude.

DOWNSTREAM NEWS

DOWNSTREAM NEWS NIGERIA EXPERIENCED 3,700 CASES OF CRUDE AND PRODUCTS PIPELINE VANDALISM NNPC confirmed in its Annual Statistical Bulletin for 2014 that the country lost crude oil and other petroleum products valued at N59.597 billion due to pipeline vandalism in 2014 after a 4.54 per cent increase on the same period the previous year. According the Bulletin, 355,690 metric tonnes of petroleum products valued at N44.75 billion as well as 1.08 million barrels of crude oil valued at about N14.847 billion were lost in the period in review, in addition to. A total of 3,732 line breaks were reported on NNPC pipelines of which 3,700 cases were as a result of vandalism. This resulted in in a loss of 355.69 thousand metric tonnes of petroleum products worth about N44.75 billion, 17,964 barrels of Bonny Light valued at N264.37 million as well as 586,776 barrels of Escravos Light valued at N8.636 billion in the period under review.

CRUDE OIL PIPELINES CAME UNDER REPEATED ATTACKS At the end of September, Shell Petroleum Development Company (SPDC) declared force majeure on Forcados exports for the second time in four months. This came following the shutting of the Trans-Forcados pipeline after a leak that affected crude receipts into Forcados Terminal. Shell notified its customers of its inability to fulfil contractual obligations with refineries abroad of the Forcados crude grade. Other exploration and production companies affected by the closure were Seplat, Pan Ocean and Nigerian Agip Oil Company. The vital artery has a capacity of 150,000 barrels per day. Nigerian Petroleum Development Company (NPDC) transports around 11,000 barrels of oil per day (bpd) and 6.5 MMcf/d of gas through the pipeline while Seplat Petroleum uses the pipeline to transport its over 60,000 bpd of crude oil from its Oil Mining Leases (OMLs) 4, 38 and 41. The pipeline is operated by NPDC but the 28-inch and 48-inch sections of the pipeline are operated by Shell.

FEDERAL GOVERNMENT SUSPENDED FUEL SUBSIDY PAYMENTS President Muhammadu Buhari finally caved in to national calls to scrap the payment of petroleum subsidies. It was left to the Minister of State, Ministry of Petroleum Resources, Dr Ibe Kachikwu to make the revelation that as from December 27 the Nigerian government was suspending the subsidy on petroleum products due to falling oil prices. He said there would be a review if prices increased under the newly introduced price modulation in the sector. Speaking to journalists after inspecting the Kaduna refinery, Kachikwu had to answer a barrage of questions after days of confusion over the issue of subsidies with no clear message on the government position. Clearing up any lingering questions, Kachikwu confirmed that the payment of subsidy on petroleum products had been suspended due to the current low prices of crude oil on the international market. Dr Kachikwu said that the situation would only be reviewed if crude oil prices improved.

Shell had previously declared force majeure declaration early in May and that force majeure declaration remained in place for just over two months. Other pipelines have also experienced closures. In May, the Trans Niger Pipeline (TNP), which feeds Bonny Light crude oil to the export terminal was closed following a leak caused by attempted theft. The pipeline has the capacity to carry 180,000 barrels of crude oil per day. Although there were 4 to 6 days of delays on the pipeline Shell did not have to declare force majeure on loadings on that occasion. In another incident at the end of August, Shell had to declare force majeure on Bonny Light crude oil exports. This time, both the Trans Niger Pipeline and the Nembe Creek Trunkline were shut. Planned exports of 162,000 barrels per day (bpd) of Bonny Light in September, accounting for just over 8 per cent of Nigeria’s total planned exports of nearly 2 million bpd, were affected. A leak was reported on the Trans Niger Pipeline at Oloma in Rivers State while the Nembe Creek Trunkline had to be closed to remove crude theft points.

DOWNSTREAM NEWS

NIGERIA SOUGHT NEW MARKETS FOR ITS CRUDE As the US market for Nigerian crude collapsed at the end of last year, due to shale production, Nigeria turned its eyes to Asia. By April however there was a glut of unplaced Nigerian crude in the market, which left a large overhang of March, April and May cargoes. Demand from Asian buyers especially India, the biggest buyer of Nigerian crude at this stage had been on the wane. Traders were expecting more Nigerian crude cargoes to end up in Europe due to the overhang particularly in the wake of declining interest from other regular buyers from Brazil, Indonesia and South Africa. With a global oversupply, Arab oil producing countries seemed to be winning the war on market share as they could afford to offer huge discounts to retain and attract new buyers. With the glut, traders were saying that buyers were in control as they were seeing multiple offers for the same grade. Only 25 per cent of the Nigerian May programme had so far been placed, according to Platts cargo tracking data. Experts were suggesting that with a more trading oriented market, Europe would be a good focus for Nigerian crude as it

gave sellers the flexibility to negotiate their outstanding cargoes whilst afloat. Already Denmark, Statoilâ&#x20AC;&#x2122;s Kalundborg refinery had imported a cargo of crude from Antan, Nigeria, a small niche grade, offloading April 6. This was its first purchase of crude since October 2013, according to Flow data. By July, with freight costs easing in Europe, Nigeria was increasingly being advised by traders to look more towards Europe. After US imports ground to a halt, Nigeria began to look towards the Asian market, particularly India and China. Demand has however slowed down, leading to millions of barrels of Nigerian crude floating on the high seas. As a result, traders were advising Nigeria to look to Europe, where refiners were looking at alternatives. In September, Venezuelaâ&#x20AC;&#x2122;s state-run oil company, PDVSA bought new cargoes of Nigerian crudes for delivery at Bullenbay on the Caribbean island of Curacao where it operates a storage and blending terminal. The cargo was also sold by Shell. Although it has vast reserves of its own, Venezuela, began importing light crude last year for the first time. The country produces heavy

crude and needs light crude from countries like Nigeria to blend with its heavy oil for export. The US also began to seek out Nigerian crude following indications that shale oil production was slowing. Traders said that sales Nigerian crude for October from the United States were at significantly higher levels than for earlier months. The European market was also growing. According to traders, Nigerian crude was well suited to plug the gap in the market by lower shale oil production. With increased demand, Nigeria was able to raise its official selling price for Bonny Light to dated Brent plus 60 cents and Qua Iboe to dated Brent plus 94 cents. In December, however, President Barack Obama signed legislation lifting the fourdecade old ban on exports of US crude oil. Barely two weeks following the lifting of the ban, Vitol Group, one of the largest international traders of Nigerian crude was already buying up US shale production for its refinery in Switzerland. This could signal a difficult year for Nigeria in 2016 as it struggles for market share in an increasingly more crowded market.

DOWNSTREAM NEWS

FUEL SCARCITY REFUSED TO GO AWAY Once again, the motorist’s year was marred by periods of extreme fuel scarcity as the perennial problem refused to go away. The end of the President Goodluck Jonathan administration will be forever remembered for the crippling fuel shortage that threatened to bring services in the country to a halt. Banks had begun to shut their doors early to conserve supplies whilst hospitals were beginning to talk about shutting down completely. Businesses were paralysed with staff unable to get to work as public transport services went off road. The pump price of petrol went through the roof with reports of selling prices of N500 per litre, from the official selling price of N87, in Anambra State. There was a brief respite from the fuel scarcity following the transition to the President Buhari's government after marketers began delivering imports that were owing to the government. The rush to deliver came after they had to open their books to the Economic and Financial Crimes Commission (EFCC) after it began its investigations into historic delivery shortages. In July, a new fuel shortage reared its head. Keen to distance itself from the troubled end to the last government, Nigerian National Petroleum Corporation (NNPC) worked hard to re-assure Nigerians that it had the fuel situation under control as petrol queues began to build up again in Abuja and other parts of the country. NNPC spokesperson, Ohi Alegbe, released a statement to confirm that there was sufficient petrol in stock to last the country 25 days even if national consumption should reach 40 million litres a day. Alegbe said that supply to retail outlets was being accelerated as he tried to assure the nation of the stability of supply. He added that the coastal depots were also holding additional stocks in the national strategic reserves at Calabar, Port Harcourt and Warri. Slowly, things went back to normal. Meanwhile the call was growing for the government to clarify its position on deregulation as marketers continued to hold back from importing more products while the uncertainty persisted. As a result, petrol queues were back and the price of fuel began to escalate again. Commentators were saying that in some parts of the country, petrol prices were now probably more than they would be without the petrol subsidy. The call continued growing for deregulation.

In October fuel scarcity returned to blight the life of Nigerians. This time, the Minister of State, Ministry of Petroleum Resources and Group Managing Director of NNPC, Dr Ibe Kachikwu, was determined to do everything he possibly could to see the back of the queues. Kachikwu issued an order for petrol to be sold for free to customers on the forecourt of any petrol station that was found to be hoarding the product. The Department of Petroleum Resources (DPR) swung into action sending its staff to petrol stations, dispensing free fuel wherever it came across non-compliant retail outlets. In a bid to get information direct from the public NNPC Retail set up hotlines for feedback and intelligence on the operation of its mega and affiliate filling stations The Independent Petroleum Marketers Association of Nigeria (IPMAN) urged the government to force private depots to sell to retailers at the regulated price of N77.66 per litre. The chairman of the Minna branch of the association, Alhaji Adamu Erena spoke out after the Department of Petroleum Resources (DPR) sealed up eight petrol stations belonging to members of IPMAN in Minna. The petrol stations were said by DPR to have been selling petrol at above the approved price. Reacting to the development, the association directed its members to shut down their filling stations thereby exacerbating the problem. According to Erena, retailers could not sell at the approved retail price of N87 because private depots were collecting two payments from them. Retailers would pay the depot the regulated price of N77.66 per litre into their official account and in addition they would have to pay an extra amount of N10 per litre into their private

bank accounts enabling the private depots to flout the law. Erena said that retailers could only sell at the approved retail price of N87 per litre if private depots were made to comply with the law and sell to them at the approved regulated price. With NNPC unable to fulfil the supply requirements private depots had stepped in to fill the gap. As the fuel scarcity persisted into the end of November, NNPC embarked on a public information blitz to try to convince the public that even in spite of the persistent queues, there was enough petrol stock in the country to last 35 days. Urging the public to stop panic buying, the Executive Director, Commercial of NNPC’s downstream subsidiary, Pipelines and Product Marketing Company (PPMC), Justin Ezeala, revealed that the country had a projected 1.4 billion litres of petrol available for distribution to fuel stations across the country all through the month of November. This was enough to last the nation up to 35 days. Ezeala revealed that the country currently had 656.376 million litres of PMS in storage. Of that, there were 66.81 million litres in PPMC depots and 117.48 million litres in PPMC throughput depots. In addition, there was 427.971 million litres of marine stock and 44.112 in depots belonging to members of the Major Oil Marketers Association of Nigeria (MOMAN). He also explained that an additional 756.99 million litres of products had been confirmed for delivery into the country before the end of November. NNPC and the PPMC also increased fuel supply to marketers across the country. Supply to Abuja, for example, was increased from 135 trucks to 180 trucks daily. Ezeala disclosed that on that

DOWNSTREAM NEWS day, about 4,397,288 litres of petrol was delivered to the Suleja depot on Thursday for distribution to service stations within its environs; 1,518,989 litres to Kaduna depot; 2,754,125 litres to Kano; 299,992 litres to Minna; 795,001 to Gusau; and 2,975,990 litres to Mosimi depot. Other depots that received products from its storage facilities included Satelite depot with 1,609,960 litres; Ilorin - 636,992 litres; Ore - 365,000 litres; Ibadan 539,955 litres; Gombe - 2,101,742 litres; Benin - 1,375,993 litres; Port Harcourt 1,151,811 litres; Aba - 840,951 litres; and Enugu - 1,399,716 litres. Meanwhile what was happening at the petrol stations told a different story as queues persisted in the face of the relentless shortage. NNPC took the extraordinary step of ordering its Retail Mega Stations to open 24 hours a day to help bring the situation under control. NNPC Retail has 513 retail outlets all over the country and the strategy was that every one of those stations would have products at all times. Where for security reasons any of the mega stations could not be open for 24 hours, there would be extended opening hours from 5am till 10 pm daily. Police protection would be provided to support the new opening hours. None of the steps worked to make a dent in the queues. Misery loomed for motorists as Christmas and the attendant road travel period approached. In a bid to ensure a holiday travel period free of fuel queues, Kachikwu directed PPMC to release a special intervention petrol supply into the system to ensure countrywide availability of petroleum products ahead of the Christmas. The special intervention mechanism entailed the ramping up of additional supply through a massive truck out to ensure that all parts of the country got supplies. Already, daily fuel truck out had been increased significantly to areas such as Abuja, Kaduna, Kano, Enugu, Ibadan and Jos. NNPC also said in the statement that they were consolidating their strategic alliance with some major depot owners and oil marketers with strong regional logistics outlay in those areas to ensure maximum infiltration of products especially in the hinterland. The Department of Petroleum Resources (DPR) signalled that it was getting more aggressive in its bid to seek out and stamp out the hoarding of petroleum products

NATIONAL PMS STOCK AND DISTRIBUTION STATUS - 22ND DECEMBER 2015 National PMS Sufficiency

Total Vessel Dsicharge Vol to Tanks

Volume of PMS evacuated from coastal Depots to Inland Depots Number of Trucks Dispatched from all Depots to Filling Stations nationwide

Volume (Million Litres)

Days Sufficiency

Land 321.23 Marine 656.08 Total 977.31

Land 8.03 Marine 16.40 Total 24.43

Volume (Million Litres) 314.5

Volume (Million Litres) 64.04

Number of Trucks 914

and sales above the controlled price, after sealing off more than 50 petrol station in and around Oyo and Osun States for noncompliance. As delivery of the special intervention petrol began to roll out it was clear that the problem of hoarding could yet scupper all the good work of NNPC to tackle the shortage. Following an emergency meeting with senior staff, Kachikwu deployed NNPC staff to petrol stations across the country to ensure the effective monitoring of the distribution system. The Minister said his aim was to work towards achieving zero-queues at NNPC stations as soon as possible. Staff, who were going to be working closely with the Rapid Response Team, were urged to report any situation that needed urgent intervention, such as low stock, delayed arrival of trucks or any underhand dealing. The Rapid Response Team was made up of staff of PPMC staff and representatives of law enforcement agencies. NNPC said that 200 trucks of special intervention stock had been delivered to Abuja already and another 567 had been dispatched nationwide. Monitoring staff would help ensure that all petrol designated for their respective stations were delivered and dispensed

to members of the public in the most efficient manner. NNPC was urged NNPC to publish the daily supply to retail outlets saying to help bust hoarding by retailers. Showing that he was listening, Kachikwu soon got PPMC to begin disclosing, not just the daily dispatch list, but also the delivery list to monitor deliveries at their destination. Meanwhile, delivery of products through pipelines continued to meet with challenges. Managing Director of the NNPC subsidiary, Pipelines and Product Marketing Company (PPMC), Esther Nnamdi-Ogbue, revealed that they lost a total of 531 million litres of petrol valued at over N50 billion to pipeline vandals between January and September, 2015, at the problematic System 2B Pipeline network which stretches from the Atlas Cove in Lagos to Ilorin. The losses were mainly attributed to the incessant hacking of the pipeline at the notorious Arepo to Mosimi section of the pipeline artery. These challenges were making delivery of petroleum products to retail outlets much more difficult she said. In December, the government was finally able to push through the outstanding subsidy payments of over N400 billion to marketers be help them start importing again. Unfortunately this was not going to

DOWNSTREAM NEWS be the quick fix the country was looking for as imports usually take 3 weeks to arrive in the country. In the last week of the year, the government introduced yet another intervention to get more supply of petrol into the system as quickly as possible. It decided to begin direct delivery of petrol to Independent Petroleum Marketers Association of Nigeria (IPMAN) retail outlets across the country, bypassing the depots. The government agreed to provide petrol to registered and certified members of IPMAN and to deliver the products to their respective retail stations. This meant that

IPMAN members would not have to go and queue for products at depots. Another measure to help facilitate the process was a credit scheme, which NNPC introduced. IMMAN members would be able to get a credit line enabling them to pay for the products supplied to their retail station three weeks after delivery. For its part, IPMAN agreed to monitor the retail outlets and ensure that the products were sold at the current approved price of N87 per litre. They despatched a monitoring team to patrol the various outlets to ensure that the approved price was not flouted and also to ensure that the

products were not diverted. Unfortunately, the respite from petrol queues that Nigerians were expecting did not come as the year drew to a close. The indications were that the situation could continue into February 2016 as imports following the payment of marketers slowly make their way into the country. One issue of uncertainty however is how the marketers will react to the suspension of subsidy payments and the new regulated price of N86.50. Everything will depend on oil prices in the new year. Nigerian is expected to import 75 per cent of its petrol needs in 2016.

FUEL SUBSIDY WAS SUSPENDED As the Federal Government prepared the 2016 budget, pressure continued to mount on President Buhari to remove the subsidy. He seemed adamant about retaining it as he prepared his budget. Buhari felt he was there for the man on the street and he could see the ordinary person suffering if subsidy were to be removed. He seemed unpersuaded by all the economic arguments. His view was that it should only be removed when all the refineries were fully operational. Bluntly refusing to answer questions on the issue, the President said Nigerians should not be talking of subsidy but of local production. He said: “The infrastructure to enable the country refine petrol and move it to all parts of the country were allowed to decay at the expense of the common man and massive importation of petrol into the country.” Some of the pressure was coming from members of his cabinet and stakeholders in the oil industry. Even his Minister of State, Ministry of Petroleum, Ibe Kachukwu, had begun to state publicly that the subsidy was not sustainable. Others calling for subsidy removal included the Independent Petroleum Marketers Association of Nigeria (IPMAN). They advised the Federal Government to commence total deregulation of the oil and gas sector to avert frequent fuel scarcity. Former Governor of the Central Bank of Nigeria, now Emir of Kano, Emir Muhammadu Sanusi II, was one of the most vocal opponents of the subsidy after revealing some very stark figures that highlighted the level of fraud involved in the system.

The International Institute for Petroleum, Energy Law and Policy (IIPELP), a thinktank that provides institutional and structural support to the energy sector in Africa, said Nigeria was towing the path of bankruptcy if it continued to subsidise the importation of petroleum products under the Petroleum Support Fund (PSF) scheme. The Lagos Chamber of Commerce and Industry (LCCI) also called on the Buhari administration to deregulate the oil and gas downstream sector. In October PPPRA data revealed that subsidy on every litre of petrol consumed in the country had dropped to N14.39 from a high of N51.61 per litre in June. The pricing template showed that the expected open market price (EOMP), the total cost, of petrol was N101.39

per litre. The regulated retail price of petrol was N87 per litre meaning that the difference between the EOMP and the retail price was therefore, N14.39. The country currently consumes about 40 million litres of petrol daily. At the end of December, the President finally caved in to national calls to scrap the payment of petroleum subsidies. However there was no big announcement or press release. Instead, whilst inspecting one of the refineries, the Minister of State, Ministry of Petroleum Resources, Dr Ibe Kachikwu told assembled reporters that the Nigerian government had suspended the subsidy on petroleum products as from December 27 due to falling oil prices. He said there would be a review if prices increased under the newly introduced price modulation in the sector.

DOWNSTREAM NEWS

REFINERIES COMMENCED OPERATION At the beginning of the year there was hope for the refineries once again with Warri Refinery achieving 32.7 per cent and Kaduna Refinery, 8 per cent operational capacity. Port Harcourt remained moribund. With a combined nameplate capacity of 450,000 barrels per day, the refineries located at Port Harcourt, Warri and Kaduna had barely achieved 20 per cent operation over the years. Analysts were advocating scrapping them altogether or selling them off because of the financial toll on the nation. President Jonathan’s administration had tried to sell but met stiff opposition from workers’ unions. They shelved the idea. It was all very encouraging but by February, all three refineries had stopped production. So it remained, until July when remarkably, production at all three refineries began again following President Buhari taking office as Nigeria’s president. Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), later appointed Minister of State, Petroleum Resources, Dr. Ibe Kachikwu was appointed early in August. He was horrified by what he saw when he went on a tour of the refineries. Analysts were still calling for the refineries to be sold. Most were suggesting that the refineries were too decrepit to be fully revived and even if they were, they could not operate economically. Dr Emmanuel Egbogah, a former Presidential Adviser on Petroleum Matters advised that the Kaduna Refinery was not fit for purpose. He said: “Government should scrap the Kaduna refinery and build a new one. There are many bad features of the Kaduna refinery, which are never talked about. The refinery is not very good for refining Nigerian crude oil. We have to import oil from Venezuela. It is built to refine heavier type of oil. We have very little heavy crude, but nobody ever talks about it and it amazes me.” President Buhari would however not be swayed towards selling. Kachikwu announced a “90-day fix-or-shut-to-fully-fix programme.” The idea was that all the refineries would be shut immediately for quick fix repairs but they would have a deadline of end of December to come into operation or be shut for a full fix programme of repairs. For the full fix programme, his plan was to get investors on board who would assist with the repairs and manage them afterwards. He shut all the refineries down in September and they got on with repairs.

The strategy worked. First to come onstream was Kaduna refinery which began with a production with 1.5 million litres a day of PMS but by the end of the year was able to get production up to 2.3 million, about 60 per cent of its capacity. Hot on its heels was Port Harcourt Refinery with an initial production of about 5.5million litres of PMS daily. In time, production of AGO, kerosene and other products were expected to also resume. Warri was not yet onstream by the end of the year but there were indications that it was likely to commence operation early in the new year. After admitting to weeks of sleepless nights, Kachikwu said he was hoping Nigeria would soon see a day when half of the consumption of this country, about 20million litres per day, came from the national refineries.

“I THINK THAT IF WE CONTINUE ON THIS PATH, WE SHOULD SEE THE REFINERIES WORKING NEAR FULL BLAST VERY SOON.” DR IBE KACHIKWU

The rehabilitation of the refineries so far under Kachikwu had been done with “intensive manual labour” due to lack of funds. He revealed that on Port Harcourt alone, he had saved the nation $287 million after shunning foreign companies in favour of using NNPC manpower and local servicing firms to achieve the maintenance at a cost of less than $10 million. He said: “Obviously, had we consistently done this over time, we would not have the sort of nightmare that we have had today.” In a bid to introduce some efficiency into the supply, Kachikwu revealed that he had cancelled the contracts for delivery of crude oil to the refineries by vessel after discovering the country was spending about $7 million a month on vessel deliveries to the refineries and about the same amount monthly on the security contracts for those vessel deliveries. Although not very economic, the previous government turned to vessel delivery of crude after incessant pipeline sabotage kept disrupting delivery. After cancelling the contracts, Kachikwu said: “We are going to use some stop-gap measures to use our own internal supplies from now till when the new contracts are looked at.” He intends to focus on finding a way to curb the problem. He said that the government was bringing in army corps of engineers to help with pipeline protection. They would also be looking at aerial surveys by helicopters, surveys by the military and also naval surveys. He also intends to engage the communities in the process because he recognised that whether all the planned measures were going to be functional depended on relations with the communities. He says

DOWNSTREAM NEWS that if the pipelines could be made to work, then crude supply gets easier, resulting in higher volumes. Confirming the new determination, he said: “The intent is to have the pipelines work. It is no longer good enough excuse that people are sabotaging the pipelines. We have got to deal with those sabotages and we are going to go extremely tough on this.” He had nothing but high praise for the energy and effort being put into the work on the refineries, saying: “I think that if

REFINERY OPERATIONS

Source: NNPC Monthly Financial and Operations Report

we continue on this path, we should see the refineries working near full blast very soon. Until then, we are going to manage our resources, how we deliver crude and what we need to do in terms of reducing contractual times to enable them get the parts they need to get the refineries working.” He added: “We still have some way to go, but we are on the right path.” He categorically continued to rule out any plans by the federal government to sell off the refineries, saying: “There will never be a plan to sell the refineries.” Instead, the government might consider joint ventures

depending on how the refineries work on their own. Going forward the refineries were expected to be more autonomous in a bid to make them more profitable but without privatising them. They were going to be allowed to make direct payments into the federation account as from 2016. Dr Kachikwu said, “The new model is that refineries would now buy their own crude oil, refine it and make remittances to the federation account allocation committee.” He said that this semi-autonomy system should enable them to run in a profitable manner.

From January to November 2015, the three Refineries produced 687,916 MT (5,043,800.11 bbls) of finished Petroleum Products out of 955,537 MT (7,005,997.28 bbls) of Crude processed at an average capacity utilization of 4.71% and yield efficiency of 78.95%. Together, the refineries accumulated a total loss of N49 billion over for the period from January to November 2015. The tables and charts below provide more details.

WARRI REFINERY MONTHLY OPERATION

KADUNA REFINERY MONTHLY OPERATION

DOWNSTREAM NEWS PORT HARCOURT REFINERY MONTHLY OPERATIONS

REFINERIES FINANCIAL PERFORMANCE

DOWNSTREAM NEWS

GOVERNMENT AWARDED 65 NEW REFINERY LICENCES Buhari’s government has displayed its willingness to encourage the construction of modular refineries, which most are hoping will be the short term fix the country needs for the perennial shortage of fuel in the country. Under the previous administration, a new policy to support the construction of modular refineries was announced but no new licences were issued. Previoulsy, 18 Licence to Establish (LTEs) were granted in 2002. Unfortunately,

that licensing round was not a success as only one awardee from that round managed to come on stream. Niger Delta Petroleum Resources (NDPR) is producing automotive gas oil (AGO) more popularly known as diesel, at a 1,000 barrels per day (bpd) capacity. Most of the awardees said that the government had not created a conducive environment for the operation of private refineries. As a result the licensees could not get investors interested in financing their refinery projects.

Keen to show that it follows its words with action the government has granted Licences to Establish (LTE), Approvals to Construct (ATC) and the Licences to Operate (LTO) to 65 Nigerian companies out of 285 applicants, for the construction of modular refineries. The successful companies will set up mini-refineries that will refine from 1,000 to 10,000 barrels per day. The modular refineries, which can be assembled easily, are expected to enhance the availability of crude oil products in the country.

DANGOTE’S $9 BILLION MEGA REFINERY IN PROGRESS The Dangote Refining and Petrochemical Plant, owned by the Dangote Petroleum Refining Company, is slated to begin operation in 2018. The plant has a refining capacity of 650,000 barrels per day (bpd), production of 750,000 metric tonnes of polypropylene and 2.8 million tonnes of fertilizer per annum. It will cost around $9 billion to build and should double Nigeria’s refined products capacity. The fertilizer plant will be the largest in the world with a capacity of 2.8 million tonnes per annum (mtpa) of urea and ammonia. In addition to processing crude oil to produce high-quality gasoline, diesel and jet fuel that meet Euro V specifications for reduced emissions, the Dangote refinery facility will produce world-scale quantities of polypropylene, a key petrochemical used in plastics and packaging. Construction work, including land reclamation, piling and dredging, at site of the plant located in Lekki Free Trade Zone in Lagos State was said to be progressing rapidly. The company said: “With this project, Nigeria will reach selfsufficiency in little or no time and the vision is not just to supply the domestic market but to export to neighbouring countries to be able to generate some foreign exchange (Forex) for the economy.” The refinery will have the longest single train refinery in the world. Besides, the fertilizer section of the refinery will have up to 2,500 workers as work progresses. The company said

they already have 200 workers there and subsequently as the job progressed it will increase to 2,500 people working on the chemical, electrical and instrumentation sections. Dangote’s project secured a training grant from the U.S. Trade and Development Agency (USTDA) to help the company develop the critical human capacity resources necessary to successfully operate and maintain its proposed greenfield petroleum refinery located in Lekki. The grant from the agency will go towards funding a multi-year program to train more than 100 company staff on refinery fundamentals. The grant was said to be worth around $990 million. Africa’s richest man, Aliko Dangote explained: “For a high tech capital intensive project like this investment, getting the right human capital to run the plant is considered to be possibly the most critical success factor and the USTDA grant will go a long way in helping us address this.”

NEW NNPC REFINERIES PLANNED With the nation consuming somewhere between 35 and 40 million litres of PMS (petrol) per day it was clear to the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Ibe Kachikwu, when he took office that even if running at optimum capacity, the nation’s refineries could supply no more than half of that requirement. As a result, Buhari’s government is looking to encourage new refineries and the government is leading the march towards self-sufficiency in petroleum products.

Apart from the rehabilitation of the existing refineries, Kachikwu announced that he would also be inviting investors to look at building new refineries around the sites of the existing 4 refineries. He said; “I am pushing to build new refineries next to our existing plants in order to boost the nation’s refining capacity for the common good.” He envisages joint ventures with private investors, with NNPC’s role being to provide the space close to existing refineries to make it possible to share facilities like pipelines and storage in order to keep costs down.

DOWNSTREAM NEWS OGBELE MINI REFINERY PLANNED TO RAMP UP CAPACITY The only refinery currently in operation in private hands is the mini refinery located on the Ogbele Marginal Field owned and operated by Niger Delta Petroleum Resources Limited (NDPR), a wholly owned subsidiary of NDEP. The Ogbele Marginal Field provides the feedstock for the refinery. The topping plant converts 1,000 barrels of crude from the Ogbele field into 120,000 litres of diesel every day. It has produced over 45 Million litres of diesel since it was commissioned in December 2011. 65 per cent of the volume produced is sold in the

domestic market while the company utilizes the rest is for its oilfield operations. Up to 135 companies from 12 states in Nigeria, including Nassarawa in the north, send trucks to load at the refinery. As part of a two-five year plan, the company was planning to expand capacity fivefold to 5,000 barrels per day, potentially bringing in income of $36 million per annum at just 60% operational efficiency rate. The refinery earned close to $13Million in 2014 alone. MD of NDPR, Dr Layi Fatona, at a Lagos

IPMAN GAVE UPDATE ON PLANNED REFINERIES FOR PLATEAU At the end of last year the Independent Petroleum Marketers Association of Nigerian (IPMAN) announced that it was to build two refineries to be located in Bayelsa and Kogi States at a cost of $3 billion. The latest update on the planned IPMAN refineries is that it has concluded arrangements to build two modular refineries in Plateau State. The National Secretary of IPMAN, Alhaji Danladi Pasali, said the decision was taken following the restoration of security in the state. They are partnering with British firms, Blue Oil Company and Water Carbon Field Energy to build the two modular refineries, which will now be located in Plateau South and Plateau North

EPIC GROUP DISCLOSED PLANS FOR 107,000 BPD REFINERY IN BAYELSA In September, Epic Refinery Group disclosed plans to start building a 107,000 barrel per day (bpd) refinery in Okporoma, Southern Ijaw Local Government in Bayelsa State. The refinery, to be known as Epic Refinery, already has a licence. The company said the refinery would be in operation within 12 months. Production volume at the planned refinery will be divided into phases of 30,000 barrels per day (bpd) to enable the refinery to run efficiently. Feedstock was assured according to the company as it sits between two oil majors, Agip and Shell. The company also plans to set up petro-chemical, power generation and agroallied industries to produce fertilizer and other products in due course.

Oil Club Q&A session revealed some encouraging figures for the setting up of such mini refineries. He explained that CAPEX of about $12 million was required to achieve the same capacity as theirs, with a payback of around six months. He said: “We have valued the refinery using EV/EBITDA multiples which assume a 50% EBITDA margin on revenues, 30% corporate tax rate and a 6x EV/EBITDA multiple which is typical for a global refinery, to arrive at our NAV value of $32Million.” Encouraging news for the recent awardees of the modular refinery LTEs by Buhari’s government.

ORIENTAL PETROLEUM RESOURCES REFINERY IN ANAMBRA REMAINED IN PROGRESS Oriental Petroleum Resources was awarded an Authority to Construct (ATC) in 2002 to establish a 55,000 barrels per day capacity refinery in Umueje in Ayamelum Local Government Area, in Anambra State. Feedstock is to come from its oil prospecting licences (OPLs) 915 and 916. OPR said it had achieved several milestones including land acquisition, completion of process equipment design, topographical surveys, geotechnical & geological surveys, search and successful drilling of water wells, site civil works including tank construction, which was in progress. It also successfully completed the Environmental Impact Assessment (EIA) to proceed with the construction of its refinery.

ODO-AYE PLANNED NEW REFINERIES IN ONDO AND LAGOS Odo-Aye Refinery Company said it was planning to establish two refineries, one in Ondo and the other in Lagos. The modular refinery with a processing capacity of 3,000 barrels per day (bpd) in each unit is expected to take up to 18 months from January 2016 to get to completion while the large 200,000 bpd

refinery should take about 36 months. The company expects each of the refineries to generate 1,000 direct and over 5,000 indirect jobs for Nigerians on completion. The company said the refineries would cost $8 billion to complete although they did not say if they had successfully raised the funds at this stage.

HOSTCOM ANNOUNCED PLANS TO BUILD MODULAR REFINERY Non-governmental organisation, the Host Communities of Nigeria (Producing Oil and Gas), HOSTCOM, announced that it had reached agreement to partner with foreign investors to set up a modular refinery in Nigeria. HOSTCOM chairman, Bishop Mike Emu, disclosed the plan to get the project delivered within two years of getting all necessary industry approvals. Emu said that and gas producing communities were going beyond being nominal hosts of the oil resources and facilities to becoming participating stakeholders with sustainable equities to guarantee more returns on their resources to better develop their communities.

DOWNSTREAM NEWS

NDPR’S OGBELE MINI REFINERY Built, commissioned and brought into full operations in 2011, the NDPR’s Ogbele mini refinery; also referred to as a Topping Plant or diesel extraction plant is designed and operates to extract diesel from crude oil fed into the plant. The mini refinery that is designed to process 1,000bopd of crude oil at 100% plant capacity yields 54% premium quality diesel by an atmospheric distillation process. Located adjacent to the Ogbele Flowstation, the mini refinery comprises of crude oil charge/feed pumps; two shell and tube heat exchangers arranged in series for pre-heating crude oil and cooling product and by-products; a boxed up fired heater; a 23 tray distillation column; a stripper; an atmospheric condenser (air cooler); accumulator and product/by-product transfer pumps. Each service pump is supplied with a spare unit to achieve the n + 1 philosophy of the entire Ogbele oil & gas infrastructure.

“Nigeria has no business exporting crude oil”

Two units of 10,000barrels capacity cylindrical tanks are dedicated to feed the Topping Plant, while two units of 5,000barrels capacity cylindrical tanks receive diesel products. Diesel is sold via a loading bay equipped with metering devices and flow control instrumentation. The refinery processing area sits on 204m2 of land (about half of a football field) and it is located inside the fenced area securing the entire Ogbele Oil and Gas infrastructures. The plant takes its utility needs from the central utilities system comprising the Power Plant; the Fire Water System; the Instrument Air System and the Fuel Gas System. Initially conceived and justified as a project to provide diesel fuel for Company operations, in 2011, the Federal Government granted NDPR a License To Operate (LTO) the plant; marking the first such license to be granted a Privately Owned refinery in the Country and effectively leading to a full commercialization of the product. The LTO enabled NDPR commercialize diesel and sell to the public. Only about 30% of diesel produced in the plant is used for Company operations including drilling and other construction activities. The remainder of the produced diesel is sold to the public with customers recorded from 14 states of the Federation so far; including customers from the West; East; North East and North West part of the Country. As at October 2015, about 720,000 barrels of crude oil had been processed through the plant, from where over 62 million liters of diesel has been produced. Over 85% or 53 million liters of the produced diesel has been sold to the public.

Layi Fatona, 2010

After about 3 years in operation and in August 2014, NDPR executed the first Turnaround Maintenance (TAM) of the mini refinery. The plant which maintains an uptime of over 95% year round was shut down for about 21 days during the period of TAM. NDPR operates the mini refinery with only her own employees (local human capacity) and totally devoid of foreign expertise. Due to the successes recorded from the operation of the existing 1,000bpd refinery and the opportunities the emerging Nigerian petroleum industry presents, NDPR is initiating a project to expand the existing refinery by about 500% of capacity. When completed and operating at a full capacity, the upgraded plant will process 6,000bpd of crude oil and produce multiple additional market end products in addition to the diesel presently produced. Preliminary Engineering works have been initiated and project execution is expected to span 14 – 18 months.

Dr Layi Fatona, MD, Niger Delta Petroleum Resources

“If Ogbele refinery is replicated in a few more oil fields, Nigeria will inch towards energy sufficiency” Layi Fatona, 2013

INTERVIEW

DOLAPO ONI, HEAD OF ENERGY RESEARCH, ECOBANK

Dolapo Oni explains what has happened with oil prices and where he sees oil prices in 2016. IS OPEC WINNING THIS BATTLE? For OPEC, it’s a battle to win back market share and I think the tide is turning in their favour now, so there’s no need to stop. That’s why they decided, “let’s ride this bull to the end.” In a way, you would say yes, OPEC is actually winning. When you look at some particular characteristics of the market currently, it suits the Middle Eastern and the Gulf countries in OPEC. It really suits them. Take for instance - if you look at the Brent Dubai spread right now, which is really the difference between the price at which Brent, to which Nigeria’s crude is pegged, is trading compared to that at which Dubai crude, which is the bench mark for the Middle Eastern region and the Asian region - is currently trading. It is currently at its widest since 2014 - near $5 per barrel spread between those two. It looks as though the difference between the Brent and also WTI, the US crude, is also at a very wide range of about $3. At a point we saw it narrow to $1, but it’s now back to $3. What this means now is that the cheaper crudes essentially own the markets right now, so you have Asian countries buying more of the Middle Eastern crude grades - a lot of Iraqi – and that’s why we’re seeing Iraq itself increasing production. Those sorts of countries within OPEC are actually able to secure market share and push the more expensive crude grades out of the markets.

HOW ABOUT IRAQ AND IRAN? If you look at the pace at which Iraq has actually grown its production this year, it’s astonishing. We’re talking about an Iraq that was struggling to put 3.1 million barrels into the market late last year but as we speak today, Iraq is pushing roughly about 4.4 million barrels per day and there’s no inkling that they are going to reduce that in December. It’s likely to remain around 4.4 million barrels per day. Even Iran as we speak today, it’s not as if they have been relaxing. A lot of people have been looking at January and expecting Iran to make one huge dump of about 500,000 barrels per day into the market at the time. What Iran has been doing is that they’ve been steadily increasing their oil production too. So even Iran that was pushing 2.7 million barrels per day Q4 last year, is currently pushing roughly about 3.3 million barrels per day and that is steadily growing and could reach 3.5 by the time we reach January, when the sanctions have been lifted.

WHAT ARE YOUR VIEWS ON THE BUDGETARY BENCHMARK AT $38 PER BARREL? On the two fronts, I’m a little more comfortable around the pricing. What we’re seeing currently is a bit of a correction in the market, so it’s possible that we might stay at this range for a bit of a short period but essentially that should clear out by Q2, Q3 next year and we should start to see above $40 oil prices. We might be safe to set benchmarks around $38. That might be roughly okay.

62 58 54 50 46 42 38 34 30 JAN-15 FEB-15 MAR-15 APR-15 MAY-15 JUN-15 jul-15 aug-15 sep-15 oct-15 nov-15 dec-15 jan-16

HOW DO YOU SEE THE OUTPUT PROJECTION OF 2.2 MILLION BPD FOR 2016? On the output side, I think there’s a bit of worry as well. Nigeria’s largest fields are declining significantly and these are fields controlled by the JVs where there hasn’t been a lot of investment to actually enhance recovery from those fields so we have been seeing production decline in Nigeria since 2010 and that trend continues. This year we’ve only averaged 2.1 million per day the whole of 2015. I think we’re looking at roughly 2 million per day for 2016 as well. 2.2 might be a bit of stretch for us.

WHERE DO YOU SEE OIL PRICES IN 2016? It caught most of us unawares at the beginning of 2015 so it will be difficult to give you a range. But what I can say is if you look at two things, number 1, the amount of oil currently in storage – there’s roughly about a month’s supply of oil in storage – about 3 million barrels per day. All that oil could come onto the market and influence prices if they try to rise too high. And the fact that the Asian guys, who are pretty much the largest buyers currently, especially India and China are still building storage, gives a bit of support to the fact that there could be some slight recovery above $40 in oil. Another thing you want to pay attention to, is the oil balance which is the difference between the oil supply and oil demand. We were thinking it would narrow down to about 1.5 million barrels per day, 1.6 million barrels per day at the end of the year, but as we speak as at December, from figures that just came out from OPEC last week the oil balance is still roughly about 2.3 million barrels per day. That means it hasn’t reduced significantly from 2.6 million barrels per day that it was in Q3. So it’s likely that if we carry that into the new year, oil will remain in this below $40 range for the first quarter into the first half of the second quarter next year. As the oil balance starts to drop and storages start getting filled up and Asian buyers stop buying for storage, we could see a slight recovery back above $40 so average for next year. I think we’re looking at an average of about $46 on the average for next year. We’re looking at Q3/Q4 to be supportive of slightly higher prices above the $50 range.

DOWNSTREAM NEWS

OPEC NEWS The price of OPEC basket of twelve crudes tumbled down to $45.74 dollars a barrel in the first week of January. Global oil prices had now achieved the biggest fall since the global crisis of 2008 as Saudi Arabia continued to influence OPEC against a price cut. The OPEC nation with the deepest pockets, the Saudis were keen to play chicken with the US to the point of brinkmanship. Shale oil has much higher production costs. OPEC member countries, after refusing to cut production at their November meeting were still not budging, preferring - with Saudi Arabia’s influence - to wait out the inevitable slow down in expensive US shale production if the price continued to slip. Already, the strategy seemed to be yielding fruit, as there were reports that applications for new US well permits dropped by nearly half in December 2014. OPEC Ministers came under attack for their position on the crisis at the World Economic Forum in Davos. Speaking at the event, Eni and Total warned the OPEC countries that the policy of not cutting production to reduce the glut would force oil companies to slash their budgets leading, in time, to a supply shortage and sharp rise in oil prices. They warned the OPEC nations to act now to stabilise oil prices for the future.

At the beginning of February, the price of OPEC basket of twelve had risen to $50.81 a barrel. The basket price was on an upward trend and had been rising since its sharp drop to $43.79 on 30th of January. A Reuters survey revealed that OPEC’s oil supply had risen in January due to more Angolan exports and growing output in Saudi Arabia and other Gulf countries. Supply from OPEC averaged 30.37 million barrels per day (bpd) in January, up from a revised 30.24 million bpd in December, according to the survey. Nigeria also managed to boost exports and was expected to average 2.1 million bpd in Q1 2015, representing an 11% increase on Q4 2014. After refusing to cut production at their quarterly meeting in November, OPEC countries remained optimistic that their strategy was the right one and that prices had gone as low as they would. On the 21st of March the OPEC basket price had gone down to $49.46 a barrel dispelling any thoughts that recovery of oil prices was now assured. Meanwhile those hoping for an emergency meeting of OPEC member nations to

consider cutting production remained disappointed. Then Minister of Petroleum Resources, Diezani Alison-Madueke who was appointed to the role of President of OPEC at its last scheduled meeting in November had intimated that she might use her powers to call for an emergency meeting. Saudi Arabia however continued to hold fast to its position, which influenced the OPEC decision at the November meeting not to cut production. Prices spiralled as a result of that decision. Responding to accusations that the country was out to put pressure on competitors in a bid to maintain market share, an adviser to the Saudi Minister of Petroleum, Ibrahim Al-Muhanna, insisted their position was not due to political motives. According to him, the decision at the meeting not to cut production was taken because nonOPEC producers Russia and Mexico had, in a meeting the day, before refused to cut production. Al-Muhanna’s view was that in the face of the failure to cut by non-OPEC producers, OPEC members could not go it alone. Therefore the meeting agreed to keep production at the same level, hoping that the market would balance itself. He was however optimistic that the price will

OPEC BASKET PRICE 2015

Price (US dollars)

70 60 50 40 30

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

DOWNSTREAM NEWS stabilise at about $60 where it had been in recent weeks. Al-Muhanna admitted that they did not think the price would go as low as it did following the decision to leave production uncut. The price of OPEC basket of twelve crudes remained in the mid 50s for much of April standing at $54.04 a barrel on Friday 10 April and reaching $60.95 in the last week of April. African oil producing countries were by now unhappy with the OPEC stance. Members the African Petroleum Producers Association (APPA) were planning to lobby OPEC over the decision to maintain production at the same level in spite of the crippling oil prices. APPA spokesman, Ousmane Doukoure said: “The Council expresses its deep concern faced with this situation of falling crude prices,

which hurts the economies of members and non-members of OPEC with the risk of social crisis if they continue.” Oil ministers from APPA represent 18 African oil producers. They agreed to establish a platform for further engagement with other producers on the issue of output levels. For most of May, June and July, the basket price remained in the mid to late 50’s, mostly hovering just below the $60 mark. It did rise above $60 from time to time peaking at $64.96 on 6 of May, but stubbornly refusing to sustain the rise every time. The downward pressure on oil prices began in September and on 9 October the OPEC basket price was down to $48.79. Analysts

were now predicting a downward trend that could very well take prices into the 30’s. By December, the prediction had come true, with the price down to $33.76 a barrel on 11 December. On 28 December the OPEC basket price of twelve crudes stood at $31.71 a barrel with many predicting that next year could see prices dropping to the 20’s. The new OPEC Reference Basket of Crudes (ORB) is made up of the following: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).

167TH MEETING LEFT PRODUCTION UNCUT The scheduled OPEC meeting, which took place on the 3rd of June, went as expected with OPEC, spurred on by “King” of OPEC, Saudi Arabia, deciding to keep production at 30 million barrels per day. The Saudi Arabian ploy was to keep market share by forcing the US to cut back on shale production as it becomes increasingly unsustainable due to the high costs of production. Saudi Arabia was claiming victory as drilling rigs began to fall silent across the oil producing regions of the US. The war was however far from over and the question was whether other OPEC producers could continue to wage this war for much longer as austerity measures began to bite. Nigerian cargoes were floating on the sea as buyers continued to look elsewhere. In Asia, newer high-tech refineries were looking for different grades of oil and in any case, the cost of shipping Nigeria’s crude all the way to Asia made it less attractive than middle-eastern crude. As the game of chicken continued, the jury was still out on who would survive the longest. The Conference reviewed the oil market outlook and noted that the global economic recovery had stabilized, albeit with growth at moderate levels. In the current year, GDP growth was projected at 3.3%, with a slightly higher level of 3.5% expected for 2016. Recording its continued concern over market volatility and the challenges faced by the global oil industry as a whole, the

Conference observed, further, that the sharp decline in oil prices witnessed at the end of last year and the start of this year - caused by oversupply and speculation - had now abated, with prices moving slightly higher in recent months. The Conference noted that world oil demand was forecast to increase in the second half of 2015 and in 2016, with growth driven by non-OECD countries. On the supply side, non-OPEC growth in 2015 was expected to be just below 700,000 barrels per day, which is only around onethird of the growth witnessed in 2014.

The Conference also observed the recent build in stocks and the surplus of oil in both OECD and non-OECD countries, which had resulted in stock levels that lay well above the five-year average in terms of absolute volumes, indicating that the market was comfortably supplied. In view of the foregoing, the Conference resolved to maintain the 30 million barrels per day ceiling and urged Member Countries to adhere to it. The Conference decided that its next Ordinary Meeting would convene on Friday, 4th December 2015, in Vienna, Austria.

DOWNSTREAM NEWS

THE 168TH MEETING OF THE OPEC CONFERENCE: OPEC DEFIES THE COMPETITION, BUT ONLY JUST! The Meeting today could have gone either way but, OPEC or rather Saudi Arabia, decided to continue maintaining market share at the prevailing price. There was a call to cut by 1.5mbpd but Saudi was not to be swayed by internal pressure. Instead OPEC has sent a defiant message to the market that it intends to protect its market share. With output at around 31-32mbpd in November, it will take no further action but to monitor the market until the time of the next Meeting in June. It has brought Indonesia back into the membership and is mindful of the return to the market of Iran in the New Year. Over next year it is expecting demand for its oil to average 30.16mbpd, some way below its average production forecast of 30.8mbpd excluding Indonesia, which has until recently been classified as non-OPEC. A “proposal” had been put forward supposedly to re-enforce quotas and reduce output by around 1mbpd while Iran is hoping to be allocated an increased quota for next year. This would need non-OPEC support but would not include the US as the US Constitution would not allow it to participate in any form of market manipulation. Being realistic, such a reduction would give psychological boost to the market. With more oil on the way from different sources including Iran, Iraq and Libya within OPEC and the US and Canada from the outside, it would have lacked impact. In the short term, it had some credibility and gave speculators some respite as Brent dropped close to 42.50 on Wednesday and then back $44.50 today while the OPEC Basket Price fell yesterday $37.89. As news broke from this Meeting, the price of Brent was moving down towards $40. OPEC now will have to hold output at all cost.

After attending the 168th OPEC meeting in Vienna, John Hall shared his thoughts on the meeting of OPEC Ministers. Excellent news for consumers but bad news for all producers and explorers, particularly for Algeria, Iran, Iraq and Venezuela which are suffering financially, seriously, due to the low oil price. The Shale industry has hit OPEC hard by putting another 4.5mbpd into the market and although output has dropped slightly, the overall volume remains. OPEC will need to maintain its strategy which will hurt the industry further but will it be enough in the longer term as the shale industry streamlines and adjusts itself to operating in a lower priced environment, ready to ramp up as prices rise? Furthermore, can OPEC adjust similarly? The conference was opened by Dr. Emmanuel Ibe Kachikwu, Minister of State for Petroleum Resources of Nigeria and President of the OPEC Conference. He reminded us that in the six months since the last Conference In June, we have witnessed continued volatility in the global oil market. Prices have continued to drop with the OPEC Reference Basket decreasing from a monthly average of around $60 per barrel in June to just over $41 per barrel in November. This decline reflects the continued oversupply in the market with crude and product storage at record highs. Taking a look at the economy, global economic growth in 2015 is set to be 3.1

per cent. This is slightly lower than that forecast at the last Conference, mainly due to a deceleration in some emerging and developing countries. Next year looks brighter, with global growth forecast to be 3.4%. OPEC expects that World oil demand in 2015 will grow by 1.5 million barrels per day, up from 1 million barrels per day in 2014. Next year, they foresee growth of 1.3 million barrels per day to average 94.1 million barrels per day, with most of this growth coming from non- OECD countries. As far as supply is concerned, non-OPEC countries will continue to see significantly reduced production growth as compared to past years. In fact, in 2016, they anticipate a contraction in non-OPEC oil supply. This downward trend stems mainly from the impact of investment cutbacks and the drop in US tight oil output, which has been declining since May of this year. This is clearly illustrated by the drop in the number of newly drilled wells and the reduction by half of active drilling wells. These developments indicate the onset of a more balanced market in 2016, with demand for OPEC crude expected to rise by 1.2 million barrels per day to average 30.8 million barrels per day for the year. A balanced and stable market will be of crucial importance in the years ahead to ensure continued investment in the industry as it gears up to meet the world’s burgeoning energy needs. So the opening address from OPEC set the scene for their thinking, some optimism all round culminating in the need for a “balanced and stable market” which only OPEC can created by cutting output. In spite of any informed conjecture before an OPEC Meeting, very few really know for sure what will happen. One can argue afterwards that the members had no other option, but, as we learnt last December, there is always the chance of a

DOWNSTREAM NEWS

last-minute surprise, often reflected by the size of the media camp that attend these meetings. That decision has resulted in the collapse of the oil price, the rebuilding of stock levels and cuts in capital projects.

cut production enough to make a difference. It has learnt, to its cost, that when it cuts, other OPEC members and non-OPEC producers will step in and take its market share.

I managed to speak briefly to Dr Salah Khebri, Minister of Energy for Algeria. They are investing heavily into solar power as others particularly in North Africa are able to do. His output is around 1.2mbpd and he too would hope to increase on this, as I guess they all would. I then spoke to Jose Maria Botelho de Vasconcelos, Minister of Petroleum for Angola, and his market has moved away from the US which is now down to only 3%, it was closer to 18% earlier in the year and he is selling into Latin America and the Far East. Over the year prices have averaged around the $50 mark and something closer to $70 would be better although he did seem to indicate that the $100 level was not feasible. There is a real acceptance now that more realistic price levels are here to stay.

With the higher prices in the lead-up to last December, Saudi had lost much of its US market share to Shale. Since then, it has attempted to replace that lost business by breaking into the European Markets, which have been the traditional market zones of Russia. It is discounting prices to compete with Russia and the US plus other OPEC members and it would not make sense to cut now and revert back towards the position held prior to December 2014.

We follow Fundamentals and Technicals and from them assess the market and then there is OPEC. Whereas there is some logical synergy between Fundamentals and Technicals, OPEC is the maverick. The world is now awash with both oil and gas with OECD oil stocks at just under 3bnb giving around 63 days’ usage. Saudi Arabia is alone as the only OPEC member that can

OPEC has priced itself out of the market and should now expect to sell oil at the price determined by the market, as it has always claimed it should be, and not set against excessive budget needs. Furthermore, all members need to diversify. All producers are suffering the impact of the lower prices but of Saudi and Russia, Saudi could outlast Russia but without synergy between the two in terms of curbing output they are destined to continue competing until either one collapses or demand rises significantly to support them. By letting the oil flow find its own level, Saudi was hoping that others might agree to a cut or that alternative energy sources, like shale,

would suffer due to lower prices. The US shale rig count and output have both fallen but overall output still exceeds demand. It has some way to go before it balances. Meanwhile Iran is planning to push another 1mbpd+ into the market and is already looking for partners to work with it. It is not interested in talking about cuts! More bad news for Venezuela who can usually count on Iran to support the call to cut. This time Venezuela is isolated and facing financial ruin. Under Hugo Chavez, PDVSA was mismanaged and revenue spent on nonenergy related projects and since Nicolás Maduro has taken over, there has been no change. Elections are due to take place this weekend yet the leader of the Opposition Leopoldo López is in jail and his wife Lilian Tintori who is campaigning for him, fears for her life. It will be a difficult one for the opposition to win but without reform Venezuela cannot survive. In February, PDVSA published figures claiming that oil production in the Orinoco Oil Belt was at 1.3mbpd and that this could increase to 4mbpd by 2019, so in the next three to four years, Venezuela should not be looking to cut either although, today, it was calling for an OPEC cut of 1.5mbpd! If non-OPEC producers like Russia had supported the move to cut, it would have

DOWNSTREAM NEWS worked in the short term but with the US on the verge of exporting oil there will soon be another contender for a European market share.

stagnation followed leading to a drastic rationalisation as consumers sought ways of conserving energy through more energy efficient processes.

Historically, the market has been selfregulatory and demand has traditionally been driven by price but today, after five years of high pricing consumers have moved towards alternative energy sources, energy efficiency and conservation while being mindful of climate change and the impact of continued use of fossil fuels. OPEC knew that this would happen but enjoyed the benefits of higher pricing and those that did not plan for the future and diversify will now have difficulty in surviving. It will be an ideal time for all producers to evaluate and adjust domestic subsidies.

Later in 1990, at the time the Iraqi invasion of Kuwait over oil rights and the subsequent Gulf War, the spike doubled the price of oil but as soon as a level of peace was restored, it corrected. Fifteen years on, in 2005 the Kuwait Oil Minister admitted to me that, as Kuwait, he would love to have a price of $30! How the market has changed since then.

Many of the OPEC members provide very cheap or free oil to their people and as populations increase and affluence extends, a greater proportion of output is required to satisfy domestic need. When I brought this up last year with Mr El Badri, Secretary General, he impressed upon me the sensitivity of the subject while afterwards I was advised that I should never have brought it up anyway! The chart below clearly illustrates the peaks and troughs that have taken place over the last twenty-five years and depending on the circumstance, the peaks have usually corrected themselves. Before then, in the second half of 1973 when OPEC sold directly to oil companies and accounted for about 80% of internationally traded oil, its power was demonstrated when it imposed a series of unilateral price increases coupled with a reduction in output. The price soared to $11 pb. From 1978 as OPEC increased prices further to around $18 pb in 1979, economic

“GEOPOLITICAL TENSION HAS ALWAYS HAD AN IMPACT BUT OVER THE LAST YEAR, IT HAS BUILT UP AN IMMUNITY TO IT”

The spike in 2008 as the price of crude hit $147 and collapsed back again to below $50, was the turning point. Although few in OPEC will admit this, the high price of oil contributed to the financial crisis of 2008, just as it did in earlier years, keeping much of the developed world in or close to recession. But today, with lower prices and the availability of alternative energy sources fuels with a strong focus on energy conservation, consumers can recover without the traditional dependence on OPEC. The cyclical pattern over the years has again necessitated the need for consumers to reappraise their energy requirements and with greater innovations coming to fruition it would seem that OPEC has virtually priced itself out of the market. Continued lower prices will encourage recovery. The US is performing well although manufacturing output is falling as it is in China where growth is running at 7% supported by greater activity in the service sector while Japan is back in recession. World growth is some way behind at 3% but

IMAGE REQUIRED

at least still positive. We look ahead planning against various forecasts but we should also be wary that those who wrongly forecast the oil price at $200 in 2008 are now forecasting $20. This is significant because the price of oil is built into the cost of many products and such direct and indirect costs would not be sustainable. The market players are committed to making forecasts but some figures are more credible than others! OPEC has cleared the way for new markets – Energy Conservation & Alternative Energy sources – compelling it to have to compete in a far more efficient world that is not so heavily dependent on revenue for Oil & Gas. COP21, which has taken place this week in Paris, is another by-product of high energy prices. Although we have had previous gatherings of this nature – Kyoto & Rio – this is the one that seems to be more likely to have any long-term impact than any before. Geopolitical tension has always had an impact but over the last year it has built up an immunity to it. The recent shooting down of the Russian fighter plane by Turkey caused a fluctuation in the price for a day or two but now with the OPEC basket down below $40 and falling, such issues have moved on and will now focus on what OPEC said at this meeting to justify their current policy of letting the market find its own level. For much of the world, the focus is on Syria and the defeat of ISIS. A loose coalition is emerging to tackle ISIS while at the same time attempting to decide upon a strategy for Syria. One hopes this will recognize the needs of all inhabitants.

Abdallah El Badri, Secretary General, OPEC

Photo: Parmida Rahimi/Flickr

The current leaders now appear to be Russia and Iran, two countries at opposite sides

DOWNSTREAM NEWS

of the spectrum to Western nations and Europe – Russia for its stance over Crimea and Iran for its ongoing nuclear aspirations. Yet some synergy has emerged from around COP21 as it so happens that all world leaders want to be seen there, making it an unofficial forum for other issues. We also need to be mindful of the ongoing and sometimes mindless dialogue over Middle East Peace, which has been running for many years and particularly since 1948. Sympathy and support for Israel is waning certainly across Europe and a serious initiative needs to be found but, it is just one of many issues simmering below the surface. OPEC is not immune to any of this. Iraq and Iran are both embroiled in the ISIS campaign while Syrian oil is funding ISIS. Syria is not a member of OPEC but can attend OPEC Meetings as an observer, like Russia. Closer to home, in Yemen, Saudi is bombing the Houthis who in turn are supported by Iran – not a direct confrontation between two leading OPEC members but certainly a serious confrontation. Within OPEC, Iraq is ramping up production with ambitions to soar towards 10mbpd, while Iran is waiting for the opportunity to release another 300-500,000 bpd into the market and then increase this to over 1mbpd within twelve months. Indonesia is returning with around 900,000 bpd, which will simply move from non-OPEC into OPEC. These are all quota issues that OPEC will have to deal with and, in theory, as one increases others will have to cut to accommodate the other, to balance the

overall output. Nigeria is restructuring and attempting to stamp out corruption and smuggling of its oil wealth and in time will have more oil to input. Looking back over the last year, there have been key events and statistics to follow and I have included some of the latter in the table above. For OPEC it is more than just balancing the oil market as it claims to do. Saudi has always been the Swing Producer but today either the US or Russia could claim that title. As we look ahead, with geopolitical tension to the side, what is the output for oil now? Forecasts have indicated that by 2030 it will have a 25% market share, equal to that of Coal and Gas but coal is rapidly going out of favour and although the world is awash with gas that too is a fossil fuel and if COP21 does gather momentum all three will be hit environmentally either by taxation or legislation while conservation and renewables make greater inroads.

Meanwhile, the US dollar, the currency in which oil trades are made, is weakening against major currencies and this will impact too. The outlook for OPEC is not clear and cannot be good. They should have foreseen this and diversified. This has been a difficult Meeting for OPEC and if it is to survive its members will need to re- think and plan their strategies to work in a competitive market at a lower price. For now, it would seem that the oil price will range within the $40-60 bracket, perhaps even lower, dependent upon winter weather and also to geopolitical events. I have tried to reflect a balanced view in this report. Some will agree and others may have another view. The next OPEC Meeting has been scheduled for 2nd June 2016.

This article was written by John Hall, Chairman of Alpha Energy. www.alfaenergygroup.com

INTERVIEW

COMMERCIAL AND ENVIRONMENTAL IMPACT OF PIPELINE INSECURITY CASE IN POINT: TRANS-FORCADOS PIPELINE In this interview on the effects of pipeline insecurity, Dr Ladi Bada, CEO, Shoreline Natural Resources speaks about their experiences on the Trans-Forcados Pipeline. the pipeline. The TFP has been attacked at least 40 times since it was taken over by Shoreline.

On the 4th of December 2012, Shoreline Natural Resources acquired a 45% participating interest from Shell Petroleum Development Company (SPDC) in oil mining lease (OML) 30 covering a 1,097 square kilometre area in the Niger Delta, some 30 kilometres from Warri. In addition to the 8 producing fields and numerous oil and gas stacked reservoirs, the acquisition also came with the Trans-Forcados Pipeline (TFP). The 95-kilometre pipeline, which has a capacity of 85,000 barrels of oil per day, starts at Eriemu and terminates at the inlet manifold of the terminal at the Forcados River. A major artery in the Western Niger Delta, the TFP transports over 60 per cent of the crude processed at the SPDC Forcados terminal. Many E&P companies operating in the Western Niger Delta inject into the TFP, including Seplat’s OMLs 38 and 41, Neconde’s OML 42, ND Western’s OML 34 and First Hydrocarbon’s OML 26. There are also wholly owned Nigerian National Petroleum Corporation assets.

Average production has remained consistently lower than capacity because of illegal bunkering and sabotage attacks on

The issue with crude oil pipeline security is a major one for indigenous companies. Most indigenous owned assets are located onshore in the swamps. This also happens to be the locations with the greatest security and vandalism challenges. Vast volumes of Nigeria’s onshore production is exported through two export terminals – Forcados and Bonny. The Nembe Creek Trunk Line and the trans Forcados Pipeline are the major pipelines that many injectors from different oil fields inject production into for shipment from the two terminals. These two trunk lines have the capacity together to transmit about 1.5 million barrels of liquids per day. The activities of oil thieves have however escalated beyond the point of a national emergency. These lines are continuously tampered with via the installation of illegal bunkering valves and pipelines to steal crude. It is estimated that the crude theft from these pipelines is between 20-25 per cent of pipeline volumes. Most of the damage to the oil pipelines is caused by illegal bunkering where taps are put on the pipeline to siphon off crude oil direct from the location of the taps. There have been numerous cases of illegal bunkering since Shoreline began operations in 2012. Other cases are caused by sabotage where members of host communities will sometimes tamper with the pipelines, not for economic gain as with the case of bunkering, but to show their displeasure over certain issues. The illegal bunkering valves used by the oil thieves run into the hundreds along these major pipe routes. The valves are not professionally installed and they end up leaking presenting a

more devastating problem. Once these valves fail, they inevitably discharge oil into the immediate environment, which ranges from onshore to swamp to riverine locations and farmlands. This is devastating for the communities living in those areas. I estimate that about 97% of pipeline damage onshore is from 3rd party interference. There are also huge safety hazards. Fires often ensue from some of the taps sometimes engulfing those involved in these illegal activities. There has even been a case of drowning in oil. They are risking their lives to steal oil from the pipelines. There are also economic impacts from these illegal activities. Nigeria produces about 1.8 million barrels of crude oil per day (bpd) with the capacity to produce about 2.5 million bpd. With losses of about 400,000 barrels per day, mostly due to oil theft, this accounts for losses of about N4.8 billion annually. Bearing in mind that about 80 per cent of all oil revenues goes back to the Nigerian treasury in various taxes, it makes it a great loss to the Nigerian economy. This money could have provided infrastructure, employment and social amenities like clean water, basic healthcare an schools and strong cash reserves needed to finance development in the country. The commercial loss to the individual oil producing companies and its investors is enormous, particularly for the indigenous companies who are already struggling with production numbers. The loss to the companies also impacts finance as investors can be discouraged by the kinds of losses that producing companies are experience from oil theft. The environmental, health and safety, economic and commercial impact of the

INTERVIEW

illegal tapping of their pipeline made it imperative for Shoreline to find ways to improve security measures. Since we put in place these various measures, there has been a reduction in vandalism on the TFP. Among the measures we put in place is engaging host community groups to conduct pipeline surveillance. In addition, we have improved community relations with local communities through the General Memorandum of Understanding (GMOU). Above, right and below Vandalized TFP

Better community relations between the oil companies that use the TFP and the host communities is important since it signed the GMOU and subsequently implemented it, there has been a reduction in host community agitation.

25 20 16 14 10

4 1

4 2

Number of repair days

May 2015

Apr 2015

Mar 2015

Feb 2015

Jan 2015

Dec 2014

Number of incidents

0 0

Oct 2015

Sep 2015

Aug 2015

Jul 2015

10 5

Jun 2015

Nov 2014

The lull in the activities of the illegal bunkerers in the face of crashing oil prices should give the security forces enough time to gain control and to put in place effective measures for ensuring that oil theft never again reaches the epidemic level that it reached when oil prices were soaring.

TFP INCIDENTS SEPTEMBER 2014 - OCTOBER 2015

Sep 2014

One more thing that believe has also had an influence on the situation is oil prices. Albeit not favourable to the oil companies, there has been an upside to the low price of crude oil. Since oil process began sliding, there has been a significant reduction in vandalism on the TFP. The assumption is that there is a correlation with low oil process. The illegal bunkerers probably do not think the rewards measure up to the risks involved in vandalizing the pipeline.

Bukering point at Igbokotedo Itsekiri

Oct 2014

I also credit the change in government, which promised improvements in security in the region though methods such as bolstering the Joint Task Force (JTF). We are working closely with the security forces including the JTF to find ways to improve the situation on the TFP.

GAS NEWS

JANUARY-MARCH TOTAL ACHIEVED FLARE-OUT ON OFON FIELD Total completed the flare out of the Ofon field on Oil Mining Lease (OML) 102 offshore Nigeria. The associated gas of the Ofon field was now being compressed, evacuated to shore and monetised via Nigeria Liquefied Natural Gas (NLNG) Company. “The flare-out of the Ofon field illustrates our commitment to developing oil and gas resources around our existing hubs in Nigeria. This important milestone of the Phase 2 of the Ofon project was achieved in a context of high levels of local content,” commented Guy Maurice, Senior Vice President Africa at Total Exploration & Production. “The flare-out on Ofon is also significant for Total’s environmental targets, representing a 10% reduction in the Group’s E&P flaring. This achievement is a clear demonstration of Total’s commitment to the Global Gas Flaring Reduction Partnership promoted by the World Bank,” he added. The Ofon field is located 65 kilometers from Nigerian shores in water depths of 40 meters. The field initially commenced production in 1997 and is currently producing about 25,000 barrels of oil equivalent per day (boe/d). This flare-out milestone will allow for the gradual increase of production towards the 90,000 boe/d production target through monetization of around 100 million cubic feet of gas per day, followed later in 2015 by the drilling of additional wells. The execution of the

project also involved significant local content, including the first living quarters platform to be fabricated in Nigeria. Total E&P Nigeria operates OML 102 with a 40% interest, alongside the Nigerian National Petroleum Corporation (60%). The flare out achievement at Ofon was

welcome news given the amount Nigeria is said to lose from gas flaring - $1 billion over the last three quarters of 2014. Whilst Nigeria has laws banning flaring of associated gas, it continues to allow it subject to a financial penalty. Unfortunately, this has not proved to be enough of a deterrent as the penalty is not stringently enforced. Some producers argue that it is actually cheaper to continue to flare the gas and pay the penalty than to produce gas because of the controlled price of gas in the domestic market.

SEVEN ENERGY CLARIFIED ITS RELATIONSHIP WITH NPDC Integrated oil and gas development and production and gas distribution company, Seven Energy International Limited issued a statement clarifying its relationship with the Nigerian Petroleum Development Company (“NPDC”), a subsidiary of Nigerian National Petroleum Corporation (“NNPC”). Seven Energy decided to issue the clarification after persistent reports in the media about the lack of transparency regarding its Strategic Alliance Agreement with NPDC. The company explained in the statement that under the terms of the Strategic Alliance Agreement with NPDC, which has been in place since October 2010, Seven Energy subsidiary, Septa Energy, funded all of NPDC’s 55% cash call obligations for the Seplat/NPDC joint venture on OMLs 4, 38 and 41. These have amounted to over $500 million, which Seven Energy said had been invested directly in the development of the three OMLs. The company said that as a result of the investment, production from these licenses had increased from

approximately 20,000 barrels of oil a day in October 2010 to an average of over 51,000 barrels of oil per day during 2013. They said the funds have been used for the workover and drilling of over 30 wells, upgrading of gas compressors and facilities, repair work to pipelines and a new logistics base and maintaining a full operating team to run and support the work on these licenses. The company also confirmed that their lifting entitlement was calculated only after payment of royalty and petroleum profits tax (PPT). Media reports had suggested that they were lifting crude from the fields without paying any tax under the agreements. They did not confirm how much royalty and PPT they were paying. The Strategic Alliance Agreement was the result of a three-year dialogue with NNPC and the Federal Ministry of Petroleum Resources that began in 2008 according to the company. They said the dialogue was based on their established credentials in the gas development area in particular.

GAS NEWS

NIGERIA PAID GHANA $10M PENALTY FOR NON-DELIVERY OF GAS The Nigerian National Petroleum Corporation (NNPC) had to pay $10 million in penalties to Ghana for its failure to deliver the contracted quantity of gas to Ghana under the West African Gas Pipeline (WAGP) project. NNPC was under contract to deliver 120 million cubic feet of gas daily through the WAGP but had consistently failed to do so resulting in misery for electricity consumers in Ghana as power plants dependent on the piped gas from NNPC were shut down. The Ghana national grid had to shed some 400 to 600 megawatts of power as a result. NNPC’s then Group Executive Director, Gas and Power, Dr. David Ige, blamed supply disruptions affecting gas shipped through

OILSERVE GROUP SET UP TWO GAS AND POWER SUBSIDIARIES Pan African oil, gas and power consortium, the OilServe Group, set up two new subsidiaries FrazOil Limited and FrazPower Limited to play in the gas and power sector. FrazOil will engage in exploration and production and intends to monetize at least 90 per cent of its associated natural gas. FrazPower will concentrate on monetization of oil and gas derivatives, as well as the erection and maintenance of power equipment that utilize those derivatives as feedstock. The company, which has been expanding into gas delivery, said it was taking positions in gas assets and also growing their capability in the Engineering Procurement and Construction (EPC) of pipelines. They are working on virtual pipeline methods for delivering gas to places for which it wouldn’t ordinarily make economic sense. The virtual pipelines will cover compressed natural gas (CNG), mini liquefied natural gas (LNG), micro LNG and main LNG. OilServ Limited had been involved in previous gas projects including the roll-out of the OB3 Project from Obiafun to Obrikom and the Oben Node.

the West African Gas Pipeline largely on force majeure events like the outage of the Escravos-Lagos pipeline and other secondary pipelines such as the Trans-Forcados pipeline. NNPC and its joint venture partners were similarly fined $10 million in 2013 for supply shortages. Ghana is now desperately trying to develop its own reserves so that it will no longer have to depend on the erratic supply from NNPC. They are hoping to develop about 300-350 million standard cubic feet of gas from the Jubilee and TEN fields. Unfortunately, with oil companies slashing their budgets these projects may not get off the ground as quickly as it hopes.

ANAMBRA STATE SIGNED MOU WITH FALCON CORPORATION FOR NATURAL GAS DISTRIBUTION Anambra State signed a Memorandum of Understanding with indigenous company, Falcon Corporation for the distribution of natural gas for industrial use, power generation and other domestic purposes. The Falcon Corporation Natural Gas Distribution project is expected to supply gas to industrial locations across the State. Falcon Corporation said it had been working to get the gas distribution project off the ground in Anambra State for close to twelve years. The project is expected to attract more

local and foreign industries and investors into Anambra State and the eastern corridor as a whole. The company’s credentials include the Ikorodu Natural Gas Distribution Zone in Lagos State. It is the licensed Local Distribution Company and Franchise Operator for the 20-year project. First gas delivery was in 2006 and they have since supplied millions of standard cubic feet of gas per day to industries in the Ikorodu franchise zone.

OANDO ANNOUNCED AN INVESTMENT OF $36 MILLION TO BUILD GAS COMPRESSION PLANTS Oando said it was investing $36 million to build three gas-compression plants in the southern industrial belt of the country. The company expects to be able to produce 20 million cubic feet of gas a day initially from the plants, subsequently increasing capacity with demand. Oando said it was targeting big energy users such as cement and steel plants, who currently rely on diesel to generate at least 1.5 megawatts of power per factory. The company hopes to get them to switch to gas. One of the plants will be located in Aba, another in Port Harcourt and a

third will be located in a central part of the country. The company will deliver compressed natural gas (CNG) to its customers using existing pipelines although it said it would also truck the product to customers who they would otherwise not have been able to reach in a bid to create a market where there is currently none. Industrial users cut off from pipeline supply could be assured of delivery as a result. Looking into the future, the company sees a time when it would be possible to deliver CNG to customers by rail or barge.

GAS NEWS BRASS LNG SHAREHOLDERS APPOINTED NEW PRE-FEED TEAM There was renewed hope for the Brass Liquefied Natural Gas (LNG) project after news that shareholders of the project had constituted a new pre-Front End Engineering Design (FEED) team. They also took the decision to adopt the APCL technology in place of the Optimised Cascade Process, which was to be adopted in the construction of the multibillion dollar LNG plant. The decision was taken after the exit of ConocoPhillips, the owners of the Optimised Cascade Process, which accounted for 80 per cent of the technology previously to be used. Once ConocoPhillips, a partner in the project, announced its planned exit from Nigeria and the project, negotiations began for terms of a licence for the continued use of the ConocoPhillips’

technology. The negotiations were aimed at ensuring that the exit of the Houstonbased ConocoPhillips from the Brass LNG project would not delay the construction of the plant. At the time, the negotiation also included transitional arrangements for ConocoPhillips to continue to provide expertise to ensure a smooth transition. The negotiation followed concern by the other shareholders of Brass LNG that the exit of ConocoPhillips would impact negatively on the multi-billion dollar project. They were unable to agree terms and the shareholders decided on the use of the APCL technology instead. The Nigerian National Petroleum Corporation (NNPC) holds 49 per cent equity in the project, while ConocoPhillips, French oil giant, Total and Italian company

ENI each hold a 17 per cent stake each. Initially the shareholders were looking for a taker for ConocoPhillips’ 17 per cent stake, but found was unable to find a taker to replace ConocoPhillips and take over its shareholding. Eventually, the parties decided that, for the sake of the viability of the project, the remaining partners, NNPC, Total and Eni, would take over the shares. Planned as a world-class, greenfield LNG facility located in Brass Island in Bayelsa State, the project is designed to produce 10million metric tonnes of LNG per year. The shareholders signed the Heads of Agreement (HOA) for the Brass LNG project in October 2003 and the FID on the project is still awaited. The appointment of the pre-FEED team is a step towards keeping the project alive.

APRIL-JUNE

GAS PIPELINE VANDALISM ESCALATION THREATENED GAS MASTER PLAN

NLNG BOSS CALLED FOR ADOPTION OF QATAR’S ACCELERATED GAS DEVELOPMENT MODEL

In April, then Group Executive Director, Gas and Power, Nigerian National Petroleum Corporation (NNPC) revealed that escalating levels of vandalism on the gas pipeline infrastructure across the country could derail the national Gas Master Plan. He said that the TransForcados gas pipeline was under attack on an almost weekly basis and each time it took several days to fix meaning supply had to be suspended whilst it was being fixed. He said the vandals had become so desperate that they were prepared to kill security operatives who came to intervene.

The Managing Director of the Nigeria Liquefied Natural Gas (NLNG) Company, Babs Omotowa, called for an accelerated development model to be deployed in producing and utilising gas deposits. Omotowa said the adoption of the business model used by Qatar in the development and utilisation of its gas resources could help Nigeria drive improved investments in the sector. This would involve a partnership model to include both international, financial and technical expertise to unlock the economic potential of the country’s 180 trillion cubic feet (tcf) of proven gas deposits and estimated 600tcf of unproven reserves. Omotowa revealed that Qatar had over the last few years, built the largest Liquefied Natural Gas (LNG) and Gas to Liquid (GTL) plants in the world along with petrochemical industries. These projects were generating over $100 billion/year for the country.

They also created opportunities across the value chain by establishing three mega industrial cities of Mesaieed, Ras Laffan, Dukhan, which now provide operational and maintenance support for the gas industry. Omotowa explained that such integrated business model for Nigeria’s gas sector would amongst other expectations, ensure that more gas reserves are added to the country’s existing reserves while propelling the growth of gas-based industries in the country. Omotowa said an accelerated development program for Nigeria’s gas revolution would require government policies, fiscals and an enabling environment that would attract foreign direct investment and technical support, especially in the more technically challenging offshore locations.

GAS NEWS

SEVEN ENERGY BEGAN GAS SUPPLY TO NOTORE

Notore Chemical Industries, one of Africa’s leading fertilizer and agro-allied companies secured gas supply from Accugas, a wholly-owned subsidiary of indigenous oil and gas production company, Seven Energy. Notore will be immensely relieved that its fertisliser plant now has a steady contract for the supply of 25 million cubic feet per day (MMcfpd), which it will use for feedstock. Adequate gas supply is critical to Notore, which took over the fertiliser company built by the Federal Government in Onne.

After reviving the company, it is now in a position to ramp up output from the plant now that it has been able to guarantee vital feedstock to the plant. Seven Energy’s CEO, Seven Energy, Phillip Ihenacho said: “We are happy to

NLNG SAID IT WAS COMMITTED TO DELIVERING 250,000 MT OF LPG FOR DOMESTIC MARKET In reaction to the shortage of gas for domestic use, NLNG said it was committed to delivering 250,000 metric tonnes of LPG into the Nigerian market annually and has signed sales and purchase agreements, SPAs, with 15 off-takers (all Nigerian companies) for the lifting of LPG for the domestic market. NLNG is owned by four shareholders, namely, the Federal Government of Nigeria, represented by the Nigerian National Petroleum Corporation, NNPC (49 per cent), Shell (25 per cent), Total LNG Nigeria Limited (15 per cent) and Eni (10 per cent).

SHELL WAS REVIEWING LARGE ONSHORE GAS PROJECTS Shell Petroleum Development Company (SPDC) was reviewing a number of large onshore gas projects in Nigeria, Markus Droll, Shell Upstream International Vice President, Nigeria and Gabon, disclosed. He said that if funding solutions were agreed upon, these projects, when completed, were expected to keep the Nigerian Liquefied Natural Gas Company (NLNG) supplied with gas and to contribute to Nigeria maintaining its strategic position in the global LNG market. According to Droll, they were looking into how to further expand the NLNG supply and processing capacity, working together with the Nigerian National Petroleum Corporation

(NNPC), the senior partner in NLNG, and other NLNG shareholders. SPDC is also committed to making the $3.2 billion Assa North/Ohaji South project a reality Droll said. The project, one of the largest domestic gas projects in Nigeria, is due to be commissioned in 2018. Also speaking on the new strategy, Osagie Okunbor, Managing Director of Shell Petroleum Development Company (SPDC) said: “Our strategy is to invest a lot more in gas, for domestic consumption and export. We want to grow our deep water and constrain our onshore oil production.” He also said that Shell’s flagship project would be the Gbaran-Ubie project, which will increase gas supplies for NLNG.

announce the formal commencement of gas deliveries to Notore Chemical Industries Plc through our subsidiary, Accugas, a clear demonstration of our commitment to drive the industrialisation of Nigeria through the development of the Country’s huge natural gas resources. Through the supply of our processed gas we are providing a new source of feedstock to meet the company’s increasing requirements, whilst directly enabling the production of fertiliser that Nigeria’s burgeoning agriculture sector desperately needs to grow.”

SEVEN ENERGY BEGAN SUPPLY OF GAS TO CALABAR NIPP Seven Energy commenced the supply of gas to the Calabar National Integrated Power Project (NIPP) in March 2015. This will add 560 mega watts of additional generation capacity into the national grid. The supply was being executed through Accugas, a wholly owned subsidiary of Seven Energy. When operating at full capacity, Calabar NIPP will increase national power generation by over 10%. Gas is being supplied to the power plant from Seven Energy’s Uquo gas processing facility in Akwa Ibom State through the Seven Energy pipeline network. The gas supply will enable the power plant to complete commissioning and start delivering electricity into the national grid. The company’s Chief Executive Officer, Phillip Ihenacho, said that not only would the gas they supply drive enhanced power generation, but when combined with improvements in transmission and distribution it would also facilitate industrial and commercial developments which would have a far reaching impact throughout the community, stimulating industry and generating employment as a result. Since the commissioning of the Uquo gas processing facility in 2014, Seven Energy has also begun the supply of gas to other industrial offtakers such as the Ibom Power Company, Notore Chemical Industries Limited and the United Cement Company of Nigeria, also in Calabar. The company has invested over $1 billion in the south-east region of the Niger Delta over the last 5 years.

WORLD BANK LAUNCHED ZERO ROUTINE FLARING INITIATIVE In April, the World Bank launched the Zero Routine Flaring by 2030 initiative, brings together governments, oil companies, and development institutions who recognize that routine flaring of gas is unsustainable from a resource management and environmental perspective. Those who sign up agree to

cooperate to eliminate routine flaring no later than 2030. By the end of the year, 40 oil companies including Nigerian independents, Seven Energy and Niger Delta Petroleum Resources (NDPR), had signed up to the Initiative. The Nigerian government had not yet signed up by the end of the year.

GAS NEWS

NLNG TRAIN 7 REMAINED IN PROGRESS DESPITE LOW GAS PRICE The Nigeria Liquefied Natural Gas Company (NLNG) remained committed to Train 7 of the LNG plant in spite of the low prices of gas. Managing Director and CEO of NLNG, Babs Omotowa, old journalists that with the world population estimated to grow to about nine billion people in the world by the 2050 and most of that growth predicted to come from developing countries, demand for energy would continue to rise. Omotowa acknowledged that the price might not remain as high as it used to be however. In Asia, prices used to be between $15 and $20 by mmbtu but have now come down to about $7. Omotowa said: “The challenge is not that we will not sell gas; the challenge

site preparation work had been initiated and Sales and Purchase Agreements, SPAs, had been sealed with five buyers, including Suez LNG and BG Gas Marketing, among others for the train.

is at what price, and the later you are in getting to the market, the likelihood that your price will be lower.” Omotowa expects that it will take at least about two years to complete the pre-final investment decision (FID) work following which the shareholders in the project will then move forward to the FID stage. Early

NLNG has 6 trains currently in operation, together producing operational 22 million tonnes per annum (mtpa) of LNG, 5 mtpa of natural gas liquids (NGLs) including liquefied petroleum gas (LPG) and condensate from 3.5 billion standard cubic feet per day of natural gas consumption. The Train 7, which will create around 17,000 jobs in the construction phase, is expected to increase the combined production capacity of the plant to 30 million tonnes per year of LNG.

NNPC CONFIRMED PROGRESS OF $662 MILLION EAST-WEST GAS PIPELINE PROJECT The Nigerian National Petroleum Corporation (NNPC) confirmed that construction had started and that it was making significant progress on the East-West gas pipeline. Once completed in early 2017, the execution of the $662 million Obiafu Obrikom and Oben (OB3) gas supply infrastructure project will

provide regular gas supply to the eastern part of Nigeria. NNPC’s Group Managing Director, Joseph Dawha said: “Our expectation is that by December 2016, we would have mechanical completion of the pipelines and by early 2017 we would start to flow gas through the pipeline.”

DANGOTE ANNOUNCED PLANS TO INVEST $2.5 BILLION TO CONSTRUCT TWO GAS PIPELINES The man who does nothing in halves, Aliko Dangote, Chairman of the Dangote Group, announced plans to invest $2.5 billion in the construction of two sub-sea 550-kilometer gas pipelines. The mammoth project will boost Nigeria’s gas output by three trillion cubic feet to four trillion cubic feet per day. The laying of the pipes was expected to begin before the end of the year and the first pipeline should be ready by the middle of 2017. The pipeline project will increase the amount of gas available in Nigeria to four billion standard cubic feet per day from one billion cubic feet. The gas pipelines project, which will run from the oil producing regions of the Niger Delta to Lagos State, is to be co-financed by the International Finance Corporation, IFC, and global private equity firms, Carlyle Group LP and Blackstone Group LP.

The pipelines will be available to operators who currently have little incentive to sell gas from their fields. Dangote said: “If today they process gas, there is no infrastructure to remove it, there is no pipeline. We are trying to build that infrastructure.”

GLOBAL LNG PRICES IMPROVED SLIGHTLY Reuters said the Asian spot liquefied natural gas (LNG) price for June delivery rose from $7.10 per million British thermal units (mmBtu) to $7.40 per mmBtu, as the demand outlook improved slightly.

Total investment in Nigeria’s oil and gas industry stood at $20 billion in 2014 and dropped by 20 per cent in 2015: President, Chevron Africa and Latin America Exploration and Production, Ali Moshiri

By September, seismic data gathering work had already began on the ambitious gas pipeline project.

GAS NEWS Between 2014 and 2015, about four million barrels per day of unconventional oil was introduced into the market adding to the decline in oil prices.

SEVEN ENERGY COMMENCED DELIVERY OF GAS TO THE ALAOJI INDEPENDENT POWER PROJECT Seven Energy began supplying gas to the Alaoji Independent Power Project in Alaoji, Abia State through its wholly owned subsidiary, Accugas. Accugas is one of two gas suppliers to the 504MW power plant with an initial contractual commitment to supply 30 million cubic feet MMcfpd per day. The capacity of Aloji will rise to over 1GW once the plant is fully online. The Alaoji project is the largest of Nigeria’s National Integrated Power Projects (NIPP), the first phase of which was commissioned in March 2015. Speaking on the accomplishment, Phillip Ihenacho, Chief Executive Officer, Seven Energy, said: “The addition of Alaoji to our gas supply network means we are now delivering affordable

and reliable gas to three of Nigeria’s power stations. As a core of Seven Energy’s strategy to meet growing domestic energy demand, the Company has continued to invest in the expansion of its gas infrastructure in the south east Niger Delta region, from its processing hub in Uquo, Akwa Ibom state”. Following persistent rumours of merger talks, Seven Energy also issued a statement denying any such merger talks. The statement read: “Seven Energy is not in any discussions with any third party with respect to a merger. Seven Energy is not proposing to make any acquisitions at this time though it monitors the market for asset and partnership opportunities.”

CBN PAID N6.9 BILLION OF LEGACY DEBTS OF DISCOS TO GAS SUPPLIERS The Central Bank of Nigeria (CBN) disbursed the sum of N6.9 billion from the Nigerian Electricity Market Stabilization Fund (NEMSF), to gas suppliers. The sum represented legacy debts owed by power distribution companies (DISCOs) to gas suppliers. The fund is to ensure a steady power supply to the country. The CBN Governor, Godwin Emefiele, at an Abuja event to disburse the cheque, disclosed that the payments made by the apex Bank represent debts by the power sector in proportion to the obligations to repay the facility by five DISCOs that have so far signed up to the facility. Emefiele said the move was an important step in revitalizing Nigeria’s energy sector.

TECHNO OIL REVEALED PLANS FOR N3 BILLION CYLINDER MANUFACTURING PLANT Indigenous company, Techno Oil revealed its plans for a N3 billion gas cylinder manufacturing plant in Lekki area of Lagos State in a bid to encourage cooking gas utilisation in the country. The Liquefied Petroleum Gas (LPG) cylinder manufacturing plant will have the capacity to produce five million units of cylinders yearly. Construction of the plant was due to create 1,000 jobs. The company partnered with a European

firm, which has built similar plants in over 15 African and Asian countries. The company said the machines fabrication and construction of the plant were being undertaken in strict compliance with regulatory standards including those stipulated by Standard Organization of Nigeria (SON), Department of Petroleum Resources (DPR) and Cotechna, among others.

The life index of Nigeria’s gas stood at 79 years on January 1, 2015. This is a measure of how long the nation’s current gas reserves could last.: United States Geological Survey, USGS.

GAS NEWS

JULY-SEPTEMBER

Government should hold regular annual bid rounds for oil and gas acreages.” Pillip Iheanacho, CEO, Seven Energy.

IMPLEMENTATION OF GAS TRANSPORT CODE SIGNALLED LEVEL PLAYING FIELD FOR GAS DISTRIBUTION The recently appointed Director of the Department of Petroleum Resources (DPR), Mordecai Danteni Baba Ladan, revealed that the Department had begun implementing the Nigeria Gas Transportation Network Code (NGTNC). Ladan said that the DPR had already met with stakeholders to discuss how to implement the code without disrupting supplies. The NGTNC is a contractual framework devised to facilitate transparent, fair and competitive access to the national gas transportation infrastructure. Under the Code the contract is between the Transportation System Operator (TSO) and the shippers of gas. The framework specifies the terms and guidelines for the operation and use of the gas transportation system. The framework modelled on the Uniformed Network Code (UNC) in the United Kingdom is said to be clear, unambiguous and comprehensive. It is designed to ensure that gas meant for domestic use either for power generation, petrochemicals or industrial uses, will have a single entry and exit point to cut out the sharp practices prevalent in the current supply and distribution system. The Code will also provide a uniform platform in terms of guidelines for agreements between buyers and sellers ensuring transparency and eliminating existing bottlenecks. With the NGTNC, the tariff is expected to reflect the cost of service rendered by the operator of the network code system, while the Department of Petroleum Resources (DPR) is to approve the tariff.

Whilst industry watchers have welcomed the development, they point to the challenges that could mar the implementation of the Code. At the top of those is the lack of infrastructure. Presently, the Escravos Lagos Pipeline System (ELPS) is the only completed network. Others under construction include the Warri-West, ObenAjaokuta-Obajana, Alakiri-Obigbo, ObigboCalabar, Owaza-Aba and the ELPS-2. Until many of these pipelines are completed, the implementation can only be of limited effect. Suppliers, transporters, shippers and agents are required to obtain licences from the DPR to access the system. Earlier this year, the DPR had said that the implementation of the network code would start on a Manual Basis and that in 2016 the implementation would transit from Manual to Auto with full implementation of the Auto Mode commencing in 2017. The DPR has been training its personnel in the use of the system that is designed to create a transparent system that will give open access to any gas user or buyer desirous of access to Nigerian gas. It will provide a level playing field for all stakeholders. The existing agreements in the sector are expected to be reviewed once the Code roll out is complete. The implementation Committee comprises representatives from DPR, NNPC corporate and the Nigeria Gas Company. Projected spin-offs following successful implementation of the Code include on-grid power enhancement, improvement in off-grid power for industries and provision of feedstock for industrial use (such as the petrochemicals and fertilizer industries).

ESCRAVOS-LAGOS PIPELINE REPAIR LED TO IMPROVED POWER GENERATION Repairs to the vandalised EscravosLagos Pipeline were responsible for the improvement in power generation at Egbin Power Plant, the largest in the country. The recently completed repairs enhanced the gas to Egbin, enabling the plant, with a 1,320 mega watt capacity, to reach a peak of 1,100 megawatts (mw), accounting for almost one-third of the improvement in power supply across the country at that time. The last time the plant reached 1,000mw capacity was 8 years previously and, even then, it was only able to sustain that capacity for under two hours. Sahara Power and Korean partners, KEPCO, have invested close to N50 billion, post privatisation, to bring the Egbin power plant which had been operating at an average of 500 MW to its installed capacity of 1,320 MW. The company said the highlight of the main plant rehabilitation occurred in the first quarter of 2015, when the company successfully rehabilitated ST Unit 6, bringing an additional 220MW to the national grid and restoring the power plant to its installed capacity. The new owners were exploring an upgrade in the power generation of the plant to 2, 670 megawatts, subject to availability of gas, additional transmission capacity and improved demand for power.

GAS NEWS SHELL LIFTED FORCE MAJEURE ON GAS SUPPLIES TO NLNG In August Shell lifted the force majeure declaration on natural gas supplies to the Nigeria Liquefied Natural Gas Co (NLNG) after repairing a pipeline. The force majeure had been put in place nearly 3 weeks earlier after the company discovered a leak on the Eastern Gas Gathering System (EGGS-1). The leak was caused by a crude theft connection, which had been installed by oil thieves who thought the line was transporting crude oil.

EXXONMOBIL SAID IT WOULD COMMIT $3BN TO GAS PROJECTS IN NIGERIA ExxonMobil said it would be committing $3 billion to developing gas resources in Nigeria. The company said this development would significantly boost electricity generation, encourage the sprouting of other anciliary businesses, including fertilizers, petrochemicals and methanol, leading to the creation of hundreds of job opportunities and the reduction of gas flaring. The US major invested just $1.8 Federal in gas projects in the country in the last three Governments requires decades. The company said it remained $2.3 billion (N453.1 committed to the development and growth of the nation’s hydrocarbon industry as well billion) for the 2,300 as leading the industry’s effort towards ending kilometres of pipelines flaring through gas utilization and monetization of identified under the projects.

Nigeria Gas Master Plan: Centre for Social Justice

OANDO MARKETING PROVIDED LPG STOVES TO FOOD TRADERS Oando Marketing gave away liquefied petroleum gas (LPG) cooking stoves to women food traders in a new corporate social initiative. The women from Ipetumodu in Osun State, were food sellers who fry and sell the popular Nigerian snack, Akara, along the Ibadan-Ife Expressway. Nigeria is the fifth largest country producing LPG but one of the lowest users of LPG. Oando is supporting the move to switch Nigerians from using firewood to LPG.

SPAIN RECEIVED NLNG CARGOES Eclipse data revealed that Spain’s total liquefied natural gas (LNG) imports so far in August reached 960,000 cubic metres (cu m). This consisted of eight cargoes from Nigeria LNG Company (NLG). Two tankers were due to berth at Spanish regasification terminals. One, the 148,300 cu m LNG capacity Imo vessel was due at Cartagena terminal, while the LNG Ogun, with a capacity of 149,600 cu m was expected at the 7 Bcm/year Bilbao terminal. Days before, the 156,000 cu m WilForce, which also loaded a cargo at Nigeria LNG, reached the 8.8 Bcm/year Sagunto terminal.

OCTOBER - DECEMBER SEVEN ENERGY DENIED REPORTS OF ALUKO AND OMOKORE INVOLVEMENT involvement in the running of, management of, or Board of the Company since 30th November 2011. He has a shareholding interest, acquired before 2010, of less than 1% in the Company.

Seven Energy issued a statement denying media reports regarding the involvement of Kola Aluko and Jide Omokore in Seven Energy. Kola Aluko and Jide Omokore are alleged to have received favour from former Nigerian Minister of Petroleum Resources, Diezani Alison-Madueke’s. The Economic and Financial Crimes Commission (EFCC) is investigating their involvement in corruption allegations connected with Alison-Madueke. In a bid to distance themselves from the damaging allegations, Seven Energy issued a statement in which it said that Kola Aluko, although a previous director and employee of Seven Energy, had no

The company disclosed that Jide Omokore has never been a director or employee of Seven Energy and has never held any ownership interest in the Company. Kole Aluko

Former Minister, Alison-Madueke was arraigned to appear in court in London over money laundering and corruption charges. She is also being investigated by the EFCC.

GAS NEWS

LPG DEMAND OUTSTRIPPED SUPPLY NNPC THREATENED TO CUT OFF GAS SUPPLY TO GHANA The Nigerian National Petroleum Corporation (NNPC) threatened to cut off gas supplies to Ghana due to unpaid debts that had mounted to $181 million. Ghana had not paid for the gas supplied by NNPC since August of 2014. NNPC, who currently meets 25 per cent of Ghana’s gas requirements, threatened to cut off 75 per cent of the supply. As a result, Ghana despatched a high level delegation to hold emergency talks with NNPC. Failure to reach agreement would mean more power cuts in Ghana. NNPC supplies gas to Ghana via the West African Gas Pipeline. A fall in supply from dams in Ghana, which supply 50 per cent of its power, has left the country needing to rely more on gas.

The campaign to encourage domestic usage of liquefied petroleum gas (LPG) led to increased demand for the product. Nigerian Liquefied and Natural Gas (NLNG) Company is committed to supplying 250,000 tons to the domestic market every year after previously increasing the domestic supply from 150,000 tons to 250,000 tons a few years ago as domestic demand for the product started to grow. President of the Liquefied Petroleum Gas Association of Nigeria (LPGAN), Mr Dapo Adesina, said that more LPG needed to be dedicated to the domestic market by NLNG. He explained that there had been a marked increase in consumption of LPG by both household and industrial consumers in the country.

SEVEN ENERGY ROLLED OUT “GREEN TEAM” PIPELINE MONITORING INITIATIVE Seven Energy launched a new pipeline monitoring initiative which it called the “Green Team.” The new initiative is a community engagement process in which community leaders and youths are engaged in the policing and maintenance of critical gas infrastructure owned and operated by the company. 146 people have been engaged on a contract basis and the number is expected to increase in 2016. Green Team was adopted by Seven Energy as its own community based approach to maintain, monitor and clear its pipeline right of way (ROW). Glenn Bestall, Vice President QHSSE/CSR of Seven Energy said the concept was specifically designed to promote cordial and social relationship with host communities, create job opportunities for the local people, and by extension ensure the protection of gas pipelines and other critical facilities. The company revealed that since the project was unveiled the company had not recorded any serious vandalism on its facilities. Under the scheme, the youths are contracted and paid under a favourable special engagement process giving them the incentive to keep a continuous watch on the pipelines.

WORLD BANK AGENCY, MIGA, PROVIDED $200 MILLION GUARANTEE TO SEVEN ENERGY Multilateral Investment Guarantee Agency (MIGA), the political risk insurance and credit enhancement arm of the World Bank Group provided a guarantee of $200 million against the risk of expropriation to Seven Energy’s wholly owned subsidiary, Accugas Ltd. MIGA’s backing of Seven Energy is part of a new generation of jointly developed World Bank Group solutions. In addition to MIGA’s insurance, the World Bank supports the country’s sector reforms while the IFC itself and an IFC-managed fund have jointly invested in Seven Energy in Nigeria. “MIGA is very pleased to be part of the country’s efforts to reduce its negative impact on climate change by moving toward cleaner energy and reducing gas flaring,” said the agency’s Executive Vice President and CEO, Keiko Honda. MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment into emerging economies to support economic growth, reduce poverty, and improve people’s lives. MIGA fulfils this mandate by offering political risk insurance and credit enhancement to investors and lenders. Seven Energy’s processing facility and pipelines are delivering gas to three power stations and two manufacturing plants.

GAS NEWS DANGOTE FLAGGED OFF COOKING GAS USAGE CAMPAIGN In a bid to get into the cooking gas race, Dangote Group revealed its Gas to Health Initiative (GTHI). The initiative is a nationwide pilot scheme that seeks to encourage Nigerians to embrace the use of liquefied petroleum gas (LPG).

INTERVIEW: TALKING LPG Dayo Adesina, President of the Nigerian Liquefied Petroleum Gas Association (NLPGA) talks about the challenges of 2015 in the sector and looks forward to 2016.

OANDO REVEALED PLANS FOR $350 MILLION GAS PLANT Oando revealed plans to build a $350 million gas plant. The plant, with a capacity to process 300 million standard cubit feet a day (scfd) of gas, will take 24 months to complete and is expected to cost up to $350 million. The project was at the development stage and was expected to be launched in the first quarter of 2016. Managing Director of Oando Gas and Power, Bolaji Osunsanya, said the company was getting into gas processing now and was working itself up the chain, having been involved in transport in the past.

SIRIUS AWARDED OML 122 GAS RESERVES ENGINEERING STUDY CONTRACT TO PENSPEN Scottish company, Penspen, a leading global provider of engineering and management services to the energy industry, was awarded a contract by Sirius Group to conduct an engineering study for the monetisation of gas reserves from oil mining lease (OML) 122 located offshore in the Niger Delta. The study was being conducted as part of Project Dawn, a 3-year development project worth US$1.2 billion that includes the construction of a pipeline network to deliver natural gas to the Escravos – Lagos Pipeline System (ELPS), which was designed and constructed under the supervision of Penspen more than two decades ago. The gas from Project Dawn will feed power plants and different industrial applications in Nigeria. Project Dawn is expected to introduce 250 mm scf/d of natural gas under the Gas Sale and Purchase Agreement (GSPA) between Sirius Oilfield Support Services Ltd and Nigerian Gas Company (NGC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC). The project will include an evaluation of the OML 122 field development, subsea gas pipeline and an onshore central processing facility. The study will seek to determine the extent of new pipeline and facilities required, and quantify the overall investment required for the project.

WHAT WAS THE HIGH POINT OF 2015? The highest point in 2015 was when the Minister of State, Ministry of Petroleum Resources, Dr Ibe Kachikwu, made the pronouncement that he is going to give free cylinders to every Nigerian next year. I think it is achievable but not in one year. It has to be a programme that is spread over 5 years at least. First of all, you need to create the awareness. LPG is only consumed by 5 per cent of the population. 60 per cent of the population uses firewood, 30 per cent kerosene, 5 per cent coal. That needs to change significantly to LPG taking at lease 70-80 per cent. So the awareness creation is significant. The policy document that says this is how we’re going to roll out this programme is also important. We’ve been working with the National Planning Commission since November last year. The document is ready and the Budget and Planning Ministry would now have to take that forward to the government so they can implement that. A lot of the challenges we’re facing on the switch to LPG is actually from the government side, especially the tarriffs on the cylinders. Kerosene they can be put in pure water sachets or coke bottles. It is very portable. But LPG is not that way. You need a cylinder or gas tank in which to put the LPG. So to achieve a switch to LPG, you need the tariffs on the equipment to come down. Government needs do be able to stimulate growth in the sector and then the investment will come in.

WHAT WAS THE LOW POINT OF 2015? Last year saw a lot of problems with discharge. All the LPG comes to Lagos at the moment and there are just 3 main terminals. There’s a dedicated terminal, NAFGAS, and vessel discharge is usually fine there. It is also the biggest. There are also LPG vessels discharging at the other two terminals, NIPCO and PPMC, but because they are multi-product terminals they give more priority to other white products like PMS (petrol), ATK (kerosene) and DPK (diesel), particularly during periods when there’s scarcity of fuel. In such situations, a lot more priority is given to those products. We’ve had situations earlier on in the year where a vessel was waiting outside bar for upwards of 45 days just trying to discharge. It is a dysfunction but going forward, those are challenges that we would definitely look at. We’re hopeful that a lot of the challenges we’ve faced this year would be resolved in 2016.

GAS NEWS WHAT ARE YOU LOOKING FORWARD TO IN 2016? The associations need to have the full attention of government. What we’re pushing for would help the government significantly. The president this year signed up to COP 21 for a 20% reduction in greenhouse gas emissions in Nigeria. NLPGA would play a significant role if there is to be a fuel shifting from kerosene to LPG. That is recognized as one of the ways of reducing greenhouse gas emissions. Deforestation is happening in 19 states of this country and that’s because people feel firewood is cheaper for them to keep and use, but it’s dangerous. The

So I’d say it’s a partnership with government is important. Government shouldn’t see associations as lobby groups just looking after their interests. They are also instruments for helping the government achieve what it’s trying to achieve. We’re very hopeful that all the issues of 2015 will be addressed because we’ve had more engagement in the last 4-5 months than we’ve had in 6 years.

USE OF COOKING FUELS IN NIGERIA

LPG STATISTICS: Facts: Nigeria

fumes contribute to 4 million deaths per year.

2nd

Firewood

largest producer of LPG in Africa

6th

LPG

largest producer of LPG in the World

Lowest

Coal

per capita consumption of LPG in sub-Saharan Africa at 0.8kg per annum.

Kerosene

ABOUT GAS FLARING During oil production, associated gas is produced from the reservoir together with the oil. Much of this gas is utilized or conserved because governments and oil companies have made substantial investments to capture it; nevertheless, some of it is flared because of technical, regulatory, or economic constraints. As a result, thousands of gas flares at oil production sites around the globe burn approximately 140 billion cubic meters of natural gas annually, causing more than 300 million tons of CO2 to be emitted to the atmosphere. Flaring of gas contributes to climate change and impacts the environment through emission of CO2, black carbon and other pollutants. It also wastes a valuable energy resource that could be used to advance the sustainable

development of producing countries. For example, if this amount of gas were used for power generation, it could provide about 750 billion kWh of electricity, or more than the African continent’s current annual electricity

consumption. While associated gas cannot always be used to produce power, it can often be utilized in a number of other productive ways or conserved (re-injected into an underground formation).

GAS NEWS

INTERVIEW:

AYO AJOSE-ADEOGUN, CHIEF STRATEGY OFFICER, OANDO PLC Ayo Ajose-Adeogun sets out the investment opportunities in the Nigerian Gas industry. Nigeria has 187 TCF proven gas reserves, the 8th largest natural gas reserves in the world and largest in Africa. Nigeria’s gas reserve accounts for one-third of Africa’s proven gas reserves. Undiscovered potential natural gas reserves are estimated at 600TCF. However, Nigeria’s gas consumption is significantly low in comparison with other developing countries. This has contributed in some way to Nigeria’s economic misfortune and resulted in its low GDP per capita. Countries consuming substantial volumes of gas have been able to significantly meet their energy needs hence achieving economic development as represented by their high GDP per capita. Gas consumption (and not resource base) is therefore the key to economic growth and development.

Average daily production in 2014 was 8.25 bscf per day. Of that: n 37% of production went to NLNG & WAGP for export n 15% went to NGC and Local Distributors for the domestic market, which comprises power, industrial and commercial. n 35% went to fuel, gas lift and gas reinjection in petroleum operations n 13% was flared – representing about 1bscf per day. There is a need to meet a projected 3.5 bcf per day of gas demand by over 30 existing and proposed power plants. Assuming a development of 20% of Nigerian’s proven reserves, a total financial requirement of about $55 billion would be needed in the mid term to achieve the power and domestic gas demands and unlock Nigeria’s gas potentials. The financial requirements are: n $19 billion estimated funding for large-scale Niger-Delta gas development including studies, seismic data gathering, surveys and appraisals to unlock gas reserves and develop fields for domestic supply. n $15 billion funding requirement to develop at least 5 medium scale Central Processing Facilities. n $6 billion to developing a 2,000

kilometre gas pipeline to various regions in the country at the rate of $3m per kilometer. n $15 billion for power transmission and distribution as reported by the Presidential Task Force on Power. Key challenges present include huge volumes of unexploited gas resources as a result of lack of field development. There was a preference for investment in oil field development due to better return on investment and profitability. As a result, associated gas contributes significantly to available domestic volumes. Inflexible and poor interconnectivity of the existing transmission network were also real challenges. Bankability of key agreements and the non-cost reflective tariffs, particularly in the power sector, which is the largest domestic demand block, were also to blame. Key recommendations for the industry are: n More public private partnerships n Making commercial swap agreement possible n Bring in more bid rounds for development of new gas acreage n Create a commercial framework n Ensure the required regulatory institutions are put in place

THE NIGERIAN GAS MASTER PLAN Approved in February 2008, the Gas Master Plan is a framework for gas infrastructure expansion within the domestic market through the maximisation of the production and usage of gas.

INTERVIEW

INTERVIEW:

NATURAL GAS POWER PLANTS IN NIGERIA

GBITE ADENIJI, CHIEF CONSULTANT, ADVISORY LEGAL CONSULTANTS Gbite Adeniji gives NOGintelligence his views on the progress of the countryâ&#x20AC;&#x2122;s gas to power aspirations and what we can look forward to in 2016. I am clear that the gas to power interface in Nigeria is still dissonant. First of all, there remains a significant unsatisfied gas demand from the power sector, which is the largest demand segment for gas. There has to be an objective review of why this is the case. To my understanding, there is a price and payment risk to the upstream gas suppliers from the power sector that needs to be honestly discussed and addressed. If unlocking the power sector is a matter of national economic priority, then especial attention needs to be placed on the need to unlock gas supply for the power sector. The issues of price regulation, gas aggregation, gas infrastructure, funding of upstream gas projects, regulatory regime for midstream gas projects, and other such critical issues need to be resolved by Government. In all these, there is opportunity, especially with respect to investment in the midstream. There aren't enough gas pipelines in the country, but the resources and demand profiles indicate opportunity in the sector. The midstream is the missing link. The LPG sector is of course another opportunity area given the near maturity of some new gas process plants. Of course there is a fair amount of policy and regulatory work to be done by Government to make these opportunities realistic. So, we should expect new sector legislation and regulatory agency before long.Â

Oil & Gas Power Infrastructure Principal Investments

Over $

Established in 2002, with deep expertise in the Sub-Saharan Energy and Infrastructure sectors, we understand the need for specialised advisory services to companies in emerging markets

Oando Energy Resources

Oando Energy Resources Reserve Based Lending Upsizing

Kainji Hydropower Plc Acquisition and Expansion Capital Financing

Petroleum Product Tank Farm Acquisition in Calabar, Nigeria

Reverse takeover of Exile Resources Inc. & Listing of Oando Energy Resources on the Toronto Stock Exchange

Financial Adviser

US$91m

US$170m

US$35m

US$106m

2015

2013

2012

CONFIDENTIAL

Oando Farm-in to Qua Iboe Field in Nigeria

Farm-out of three oil blocks in Chad

Equity capital raise for a commercial real estate project

Financial Adviser

Financial Adviser & Lead Arranger

US$100m

Undisclosed

US$50.26m

2012

2011

2012

Oando

raised as ďŹ nancial adviser & lead arranger

We have consistently demonstrated our expertise in energy & related sectors

CONFIDENTIAL

Senior Debt Financing for Commercial Real Estate Project

2012

2.5 Billion

Oando

Valuation of an indigenous oil & gas company

Acquisition of Equator Exploration Ltd

Lagos State Water Corporation IPP

Acquisition of OMLs 125 & 134

Financial Adviser

Financial Adviser & Lead Arranger

Financial Adviser

Undisclosed

US$106m

US$25.5m

US$188m

2010

2009

2008

Please contact us at: 10th Floor, The Octagon, 13A, A.J. Marinho Drive, Victoria Island, Lagos State, Nigeria

Website: www.argentilcp.com

Email: info@argentilcp.com

Tel: (234)-01-4603370-1 Fax: (234)-01-4616221

FINANCIAL NEWS

JANUARY-MARCH ELAND OIL SECURED $75 MILLION RBL FACILITY FOR OML 40 DEVELOPMENT

OANDO’S RIGHTS ISSUE WAS OVERSUBSCRIBED Oando Plc raised N21.11 billion ($142.25 million) through a rightS issue to refinance its upstream acquisitions and provide funding for new gas and power investments. Oando said it received applications for 28.2 per cent more shares than the 301 million shares on offer to existing shareholders. Oando had initially announced that it intended to raise $300 million through the rights issue, starting from November 24 and closing December 19. The rights issue was subsequently suspended after it emerged that the Securities Exchange Commission had not approved the rights. Oando moved the rights issue to commence 03 December 2014, due to close 14 January 14 2015 before it was subsequently postponed by two weeks to close on 28 January. On January 27, just one day to the date for the rights to close, the company announced it was adjusting the price of the offer from N22 to N16.5 on the basis of one (1) new ordinary share for every four (4) instead of one (1) new ordinary share for every three (3) ordinary shares of 50 kobo held as at 25 July 2014. Oando explained in a statement: “This revision was required to better align the terms of the Rights Issue with current market conditions, given the 28% fall in the NSE All Share Index over the last 3 months.”

West Africa focused Eland Oil & Gas, an oil & gas production, development and exploration company listed on the London Stock Exchange’s AIM secured a new reserves based lending (RBL) credit facility of up to $75 million from Standard Chartered. The facility, with four and a half year maturity, was secured against oil mining lease (OML) 40’s reserves and would be repayable on a quarterly basis from September 2016 at 7.75 per cent over LIBOR. Standard Chartered, the lead arranger of the syndicated loan will commit $35 million to the facility. They began marketing the syndication of the remaining $40 million with commitments expected by the end of Q1 of 2015. The facility was to be used to continue the development of Opuama field in OML 40 and for working capital. The agreement of the facility came after the company announced a significant upgrade in the reserves and resources of OML 40 following a new competent persons report (CPR) provided by Netherland, Sewell & Associates Inc. (NSAI) in October of last year. The CPR upgraded OML 40 gross Proved Plus Probable (2P) reserves from 54.2 million barrels (mmb) to 81.4 mmb, with 25.3 mmb net to Eland (before royalties), and 20.2 mmb net to Eland (post royalties). Only last December, the company announced that it had satisfied all the conditions precedent to accessing its $22 million loan facility with Standard Chartered Bank. In 2014, Eland’s joint venture company, Elcrest Exploration and Production Nigeria sold a total of 115,722 bbls gross of crude oil for an average price of $103.77 per barrel.

SEPLAT REFINANCED $1 BILLION DEBT FROM NI GERIAN AND INTERNATIONAL BANKS Seplat Petroleum Development Company successfully refinanced its existing debt facilities with a new $700 million seven-year secured term facility and $300 million three-year secured revolving credit facility. The seven-year facility also included an option for the company to upsize the facility by up to an additional $700 million for qualifying acquisition opportunities, giving it access to up to $1.7 billion finance. The $700 million seven-year secured term facility was put up by a consortium comprising of Nigerian banks: First Bank of Nigeria Limited, Stanbic IBTC Bank Plc, United Bank for Africa Plc and Zenith Bank Plc. The facility is repayable quarterly from the end of June 2015 and has a margin of LIBOR +8.75% per annum. FBN Capital said it played an

instrumental role in assisting Seplat to structure the local financing to optimize its capital structure The $300 million three-year revolving credit facility was secured through a consortium of eight international banks comprising Bank of America Merrill Lynch, Citibank, JP Morgan Limited, Natixis, Nedbank Limited, Rand Merchant Bank, Standard Bank and Standard Chartered Bank. The facility has a quarterly reduction schedule from end December 2015 and has a margin of LIBOR +6.00% per annum. Proceeds from draw down on these new facilities have already been applied towards the repayment of the company’s existing debt facilities of $552 million. The rest was to be used to fund new

business and development opportunities and for general corporate purposes. Following the structured finance, Seplat wasted no time in making new acquisitions. After passing up the opportunity to acquire Afren, the company later went on to close the acquisition of a 40% working interest in OML 53, which is located onshore in Imo State in the north eastern Niger Delta, approximately 60km north of Port Harcourt. It also secured a 22.5% working interest in OML 55, which is located in the swamp to shallow water offshore areas in the South-Eastern Niger Delta in Nigeria. Seplat is the operator of both blocks, which are part of the recent divestment by Chevron. The Nigerian National Petroleum Corporation (NNPC) holds a 60 per cent interest in each of the two blocks.

FINANCIAL NEWS OANDO MADE $234 MILLION EARLY LOAN REPAYMENTS Silencing critics of its mammoth acquisition of ConocoPhillips, Oando Energy Resources (OER) made an early repayment of some its loan facilities in spite of the crash in oil prices. OER made a $238 million early payment of certain loan facilities. This was made possible by the optimization of its crude oil hedge program. Following the $1.5 billion ConocoPhillips acquisition, OER saw its production rise from 4,500 barrels of oil equivalent per day (boe/d) pre-acquisition to 53,161 boe/d for the month ending January 31, 2015, making it the second largest indigenous company by production, although the largest by reserves. The company was able to realize $234 million out of the $238 million by resetting its crude hedge floor price from an average of $95.35 per barrel to $65 per barrel on 10,615 barrels of oil per day (bpd) for the next 18 months. Another 1,553 bpd was hedged with the same floor price for a further 18 months until January 2019. The company was able to add another $4 million from cash in hand. At the date of acquisition on July 30th 2014, OER had a total debt of approximately $900 million, including a $100 million structured facility provided by Afrexim. But now, not even a year following the acquisition, and at a time when crude oil prices are at their lowest in years, the company had been able to reduce some of its loan facilities using the proceeds of the hedge unwind and reset. In the first instance, OER applied $188 of the $238 million towards an early repayment of part of its $415 million Reserves Based Lending Facility. The balance of this lending was now nearly halved to $415 million. In addition, OER applied $51 million of those proceeds towards a $338 million corporate facility lending reducing the outstanding balance to $287 million. Commenting on the repayments, Pade Durotoye, CEO Oando Energy Resources said, “The decline in global crude oil prices led to a substantial gain for our company and we have 10,832 bpd average production hedged for the balance of 2015 and 8,000 bpd for 2016.” OER has about 50% of their oil production hedged. That, coupled with 65% of gas production committed to stable long term priced contracts, made the company comfortable that it had the cash flow to meet its obligations going forward. As a result of the early repayments, Oando’s debt was reduced from $900 million to $615 million, after taking account of previous amortizations.

ORYX PETROLEUM GOT $100 MILLION NEW FUNDING Oryx Petroleum Corporation Limited obtained a $100 million credit facility, which it said would ensure financial flexibility and continued growth. The credit facility from the Addax & Oryx Group P.L.C. (AOG) would provide up to $100 million in the form of an unsecured credit facility. Compensation included interest of 10.5% per annum and receipt of warrants to purchase up to 12 million shares of Oryx Petroleum. Oryx Petroleum has interests in five license areas in West Africa, including a 38.67% working interest in the OML 14, a shallow offshore exploration area offshore Nigeria. The block is operated by indigenous company, Emerald, and Oryx is their technical partner. OML 141, in which Oryx identified seven prospects together totaling 67 MMbbl of best estimate unrisked gross (working interest), is largely underexplored. Oryx is however not planning to spend any part of the $100 million funding on OML 141, preferring to moderate its capital expenditure plans to focus on core development assets in Iraq to achieve targeted near term production growth. Oryx reserves and resources as at December 31, 2014 as evaluated by Netherland, Sewell & Associates, Inc. (NSAI) included a 27% increase in proved plus probable oil reserves to 271 million barrels (MMbbl), a 41% increase in the after-tax net present value of future net revenue related to proved plus probable oil reserves to $1.8 billion, a 16% decrease in best estimate (2C) contingent oil resources to 188 MMbbl, and unrisked best estimate prospective oil resources of 929 million barrels versus 1,167 million barrels at December 31, 2013. The company said it would reduce capital expenditures in 2015 by slashing its $350 million budget set in November 2014 by 60 per cent to $140 million, while administrative costs were to be cut by 30 per cent.

SEVEN DEEPWATER PROJECTS WERE AWAITING FIDS Seven deepwater oil projects, with a combined capacity of 875,000 barrels per day, were awaiting final investment decisions (FIDs) from International Oil Companies operating in the country. But the lingering plunge in global oil prices, coupled with the delay in the passage of the Petroleum Industry Bill, was seen as a threat to the operators’ ability to go ahead with the projects. They projects are: Shell’s Bonga Southwest and Aparo (225,000bpd) and Bonga North (100,000bpd), Eni’s ZabazabaEtan (120,000bpd), ExxonMobil’ s Bosi (140,000bpd), Satellite Field Development Phase 2 (80,000) and Uge (110,000bpd) and Chevron’s Nsiko (100,000bpd). They were expected to start coming onstream in 2020.

FINANCIAL NEWS CBN DATA SHOWED ENERGY COMPANIES OWED N3.7 TRILLION TO BANKS The indebtedness of energy companies to commercial banks in Nigeria dropped to N3.673 trillion in March 2015, from N3.855 trillion in February, according to data produced by the Central Bank of Nigeria (CBN). Indebtedness by sector:

SECTOR

OWED IN MARCH 2015

OWED IN FEBRUARY 2015

Downstream, natural gas and crude oil refining companies

N2.153 trillion

N2.3 trillion

Independent Power Projects (IPPs) and power generating companies

N282.7 billion

N294.085 billion

Upstream oil and gas service companies

N1.073 trillion

N1.096 trillion

Power transmission and distribution companies

N163.93 billion

N172.44 billion

APRIL-JUNE FORTE OIL BONUS SHARES LIFTED MARKET CAPITALISATION TO N280BN The bonus issue of one new share for every five shares made by Forte Oil Plc to shareholders for the 2014 financial year lifted the market capitalisation of the petroleum products company on the Nigerian Stock Exchange where it is listed. Apart from a cash dividend of 250 kobo declared, Forte Oil also declared a bonus of one for five. The addition of the bonus, which translated to 217, 080,184 shares, lifted the outstanding shares of the company to 1,302,481,103 shares. This lifted the market capitalisation of the Forte Oil to N280 billion. Commenting, the Group Chief Executive Officer, Akin Akinfemiwa, said: “We have now built a sustainable business model which has contributed to the Group’s profitability of N6.0 billion against the backdrop of a slowing economy, increased insecurity (which has led to revenue loss in the North eastern market), political uncertainty, weaker petroleum products demand and a volatile exchange rate to mention a few.” He added: “We shall continue to innovate with respect to products and service offerings and diversify our revenue base, maximise our Non- Fuel Revenue (NFR) opportunities, as a part of our strong resolve to building a long-term successful company.”

SACOIL REACHED SETTLEMENT WITH ENERGY EQUITY RESOURCES OVER UNPAID LOANS Following its decision to quit Nigeria, SacOil completed a settlement agreement with Energy Equity Resources Norway Limited (EERNL), which restructured EERNL’s debt obligations to SacOil in exchange for SacOil’s waiver of certain rights and interests emanating from the loans. However, SacOil retained the existing security over EERNL’s 20% interest in OPL 233. SacOil advanced some loans to EERL and its subsidiary, EER, to secure a participation interest in OPL 233. The loans, which carried an interest rate of between 25 per cent per annum and 32 per cent per annum, with payment due in various installments were secured against EER’s 20 per cent interest in OPL 233. According to SacOil, EERNL had been unable to settle the loans, which amounted to date to approximately $24.2 million. SacOil agreed to freeze interest on the outstanding sum from 30th November 2014. All proceeds received by EERNL in OPL 233 would be allocated to the repayment of the loans. Furthermore, 50 per cent of EERNL’s net cash flow amount from oil mining lease (OML) 113 in which EERNL also had an interest, was to be allocated to repayment of the outstanding

loans if there were still sums outstanding by the time OML 113 went into production. OML 113 contains the Aje Field, offshore Lagos, which is now expected to come into production in Q1 of 2016. In addition, pursuant to a farm-out agreement executed between SacOil, EER 281 and TransCorp in relation to OPL 281, SacOil advanced additional funds on behalf of EERNL to secure the farm-in to OPL 281. The two companies have agreed that in full and final settlement of the amounts advanced by SacOil in respect of OPL 281, EERNL would turn over the refund payment due from TansCorp, to SacOil.

FINANCIAL NEWS NIGERIAN CONTENT DEVELOPMENT FUND (NCDF) REACHED $540 MILLION The size of the Nigerian Content Development Fund (NCDF) reached $540 million in May. The Fund was established by the Nigerian Oil and Gas Industry Content Act (NOGIC Act) 2010 to address financial and liquidity challenges of indigenous companies that operate within the Nigerian oil and gas industry. The Fund is built through a contribution of one per cent from every contract awarded to any operator, contractor, subcontractor, alliance partner or any other entity involved in any project, operation, activity or transaction in the upstream sector. It is deducted at source by contract awarding entities and paid into designated accounts, which are kept with Custodian Banks under the programme. The Fund is structured in such a way that 30 per cent is meant for direct intervention to identify areas with gaps and plug loopholes through training, technical support, such as research, studies and possible temporary acquisition of stake, and also in critical intervention in infrastructure development, among others. The other 70 per cent is for commercial intervention. Thirty per cent of it is provided as a partial guarantee on bank loans to local operators to grow local capacity and to give 50 per cent interest rebate on performing bank loans under the partial guarantee scheme.

JEHATA NIGERIA SECURED $3 BILLION LOAN FACILITY FOR GAS PRODUCTION PLANT Nigerian firm, Jehata Nigeria Limited, said it had secured a $3billion facility from a consortium of banks in the US, including Solace Chartered Bank, Black Morgan Finance and Bank Link Limited to build a gas production plant. The loan facility has a 20year tenure. The firm expects that, when completed, the project will add 1500 megawatts of power generation by (Mw) to the national grid. The project was due to be launched last year but unresolved land approval issues with the Federal Capital Development Authority (FCDA) delayed the take off.

SEPLAT STOPPED DOLLAR DIVIDEND POLICY FOR NIGERIAN SHAREHOLDERS General Counsel for Seplat Petroleum Development Company the company, Dr. Miriam Kene Kachikwu, confirmed that the company would not be paying future dividends in dollars to its Nigerian shareholders. The company had come under criticism after it emerged that it had made November 2014 interim dividend payments in dollars. The company’s decision to pay dividends in dollars to those who had domiciliary came under intense criticism, leading the company to backpedal on paying future dividends in dollars.

OBIANO WOOED INVESTORS FOR DEVELOPMENT OF ANAMBRA OIL AND GAS INDUSTRY Governor Willie Obiano was at the Offshore Technology Conference (OTC) in Houston to woo prospective investors. Obiano said the conference provided a viable platform to engage with industry experts and hold further talks with the aim of converting prospective investors to active partners in the development of the State’s immense oil and gas deposits in Anambra. Oil and gas ranked second amongst his government’s four-Pillars of development. He said, “This gives you an idea about the importance we attach to the realisation of our set goals in the sector.” He revealed that Anambra State has over one billion barrels of oil and 30 trillion cubic feet of gas, most of which were relatively unexploited. His objective was to have a fully developed and selfsufficient oil and gas sector in Anambra State by 2018. Programmes so far undertaken by Obiano’s administration to support the oil and gas aspirations of the State include building access roads and bridges to the oil fields in Aguleri. In addition, he had relicensed an international cargo airport at Umueri, with plans to pipe ATK (aviation fuel) from the Orient Petroleum Refinery being built in Aguleri. When complete, the airport could become a major hub for the refuelling of international flights in West Africa.

FINANCIAL NEWS BANKS’ EXPOSURE TO OIL AND GAS SECTOR HIT N3.24 TRILLION The Central Bank of Nigeria (CBN) in its Financial Stability Report for December 2014, said that oil and gas firms’ indebtedness to financial institutions stood at about N3.24 trillion, adding that low crude oil prices posed a significant risk to Nigeria’s financial system and might lead to an increase in Non-Performing Loans (NPL). The CBN advised banks to strengthen their

contingency plans and conduct regular stress tests so as to be able to mitigate the impact of the crash in oil prices on their balance sheets. Loans and advances by 10 Nigerian banks to customers in the oil and gas sector rose to a total sum of N2.943 trillion in 2014. This amount represented an increase of N817.8 billion or 40 per cent compared

to N2.05 trillion recorded by the same financial institutions in 2013. Analysts were of the view that with declining crude oil prices, banks would find it challenging to recover monies loaned out to energy firms. Banks were facing the risk of a large chunk of loans going bad as majority of energy firms were likely to face difficulties in servicing their loans.

NIGERIAN BANKS’ EXPOSURE TO OIL AND GAS SECTOR IN 2014 BANK

2014 (BILLION N)

2013 (BILLION N)

% INCREASE

Zenith Bank

389.9

193.9

101

Fidelity

134.75

Union Bank

93.5

63.38

GTBank

425.67

289.7

First City Monument Bank (FCMB)

149.12

104.5

First Bank of Nigeria Holdings (FBNH)

853

621

Sterling Bank

131.58

99.7

Access Bank

280.5

229.5

Diamond Bank

249

178.8

United Bank for Africa

204

192.8

ERIN ENERGY ANNOUNCED OFFTAKE AND PREPAYMENT AGREEMENT WITH GLENCORE

NEITI REVEALED NLNG FAILED TO REMIT $11.6 BILLION LNG DIVIDENDS

Erin Energy Corporation agreed to heads of terms on a commercial agreement with an embedded prepayment element with Glencore Energy UK Ltd, a subsidiary of Glencore PLC. The offtake contract worth $150 million would allow Glencore to undertake the lifting of Oyo crude from the FPSO Armada Perdana for a minimum term of two years. The embedded prepayment element would provide proceeds in two tranches beginning with the completion of the Company’s Oyo-7 well. The initial tranche would be available in two equal drawdowns totalling up to $50 million, and would depend on Erin Energy’s ability to meet certain production targets. The second tranche would be an inventory revolving facility of up to $100 million.

The Executive Secretary of Nigerian Extractive Industry Transparency Initiative (NEITI), Mrs. Zainab Ahmed, revealed that a total of $11.6 billion, which represented outstanding total dividends arising from loans and interest repayments from the Federal Government’s investment in Liquefied Natural Gas, had not been paid into government coffers. She said that their 2012 audit report had uncovered that total dividend, loans and interest repayment from the LNG paid to NNPC in 2012 was $2.8 billion. However, in the course of NEITI’s audit, NNPC was unable to provide any evidence that the funds were remitted to the Federation Account as required by law.

Kase Lawal, Chairman and CEO of Erin Energy commented: “We are pleased to be working with Glencore as our commercial partner to further our development work offshore Nigeria. This prepayment facility would provide us with additional working capital and is a strong endorsement of our offshore Nigeria assets.”

She said: “The total amount received by the Nigerian National Petroleum Corporation (NNPC) from the LNG under the same circumstances, which has not been remitted to the Federation Account, stands at $11.6bn.”

FINANCIAL NEWS

SIRIUS PETROLEUM SECURED CONVERTIBLE LOAN OF $2.3 MILLION Nigeria focussed exploration and production company, Sirius Petroleum obtained a $2.3 million (£1.5 million) facility from a family office as working capital for its operations. Listed on the Alternative Investment Market (AIM) of the London Stock Exchange, the company obtained the Convertible Loan Facility from Calvet International Limited, an international family investment office. Sirius has an interest in the Ororo marginal oil field, which is located in Oil Mining Lease (OML) 95. The investment company which is focused on oil and gas opportunities, entered into a Financial and Technical Services Agreement (FTSA) with Owena Oil and Gas Limited and Guarantee Petroleum Company Limited in relation to the asset. The three-year term loan would accrue zero interest but Calvet had the option to convert the loan into new ordinary shares in the company at a price of 1 pence per share. Sirius negotiated a commitment fee of £100,000 per annum for the full term of the facility to be settled through the

and financial adviser to the company, in settlement of fees. This gave Juniper 3.1 per cent of the company’s issued share capital. issuance of 30,000 new ordinary shares of 1 pence each. A drawdown fee would be satisfied through the issuance of new ordinary shares at the same price. An initial draw down of £200,000 was agreed. Any additional draw down would be at Calvet’s discretion. This facility was separate to any project funding and would allow Sirius to continue due diligence in respect of projects that it was currently considering. The conversion into shares of the initial fees would give Calvet 5.9 per cent of the company’s shares, once the 70,000,000 new ordinary shares were admitted to trading. This followed an issue of 35,000,000 new ordinary shares issued to Juniper Capital Partners Ltd a strategic

In March, the company won an extension till 30 April for the completion of a £9.6 million Convertible Loan with Nima International Ltd, an affiliate company of Levant Energy Limited. Both companies were considering raising $25 million through a combination of new equity and a convertible loan structure to fund the Ororo-2 well. However, in view of the current economic climate, they decided that there would be significant dilution of existing shareholders interests and this would not be in the best interests of the company’s existing shareholders. On a fully diluted basis, the existing shareholders would have had only a small minority of the company’s enlarged equity post investment. As a result Sirius was looking for alternative funding including debt structures what would be less dilutive.

SEPLAT AND INDIGENOUS OIL FIRMS RESPONDED TO TAX WAIVER ACCUSATIONS Seplat Petroleum Development Company Plc issued a strong response to the accusations levelled by then Coordinating Minister of the Economy and Minister of Finance, Ngozi Okonjo-Iweala, at indigenous operators over tax holidays which she said were fraudulently granted by officials of the Nigerian Investment Promotion Commission (NIPC) to companies that did not qualify. In a letter to the Executive Secretary of the (NIPC), the Minister claimed that the federal government had lost a lot of revenue due to the tax holidays. The Economic and Financial Crime Commission (EFCC) was also said to be investigating the Federal Ministry of Industry, Trade and Investment as well as NIPC for the tax holidays given to about 20 oil companies. Okonjo-Iweala however singled out Seplat among the oil companies that had been wrongfully granted such waivers. Seplat issued a strong rebuttal to the accusations. The company said it applied for pioneer tax incentive in 2013, through NIPC. It followed the prescribed process for application and provided all the information and documentation required in support of the application. At the time of the application, Seplat was aware that in line with the objective of

the NIPC Act, the government intended to promote investments in certain areas of the Nigerian economy and particularly in relation to indigenous participation in the oil and gas industry. The Chief Executive Officer of Seplat, Austin Avuru said in the statement: “This we believe was aimed at engendering rapid sectorial growth and employment generation.” The pioneer tax incentive was subsequently granted to Seplat and the Federal Inland Revenue Service duly acknowledged the waiver to be applicable to the company for 5 years. In the statement, Seplat went on to list the ways in which it had utilized the waiver, as a demonstration that the idea behind the tax waivers, was working as companies like Seplat had invested the tax savings in projects that benefitted the economy. Among the projects they invested in as a result of the savings were: n Increase in Gas Supply to the Domestic Market – $300 million invested in gas development over the tax holiday period, taking gas production from 90 MMscfd to the current level of around 200 MMscfd. n Increase in Oil Production – oil

production from a daily average of 14,000 barrels in 2010 to the current daily rate of over 70,000 barrels, thereby increasing Seplat’s royalty payments to government from $40 million per annum in 2010 to about $340m presently. n Continued funding of the NPDC/Seplat JV despite substantial outstanding cash calls. n Employment and Community Development – over 300 new jobs created and several community development projects in its operating areas. n Statutory payments post pioneer period – aggressive re-investment of pioneer tax waiver proceeds have led to a significant increase in oil and gas production and as such, the company’s tax and royalty payments are expected to double post pioneer period compared to the level it was at pre pioneer period. Seplat believes that it is an excellent example of the purpose of establishing the pioneer incentive scheme. Adding their voices to the rebuttal, other indigenous operators said the tax holiday was a policy aimed at empowering them to boost production and curtail security issues through increased employment and investment in their corporate social responsibility projects.

FINANCIAL NEWS SHORELINE DISCLOSED PLANS FOR $2 BILLION BONDS Chief Executive Officer of Shoreline Group, Kola Karim told Bloomberg that the company planned to sell $2 billion to create a war chest for the acquisition of oil and gas assets across Africa. Speaking after a two-week road show, he said the debut issue of as much as $500 million of 5 to 7-year Eurobonds would probably happen before the end of the year. Karim said he had approached all three major international ratings companies and was looking to sell the $2 billion of bonds in three or four tranches. Shoreline’s rating should be in line with Nigeria’s, he said. With interests already in oil and gas and power, he is keen to position Shoreline to profit from the energy deficit in Nigeria. “I’m bullish about gas and gas infrastructure. If this country is going to grow that’s going to be huge,” Karim said.

SEVEN ENERGY SECURED $445 MILLION SENIOR DEBT FACILITY Seven Energy International announced that it had entered into a senior debt facility totalling up to $445m. The money was to go to Seven Energy’s wholly-owned subsidiary, Accugas Limited. The facility, arranged by FBN Capital and FCMB Capital Markets, will be used to refinance Accugas’ existing project-finance and acquisition-finance senior debt facilities as well as to support additional medium-term capital requirements. Financial close was to take place by the end of June 2015. Accugas is a gas processing, marketing and distribution company focussed on commercialisation, for the domestic Nigerian markets, of the substantial discovered but undeveloped gas resources onshore in the Niger Delta. Some of the funds would be used to support additional medium-term capital requirements. Seven Energy’s midstream infrastructure assets, focused in south east Niger Delta, include the 200 MMcfpd Uquo gas processing facility and a gas pipeline network of 227 km with distribution capacity of 600 MMcfpd.

JULY - SEPTEMBER SEPLAT DEPOSITED $74 IN ESCROW FOR POTENTIAL ACQUISITION Seplat Petroleum Development Company resumed talks for the potential acquisition of an asset in the Niger Delta. It had set aside a smaller pool of funds ahead of a possible deal. For this deal, it deposited $74 in escrow as a returnable deposit. The London and Nigeria-listed company said it was part of a consortium seeking to buy the asset from oil and gas majors operating in the region but remained tight-lipped about the present target. Seplat refused to disclose the names of the members of the consortium due, due to confidentiality agreements. Seplat said it had set aside $453 million last year as its share of the consortium’s pre-deal commitments

International Oil Companies (IOCs) will divest from at least 12 more onshore oil blocks before the end of 2019 in the continuation of a trend that started over 5 years ago: Dolapo Oni, Head, Energy Research, Ecobank Development Corporation.

SEPLAT ANNOUNCED N3.5 BILLION BONUS SHARES ISSUE TO DIRECTORS AND SENIOR MANAGEMENT Seplat Petroleum Development Company issued bonus shares valued at more than N3.5 billion to directors and senior management staff of the oil exploration and production company. Seplat issued the shares under its Long Term Incentive Plan (LTIP) at nominal cost to the company and distributed the ordinary shares to executive directors, non-executive directors and top management staff. The LTIP consisted broadly of two components including share incentives related to the company’s successful global initial public offering and annual share bonus.

SEVEN ENERGY SECURED ADDITIONAL $52 MILLION FUNDING Barely two weeks after announcing that it had secured $445 million debt funding, uniquely gas focused Nigerian independent, Seven Energy announced that is had also secured another $52 million debt funding. The company said certain of its wholly-owned subsidiaries had entered into two separate

debt facilities with “prominent” European institutions with up to a six year tenure. The new facilities would rank pari passu for security with the Senior Secured Loan Notes issued in October 2014 the company said. The funds would be used for ongoing development projects and working capital.

FINANCIAL NEWS IFC AND THE AFREXIM BANK DISCLOSED WILLINGNESS TO FUND LPG PROJECTS

OIL AND GAS LOANS FORMED MAJORITY OF NON PERFORMING LOANS Oil and gas firms topped the list of firms whose bank loans had been non- performing for more than a year. The list published in early August showed that majority of the loans were oil and gas related. Oil and gas projects are typically capital intensive and so loans are normally large. Unfortunately the unrelenting slide in oil prices had created cash flow issues for many of these debtors making it increasingly difficult for them to service their loans. Some of those sums are mouth-watering, such as downstream giant, MRS, which owed FCMB N6.2 billion.

The International Finance Corporation (IFC) and the African Export-Import (Afrexim) Bank said they were willing to support Nigeria in its quest to grow the Liquefied Petroleum Gas (LPG) market by providing funding for some of the projects in the market. They stressed the need for a feasible business plan with a detailed fund recovery strategy and Return on Investment (RoI) to support any applications for funding. This was welcome news as the LPG industry continued to encounter lack of interest from Nigerian banks in funding their projects.

SOVEREIGN WEALTH FUND DEPOSITS GROUND TO A HALT The government was unable to make any more payments into Nigeria’s Sovereign Wealth Fund (SWF) due to declining oil prices. The Fund was created to invest excess government revenue over budgeted amounts. Unfortunately, with the oil revenues down, the federal government is struggling to balance its budget and has no excess funds for the SWF. They had not made any payments to the SWF in the last year. The fund is still substantial, however. Chief Executive Officer of the SWF, Uche Orji disclosed that the fund saw net income rise to N15.8 billion in 2014, from N525 million in the prior 15 months. The fund’s total assets stood at N177.8 billion.

NNPC VOWED TO RECOVER IOCS OVER-DEDUCTIONS OF $9.4BN Barely a month after the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr Ibe Kachikwu, took office, a dispute was brewing between the state oil company and its joint venture partners. NNPC said that an audit had revealed that oil majors had over-deducted tax benefits to the tune of $7 billion on major capital projects. In addition, there was another $2.46 billion to be recovered in respect of the Strategic Alliance Agreements it had with some companies. The names of the joint venture partners and strategic alliance companies from which the monies were claimed to be due were not named.

SAHARA GROUP PLANNED DUAL LISTING ON NIGERIAN AND LONDON STOCK EXCHANGES Sahara Group said that it planned to raise as much as $1.4 billion through a dual listing of its oil and gas unit in London and Lagos along with a debut dollar bond sale. Executive Director, Tonye Cole, told Bloomberg the company would use the money to position itself for acquisitions that will enable it to ramp production up to 60,000 barrels a day. Sahara expects to raise as much as $600 million in the initial public offering and $800 million through a seven-year bond. He said the indigenous group was hoping to embark on the IPO within the next year and was expecting the bond to be issued by the end of October.

“Over the next five years our target is to be one of the largest indigenous producers in Nigeria,” Cole said. “A lot is dependent on the IPO. We started down that road before oil prices collapsed, but we’re still focused on it.”

FINANCIAL NEWS CHEVRON SIGNED ALTERNATIVE FUNDING ARRANGEMENT WITH NNPC ON 36 OIL WELLS Chevron signed a $1.2 billion alternative funding arrangement with the Nigerian National Petroleum Corporation (NNPC) for the development of 36 infill wells located on their joint venture (JV) oil mining leases (OMLs) 49, 90 and 95. Of the 36 wells, 23 were onshore while 13 were offshore. The funds would be used to develop the wells over two phases over a period from 2015 to 2018. The funding was provided by a consortium of local and international lenders with Standard Chartered Bank and United Bank for Africa as lead arrangers in the deal. The funding deal was said to be innovative in that it was intended to finance a conventional work programme rather than a specific project. Shell, Total, and Agip were also working on similar funding models for some of their JVs with NNPC. Oando Energy Services has been awarded the drilling contract for the onshore wells, which they will be drilling with their Oando Respect rig. Shelf Drilling got the contract for the offshore drilling for which they will be using their Trident VIII. In its first stage the work programme was expected to produce 21,000 barrels of crude oil and condensate, as well as 120

million standard cubic feet of gas per day from 19 wells over 2015 and 2016. In the second stage, 17 wells are expected to produce 20,000 barrels of crude oil and condensate as well as 7 million standard cubic feet of gas per day over 2016 to 2018. NNPC’s inability to finance its share of joint venture operations is a long-standing problem, which the new Group Managing Director of NNPC, Ibe Kachikwu has been grappling with. The problem has become particularly acute in the face of dwindling oil prices and the lingering effect of corruption has only exacerbated the problem. Cash calls have seldom been met in the last few years and the last government did not seem to have any answers. IOCs say they are owed around $7.5 billion by NNPC for the last 3 years’ worth of expenses.

EXXONMOBIL JV PRODUCTION DECLINED BY 50% DUE TO NNPC CASH CALL DEFAULT A source from ExxonMobil disclosed that oil and gas operations were being threatened by the failure of the Nigerian National Petroleum Corporation (NNPC) to meet its cash call obligations in respect of joint venture assets. The source said that the company’s joint venture production had over the last 10 years declined by 53 per cent. This was due to NNPC’s failure to make payments to fund its 60 per cent joint venture cash calls. As a result, investments outlook and the profitability of the business had declined significantly. NNPC’s monthly cash call obligations to its joint venture partners were said to be in the region of about $615.8 million. The country’s daily production had failed for some time now to reach the 2.4 million capacity and instead continued to hover at around 1.7 to 1.9 million barrels per day. Joint venture production had contributed largely to the 47 per cent decline in production. In January 2015, NNPC’s joint venture partners said owed $5 billion in unpaid cash calls.

LEKOIL COMPLETED US$46 MILLION PLACING Lekoil completed the placing of new Ordinary Shares at 24 pence per share to raise approximately $46 million (approximately £30 million). The company said the net proceeds of the Placing were estimated to be $44.3 million (approximately £28.9 million) and would be used to fund the acquisition of an indirect controlling interest in oil prospecting licence (OPL) 325, (located to the south of OPL 310) offshore Nigeria as well as for other corporate uses and for general working capital purposes.

KACHIKWU CALLED AUDITORS IN FOR FIRST NNPC AUDIT IN 10 YEARS The Group Managing Director, Nigerian National Petroleum Corporation (NNPC) Dr. Ibe Kachikwu, brought auditors in to go through NNPC books and do a full audit of the accounts. He revealed that the last audit was done in 2010 and he was keen to get the accounts up to date. The decision was reflective of his determination to maintain maximum transparency in how the state corporation conducts its business. Last year, during Goodluck Jonathan’s presidency, the former Governor of the Central Bank of Nigeria, now Emir of Kano, Emir Muhammadu Sanusi II, accused NNPC of failing to remit $20 billion to the federation account. The figure was later revised downwards and audit firm, PWC was called in do a forensic audit. They later issued their report, but due to NNPC’s failure to co-operate fully, the auditors were unable to probe some areas of NNPC’s operations leading to disclaimers by PWC rendering the report of little value.

FINANCIAL NEWS

OCTOBER-DECEMBER CBN FINED FIRSTBANK AND UBA N4.8 BILLION FOR FAILING TO REMIT NNPC FUNDS The Central Bank of Nigeria (CBN) carried out its threat to sanction banks that failed to remit government revenue held by them to the Treasury Single Account (TSA). The apex bank imposed a penalty of N1,877,409,905 on FirstBank, whilst UBA was fined N2,942,189,651 for retaining funds belonging to the Nigerian National Petroleum Corporation (NPPC), contrary according to the new CBN policy. FirstBank was accused of failing to remit N37.5 billion of NNPC funds and UBA of failing to remit N58.8 billion. The penalty imposed amounted to 5% of the sums that they failed to remit. CBN said it had already debited the unremitted sums as well as the penalty from the accounts of the two banks held with it. The directive that the funds of ministries, government departments and agencies (MDAs) should only be held in certain bank accounts was imposed as part of the Buhari government’s attempt to stem the leakage of funds from ministries and government agencies. The policy was targeted mainly at NNPC after several audits in the past found large amounts of revenue received by the state corporation lurking in various bank accounts. The two banks said they had authorisation from the Accountant General of the Federation exempting certain agencies from the Directive. When CBN rejected that explanation, they said they once again got authorisation from the Accountant General directing them to retain the funds for a further 18 days whilst the matter was being investigated. They say the time had barely expired when they were slapped with the fines. According to CBN the two banks had failed to remit the funds in spite of several warnings.

OANDO PLC SHARES INITIALLY TUMBLED ON RELEASE OF LONG DELAYED HALF YEAR REPORT Oando Plc finally released its long-delayed half-year report for the six-month period ended 30 June 2015 with record after-tax losses of N183.9 billion in 2014. Key financial highlights for H1 2015 included: Mounting losses at the downstream n Turnover decreased by 7%, N180 billion compared to N194.6 billion (H1 2014) n Gross Profit decreased by 27%, N37 billion compared to N50.5 billion (H1 2014) n Profit-Before-Tax decreased to (N38.5 billion) compared to N12.5 billion (H1 2014) n Profit-After-Tax decreased to (N35 billion) compared to N9.0 billion (H1 2014) giant turned upstream titan, following the mammoth ConocoPhillips Nigerian business acquisition, led to stringent criticism from analysts. They were particularly peeved at the company’s failure to give profit warnings.

Turnover at the oil and gas group had increased by 15 per cent in Q1 to N97.1 billion in Q1 of this year compared with N85.3 billion in Q1 2014. By the end of the First Half, turnover had decreased by 7% from the same period the previous year. Again in Q1 gross profit increased by 41% to N20.5 billion this year compared with N14.5 billion in Q1 2014. By H1 of this year, it had decreased by 27%. It was not all bad news. Cash injection from the sale of 65 per cent of its downstream business to the successful Africa focused London based private equity firm, Helios and Swiss trader, Vitol, brought in a much needed cash injection of $461 million. Oando Chief Executive Officer (CEO), Wale Tinubu, said the funds would be used to reduce the debt footprint. Oando Plc shares later rallied. Not even the news that the Nigerian Stock Exchange was looking at the company’s activities to see if any rules had been broken would dampen investor’s belief in the integrated energy company.

FINANCIAL NEWS

OANDO ENERGY RESOURCES REPAID $100 MILLION AFREXIM LOAN Oando Energy Resources (OER) was able to upsize a reserves based lending facility creating the availability of $91 million that allowed it to repay a $100 million facility from African Export-Import (Afrexim) Bank. OER said it had upsized the senior secured facility from $215 to $306 million. The upsize was arranged by Standard Chartered Bank and Afrexim Bank as mandated lead arrangers, with participation from Standard Bank of South Africa Limited, Stanbic IBTC Bank Plc and Natixis. The funds were used, together with cash in hand, to repay the Afrexim Bank’s subordinated loan facility, which the TSX listed Oando company used towards the finance for the $1.5 billion ConocoPhillips Nigerian oil and gas business acquisition in 2014. This new arrangement meant that OER’s total outstanding debt now stood at $546 million, comprised of $306 million outstanding under its RBL facility and $240 million outstanding under its corporate facility. OER revealed that with cash in hand, that left the company’s net debt position at $500 million as of October 26, 2015, down 44% from $900 Million outstanding on the delayed closing of the ConocoPhillips Acquisition in July 2014. After posting rather better results than its parent company, Oando Plc, OER said it remained focussed on strengthening its balance sheet whilst maintaining stable production levels through production optimization. The ConocoPhillips acquisition enabled OER to maintain an average of 53,169 barrels of oil equivalent per day in the first three quarters of 2015.

OANDO BOARD GOT GREENLIGHT FROM SHAREHOLDERS FOR N80 BILLION RIGHTS ISSUE At its 38th Annual General Meeting held in December, Oando Plc shareholders gave the Board the green light for its fundraising proposals, which included an N80 billion rights issue. The shareholders also approved the Board’s plans to raise more funds by a further sell-off of assets. The Board wants to re-organise or divest some or all of its shareholding in the downstream, gas and power, and energy services businesses. In addition, the Board’s proposals for doubling the company’s authorised share capital from N7.5 billion to N15 billion also sailed through. This would enable Oando to issue 15 billion ordinary shares of 50 kobo to rank pari passu with existing ordinary shares in the company. The directors told the shareholders that these proposals are part of the Board’s strategies to attract substantial capital to fuel the company’s growth initiatives. Oando had been straining under massive debt following its $1.5 billion ConocoPhillips acquisition in 2014, which turned it into an indigenous exploration and production powerhouse with about 50,000 barrels per day worth of production under its belt. Since then Oando had been working steadily on reducing its debt burden. The company reduced its debt by 27% to $1.77 billion in the 9-month period ending in September compared to $2.41 billion in the same period last year. Regarding the future, Tinumbu told shareholders that future growth strategies now include gas. With crude prices in a lull and a renewed emphasis on gas globally, Oando intended to seek to expand its footprint in the electric power market with the development of up to 300MW grid/embedded power projects and the development of up to 100 mmscfd compressed and liquefied natural gas projects to meet the energy requirements of Nigeria’s fast growing economy. Oando Plc Entered Arrangement To Acquire Outstanding Shares of Subsidiary, OER Oando Plc entered into an arrangement agreement to buy up all the issued and outstanding common shares of its subsidiary Oando Energy Resources (OER) for a cash consideration of $1.20 per share. Oando Plc already holds 93.7 per cent of OER’s shares but for regulatory reasons had to wait to acquire the remaining shares of the company. The Oando Plc Board determined it was in the best interests of the company to acquire the outstanding shares. The implementation of the Plan of Arrangement was subject to approval by the holders of the affected securities at a special meeting expected to be held on February 25, 2016 but as Oando Plc already holds more than 90 per cent of the shares of OER, it is expected that approval of the Plan will be a mere formality. OER’s syndicate of lenders in its $450 million senior secured facility will also have to give their approval to the transaction. Oando was hoping to complete the transaction by the end of February 2016.

FINANCIAL NEWS FG SOUGHT FUNDING FROM INVESTORS TO MEET CASH CALLS The Federal Government expressed its readiness to raise funds from international investors and the private sector in 2016 to fund the cash calls for the Joint Venture operations between the Nigerian National Petroleum Corporation (NNPC) and international oil companies operating in the country. The Minister of State, Ministry of Petroleum Resources and Group Managing Director of NNPC, Dr Ibe Kachikwu said that high level discussions were underway with local and international nvestors to bridge the perennial JV cash call funding gap. He noted that the initiative was geared towards freeing the Federal Government from the burden of funding capital intensive projects in the upstream sector of the industry.

The total investment in Nigeriaâ&#x20AC;&#x2122;s oil and gas industry dropped 20% in 2015 from $20 billion in 2014: Ali Moshiri, President of Chevron Africa and Latin America Exploration and Production.

ACORN PETROLEUM PLANNED N5BN PRIVATE PLACEMENT OIL AND GAS STOCKS 30TH DECEMBER 2015 Company

Price

Change

Volume

Market Cap (Bn N)

FORTE OIL

315.00

+9.89

173,957

410.281

MOBIL

150.00

+4.90

44.956

54.089

MRS

49.66

28,371

12.613

OANDO

5.63

+4.90

2,272,008

45.732

TOTAL

147.01

+1.39

15,597

50.928

SEPLAT

230.00

7.755

99.707

Acorn Petroleum said it planned to raise N5 billion through a private placement. The Securities and Exchange Commission (SEC) approved the basis of allotment of Acornâ&#x20AC;&#x2122;s Rights Issue. The company said that the capital raising exercise represented a significant milestone in its re-capitalization process and that it had commenced the second phase of the capital raising exercise which would be a combination of Special/ Private Placement to selected investors during which it hoped to raise additional N5 billion in new equity. The downstream company said it would focus on the core downstream activities of distribution of petroleum products so the capital raised would be deployed towards corporate restructuring, working capital and investment in critical infrastructures like construction of storage depots at Lagos, Port Harcourt and Abuja, construction of a lubricants blending plant, expansion of its retail outlets chain, LPG Plants and the development of an ultra-modern oil terminal.

FINANCIAL NEWS

THE FALL

THE UNAUTHORISED PAYMENTS SCANDAL Until its downfall began in 2014, FTSE 250 London Stock Exchange listed Afren was the African oil and gas success story of the financial world. That was until the damaging revelations that would eventually lead the company into administration in 2015. Afren’s relationship with Oriental Energy began in 2007 when Afren farmed into Oriental’s Ebok Field in 2007. In 2008, they signed a Technical Services Agreement (TSAs) for the appraisal of the Ebok Field. This was followed by joint venture agreements in 2009 for the development of Okwok Field and in 2010 in respect of oil mining lease (OML) 115. An aggressive drilling programme in 2010 resulted in the rapid development of the Ebok Field and by the end of 2011 the Ebok field had already produced approximately 3.0 million barrels of oil. By January 2012 there were 14 production wells on Ebok. Everything seemed to be going well for Afren until two transactions in 2012 and 2013 orchestrated by Afren founder and then CEO at the time, Osman Shahenshah, aided by his chief operating officer, Shahid Ullah. The first transaction, which took place in 2012, was a payment of $100 million, representing 5% of Afren’s market capitalisation, to Oriental. Defending the payment, Oriental explained that it agreed to sell approximately one million barrels of its future oil production to Afren thereby permitting Afren to book those reserves in 2012. Under this Forward Sale Agreement, Oriental received a payment of $100 from its 2014 Profit Oil. However, UK law firm Willkie Farr & Gallagher (UK) LLP (WFG) reviewed the transactions for Afren and was of the view that it was not, in reality, an agreement for the prepayment of oil, nor was it a way of funding Oriental’s costs in developing Ebok in a manner which might be considered to be in the ordinary course of business. The review concluded that it was a loan of $100 million to Oriental. WFG said it was wrongly included in Afren’s balance sheet for 31 December 2012 under the line “prepayments and advances to partners.”

This was followed by a second payment in 2013 of $300 million, representing 12 per cent of Afren’s market capitalisation, to Oriental. It was paid in two tranches. The first payment was for $180 million. Oriental said that under the Joint Operating Agreement (JOA) executed by the parties, Oriental should have received its share of net Profit Oil from May 2013 but did not receive any such payments from Afren until August 2013 when it received the $180 million, half of which was payment in arrears of Oriental’s Profit Oil and the other half of which was the prepayment of approximately four months of Oriental’s Profit Oil through year end 2013. A further $120 million payment was made to Oriental in November 2013. Oriental explained that this was in settlement of a longstanding dispute over the ownership of certain tax allowances resulting from capital expenditures on the project before and after production began in April 2011. Oriental said the dispute was finally resolved in August 2013, although the $120 million was not paid until late November 2013. WFG found that the three payments to Oriental totalling $400 million broke listing rules as Afren had failed to comply with its reporting obligations. Matters did not end there. Shahenshah and Ullah were involved in an arrangement with Oriental that involved Oriental paying 15 per cent of its cash receipts from Ebok for the period from 2013 to 2017 to a British Virgin Islands special purpose vehicle (SPV), Ntiti Ltd. WFG said Oriental had agreed to make the payments to Ntiti in return for the unreported $400 million funding from Afren provided by Shahenshah and Ullah. Ntiti, which was owned and/or controlled by the two executives, received $45 million, out of which $17.1 million was paid to both of them in the form of extraordinary bonuses. Afren said these were unauthorized payments in the form of a 15 per cent kickback from the cash receipts from Ebok Field. Oriental on the other hand denied that there was anything wrong in the payments, explaining that in October 2013 it had entered into an agreement with Ntiti

represented by senior executives of the Ebok Joint Operating Team (JOT). Under the Agreement, Oriental agreed to pay up to 15% of its annual net Ebok Profit Oil proceeds to Ntiti for the purpose of providing incentive compensation and retention of key employees who had proven themselves to be essential members of the Ebok JOT. The Optimization Agreement provided financial compensation to select key employees of both companies upon attainment of annual performance goals set by the Ebok Operating Committee, Oriental said. When the bombshell revelations of the unauthorised payments were made, Afren’s shares went into free fall. Shahenshah and Ullah and some associate directors were sacked for gross misconduct whilst legal proceedings commenced to recover the sums from them. Hoping to stem the run on its shares, the company said it had cleaned house and was taking steps to improve its internal reporting and controls. Afren was hoping its swift action, following the discovery of the actions of the CEO and his cohorts would help stabilise its shares on the market. Afren stocks, which were down 30 per cent in the last few weeks following the revelations, rose 2.4 per cent on the announcement of the dismissals. Analysts said that confidence would only be restored when the new management team was in place and their strategy and direction became clear. Although Afren remained vulnerable, most were however predicting that this was not the end for the hitherto successful exploration and production company. As the search for the replacement of the sacked senior executives began, nonexecutive chairman, Egbert Imomoh, one of the founders of Afren, became executive chairman while Toby Hayward was appointed interim CEO. At the end of 2014, Afren’s woes continued with news that it had overstated its Kurdistan assets. Rumours began circulating in financial circles that Seplat was looking at Afren.

FINANCIAL NEWS

January 2015 Seplat Confirmed Preliminary Approach for Afren At the end of 2014, Seplat confirmed it was talking to the embattled company. Afren shares had been under pressure, falling 72 per cent after the unauthorised payment revelations. Although shares in Afren surged 14 per cent after the initial announcement of the approach, the company, which urgently needed an injection of finance, was ripe for a takeover. Seplat stressed that the approach was highly preliminary and that there was no certainty that an offer would be made or as to the terms of any offer. The company said that any offer to Afren would have to be at a realistic price.

In accordance with the rules of the UK City Code on Takeovers and Mergers, the company had until 5pm on 19 January to either announce a firm intention to make an offer or announce that it did not intend to make an offer. The deadline was extended to February 13. It now remained to be seen whether the two would be celebrating a new relationship on Valentines Day or going their separate ways. As the deadline loomed the firm was being valued at £46.7 million - a

staggering drop in value considering it was valued at £1.5 billion at its peak. The company was now in deep trouble and had issued a cash-call of £200 million to shareholders to avoid running out of money. To add to its problems, a payment of £33 million to lenders and bondholders had fallen due and it was now desperately trying to negotiate terms for a deferral of the payment. With all the walls closing in on Afren, Seplat was in no hurry to make a move as it waited to pick the company up at rock bottom price.

February 2015

March 2015

Afren Shares Surged After Debt Restructuring

Afren Got $300 Million Funding Lifeline

In February, Afren’s shares surged bringing welcome relief for its shareholders after it brought it an investment bank in to help it restructure a $50 million debt repayment to bond holders and banks. After managing to defer the debt repayment, its shares began to rise, gaining as much as 133pc before closing up 4.7p at 10p, an 88.7 per cent rise on 8 February. The euphoria was to be short-lived.

Seplat and Afren Terminated Merger Talks Afren revealed that its merger talks with Seplat were at an end following an offer, which it said was significantly below the aggregate value of the debt of the company. Afren said the terms were unworkable. There was to be no Valentine’s Day marriage.

In March, battered and bruised but unbowed, Afren Plc, was back in fighting form after announcing an agreement in principle for a $300 million funding to address its short and longer-term funding needs and re-capitalise its capital structure. Afren revealed that an agreement had been entered into by the company together with certain note holders under its 2016 Notes, 2019 Notes and 2020 Notes and a majority of the lenders under its existing $300 million Ebok credit facility, regarding the key terms of a proposed interim funding and recapitalisation of the Group. The net total funding of $300 million was expected to be in place before the end of June 2015. The net effect of the funding deal with bondholders was to be a heavy dilution for shareholders leaving the ownership of the business effectively with the bondholders. Equity investors would be left with only 11 per cent of the company if it received the 75 per cent of votes needed for the funding scheme at the EGM. There was likely to be little resistance from shareholders over this proposal as there were no other options on the table now. Analysts said that whilst this gave the management breathing space, the company was not yet out of the woods, with $900 million in principal and interest repayments due in 2019. Before this new lifeline, the Board of the company had decided to go into default after a 30-day grace period on the $15 million interest payment due on 1 February under its 2016 Notes in order to preserve its cash position. Fortunately, the default did not result in an immediate obligation to repay the 2016 Notes or any cross-default under its 2019 Notes or 2020 Notes or its other debt facilities.

FINANCIAL NEWS

March 2015 Afren Notified Serious Fraud Office Over Expense Payments At the end of March, Afren said it was notifying the Serious Fraud Office after the ongoing review by the UK law firm of Willkie Farr & Gallagher (UK) LLP revealed some preliminary concerns regarding the hire of an individual within its operations in 2012 and the payment of certain travel and accommodations expenses connected to Afren’s activities.

The company made the revelations to satisfy the conditions precedent for $200 million in interim funding to be provided by certain holders of the Company’s 2016 Notes, 2019 Notes and 2020 Notes. The revelation was yet another blow to the company that had been brought

to its knees by a combination of the fallout over the sacking of its CEO, COO and other executives who received unauthorised payments, the slashing of its estimates of reserves at its Barda Rash oil block in Kurdistan and crashing oil prices. It was the perfect storm. The company’s shares had tumbled more than 98 per cent in just one year.

April 2015 Afren Completed Okwok-13 Flow Test In April, there was some good news for a change with the completion and flow testing of their first development well, on the Okwok Marginal Field. Okwok is located in ExxonMobil’s OML67, approximately 45 km off the Nigeria coast, due south of Calabar, in water depths ranging between 35 m and 50 m. Work started on the Okwok Field in earnest after the Department of Petroleum Resources (DPR) approved of the Field Development Plan (Okwok FDP) early in 2014. The Okwok-13 development well was drilled in early 2015 to a total measured depth of 9,212ft and was completed with over 1500ft pay. Following the completion, the well was successfully tested to reconfirm commercial deliverability and reservoir connectivity. The well flowed at 5,400 barrels per day (bpd) with an API of 24.5 degrees

May 2015 Afren Deferred Interest Payment of $12.8 Million Due on 2019 Bonds In May, after the expiration of a 30-day grace period, the Board of the company decided not to make the interest payment of around $12.8 million due on its 2019 bonds, in order to “preserve cash” until the full restructuring was completed. Although the non-payment of the interest on the bonds put the company in default, it had nothing to fear from the note holders who were co-operating fully. It had been agreed that there would not be a cross-default under its 2016 and 2020 Notes. The accrued but unpaid interest would be refinanced as part of the reorganisation of its debt facilities.

FINANCIAL NEWS

June 2015 Afren Shareholders Prepared to Vote on Crucial Restructuring In June, Embattled Afren’s survival hung in the balance as shareholders prepared to vote in a crucial extraordinary general meeting. The shareholders of Afren would be meeting on the 24th of July to vote on whether the recapitalization proposed by the Board should proceed. The directors, led by the new CEO of the company, Alan Linn, stressed the importance of a “yes” vote to the shareholders. Voting in favour of the proposed restructuring, they said, would provide the existing shareholders with the only opportunity to realize value and improve the capital structure of the group. That would give it the time it badly needed to rescue the company and grow the value of the assets. The restructuring would still take place even if there is a “no” vote but the immediate consequence will be that the amount of debt will increase by approximately $266 million and the interest rates on the new debt will cause outstanding debt to increase significantly. The Company was targeting the implementation of the scheme of arrangement at the beginning of August and the completion of the Restructuring before the end of August 2015. It seemed there could be light at the end of the tunnel after all, even though analysts were divided as to whether this restructuring was the great hope it was billed to be. Executive Chairman of Afren, Egbert Imomoh, would not be on board to see the company through the crucial vote for the restructuring. Previously a non-executive chairman of the company, Imomoh was made Executive Chairman in the wake of the scandals. Although not implicated in the scandal, industry watchers had said that since this happened on his watch his position was untenable tenable. Imomoh stepped down from the Board.

July 2015 Afren Entered into Administration Production targets could not be met due to delays to the completion of a new production platform and some water build up in the reservoir, some say due to over aggressive extraction techniques. The bail out deal could no longer go ahead because the financial assumptions, on which it was based were now out of the window. The EGM was called off and Afren asked for its shares to be suspended from trading. By that time its stock was last trading at 1.7p down about 90 per cent from 160p in May last year. The downfall of Afren was finally complete with the announcement by the company on the 31st of July that it was in administration. The company’s subsidiaries were unaffected and would continue trading, which was good news for bondholders but not shareholders, who had lost everything. It was only in April that the bondholders gave the beleaguered company a $200 million lifeline to keep it afloat as it struggled under crippling debt. The company’s fortunes were not helped by pre-tax losses of $1.95 billion, down from $140 million profit the previous year, mostly due to oil prices and the reserves write-off in Kurdistan. The speed with which the end came left shareholders asking what on earth happened. Internet bulletin boards were awash with accusations of foul play. Questions were being asked about how the company could be worth so much one minute and worthless the next, even while it still had access to a substantial portfolio of assets. One commentator said: “This has all been stage managed, transfer of assets from equity to bond holders, simple as that,” while another bloody-nosed investor said: “So many things don’t add up.” Shareholders were left with nothing whilst the two administrators from Alix and Daniel Imison were left trying to get what they could for bondholders from a sale of the company’s stakes in oil licences across Africa.

INTERVIEW

INTERVIEW TOLU OSINIBI, EXECUTIVE DIRECTOR, FCMB CAPITAL MARKET LTD

Tolu Osinibi tells NOGintelligence where funding is likely to come from for the exploration and production sector in 2016. RESTRUCTURING WAS THE THEME OF 2015 I know that there has been some funding this year. OER, the upstream business was able to get an expansion of its borrowing base for the reserves based lending facility but that was really to accommodate an existing debt so it wasn’t new money. It was moving one standalone facility into the pool so now everybody is sharing the same asset. You had others like Neconde who eventually reached an agreement with its RBL lenders on the new borrowing base. In their case, as expected when oil prices crashed, borrowing bases were revised downwards but there’s always a bit of back and forth on what the new level is because the lenders are making assumptions and as always the borrowers don’t agree with these assumption. So there’s a lot of to and fro but in this case they reached and agreement, so at least for Neconde, that’s one thing off their table. Perhaps there were other one or two people who were able to do the same. I think the theme has been restructuring. That’s been the theme of 2015. WHERE WILL E&P FUNDING COME FROM IN 2016? Looking ahead into the new year, where will the money come from? Perhaps not the classic PE type equity plays, but even for those institutional investors, typically, because that’s going to be the target audience for 2016. If you’re going to rank the priorities, it’s going to be first, show me production, then second, show me production plus development, then probably a distant third is, show me development. However, the challenge with that is private equity guys are highly unlikely to make money by buying into production. Their model is to create value and then exit. If you’re buying into production then you’re not creating value unless you’re saying I can buy into production at sub 50 prices and my hunch is, over a 7-year horizon, I will be in an $80 market environment and I can exit with an upside.

WHAT TIME SCALE WILL SUCH FINANCIERS BE THINKING OF? If you’re going into that sort of space now, you really need to be thinking 5-6 years. Having said that, we’re all guessing about what sort of environment you will be in 5 or 6 years, but let’s assume it will be higher than now. That’s probably a safe assumption. So if PE guys are looking to buy production now, then there’s got to be that sense that you’re taking a 5-6 year view. Ideally if I were a PE fund manager, I’d be looking to give you money to expand your production. Makes more sense. I’m not just buying into production. I’m giving you money to grow your base. But historically, before you go into this kind of environment, these guys will enter development plays, create value, get it up and running, stabilize it, then get out. WHAT’S THE SWEET SPOT FOR FINANCIERS? The sweet spot for anybody is an asset that has production but with opportunities for further development. I also reckon if you’re making that kind of play as a financial investor, you really must be anticipating that over a 6-year horizon, the pricing environment will be much improved and you can exit with an upside. It also depends on what sort of development play you have. If it’s near a 12-18 month horizon to execute and get to completion and start pushing stuff out of the ground, then fine. It makes sense, because if my money works over a one or one-and-half-year period then I have the next 3-and-half-year horizon to really show the value. Otherwise, the longer the investment horizon period, you have a shorter time frame to show the value. Those are the sorts of things that would be playing in my mind if I were holding the money. There’s got to be some strategy around this thing. WHAT OTHER FORMS OF FUNDING DO YOU SEE FOR E&P? I am nearly certain that you will find what we may call strategic or trade type investors for whom it is a business. For them, it is an

opportunity to actually buy into assets. The wall they’re going to face - but perhaps that resistance will begin to fall off as reality bites - is Nigerian owners. Not just with oil and gas but any business in Nigeria, there’s a huge psychological Kilimanjaro that you can’t cross: the idea of giving up equity. But if you look at E&P, and I look at IOCs and independents that have been in the business for decades, it should be a pure diversification play. You don’t own anything yourself. You just don’t. It’s madness to want to own it all yourself. Even if you get in by yourself, your next move is to share risk - to say, you know what, you have a piece and you have a piece. Let’s share the risk. That’s classic E&P play. We haven’t got there yet. You could say maybe it’s still in the evolutionary process and we will soon start to understand it more. When I talk to Nigerian owners who are E&P professionals, who’ve been doing E&P for 25 years plus, they get it because that’s the way they’ve been trained. There’s a difference. They’re the grown ups in the industry and they understand how it’s done and in all likelihood they are the ones that will let us survive this period because they know what they need to do. Not that it will be easy. It will still be tough. But they get it. They know what they need to do. Generally speaking, the independents, they need to cross that wall before they can say: “Come and buy into the asset. I’ll give you 30%, 40%. Just bring the money let’s do this thing. In fact, let me even go bullish. I will give you a free pass into the asset. Just bring me money for the CAPEX. Because when I look at the opportunity cost and I look at that free pass I’m giving you versus what I’m about to expend myself, you know what, come in.” Will it happen? Let’s see. Will the likes of us be able to convince our clients to go that way? We’ll see. Those are the sorts of things I expect that Nigerian independents ought to be doing. That’s how I see the landscape.

INTERVIEW

INTERVIEW WALE SHONIBARE, MANAGING DIRECTOR, UNITED CAPITAL INVESTMENT BANKING Wale Shonibare reveals some insights into the kind of oil and gas finance the industry is likely to see in 2016. WHAT KIND OF OIL AND GAS FINANCING DID YOU SEE IN THE MARKET IN 2015? We are seeing trading houses getting more involved again, in pre-payments or preexport type financing. What that means is that with the pre-payment type financing you get a trading house, such as a Glencore or a Traffigura or a Shell Trading, pre-paying upfront for deliveries of cargo in the future. We saw a number of transactions of that nature or a variant of that. United Capital was involved in one such transaction where we were able to raise $250 million for the national oil company of Congo Brazzaville. In that case there was an intermediary oil company called Orion Oil and the banks extended what we call a pre-export facility, so a loan was taken against the promise of future cargoes over a period of 4 years. So you’re seeing more of those structures and you also see hybrid structures with bank financing alongside these pre-payment. The concept is the same, that you raise money now and you’re in effect securitising future cash flows from the sale of the hydrocarbons. That’s at one level. The other level is that national oil companies will be looking for more innovative ways of funding both exploration and production. But in the case of production, there will be more joint venture-type approaches where they bring on a strategic partner that will raise the money or where they can pledge future barrels to a partner that they’re working with. So for instance, an NNPC is working with a Seplat or a Neconde, instead of coming up with cash calls they may want to pledge some barrels against those cash calls so as to lighten the burden on their balance sheet. So those are the kinds of trends we saw. WHAT KIND OF FUNDING WILL BE AVAILABLE FOR THE SECTOR IN 2016? I think it’s going to be more of the same. Banks don’t mind funding oil and gas as long as you put the necessary risk mitigants in place. I think one lesson that everyone has learnt now is the fact that you have to take out a hedge. You cannot do these deals any more without having a hedge in place. It used

to be the case, even up to last year, or a few years before that borrowers would insist on not buying a hedge and say they were too expensive, and the banks would let them get away with it. Having seen what’s happened with the sharp decline in prices, from over $115 to where we are now, which is the low 30’s, everybody has to buy a hedge. You can’t get out of it any more and the facilities that have already been extended, we’re finding, are having to be restructured and part of that restructuring would include putting a hedge in place to offer downside protection to the banks. What also happens is that some of the banks that provide the loan to fund these transactions can also buy credit insurance, which can be syndicated on the Lloyds market in London. What credit insurance does is, in the event of default for any reason - there are different reasons why a company might default which may not all be related to oil prices, such as bad management or not hitting production targets - the insurance company will pay out. The bank has to pay the insurance premium, which is slightly different from the hedge, which is to protect you if oil prices go below a certain level. They’re two different things. What that allows banks to do is to be able to put aside less capital because every time a bank lends money - based on the Central Bank regulations they have to put aside some capital in the event that the loan goes bad - so there are capital reserve requirements that go to every loan that you give out. But if they’re able to sell the risk on the insurance market, it means they don’t have to put aside as much, or any at all of that capital because they’re already protected. The only thing the bank will provide is liquidity but the risk is covered by this insurance policy. So we’ll see more of those, as risk mitigants are absolutely essential to lending into oil and gas right now. WHAT DO OIL COMPANIES NEED TO DO IN 2016 TO ACCESS FUNDING? We have to think what kind of funding are we talking about: is it debt or equity? But generally, I think everybody has to be

conservative, so nobody is taking any undue risk at the moment. Oil companies have to look for very low cost fields that are cheap to produce. If your production cost is something like $25 per barrel, then you may find it difficult to make any money at all given the trend we’re seeing in oil prices. You want to find fields that are as cheap as possible to produce, so that you’ll be in the $18-19 per barrel range, or if you’re lucky enough to be in the Middle East, you’ll be producing at less than $5 a barrel. Those are the fields that will attract the most funding. Anything that will involve complex technologies, fracking, or heavy oil that requires a significant amount of processing will not be able to attract funding that easily. WHAT ABOUT THE 2019 PROBLEM? Of course, there’s the 2019 problem, because many of the licences that were given for these OMLs expire in 2019 and what’s happened is that banks have not been comfortable lending beyond that 2019 so the closer we get to that year, the shorter the tenor for available funding. In 2016, the maximum you will get is 3 years’ money and that makes it more difficult to raise money because you have much less time to amortise, to pay back. You’re spreading it over a much shorter period, which means that the maximum you can raise will not be much – your debt capacity shrinks quite drastically. One way of getting past that, which has been explored in one or two transactions, is to buy an insurance policy. It is almost like a political risk insurance policy, to say that in the event that the government doesn’t renew the licence in 2019, the insurance company will pay. Not all banks believe that this policy will be effective, particularly the international banks, so you won’t be seeing many international banks coming in before 2019. The local banks, I think understand the environment a bit better and may want to take that risk with the insurance in place. What this boils down to is a very narrow field of funding for oil and gas transactions in 2016, most likely the next year too, until all these issues are addressed.

MERGERS & AQUISITIONS NEWS

JANUARY-MARCH SEPLAT CLOSED ACQUISITION OF OMLS 53, 55 FROM CHEVRON After building up a substantial war chest for acquisitions, and while all eyes were on its talks with Afren, Seplat Petroleum Development Company, quietly completed the acquisition of Chevron’s 40 per cent interest in oil mining leases (OMLs) 53 and 55. The closing took place even while the issue of the sale remains in court in Nigeria. The asset is part of trio, which include OML 52 that Chevron put up for sale in 2013. The former Minister of Petroleum, Diezani Alison-Madueke granted the required regulatory consent to the deal before her departure from office.

approximately 20 million barrels of oil and condensate and 156 Bscf of gas (total 46 MMboe). Gross production is approximately 8,000 bopd. Seplat was appointed operator of both blocks after the Ministry of Petroleum made a u-turn on its recent policy of insisting that the Nigerian National Petroleum Corporation (NNPC) take over operatorship following divestment by the international oil companies (IOCs). NNPC holds the remaining 60 per cent interest in the two assets.

Seplat closed the two transactions simultaneously acquiring all of Chevron’s 40 per cent working interest in OML 53, onshore northeastern Niger Delta directly whilst OML 55 was acquired through a funding arrangement with Belema Oil, which won the bid. The up-front acquisition cost of OML 53 acquisition to Seplat, after adjustments, was $254.6 million, of which Seplat had previously paid $69 million as a deposit in 2013. The adjustments to the up-front acquisition cost included a deferred payment of $18.75 million contingent on oil prices averaging $90 a barrel or above for 12 consecutive months over the next five years. Seplat estimated that its net recoverable hydrocarbon volumes attributable to its 40 percent working interest in OML 53 was in the region of 51 million barrels of oil and condensate and 611 billion standard cubic feet (Bscf) of gas (total 151 million barrels of oil equivalent or MMboe). The only producing field on the block was Jisike, which was producing just 2,000 barrels of oil per day (bopd) but it also contains the large undeveloped Ohaji South gas and condensate field and a shallow oil

Whilst Chevron was negotiating closing details with Seplat, Britannia U went to court to stop the sale claiming that it was the highest bidder for all three assets combined, with a rumoured bid of $1.6 billion. Brittania-U was able to secure a High Court injunction, preventing Chevron from transferring the assets to Seplat or any other bidder. Chevron sought to have the case thrown out for lack of jurisdiction on the basis that it was a private commercial matter and further that it should be referred to arbitration on the basis of the confidentiality agreement signed by the parties. The court ruled that there was a triable dispute over which it had jurisdiction.

development potential at Ohaji South that could be pursued as a separate, standalone project in the near term. Seplat also succeeded in securing an interest in OML 55 after funding Delta State owned Belema Oil Producing to acquire the asset. It paid $132.2 million for a 22.5 per cent effective working interest in OML 55, whilst stomping up the remaining $132.9 million in loans to Belema Oil shareholders to enable them to make the acquisition from Chevron making a total cash outlay to Seplat of $265.1 million. The deal on OML 55 also included a deferred payment of $20.6 million contingent on oil prices averaging $90 a barrel or above for 12 consecutive months over the next five years. Under the agreed terms Seplat will recover the loaned amounts, together with an uplift premium of $20.6 million and annual interest of 10 per cent, from 80 per cent of the other shareholders’ oil lifting entitlements. Net recoverable hydrocarbon volumes attributable to its 22.5 per cent effective working interest were estimated at

Chevron appealed to the Court of Appeal against the interim injunction granted by the Federal High Court. The Court of Appeal ruled in their favour and Britannia-U headed for the Supreme Court, hoping to overturn the Court of Appeal decision. The Supreme Court hearing was due to be heard early on 29 January 2016. Seplat has always been quite bullish about the chances of success in the legal dispute and both parties chose to close the deal within the window before the Supreme Court hearing.

SEVEN ENERGY DENIED MERGER TALKS

INDIGENOUS FIRMS POOLED RESOURCES TO SET UP AVIATION FUEL COMPANY

Seven Energy issued a statement denying that it was in merger talks after media reports said it was seeking to merge or enter a partnership to expand its gas production.

Six indigenous oil firms pooled resources to set up a Joint Users Hydrant Installation (JUHI 2) firm as part of its strategy to win more market share from International Oil Companies (IOCs). The six companies were ARCON Petroleum, ASCON Oil, Masters Energy, Techno Oil, Ibafo Oil and CITA Petroleum. The companies said the aviation fuel installation platform would boost the market and serve as an alternative to the JUHI 1 built by international oil firms.

MERGERS & AQUISITIONS NEWS

APRIL-JUNE PAI GROUP ACQUIRED ASCOT OFFSHORE FROM AMCON A major acquisition marked the beginning of the year when Pan African International (PAI) Group, acquired Ascot Offshore Nigeria Limited for an estimated N16 billion ($95.24 million) from the Asset Management Corporation of Nigeria (AMCON). The deal, which closed at the end of 2014, was for a 95 per cent stake in Ascot. Ascot got into financial difficulty after borrowing from the defunct Intercontinental Bank and defaulteing on the loan, leading AMCON to take over the firm and manage

its operations until the sale. Under the terms of the deal AMCON remained liable for Ascot’s accrued statutory liabilities of up to N6 billion, including N3 billion to the Federal Inland Revenue Service (FIRS) and the rest to various government agencies. Ascot Offshore, became a major player in oil services after acquiring Willbros Group Nigeria Holdings for $155.25 million in

2007 from its US parent, Willbros Group, following the fall out from the Halliburton bribery indictment by the US Securities and Exchange Commission (SEC). Ascot inherited the Willbros contract awarded by Chevron for the construction of the West African Gas Pipeline. To meet that obligation, Ascot borrowed from Intercontinental Bank to complete the project. After a number of disagreements with Chevron, Ascot defaulted, leading AMCON to take over the loan.

SHELL AND PARTNERS COMPLETED $4.6 BILLION SALE OF OMLS 18, 24, 29 Shell Petroleum Development Company of Nigeria Limited and its joint venture partners who together own 45 per cent interests in oil mining leases (OML) 18, 24, and 29 completed the sale of the third in the quartet of assets that they put up for sale in this latest round of divestments. The sale of OML 29, the choice asset of the lot, together with the Nembe Creek Trunk Line to a consortium led by Aiteo Eastern E&P Company Limited for $2.562 billion, netted Shell $1.7 billion. Only a few days before, Shell announced the completion of the sale of OML 18 to Eroton Exploration and Production Company Limited in which it netted $737 million for its 30 per cent stake. In October last year, they completed the sale of OML 24 to Newcross Exploration and Production. Whilst these three new Nigerian independent power houses were celebrating, the sale of the last of the four, OML 25, was in court after the Nigerian National Petroleum Corporation (NNPC) under the direction of the former Minister of Petroleum Resources, Diezani AlisonMadueke, scuttled the sale to bid winner, Crestar by exercising a right of pre-emption over the asset. Crestar is asking the court to reinstate the sale to it. The sale of these three assets alone gave Shell and its partners (Shell with 30 per cent, Total with 10 per cent and Agip 10 per cent) a windfall after analysts said that the assets in these divestments were fetching

premia of up to 40 per cent as Nigerian independents competed among themselves to buy assets that would take them into the big league in view of a lack of open bidding rounds from the government. One of the surprising twists to this divestment exercise was the revelation that the buyers would get operatorship of the assets. Past divestments had been beset by wrangling with NNPC over operatorship. Industry watchers see the relinquishment

of operatorship to the new independents as being much more supportive of an industry in which indigenous participation and capability in the oil and gas industry should be encouraged an allowed to grow. The divested fields produced around 43,000 barrels of oil equivalent per day (100 per cent) in 2014 while the associated infrastructure included flow stations together with associated gas infrastructure plus oil and gas pipelines within the OMLs

MERGERS & AQUISITIONS NEWS SAIPEM ENTERED JV WITH DANGOTE GROUP Saipem entered into a Joint Venture (JV) with Dangote Group, one of Africa’s leading companies, to create a new company named Saipem Dangote E&C. The new JV will leverage off Dangote’s financial strength and reputation together with Saipem’s 50-year high-level Engineering Procurement and Construction (EPC) experience in the execution of turnkey projects in the oil and gas industry.

SOLO OIL ACQUIRED INTEREST IN BURJ PETROLEUM FOR MARGINAL FIELD OPPORTUNITIES Solo Oil announced that it had exchanged its shareholding in Pan Minerals Oil and Gas, worth approximately £800,000, for a direct holding of 15.9% in Burj Petroleum Africa, a private UK registered company created with the purpose of participating in marginal field opportunities in Nigeria. Burj Africa had planned to apply for two marginal fields in the

cancelled marginal field licensing round announced at the end of 2014. The two adjacent fields contained a total of 10 wells and were believed to contain proven and possible recoverable oil reserves of 59.3 million barrels. Solo subsequently entered into an agreement to increase its investment in Burj Africa by 5% for an additional payment of $200,000 in cash and, the equivalent of $300,000 in 39,750,000 new Ordinary Shares at an issue price of 0.51 p per share. Upon completion, Solo would hold a total interest of 20% in Burj Africa.

CAMAC ENERGY CHANGED NAME TO ERIN ENERGY Houston based, sub-Saharan Africa focused CAMAC Energy Inc. changed its name to Erin Energy Corporation. The company revealed that it would subsequently trade under the new ticker symbol “ERN” on both the New York and Johannesburg Stock Exchanges on which it is listed. The company, which has 100 per cent interests in oil mining leases (OMLs) 120 and 121 located offshore just implemented a reverse stock split of its common stock. Following the split, six of its common shares were converted to one share of common stock. The change of name was done concurrently. Shares of the company’s common stock began trading under the new symbol on Thursday 23rd April. The new branding came just in time for production from the Oyo-8 well in the Oyo field located on OML 120. The field is located approximately 75 km (46 miles) from the coast in water depths ranging from 200 to 500 meters. The Oyo Field commenced production in December 2009 and the wells are connected to the Armada Perdana FPSO, a Floating Production, Storage, and Offloading vessel. The company, which also has exploration licenses offshore Ghana, Kenya, and Gambia, and onshore Kenya, is headquartered in Houston, Texas.

TROUBLE BREWED OVER SACOIL DISENGAGEMENT FROM OPLS 281 AND 233 Sacoil announced it was quitting Nigeria. The company said this was in line with its strategy to focus on proven resources as a basis for growth. The company said it had embarked on a process of balancing and rationalising its portfolio of assets. The aim of the rationalisation was to restructure the company’s future capital requirements and focus on cash generative assets and low risk exploration assets. It also wanted to reduce future financial exposure. The company had interests in OPL 281 and 283, but the exits were looking increasingly trouble bound as the operators of the two assets claimed that SacOil had defaulted on its obligations in respect of funding the development of the assets. The legal disputes are discussed in the section on Legal News.

MERGERS & AQUISITIONS NEWS

LEKOIL RECEIVED MINISTERIAL CONSENT FOR OTAKIKPO FARM-IN Lekoil received Ministerial Consent to complete the transfer of a 40 per cent participating interest in the Otakikpo Marginal Field. London’s Alternative Investment Market (AIM) listed Lekoil signed a farm in agreement in May 2014 with Green Energy International Ltd under which it would acquire a 40 per cent interest in the field. Otatikpo has 2C reserves estimates of 36 million barrels of oil and 31 billion cubic feet of gas. After its acquisition of a 40 per cent equity interest, Lekoil added 14 mmbbl of oil and 12 bcf of gas to its books. Lekoil paid $7 million for the acquisition but under the terms of the agreement was also under obligation to pay a production bonus

of $4 million on meeting certain production milestones. Otatikpo was awarded to Green Energy in 2011 in a discretionary allocation. The award came under fire after being awarded by the Federal Government outside an official bid round. Green Energy must develop a small-scale gas utilisation project within 30 months of commencement of production as part of the conditions of the award. Lekoil’s agreement with Green Energy required it to fund the initial work programme, which consists of the re-entry of the existing wells on the

field. Lekoil would also fund all costs, estimated at approximately $67 million, until commencement of production. Cost recovery for the work programme was from a preferential 88 per cent of production cash flow from Otakikpo. Green Energy can terminate the agreement if Lekoil Oil and Gas fails to follow through on its obligation to pay $11 million for the acquisition or to fund the initial work programme. Lekan Akinyanmi, Lekoil’s Chief Excutive Officer said, “Otakikpo is an asset with tremendous potential and I am delighted that Lekoil has been able to demonstrate its ability as a strong Technical and Financial partner.

FIRST E&P ACQUIRED CHEVRON’S OMLS 83 AND 85 First E&P acquired Chevron’s OMLs 83 and 85. Barely one week after Chevron put its interests in OMLs 52,53 and 55 up for sale, the US giant announced that its 40 per cent interests in OMLs 83 and 85 were also up for grabs. It however planned to sell them in a spot auction given the lukewarm response so far to the two non-producing assets in shallow water offshore Bayelsa State. The lack of interest in OMLs 83 and 85 was probably because in addition to being non-producing assets, they were relatively undeveloped. The leases were also due to expire soon meaning that following acquisition the purchaser would have to deal with regulatory approvals for the renewal of the leases. In the end two companies, First E&P and another, international firm, Petroleos De Geneve (PDG) claimed to have won. PDG dragged Chevron off to court after it refused to declare them the winner. Chevron said that they never received the Standby Letter of Credit PDG claimed was issued by a South African bank on their behalf. The matter went up to Abuja and the Minister of Petroleum Resources was prevailed upon by PDG not to grant Ministerial Consent for the transfer of the assets to First E&P. In the end, Chevron went ahead and closed the transactions with First E&P. Chevron acquired OML 83 and the much larger OML 85 with its Madu field with its acquisition of Texaco. Madu field in OML 85 is

DANGOTE PARTNERED WITH FIRST E&P IN ACQUISITION OF SHELL OMLS

said to hold over 140 million barrels with nearly half of it gas and Anyala field in OML 83 is said to hold over 200 million barrels. They were both originally discovered in 1993 by Texaco, but development was deferred in the 1990s because of cost calculations. However, Chevron began a new development plan in 2004, with the strengthening of oil prices but in spite of the flurry of activity, neither field was fully developed by Chevron and neither was in production at the time of the divestment. In one of her last actions in office, the former Minister of Petroleum Resources, Diezani Alison-Madueke, signed the regulatory consent for the transfer of the assets. First E&P said it planned to develop the assets aggressively and expected to get to first oil within 12 months.

Dangote secured vital feedstock for his refinery after partnering with First E&P in the acquisition of oil mining leases (OMLs) 71 and 72 from Shell. Dangote financed the acquisition which will be operated by First E&P. The two partners formed a new company, West African E&P Venture to acquire and jointly develop oil mining leases (OMLs) divested by international oil companies (IOCs). Dangote will finance the development of the assets, ensuring he will eventually have access to the production. First E&P was able to fly under the radar in the acquisition of the divested assets for which unconfirmed reports say they paid over $300 million. The two assets were quietly put up for sale shortly after the open bidding process for OMLs 18, 24, 29 and 25 turned into a scramble. The former Minister of Petroleum Resources, Diezani Alison-Madueke signed the regulatory consent for the acquisition of the assets just before she left office. OMLs 71 and 72 were said to be the ugly brides in the recent Shell divestments (mainly because they were not currently producing), as everyone scrambled for the other coveted assets leading to a premium of 25% on the prices paid for those other assets. This made for a more realistic sale price than the other blocks that had everyone’s attention. Although Dangote was said at the time to be eyeing up the four assets that had everyone’s attention, the shrewd businessman would probably baulk at paying such a large premium just to get his hands on the choice assets.

MERGERS & AQUISITIONS NEWS

CHEVRON PUT OMLS 86 AND 88 UP FOR SALE In a determined bid to rid itself of all its onshore/shallow offshore assets, Chevron put oil mining leases 86 and 88 up for sale. The company wanted to divest its 40 per cent interest in the assets, which were said to contain considerable resources. Apoi and Funiwa fields are located on OML 86 and together produce 5,000 barrels of oil per day (bopd). Other fields on the block are Funiwa 1A natural gas well, Sengana field, Buko field and Okubie field. The block is reported to contain 600 mmboe. Longterm producers Pennington field and Middleton field are located on

OML 88, together with condensate field, Chioma, which is as yet undeveloped. Chevron appears to be quite undeterred by the problems it has had with its sales, which seem to inevitably end up in controversy. OMLs 83 and 85, which First E&P just completed on ended up in court with international firm, Petroleos De Geneve (PDG) claiming that it won the bid for the assets. Similarly, the sale of OMLs 52, 53 and 55 remained in court even though the sale of the assets had been completed with Seplat, Amni and Belema Oil. Brittania-U claimed to have won the bid.

Chevron did not reveal who its advisers were on this sale, but they will have to do a good job of shepherding the sale of the assets to make sure it sails through without controversy. The process is generally not helped by the large numbers of indigenous companies keen to get a piece of the pie, given the few opportunities for entry with no new government licensing rounds for over a decade. The scramble for these assets has generally led to a lucrative premium of up to 25 per cent on the value of the assets making the IOC policy of “portfolio rationalisation” in favour of deeper waters a very profitable strategy.

JULY-SEPTEMBER HELIOS AND VITOL ACQUIRED 60% OF OANDO DOWNSTREAM BUSINESS After months of speculation, Oando Plc finally confirmed that it has reached agreement to sell a substantial part of its downstream business to a joint venture between Helios Investment Partners and the Swiss based oil traders, Vitol. The total consideration of US$461.3 million was funded by a $276.8 million cash investment and $184.5 million in preference shares issued to Oando Plc. Under the terms of the deal, HV Investments II B.V. (HVI), a fund “advised” by Helios and Vitol would acquire 49 per cent of the voting rights and 60 per cent of the economic rights in Oando downstream once they receive regulatory approvals. Following the acquisition, 49 per cent of the voting rights would be held by Oando Plc, whilst HV Investments would own 49 per cent and a Nigerian affiliate of Helios would own 2 per cent. With a primary and secondary listing on the Nigerian Stock Exchange and the Johannesburg Stock Exchange respectively, Oando said in a statement

that the unique arrangement would allow for accelerated expansion and increased investment for Oando Downstream. Yomi Awobokun would continue as Chief Executive Officer of Oando Downstream whilst other directors would be appointed to the board to represent the interests of Vitol and Helios. Wale Tinubu, Group Chief Executive of Oando Plc confirmed that the divestment means it can focus on its upstream and midstream business after completing the acquisition of ConcocoPhillips’ upstream business last year. The Oando downstream business consists of its retail outfit, Oando Marketing, with over 400 retail outlets and terminals in Nigeria, Ghana and Togo. In addition there is Oando Supply and Trading, a physical trader of petroleum products in the subSaharan region, while Oando Trading Limited (Bermuda) trades crude oil and refined products in international markets. Apapa SPM operates a marina jetty

and subsea pipeline system that will be capable, on completion, of berthing large vessels at Apapa, Lagos. Finally, Ebony Oil & Gas Limited is a Ghanaian company with a provisional bulk distribution company license supplying white products. London based private equity firm, Helios Investment Partners has found a way of making easy work of raising funds for African investments. Africa-focused and predominantly led and managed by an African team, they have raised over $3 billion, which they now have under management. They have invested across the African continent and their portfolio companies are operating in over 35 African countries. Partners in the deal, Vitol trades over 5 million barrels of crude oil and oil products per day and revenues in 2014 were $270 billion. Although founded in Rotterdam in the Netherlands, Vitol has a large presence in Switzerland, including Zug, along with other large Swiss oil traders.

MERGERS & AQUISITIONS NEWS MIDWESTERN FAILED TO COMPLETE MART RESOURCES TAKEOVER Midwestern Oil and Gas failed to complete the planned acquisition of its Canadian partner, Mart Resources before the August 19 deadline. The two partners in Umusadege Marginal Field initially signed a definitive agreement on March 15, 2015 giving Midwestern until July 16 to come up with the finance to pay the agreed CAD$0.80 per share to acquire all the issued and outstanding common shares of the Canadian company, which is listed on the Toronto Stock Exchange (TSX). In June, Midwestern got an extension from Mart after providing a finance agreement with a significant Middle Eastern group. The deadline was extended to 26 July and then to 19 August. In the end, Midwestern was unable to secure the finance to fund the acquisition. Midwestern, which is partially owned by the Delta State government operates the Umusadege Marginal Field - located onshore on Oil Mining Lease (OML) 56 - which it owns with its strategic partners Suntrust Oil

and Mart Energy. Mart’s share of production from the field was 5,785 barrels of oil per day (bopd) in Q2 of 2015. Last year, all three partners formed a consortium, Eroton, which acquired OML 18 in the last round of Shell divestments. OML 18 contains nine fields and associated infrastructure that includes seven oil flow stations, three associated gas gathering processing plants and one non-associated gas processing plant, and associated gathering facilities. Gross crude oil production before pipeline losses, increased from approximately 14,000 BOPD in March 2015 to approximately 24,000 BOPD in June 2015. Even with so much production, the

acquisition would have been an expensive one for Midwestern, given that it would have had to assume liability for Mart’s outstanding indebtedness of over $200 million. Mart funded its share of the purchase price of OML 18 by increasing its existing secured term loan credit facility with Guaranty Trust Bank from $175 million to $232.5 million. The increased secured loan credit facility has a term of five years and bears interest at 90 days LIBOR plus 4% (floor of 8.25%). By the terms of their agreement, failure meant that Midwestern would have to pay Mart a reverse break fee of US$4.58 for failing to complete the transaction.

MX OIL INVESTED IN AJE FIELD LICENCE AIM quoted oil and gas investment company, MX Oil reached agreement with Austrialian company, Jacka Resources, to invest in an indirect, non-operated, 5% revenue interest in the OML 113 licence, offshore Nigeria, which includes the Aje Field. The interest in OML 113 is held by ASX listed Jacka through wholly owned subsidiaries. Aje Field is at a substantial development stage project with proven, flow-tested discoveries where production is expected by January 2016. Initial targeted peak production is 11,000 barrels of oil per day (bodpd), rising to 19,000 bopd in Phase 2. The company said this investment was in line with its strategy to acquire high impact near term production assets in proven oil and gas jurisdictions to build a cash generative platform. The 5% interest was valued at $55.1 million NPV (0) or $31.5 million NPV (10) based on a competent persons report (CPR) assuming $70 oil price. MX Oil is expecting to raise $11.5 million of additional funds to cover the capital expenditure to get to first oil. They expect to finance this by way of a non-dilutive debt facility. The company also expects to do a further fund raise for Phase 2 and Phase 3. In addition, the company announced the issue of 133,333,333 new ordinary shares via a placing at 4.5p per share to raise £6 million before expenses to provide additional working capital and funding for future capital expenditure and investment.

ACCENTURE ACQUIRED SCHLUMBERGER BUSINESS CONSULTING TO EXPAND UPSTREAM CAPABILITIES Accenture entered into an agreement to acquire Schlumberger Business Consulting (SBC), the management consulting unit of Schlumberger. In a statement the company said the acquisition would further strengthening its ability to assist upstream oil and gas companies improve portfolio optimization, enhance operational agility and cost competitiveness, as well as plan and execute digital-driven transformations. Following the acquisition, all of the Schlumberger Business Consulting (SBC) employees and associated knowledge assets were expected to join Accenture and become part of Accenture Strategy.

MX Oil’s Chief Executive Officer Stefan Olivier said, “This is a game-changing acquisition for MX Oil. It accelerates our transformation into a highly cash generative oil and gas investment company.”

MERGERS & AQUISITIONS NEWS

BUHARI GAVE GREEN LIGHT TO INCORPORATED JOINT VENTURES President Buhari took the long-advocated step of introducing incorporated joint ventures (IJV) as a way of solving the funding bottleneck that has plagued the Nigerian National Petroleum Corporation (NNPC) joint ventures. NNPC is in joint venture partnership with various international oil companies (IOCs) on some of its oil blocks. These are all unincorporated joint ventures, which means that each joint venture partner has to pay its share of development costs, known as cash calls. With NNPC owning a majority share (55% on some and 60% on others) it is under great financial pressure due to the cash calls. Under the IJV model, the joint ventures will become incorporated firms enabling them to control their own budgets and, more importantly, to source their own funding. They will be freed from the need for budgetary approval from parliament, which has slowed projects with NNPC down in the past. They will also pay taxes and royalties as well as dividends like any other corporate organisation. The new incorporated joint venture (IJV) model will be applied only to some of the joint ventures for now. The new IJVs are the Shell divested assets acquired by Shoreline Natural Resources Nigeria (OML 30), First Hydrocarbon Nigeria (OML 26), ND-Western Ltd (OML 34), Elcrest E&P Nigeria (OML 40) and Neconde Energy (OML 42) all acquired between 2011 and 2012. It will also apply to OMLs 71 and 72 acquired earlier this year by West African Exploration and Production Company from Shell. NNPC’s inability to finance its share of joint venture operations is a long-standing

problem, which the new Group Managing Director of NNPC, Ibe Kachikwu has been grappling with. The problem of delayed regulatory and parliamentary approval has become particularly acute in the face of dwindling oil prices. The lingering effect of corruption has only exacerbated the problem. Cash calls are not being met and the last government did not seem to have any answers. Some estimates put NNPC’s outstanding cash call obligations at $12 billion. Failure to meet cash calls has delayed the development of many assets, starving the industry of much needed work. Kachikwu had to think very fast about alternative funding models as he strives to change the face of NNPC’s role in the Nigerian oil and gas industry. Modified Carry Arrangements were initiated by Shell in 2009 on some of its joint ventures with NNPC. Repayment was through a combination of oil and gas proceeds (15%) and accelerated capital allowances (85%). Oil and gas revenues from these wells were then ring fenced to repay principal and service interest. More recently, NNPC signed a $1.2 billion alternative funding arrangement with Chevron for the development of some 36 Chevron oil wells on oil mining leases (OMLs) 49, 90 and 95. As a result, NNPC is now free of cash call obligations on the development of those assets. The Chevron deal demonstrated the confidence international lenders still had in this market even in the face of dwindling oil prices. The new administration’s

commitment to transparency and due process appeared to be helping to renew investor confidence in the oil and gas industry. These newly divested assets that are to be converted to IJVs, were largely acquired by indigenous companies and consortia that are now heavily leveraged after having to raise huge amounts to purchase the blocks at premia of up to 20%. The companies are not in the same financial position as the international oil companies (IOCs) joint venture partners and therefore not able to use the MCAs to finance the development of the assets. NNPC did not reveal whether the new IJVs would also be extended to the other joint ventures in due course.

OCTOBER-DECEMBER MERCURIA ACQUIRED 17% OF FORTE OIL Mercuria Energy Holdings SA, one of the largest integrated energy and commodity trading companies in the world, acquired a 17 per cent stake in Nigerian downstream giant, Forte Oil for $200 million. Forte Oil said that through this investment, it had secured additional working capital to continue its growth. The company said the equity funding and the additional expertise would allow it to expand and intensify its market penetration and give the company the leverage to further create a positive impact for all shareholders. The funding was geared towards improving the group’s working capital and would be used for the expansion of

the downstream and power generation businesses in Nigeria as well as positioning it for future opportunities in the Nigerian oil and gas sector. The transaction was approved by the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC). Forte Oil is a major marketer of refined petroleum products with over 500 Forte Oil owned, dealer-assisted and dealer-developed retail outlets spread across the country. The company is also involved in oil and gas services in the upstream sector under the trade name of AP Oilfields Servcies Limited (APOS).

MERGERS & AQUISITIONS NEWS

LEKOIL ACQUIRED INTEREST IN OPL 325 Lekoil acquired an indirect controlling interest in oil prospecting (OPL) 325, offshore for an initial consideration of $16.08 million. Further payments totalling $24.12 million were payable in instalments of $12.06 million each upon oil mining lease (OML) conversion (after discovery) and on commencement of production. Lekoil said the OPL 325 acquisition was consistent with its continuing strategy to assemble a balanced portfolio of oil and gas interests, including near term production (Otakikpo), appraisal (OPL 310) and high impact exploration assets in known basin (OPL 325). Lekoil’s indirect interest was as a result of having acquired 88.57 per cent of Ashbert Oil and Gas Limited, the operator of OPL 325, therefore receiving an entitlement to 62 per cent of the equity of OPL 325. Lekoil said the acquisition would be financed out of a combination of the Company’s existing financial resources and a placing of new ordinary shares in the company to raise up to $40 million before expenses, which would be launched immediately following publication of the announcement. The proceeds of the placing would also be applied to other corporate uses. The licence is located to the south of OPL 310, within the offshore Dahomey basin wrench zone that straddles the western Niger Delta. The company has completed preliminary interpretation of existing 3D seismic on the licence. OPL 325 was estimated in October 2015 by Lumina Geophysical to contain STOIIP of 5.7 billion barrels (P50) in several large prospects with associated channel complexes.

DELTA OIL FAILED TO CLOSE MART RESOURCES TAKEOVER Delta Oil Nigeria, the subsidiary of a Saudi Arabian oil and gas group failed in its bid to acquire Mart Resources, the second suitor to pull out this year. Delta was to acquire all of the issued and outstanding common shares of Mart. Under the arrangement, each Mart shareholder would receive CAD$0.35 in exchange for each Mart common share held for an aggregate consideration of all Mart shares of approximately CAD$124.92 million. The per share consideration represented an 84% premium to the closing price. Delta had intended to pay for the acquisition partly from bank finance and the rest from its own cash resources.

highly leveraged, having borrowed heavily to join the Eroton consortium in the acquisition of the Shell divested oil mining lease (OML) 18. All its free cash flows were going towards debt servicing.

Delta’s search for bank finance however ran into trouble after it became clear to Delta that it would not be able to raise debt finance under current oil prices. Delta was in the process of arranging bank financing with a pre-eminent global financial institution but Mart was already

Delta Oil and Gas Limited is a Saudi Arabian oil and gas group, which focuses predominantly on appraisal, development and production activities in the Central Asia, Middle East and North African regions. This would have been their first foray into Nigeria.

As a result, Delta had to seek other funding that would not involve debt servicing. After an initial time extension they were unable to find the finance and had to pull out of the deal. Mart had previously been in negotiations with Midwestern but after several deadline extensions, Midwestern was unable to close the finance for the acquisition, leading Mart to look at other suitors.

LEKOIL AGREED TO ACQUIRE AFREN’S INTEREST IN OPL 310 Lekoil entered into an agreement to acquire Afren Plc’s entire 22.86% participating interest in oil prospecting licence (OPL) OPL 310, which contains the Ogo discovery, for $13 million. Lekoil, through its wholly owned subsidiary, Mayfair Assets and Trust Limited (Nigeria) already holds a 17.14% participating interest and a 30% economic interest in OPL 310 obtained through a farm-in agreement signed with Afren in 2013. The new OPL 310 acquisition was to be undertaken by a wholly owned subsidiary of the Company, Lekoil 310 Limited. Following the acquisition, Lekoil will hold a consolidated participating interest of 40% (pending Nigerian Ministerial Consent and an economic interest of 70% in OPL 310 and would become the technical and financial partner. Optimum Petroleum Development Company, the operator, retains its 60% participating interest. Of the consideration to be paid by Lekoil, $12 was due immediately and $1 million was due upon the earlier of receiving Ministerial Consent or two years following the signing of the OPL 310 Acquisition agreement. Lekoil would fund the consideration from its existing cash resources. Lekoil would recover carried costs from 70% of cash flows and be entitled to a further 12% of cash flows as profit oil. Following recovery of all carried costs, Lekoil’s entitlements would revert to its consolidated participating interest of 40%. Lekoil’s carried costs would be recovered at a 50% uplift with additional adjustments for its cost of capital. An aggregate amount of US$13 million of Optimum’s past costs would be paid by Lekoil to Optimum within 6 months of signing the agreement. The OPL 310 partners will be able to progress with exploration activities and field appraisal planning, following a delay caused by Afren’s insolvency and administration processes.

REPORT

NIGERIAN CAPITAL MARKETS: LEGAL AND REGULATORY REVIEW AND RECOMMENDATIONS Samallie Kiyingi, capital markets consultant and co-author of the report and a member of the UK Government’s Emerging Capital Markets Task Force summarises the key recommendations of the report on deepening Nigeria’s capital markets.

CONFIDENCE IS KEY There’s a curious phenomenon quietly gaining momentum. Key financial centres are taking increased interest not just in investing in Nigerian capital markets but in developing them.

there a stampede of Nigerian issuers rushing to list on local exchanges?

Foreign investors make up the majority of the investor base in Nigerian capital markets and the size of the investment opportunity is enormous. Even though Nigeria has a larger GDP, its stock market capitalisation is only a fraction of South Africa’s. This represents a multi-billion dollar growth opportunity.

Listing debt or equity on an exchange is not easy. Anywhere. It is usually much easier (though generally more expensive) to go to a bank or even to a private equity fund. The nature of a public listing requires greater accountability and transparency. This administrative burden and financial discipline is what the market demands in exchange for more favourably priced capital.

So why are Nigerian capital markets so small relative to the size of the economy? Why isn’t

In emerging markets however, these general issues are also compounded by certain

structural issues that come with attempting to create a market, incentivise participants and develop regulation, simultaneously. This is the subject of a recent report on deepening capital markets. The findings and recommendations are based on a wide-reaching consultation encompassing discussions led by the Capital Markets Solicitors Association and the Law Society of England and Wales with regulatory and governmental bodies, the private sector and other professions and advisors, both in Nigeria and the UK. The report is split into four sections.

MARKET CONFIDENCE The underlying theme of the first half of the report is market confidence. Trust in the Nigerian capital markets is vital in order to attract investments into the market and encourage corporates to use it as a fund raising tool.

(iii) promote better corporate governance. In fact there was general consensus among those who participated in the consultation that these issues were the foundation upon which all other initiatives needed to be grounded.

Does the investing public believe in the integrity of the capital markets? Do potential issuers have confidence that their securities will not be subject to manipulation? In more cases than there should be, the answer is no. This helps to explain why many sectors of the economy from telecoms, energy and agriculture are conspicuously absent or underrepresented on Nigerian exchanges.

Conflict resolution is also discussed at great length. Effective conflict resolution mechanisms are central to building a robust market. Currently there is insufficient clarity as to the appropriate options for dispute resolution available to investors. This has resulted in substantial scope for forum shopping which in turn results in delays and great risks to investors. The report recommends a review of key legislation to streamline dispute resolution procedures as well as strengthening

To facilitate market confidence, the integrity of the market can be further developed by enhancing certain rules and initiatives. In particular, the report discusses the need to: (i) improve information disclosure and dissemination; (ii) deter manipulation of the market through insider dealing or conflict of interest; and

the mediation procedures at the SEC and key exchanges. Another contributing ingredient of market confidence is reforming and simplifying the regulatory infrastructure. The regulatory regime must be robust enough to protect investors without acting as a disincentive to the participation of issuers. Some of the key recommendations in this regard included addresses sing the streamlining the relationship between financial markets regulators to minimise duplication and developing a specific regime to govern institutional investment activities with particular attention to reducing the time and cost to market for institutionally targeted products.

REPORT MARKET GROWTH Once the issue of market confidence is dealt with, how do you persuade stakeholders to participate and grow the market? This is the focus of the second half of the report.

Photo: Alan Oâ&#x20AC;&#x2122;Rourke/Flickr

BARRIERS AND INCENTIVES There are a number of barriers for both issuers and investors to participate in the capital markets. These include the high costs associated with listing on the Nigerian market as well as the relatively long transaction review process. Recommendations in this regard include requiring the SEC and the Nigerian exchanges to commit to fixed timeframes for document reviews and reviewing transaction fee structures. In relation to barriers facing investors, the report recommends a review of regulatory constraints placed on the pension and insurance sector that appear to favour returns rather than capital appreciation as a means of assessing securities. Furthermore, Nigeria has surprisingly few incentives

to encourage companies to participate in the capital markets. The current incentives that do exist at times lack clarity or are not sufficiently appealing to change established market behaviour of raising capital privately or through banks. Yet incentives are crucial to deepening the markets as they help drive behavioural change and build momentum. When it comes to issuer incentives, tax is an easy place to start and the report contains specific recommendations on how to build on the existing framework. However the report also goes further and examines how non-tax incentives can be used to encourage companies in regulated sectors such as telecoms and energy can be incentivised through the provision of regulatory benefits.

LIQUIDITY

IN CONCLUSIONâ&#x20AC;Ś

Liquidity is one of the most difficult features to achieve when developing a market. The report takes a general look at market development and identifies several key issues that, if addressed, will contribute to increased liquidity and accelerate market growth. These include the need to: (i) create a more diverse pool of issuers; (ii) create greater diversity of products for investors; and (iii) diversify platforms to come to market including cross listing.

The report does not pretend to have all the answers regarding how to develop Nigerian capital markets. However one thing is clear, the capital markets will not develop themselves. A deliberate and concerted effort is needed and change will be almost impossible without industry wide collaboration and consensus.

The recommendations made in relation to removing barriers and increasing incentives will play an important role in achieving this goals. However education will also be a crucial factor. Feedback received during the report suggests that more knowledge development is needed across the board from the general public, to the issuers to the regulators.

From left to right: Co-author of the Report, Samalie Kiyingi, President, Nigerian Stock Exchange, Aigboje Aig-Imoukhuede, Co-author of the Report, Elizabeth Uwaifo, Cochair, Emerging Capital Markets Task Force Nigeria Project, Sir Roger Gifford during the presentation of the Report

REPORT

NIGERIAN CAPITAL MARKETS REPORT RELEVANCE TO THE OIL AND GAS INDUSTRY In this Q&A session, Elizabeth Uwaifo, leading derivatives and finance legal expert, and co-author of Report, explains the relevance of the report to the oil and gas sector, which is currently largely under-represented on the Nigerian Stock Exchange. She played a leading role in co-ordinating the consultation process with capital market operators. Is the Report of relevance to the oil and gas industry? Yes it is. In addition to traditional sources of capital (such as commercial bank funding and project finance involving export credit agencies and multilaterals), Nigerian oil and gas companies can, in principle, raise finance in the equity and debt capital markets. Deeper and vibrant capital markets in Nigeria can provide an alternative source of funding for the development and growth of the country’s international oil and gas companies and indigenous companies.

How can the capital markets provide such funding?

Oil and gas companies around the world have been known to raise funds in the equity and debt capital markets. In a properly functioning capital market, oil and gas companies would be able to raise finance by equity and debt investors investing in such companies. Financing in the equity capital market is an option for oil and gas companies listed on the Nigerian Stock Exchange (NSE) or (in the case of small and mid-sized companies/ enterprises on the Nigerian Alternative Securities Market (ASeM)). Such companies would be able to issue stocks and securities for purchase by retail and institutional investors and high net worth individuals. Financing in the debt capital market is available to companies that issue bonds, which could be public bonds or privately placed bonds marketed to selected investors. The Nordic high yield bond market is a good example of a debt capital market providing higher risk funding for independent exploration and production oil and gas companies.

Is financing currently available to oil and gas companies in the: (a) Equity capital markets? Financing is available in the equity capital markets to companies listed on the NSE or on ASeM. However, as far as I am aware, oil and gas companies rarely access the equity capital markets in Nigeria as there are hardly any oil and gas companies listed on the NSE or ASeM. Seplat is a welcome example of a dual listed indigenous company listed on NSE and on the London Stock Exchange in the UK. More companies could benefit from listing on an exchange. (b) Debt capital markets With regard to debt capital markets, I have come across very few instances of bond issuance by Nigerian oil and gas companies (e.g. US$250,000,000 Senior Secured Notes due 2019 issued by Afren Plc in 2012 and US$300,000,000 Senior Secured Notes due 2021 issued by Seven Energy Finance Ltd. in 2014). The high yields that could potentially be available in the sector should make companies in the industry that are well managed and have producing assets and a robust business model attractive to high yield bond market investors.

Why have oil and gas companies stayed away from the capital markets?

The reasons, I believe, are rooted in the challenges facing the market which we identified in the Report and which our recommendations are intended to address. Oil and gas companies are not incentivised to use the equity and debt capital markets for their funding needs and investors are

“The report has created an awareness of the challenges stunting the growth of the capital markets in Nigeria.” Elizabeth Uwaifo unlikely to invest unless their concerns are addressed. We discovered in the course of our consultations that the capital market was not an attractive prospect for the companies seeking funding or the investors seeking investment opportunities. The companies and potential investors were not participating in the capital markets due to a variety of concerns about the market that are described in the Report.

What exactly are the concerns that impact the oil and gas industry? The concerns from the perspective of the investors are in respect of market

REPORT

integrity and regulatory infrastructure. With regard to market integrity, investors require: (a) assurance that the companies seeking investment have applied robust standards of good corporate governance, transparency and accountability; (b) that the information received in respect of the investment is up to date and accurate and does not omit any material information; and (c) that there has been no manipulation of the information due to insider dealing, conflict of interest or other improper conduct. With regard to regulatory infrastructure, we noted in the Report concerns about the efficacy of the legal and regulatory framework for the enforcement of contractual rights (including stabilisation of the legal regime), dispute resolution and penalising breach. From the perspective of the companies seeking funding (such as the oil and gas companies), we noted that such companies do not appear to be attracted to participating in capital markets due to, among other reasons, the high costs of transactions involved, the absence of incentives such as tax breaks and the lack of a diversity of products that address the specific needs of the relevant companies.

What can oil and gas companies do? Oil and gas companies ought to start thinking long term about positioning themselves to take advantage of the funding options that will become available in the equity and debt capital markets in due course. For instance, they could think of enhancing their visibility to global equity investors by listing on the NSE or ASeM, by revisiting their corporate governance, accountability and transparency standards and ensuring that their systems will stand up to scrutiny. They could lobby for incentives that will enhance the attractiveness of debt and equity capital markets funding (such as tax exemptions, reduced fees for access on stock exchange, etc.) They should be asking questions now with respect to what they need to do to access the high yield bond market. Consideration ought to be given to creating structured solutions that will allow oil and gas companies access the capital markets while reforms are ongoing.

Are reforms on the horizon?

The process of reform starts with an awareness of the problem, an aspiration by those affected by the problem to change the situation and take positive steps taken towards the desired goal. The process has begun. The Report was produced as part of a broader Nigeria-United Kingdom Capital Markets project, the primary objective of which is to increase the capital flows between Nigeria and the United Kingdom for mutual benefit. The project comprises a Nigeria Delivery Group and a UK Delivery Group. These were created in recognition of the need to establish a platform that can drive adoption of the Report’s recommendations. The Nigeria Delivery Group has created four work streams that will produce white papers and work on the short term and medium term goals desired by the Report’s recommendations. In addition, the Nigeria Delivery Group has agreed to establish an advocacy platform representing the Nigerian financial and related professional services industry to influence policies towards achieving sustainable economic growth in Nigeria.

How will the report help?

The report has created an awareness of the challenges stunting the growth of the capital markets in Nigeria. Its focus on the capital markets should highlight for the oil and gas companies the funding alternatives that they are currently missing due to the limited development of the market. It also raises awareness for investors of investment opportunities that should be seriously considered now and in the future.

ANALYSIS

A LEGAL OVERVIEW OF M&A AND FINANCING TRANSACTIONS IN NIGERIA’S OIL AND GAS SECTOR 1. OVERVIEW OF M&A TRANSACTIONS 1.1 EMERGENCE OF LOCAL CHAMPIONS

2015 was a relatively robust year for M&A transactions in Nigeria’s oil and gas industry, particularly in relation to divestments by international oil companies (IOCs) of onshore oil and gas assets to Nigerian oil and gas companies, some of which (such as Seplat and Oando) have emerged as “local champions” at the forefront of the onshore aspects of the upstream oil and gas industry. The surge in M&A activity has been driven in part by funding from the domestic debt market and a favourable regulatory disposition in furtherance of the Nigerian government’s (Government) policy objective of increasing the level of Nigerian companies’ participation in the oil and gas sector and developing their technical and operational capacity. The Government’s objective has been achieved in part through (a) the enactment of the Nigerian Oil and Gas Industry Content Development Act 2010 (the Local Content Act) and (b) the marginal field licensing regime, under which Nigerian oil and gas companies bid for the rights to develop underutilised oil and gas fields licensed to IOCs by entering into a farm-out agreement with the relevant oil mining leaseholder.

1.2 IOCS’ DIVESTMENT PROGRAMME

The majority of IOCs operating in Nigeria (including Royal Dutch Shell, Total, Eni and Chevron) have divested some of their onshore assets, partly in response to the regulatory developments referred to above, and as a result of a confluence of additional factors, which include: (a) the slump in global oil prices which has prompted divestment of non-core assets in order to unlock capital to fund strategic projects; (b) economic incentives of developing frontier projects (such as deep water exploration plays); and (c) desire to reduce risk exposure associated with onshore oil and gas operations (including legal and reputational risks associated with environmental disputes, economic losses resulting from oil theft, and increased costs of securing oil and gas infrastructure and personnel).

2 ACQUISITION OF ONSHORE OIL AND GAS ASSETS 2.1 ACQUISITION STRUCTURES AND TRANSACTION PROCESS The majority of M&A transactions have been structured as a sale of participating interests in oil and gas licences or associated infrastructure. A sale of shares in companies that own oil and gas assets is an alternative structure that has been used on previous transactions. The transaction process, whilst being largely deal-specific and seller-driven, has typically been structured as an auction process in order for sellers to control the transaction documents and timetable and to capitalise on the competitive pressure on bidders in order to obtain the best price and sale terms. Commercial and legal considerations will ultimately determine the acquisition structure. For example, sellers may prefer a share sale in order to effect a “clean break” from the target company by transferring the target company’s obligations and liabilities (including environmental, tax and decommissioning liabilities) to the buyer. Buyers, on the other hand, may prefer an asset sale in order to: (a) acquire a pre-agreed class of assets, which lends itself to a more streamlined due diligence process; and (b) structure around “financial assistance” restrictions that may otherwise prevent the target company from granting security over its assets in furtherance of raising acquisition finance.

2.2 DUE DILIGENCE PROCESS

Purchasers of oil and gas assets and their financiers will need to conduct an extensive due diligence process to fully understand the target asset’s obligations, liabilities, production history and projections. Lenders will also need to complete “know your customer” checks on borrowers, beneficial owners and affiliated entities in order to ensure that they are not lending to sanctioned entities, politically exposed persons or in furtherance of money laundering activities.

2.3 NATURE OF ACQUISITION VEHICLE

Acquisitions have been made directly by Nigerian oil companies or through bid consortia, which help members spread risks and costs of the acquisition whilst maximising their respective synergies. Bid consortia typically include a combination of any of the following classes of companies: (a) indigenous companies that have significant local industry knowledge and/or relationships. If such companies have the requisite level of legal and beneficial ownership of the acquisition vehicle, the acquisition vehicle may be eligible to benefit from the preferred status offered to “Nigerian companies” under the Local Content Act; (b) international independent oil and gas companies with technical expertise and operational resources; or (c) international commodity traders that may provide a

ANALYSIS

pre-agreed crude offtake solution or credit enhancement to the acquisition vehicle (for example, through a limited form of recourse to its balance sheet).

will be required for direct transfers of interests in oil and gas assets or sale of shares in an asset holding company or an offshore intermediary company.

Where a bid consortium structure is adopted, it would be prudent for the members of the consortium to negotiate and document the allocation of risks, rights and obligations, disclosure requirements and management of potentially divergent interests in a shareholders’ agreement.

This requirement for Ministerial Consent gives rise to a number of issues on M&A transactions, which include: (a) delays to the transaction timetable as there is no stipulated timeline within which Ministerial Consent will be obtained; and (b) increased transaction cost resulting from the payment of a consent fee, which is calculated as a percentage of the value of the transaction. It would therefore be prudent for parties to an M&A transaction to: (a) make conservative assumptions on the requirements, process and timeline for obtaining Ministerial Consent when developing a transaction timetable; (b) engage with the Minister of Petroleum Resources and obtain Ministerial Consent prior to commencing a transaction process; or (c) pre-agree the process, scope and duration of extensions to “longstop dates” for the completion of the transaction due to delays in obtaining Ministerial Consent.

2.4 MINISTERIAL CONSENT TO THE TRANSFER OF OIL AND GAS ASSETS Nigerian law requires holders of oil and gas licences to obtain prior consent from the Minister of Petroleum Resources (Ministerial Consent) before transferring such rights or interests to a third party. Recent case law (Moni-Pulo Limited v Brass Exploration Unlimited) and regulatory guidance have indicated that Ministerial Consent

3 TRANSFER OF OPERATORSHIP UNDER A JOINT OPERATING AGREEMENT (JOA) A commercial issue that will need to be considered where an operator under a JOA is seeking to transfer its interest to a third party is the determination of the party that will assume the role of operator of joint operations under the JOA. An operator’s transfer of its participating interest will be subject to the provisions on transfer of operatorship under the JOA, which typically provides that an operator’s transfer of its interest to a third party will not result in an automatic transfer of the operatorship to the incoming transferee.

4 FINANCING THE ACQUISITION AND OPERATION OF OIL AND GAS ASSETS 4.1 MULTI-SOURCED DEBT FINANCING SOLUTIONS 4.1.1 DOMINANCE OF NIGERIAN BANKS

Nigerian banks have led the funding to Nigerian companies for their acquisition of assets divested by the IOCs. The Central Bank of Nigeria’s (CBN) recent reforms (through increasing the capitalisation requirement of all Nigerian banks) triggered a wave of consolidation in the banking sector, which has led to the emergence of stronger banks with a larger balance sheet to fund transactions in the oil and gas sector. In order to prevent over exposure to the oil and gas sector, the CBN has imposed a restriction on Nigerian banks to limit funding to the oil and gas sector to 20 per

cent. of their loan portfolio. This regulatory requirement is likely to constrain capacity of the domestic debt market to maintain recent levels of funding to the oil and gas sector and require additional sources of liquidity.

4.1.2 LIMITED ROLE OF INTERNATIONAL FINANCIAL INSTITUTIONS A combination of the increased capacity of the domestic debt market, slump in oil prices, and conservatism towards the perceived high-risk profile of the Nigerian oil and gas industry appear to have reduced the appetite of international financial institutions to fund oil and gas transactions in Nigeria. Some of this funding gap has, however, been plugged by certain development financial institutions (DFIs) (such as the Africa Finance

Corporation and African Export-Import Bank) that have provided funding by co-lending with Nigerian banks. Issues to consider where commercial banks co-lend alongside DFIs include the harmonisation of benchmarks for determining, assessing and managing social and environmental risk related with oil and gas operations.

4.1.3 INCREASING ROLE OF COMMODITY TRADERS

It has become commonplace for certain commodity traders to fund oil and gas transactions by co-lending alongside commercial banks. This practice has developed in response to (a) borrowers’ funding requirements exceeding the capacity of the domestic debt market; (b) commodity traders’ interests in locking-in suitable crude offtake arrangements (similar in part to prepayment structures); and (c)

ANALYSIS lenders’ favourable disposition to a funding and crude offtake arrangement in light of the recognition that this arrangement provides additional liquidity to the lending syndicate, a guaranteed source of revenue for the borrower to meet its debt service requirements and an in-built hedge against oil price volatility. Intercreditor issues to consider on such funding structures include whether the commodity trader: (a) has a blocking or majority vote vis-à-vis commercial lenders; (b) has any potential conflicts of interest (for example, in relation to its crude offtake arrangements); and (c) should be disenfranchised or have a higher disclosure obligation on matters relating to potential conflicts of interest.

4.2 FINANCING STRUCTURES

In order to mitigate the financiers’ credit risk and to ensure that financing is in place to complete the M&A transaction, sponsors and lenders may agree on a synchronised funds flow structure, which typically requires payment of equity, followed by disbursement of onshore debt and offshore debt respectively into an escrow account. The escrow account will typically be controlled by an escrow agent and the sale proceeds will be released to the seller upon pre-agreed escrow release conditions. In order to regulate the foreign exchange market in Nigeria, the CBN has passed regulations requiring Nigerian crude oil exporters to repatriate their export proceeds into a Nigerian domiciliary account within ninety (90) days. The CBN permits withdrawals from these domiciliary accounts for specified purposes (including debt service) and requires its prior approval for other types of withdrawals. Lenders will need to consider these CBN regulatory requirements in detail when assessing repatriation risks in Nigeria and developing project account structures.

4.3 TAKING AND PERFECTING SECURITY 4.3.1 MINISTERIAL CONSENT

The creation of security over oil and gas interests (depending on the nature of the security interest) and lenders’ exercise of their right of sale in a security enforcement scenario will likely require Ministerial Consent.

4.3.2 PAYMENT OF REGISTRATION FEES AND STAMP DUTY Nigerian law requires: (a) security documents to have been stamped in order for these

documents to be admissible in a Nigerian court; and (b) security interests created over Nigerian assets to be registered at the companies registry in order to put third parties on notice of the lender’s existing security interest in those assets. Stamp duty and registration fees apply on an ad valorem basis and consequently at a very high cost to borrowers. In order to reduce the high security perfection costs, a practice of “upstamping” has been developed on large financings in the oil and gas sector.

4.3.3 UPSTAMPING PRACTICE AND RISKS Upstamping occurs where a borrower pays stamp duty in respect of a fraction of the secured loan amount and will be required to pay the outstanding amount at a later stage upon pre-agreed events. Lenders involved in upstamping arrangements clearly face a number of risks, which include: (a) the borrower’s upstamping performance risk; (b) security priority risks resulting in a third party perfecting its competing security interest over the borrower’s asset prior to

the completion of the upstamping; and (c) insolvency moratorium risk resulting from Nigerian law prohibition on companies perfecting security interest during windingup proceedings. To mitigate the borrower’s upstamping performance risk, lenders may insist on the borrower: (a) paying monies required for the upstamping into a secured escrow account; or (b) transferring into a “stamp duty reserve account” monies up to minimum required balance for the upstamping in accordance with a pre-agreed cash flow waterfall. To mitigate security priority risk, lenders typically include a negative pledge clause in the finance documents preventing the borrower from granting competing security to a third party. There is however a residual legal risk that the borrower may breach the negative pledge provision and the lenders’ contractual remedy will be insufficient from a commercial perspective. In developing the upstamping market practice, lenders have had to asses the and get comfortable with the reality that some of the risks associated with upstamping can be mitigated better than others, but none of which can be completely avoided.

ANALYSIS 5 SLUMP IN GLOBAL OIL PRICES AND DEBT FACILITY RESTRUCTURINGS The majority of facilities provided to Nigerian companies for the acquisition of IOCs’ divestments were structured as reserve based loans (RBL), under which the borrower’s debt level is calculated based on a formula linked to the value of total reserves and oil price projections. Given the current slump in oil prices, most of the oil price assumptions included in the borrowing base facilities no longer reflect current and realistic oil price projections. The effect of a sustained slump in oil prices is that, upon a redetermination of borrowing bases, some borrowers may be required to: (a) make mandatory repayments to bring their “borrowing base amount” in line with their adjusted “borrowing base”; or (b) designate new assets into their borrowing base in

order to maintain their current debt profile. In addition, a default under an RBL is likely to trigger cross-defaults under borrowers’ other financing arrangements, thereby exacerbating the risk of a draw-stops, accelerations or security enforcement scenarios. Debt facility restructurings in the Nigerian market have included an extension of debt maturity date of loans and an increase to the interest rate. Borrowers may also need to adjust to increased scrutiny from lenders (for example, to ensure that “equity cure” rights are not used by borrowers to roll-on underperforming loans), and more frequent testing of financial convents (particularly, loan life coverage ratio and debt service coverage ratio).

6 2016 AND BEYOND It appears that, in a sustained lower oil price environment, lenders and borrowers will continue to batten down the hatches. In the mid-term, lenders are likely to be preoccupied with the restructuring and monitoring of existing debt facilities. To the extent that they are prepared to provide new loans to oil and gas participants, there is likely to be heightened focus on the creditworthiness of borrowers, scrutiny into the bankability of deals, reduction of the size of debt facilities, increasing cost of funds, insisting on a higher equity to debt ratio, and pressing for enhanced contractual protection in order to mitigate the increased risks of funding oil and gas transactions. Oil and gas players are likely to focus on (a) reducing their capital expenditure in order to optimise their balance sheets and (b) preserving their assets by meeting debt service obligations as and when due. Borrowers in serious financial distress may be required to develop formal restructuring plans, which may include injection of new equity, additional debt funding, disposal of non-core assets or divestment from nonstrategic sectors of the value chain (for example, reversing an integrated business

model). Such divestments could present opportunistic M&A transactions for stronger industry participants. Requirements for additional equity could lead to increased participation of private equity funds in Nigeria’s oil and gas sector. Requirements for additional debt is likely to require existing lenders’ consent to the expansion of the scope of “permitted financial indebtedness”, alteration of the security package and re-ordering of the respective creditors’ security ranking and priority. The new Government’s proposed reform of the oil and gas sector (particularly, in relation to the restructuring of the national oil company, reducing bureaucracy and developing greater transparency), if successfully implemented, is likely to significantly increase the availability of investment and transaction opportunities. It remains to be seen whether the Government’s proposed amendments to the fiscal regime in the oil and gas sector, through the passing of the Petroleum Industry Bill, will strike the delicate balance of increasing the Government’s take from oil and gas operations whilst providing IOCs with sufficient economic incentives to attract a wave of much needed new investments into the oil and gas sector.

FURTHER INFORMATION This briefing note is provided for information purposes only and does not constitute legal advice. For further information on the content of this briefing note or legal advice, please contact Tim Pipe or Omosuyi Fred-Omojole.

From left, Tim Pipe, Partner, Banking and Finance group at Dentons and Omosuyi Fred-Omojole, Associate, Banking and Finance group at Dentons

REGULATORY NEWS SURE-P SPENT N43 BILLION ON RAILWAYS In January, the Chairman of Subsidy Reinvestment and Empowerment Programme (SURE-P), General Martin Luther Agwai (rtd) revealed that the SURE-P programme had spent the sum of N43 billion of the savings from the partial removal of fuel subsidies. This sum was invested in the Nigerian Railway in 2014, through the Federal Ministry of Transport, he said during the inauguration of the Diesel Multiple Unit (DMU) Passenger Service for Intra City Mass Transit in Kaduna.

Plan for Nigeria’s high-speed rail lines.

PWC SUBMITTED NNPC AUDIT REPORT Early in February, Price Waterhouse Coopers (PwC) submitted its report on the forensic audit into allegations of missing funds against the Nigerian National Petroleum Corporation (NNPC). PwC’s forensic audit stemmed from the allegations made by the current Emir of Kano, His Highness Muhammadu Sanusi II, when he was Governor of the Central Bank of Nigeria (CBN) that NNPC had failed to remit the sum of $20 billion to the Federation Account. He was later sacked from his role as Governor of CBN before later going on to be crowned Emir of Kano. The submission of the report came barely 24 hours after Sanusi’s predecessor in office, Prof. Charles Soludo, raised fresh allegations against the Co-ordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, that at least N30 trillion had been mismanaged under her tenure. President Goodluck Jonathan directed the Auditor-General of the Federation (AGF) to prepare key highlights of the report and make it available to the public within a week. He said he hoped that all the controversy would now stop with the publication of the report. Unfortunately, that was not to be the case due to damning revelations from the report when a leak of the contents finally forced the President to release the report.

100

NNPC PROMISED TO REMIT $1.48BN TO REVENUE ACCOUNT Although refusing to release the full report of the PricewaterhouseCoopers (PwC) forensic audit, the Nigerian National Petroleum Corporation (NNPC) revealed with glee that it had been vindicated and that only $1.48 billion had been found unremitted in the forensic audit. Even then, NNPC insisted that the $1.48 billion was not unremitted revenue from crude oil sales but rather, the amount was the balance of the book value of the divested assets that were transferred to the NNPC upstream subsidiary, the Nigerian Petroleum Development Company (NPDC), excluding taxes and royalties. The Group Managing Director (GMD) of NNPC, Dr Joseph Dawha, explained this, saying that the Department of Petroleum Resources (DPR) was still reconciling the amounts due. He said the amount would be remitted following the reconciliation.

REGULATORY NEWS GOODLUCK JONATHAN ORDERED RELOCATION OF $500M LADOL FPSO PROJECT TO BAYELSA In April, the Nigerian Ports Authority (NPA), in a letter, directed the management of LADOL Integrated Logistics to relocate its ongoing $500 million fabrication and integrated yards project in Tarkwa Bay within Apapa pilotage area in Lagos State to Aggey, Bayelsa State. The letter entitled “Joint Venture Partnership with Samsung Heavy Industries for the USD$500 Million development of fabrication and integration yards for EGINA and Future Projects,” was signed by NPA’s General Manager (Capital Project), A.R. Mohammed, on behalf of the Managing Director. It read: “Please, be informed that Mr President has via PRESS/S9/MT/212 of April 20, 2015 approved that the FPSO (Floating Production Storage & Offloading) project can be located at Agge, Bayelsa State when the facilities to handle such operations are developed.” An outraged LADOL described the directive as “shocking’’ and out of tone with the agreement it entered into with its technical partners and the federal government. The Managing Director, Amy Jadesimi explained that it would send wrong signals to private investors and foreign technical partners, pointing out that a lot of resources had already been deployed to put the facilities in place at its yard.

The Nigerian Ports Authority (NPA) issued an additional circular to operators in the country’s free zones. The letter also signed by AR. Mohammed, said that the President had directed that henceforth all oil and gas related cargoes must be handled only at the designated terminals in Onne, Warri and Calabar ports. In view of this, vessels coming to Nigeria with oil and gas related cargoes excluding petroleum products would have to go first to the appropriate NPA concessioned terminals to be cleared by Customs and other relevant authorities, pay necessary dues/charges and obtain releases before proceeding to other ports for final discharge. This directive meant that the $500 million

NEITI REVEALED $47 MILLION OIL REVENUE FROM 2012 AUDIT STILL UNACCOUNTED FOR The Executive Secretary of the Nigerian Extractive Industries Transparency Initiative Extractive (NEITI), Zainab Ahmed revealed in June that there was still no explanation for the whereabouts of the sum of $47 million, which in its 2012 audit of the oil and gas industry, it revealed was neither reconciled nor accounted for. She recalled that the audit found that Nigeria earned a total of $62.944 billion as revenues from oil and gas in 2012. However, of this amount the difference between what companies claimed they paid and what government agencies declared they received into government coffers was $47million. Ahmed was speaking during the visit of the outgoing International Chair of the Extractive Industries Transparency Initiative (EITI) International Chair, Clare Short who was in the country to convey the support of the organisation to President Buhari and his administration. Ahmed also disclosed that from the 2012 Audit Report over $210 million represented revenue loss to the Federation as a result of under assessment of taxes while another $465.8million was lost by the country as a result of under assessment of Petroleum Profit Tax (PPT), Royalty and other petroleum taxes. Ahmed used the opportunity to call for the implementation of the findings and recommendations contained in various NEITI Audit Reports as part of the proposed reforms of the new administration.

topside fabrication and integration for the Egina Floating Production Storage Offloading (FPSO) could not be carried out at the LADOL yard in Tarkwa Bay. Management of LADOL pointed the finger at Integrated Logistics Services Limited (INTELS) for instigating the directive but INTELS denied this saying Onne Free Zone had been designated for oil and gas activities since 1986. About 190 companies dedicated to oil and gas operations are licensed to operate at the Zone. LADOL immediately headed to court to obtain an injunction to prevent the relocation of the project. Read more in Legal News.

DPR REDUCED LICENSING FEE FOR MODULAR REFINERIES TO $500K In a bid to encourage the establishment of modular refineries, the Department of Petroleum Resources (DPR) in May, reduced the licensing fee for the establishment of modular refineries by 50 per cent, from $1 million to $500,000. The new pricing was revealed at a one-day stakeholders’ workshop on the Guidelines for Establishing Modular Refineries organised by DPR. The policy to encourage the establishment of modular refineries is seen as a quick fix measure for solving the long running problem of the shortage of petroleum products. The event which played host to all the major players in the upstream sector, presented opportunities for DPR to engage investors on how to tackle some of the issues and challenges hindering the setting up of refineries. The Director of DPR, George Osahon, said the Department would manage the whole process including the issuance of licenses and approvals to operators.

101

REGULATORY NEWS EFCC BEGAN PROBE INTO CRUDE OIL FOR PRODUCTS SWAP DEALS The Economic and Financial Crimes Commission (EFCC) investigation into swap deals in which crude oil was swapped for refined products was beginning to yield results NOGintelligence sources said. One downstream company was said to have already refunded $500 million, an amount, which industry analysts say was only a small amount of what was yet to be recovered. The investigation was launched jointly with the Department of State Services (DSS) soon after the Buhari administration, which was elected on an anti-corruption platform, took over. Aiteo and Sahara Group issued strong denials of any wrongdoing. The practice in which traders acquired Nigeria’s crude oil from the Nigerian National Petroleum Corporation (NNPC), in exchange for importing refined petroleum products in swap deals have come in for a lot of criticism. The Executive Secretary of the transparency watchdog, NEITI, Zainab Ahmed, sent a report in 2014 to an ad hoc House Committee set up to investigate claims made by Swiss nongovernmental organisation (NGO), Berne Declaration, that Nigeria was losing an estimated $8 billion in revenue as a result of the transactions. In the report she said that NEITI found that four of the oil traders, Trafigura (173,786,600 litres); Vitol (654,440.7 litres); Taleveras (152,308,878 litres); Aiteo Nigeria Limited (193,046,590 litres) and Ontario Oil and Gas (180,278,732 litres) “under-delivered” 500,075,239.3 litres of products in total in 2011. As a result, the report said, the country was owed billions of dollars in lost revenue. Sources said EFCC was determined to unearth the finer details of these transactions. The companies will have to explain how the rates of exchanged used in the transactions were computed and what costs were added on. One of NEITI’s criticisms of the deals was that the refined products were landed in Nigeria fully loaded with costs that made the swaps uneconomic for Nigeria. It seems these deals will now be a thing of the past under the new administration, which is determined to recover any sums owing due to under-delivery as highlighted in NEITI’s report.

CRUDE TANKER OWNERS PROTESTED NIGERIA’S BAN ON 113 CRUDE CARRIERS Also in July International crude tanker owners protested after 113 crude oil carriers were prevented from loading at oil terminals following a directive issued by President Muhammadu Buhari. The Nigerian National Petroleum Corporation (NNPC) was instructed in the directive to bar the 113 vessels, mainly VLCC (very large crude carriers) crude oil tankers, from Nigerian crude oil terminals and Nigerian waters with immediate effect. Group General Manager, Crude Oil Marketing Division of NNPC sent a memo to all terminals to stop the blacklisted vessels from lifting from 27 terminals including the most popular, Bonny, Bonga, Brass, Ebok, Escravos, Forcados, Pennington and Qua Iboe. The ban was to enable the vessels to be investigated and was one of the ways in which the government was seeking to fight crude oil theft. President Buhari had said that Nigeria was losing 250,000 barrels of oil per day to oil thieves. Industry association Intertanko, whose independent members own the majority of the world’s tanker fleet, said in a letter to NNPC, that no evidence or grounds were given for the ban. After nearly two months, Nigeria cancelled the ban. However, incoming vessels into Nigerian waters would be required to get a “Letter of Comfort” from export terminal operators and buyers of Nigerian crude as guarantee that the nominated vessels were free and would not be utilized for any illegal activity whatsoever. The demand for a “letter of comfort” before loading caused a lot of uncertainty, pushing up West African Suezmax freight rates. It was also beginning to affect spot trading activity in the Nigerian crude oil market. In due course, the two sides seemed to settle on a mutually acceptable template for the comfort letter in due course.

BUHARI DISSOLVED NNPC BOARD In July, President Buhari dissolved the entire Nigerian National Petroleum Corporation Board, an indication that a wholesale restructuring was yet to come. The Corporation, which had been riddled with allegations of corruption for many years, appeared to be headed for major re-organisation. The Board members who were dismissed were the Group Managing Director, Joseph Dawha; Bernard Otti, Group Executive Director, Finance

102

& Accounts; Dan Efebo, Group Executive Director, Corporate Services; Ikechukwu Oguine, Coordinator, Legal Services and Secretary to the Corporation. Other board members were Alhaji Abdullahi Bukar, Danladi Wadzani, Olusegun Okunnu, Danladi Kifasi, Steven Oronsaye. The former Group Executive Director, Exploration and Production, Abiye Membere who was sacked by the former Minister of Petroleum Resources, Diezani Alison-Madueke, had not been replaced.

REGULATORY NEWS

FIRS WROTE TO 200 OIL & GAS FIRMS OVER TAX DEFAULT

INDEPENDENT PRODUCERS MET WITH THE PRESIDENT Members of the Independent Petroleum Producers Group met with President Muhammadu Buhari in August. Speaking after the meeting, CEO of Seplat, Austin Avuru said: “We called for the meeting because we realised we needed to engage with Mr. President. We identify with his policy direction. We realised we are very critical partners that he needs to know about and to engage with very early in the administration.” The group consists of indigenous companies, together currently producing 200,000 barrels of oil per day and over 900 million cubic feet of gas per day. The group say that they expect to be able to achieve 1.2 million barrels of oil per day in refining capacity by 2020. Avuru said: “We actually put it at 1.2 million barrels domestic refining capacity per day and that falls on our doorstep as indigenous operators.” Avuru explained that altogether they had made over $9 billion investment just in acquiring the assets and over $1 billion in work programme investment. He said that independent producers were going to become a very critical partner to government, particularly in the delivery of natural gas and other products into the domestic economy.

The Federal Inland Revenue Service (FIRS) identified and wrote to over 200 oil and gas companies that did not file tax returns for 2015. FIRS wrote to the oil and gas companies directly or through their tax consultants requesting them to comply before the end of the year. Acting executive chairman of FIRS, Tunde Fowler, said that as part of strategies to engage stakeholders, FIRS in October 12, 2015 commenced a nationwide tax registration drive (with a focus on VAT), to bring in all unregistered taxpayers into the tax net. He said there would be greater emphasis on the role of tax consultants in ensuring compliance by their clients. “As a start, we have written letters to the major firms, including KPMG identifying some of their non-compliant clients,” he said. “We will, therefore, continue to collaborate and engage with stakeholders so that our message of voluntary compliance as the first line approach for managing taxpayers is understood and internalised by tax consultants, taxpayers and all other stakeholders,” Fowler added.

SURE-P WAS UNWOUND Early in November, President Muhammadu Buhari directed the Subsidy Reinvestment and Empowerment Programme (SURE-P) to begin the process of winding up. He instructed the Sure-P committe to shut down its operations and submit a comprehensive report of its activities to the Presidency. He also ordered an immediate probe into the activities, funding and expenditure of the agency. The SURE-P Committee was hastily constituted by President Goodluck Ebele Jonathan following the attempt to remove petroleum subsidies. Eventually the federal government went ahead with just a partial removal. The mandate of the SURE-P programme, which was inaugurated on the 13th of February 2012 was to reinvest the Federal Government’s share of the savings arising from the partial removal of subsidies on petroleum products into infrastructure, health and educational programmes and

initiatives. The Committee was given an air of respectability with the appointment of Dr. Christopher Kolade CON as Chairman. The programme soon came under fire from different quarters. Dr Kolade himself complained that the arrangement for its funding gave 41 per cent of the total fund goes to the Federal Government, 54 per cent was shared by state governments and local governments, while the remaining five per cent was allocated to the Ecological Fund, which is federal government business. The programme was also criticized for appearing to be funding projects that the Federal Government was already funding. The programme had already received $2.5 billion for projects and a further payment of $1.6 billion was due in 2014.

After less than a year in the job, Dr Kolade resigned form the job that was threatening to tarnish his squeaky clean image cultivated over many years of exemplary public service including a stint as Nigerian High Commissioner in the United Kingdom. He cited his need for more time to himself and his family in view of his advancing age (81 years at the time). Martin Agwai was appointed as the new Chairman but the criticism did not stop and the programme continued to be viewed with distrust. Following the announcement of the directive, an examination of social media sites showed that no one appeared to be mourning the end of the programme in spite of some of the laudable programmes SURE-P’s websites said it had been involved in.

103

REPORT

THE PWC “AUDIT” OF NNPC In April, after repeated calls for the release of the Price Waterhouse Coopers (PwC) “audit” that was said to have vindicated the Nigerian National Petroleum Corporation (NNPC) over allegations of missing funds, the Report was finally released. The forensic audit, which PwC conducted stemmed from the allegations made by the current Emir of Kano, His Highness Muhammadu Sanusi II, when he was Governor of the Central Bank of Nigeria (CBN), that NNPC had failed to remit the sum of $20 billion to the Federation Account. At the onset of the allegations, hurried reconciliations were carried out between various government ministries and agencies, including CBN, NNPC, Department of Petroleum Resources (DPR), the Ministry of Petroleum Resources and the Ministry of Finance, and the sum that was unaccounted for was reduced to $12 billion or $10.8 billion depending on whom you were speaking to. The public appetite for the truth was not to be sated by this hurried reconciliation, as the stench of corruption hung heavy in the air. There was growing demand for a proper audit to be conducted by one of the big 4 firms. President Jonathan eventually heeded the growing call for an audit of the accounts of NNPC in order to get to the bottom of the matter. PwC was engaged on 5th June 2014 and told to delve into the accounts and put the allegations to rest once and for all. How much money was missing and where was the money?

104

THE INITIAL REPORT

After the long awaited report was completed NNPC claimed it had been vindicated by the report. Details of the findings of the report remained sketchy however. All calls to release the report went unanswered. This was perplexing. If NNPC had been vindicated, why not release the report? Eventually, the President’s hand was forced following the leak of the muchguarded report. The report revealed that PwC initially submitted its report in November 2014. In view of some highly critical findings more documents were submitted to PwC enabling it to revise the report. PwC said that a significant amount of additional information and “clarification” was provided following the submission of that initial report. As a result PwC said the revised report had significant changes from the original report, although covering the same period.

REPORT THE REVISED REPORT The revised report was submitted on the 2nd of February 2015. In the new report, PWC found that the sum of $1.48 billion had not been remitted to the Federation Account by NNPC. The Minister of Petroleum Resources, Diezani Alison-Madueke, promptly announced that she had instructed NNPC to begin remitting the funds. In spite of the jubilatory statement by NNPC that it had been vindicated by the report and that “only” $1.48 billion was due to the Federation Account, on close inspection, there was nothing to celebrate. PwC complained that it was not given access to much of the information it needed to conduct a proper forensic audit. Keen to protect its international reputation, the auditing firm issued the following devastating disclaimer at the opening page of the report: “The procedures we performed did not constitute an examination or a review

in accordance with generally accepted auditing standards or attestation standards.” The company went even further, saying: “We provide no opinion, attestation or other form of assurance with respect to our work or the information upon which our work was based.” Of particularly concern was the lack of access to the full accounts and records of the Nigerian Petroleum Development Company (NPDC) the exploration and production subsidiary of NNPC. Without access to the NPDC accounts, PwC could not ascertain the amount of costs and expenses that should be applied to the crude oil revenue NPDC received. This meant that PwC could not determine what should be considered dividend payment by NPDC to NNPC and therefore for ultimate remittance to the Federation Account. All of this made the report inherently unreliable.

SCOPE OF THE PWC AUDIT When PwC was engaged, it was instructed by the Office of the AuditorGeneral for the Federation (AuGF) to investigate any and all crude oil revenues generated by the NNPC that was withheld or unremitted to the Federation Accounts between 1 January 2012 and 31 July 2013 (the period under review).

FINDINGS OF THE AUDIT The findings of the report included the following conclusions on the financial issues (bearing in mind that no information was provided directly by NPDC): Subject to additional information being provided, PwC estimate that the NNPC and NPDC should refund to the Federation Account a *minimum of $1.48 billion. *emphasis provided In relation to the Shell divestment of Oil mining leases (OML’s) 4,26,30,34,38,40, 41,42, the information provided indicated that the 8 assets were transferred to NPDC for an aggregate sum of $1.85 billion. So far, only the amount of $100m had been remitted in relation to these assets. This meant that the amount of US$1.75 billion was yet to be remitted in relation to this transfer. Regarding to the said divestment, a comparison of the aggregate amount of $1.85 billion determined by DPR as the transfer value, and the (arm’s length) commercial value paid for by 3rd parties for between 30% to 45% divested by Shell, PwC arrived at an estimated Alternative Commercial Valuation of $3.4billion for the NNPC 55%. Whilst this was a government entity to government entity transaction, the point PwC made was that it had expected a transfer basis higher than the $1.85 billion commercial value determined by DPR. As a result of not having access to NPDC’s full accounts and records, PwC was unable to ascertain the amount of costs and expenses, which should be applied to the US$5.11billion Crude Oil revenue as submitted to the Senate Committee and therefore the net revenue that should be subjected to dividend remittance. NNPC incurred $3.38 billion in DPK subsidy for the review period.

CRITICISM OF UNSUSTAINABLE NNPC MODEL The report was scathing about NNPC, saying that it was operating an “unsustainable model,” with forty six per cent (46%) of proceeds of domestic crude oil revenues for the review period spent on operations and subsidies. The Corporation was unable to sustain monthly remittances to the Federation Account Allocation Committee (FAAC), and also meet its operational costs entirely from the proceeds of domestic crude oil revenues. As a result, they took on third party liabilities to bridge the funding gap. NNPC’s position was made even more precarious by the crash in oil prices. During the period under review, international crude oil prices averaged $122.5 per barrel whereas by the time the report was concluded, oil prices were down 62 per cent to about $46.07 per barrel. If the NNPC overhead costs and subsidies were maintained (assuming crude oil production volumes were maintained), the Corporation could expect to have to exhaust all the proceeds of domestic crude oil sales, and still require third party liabilities to meet costs of operations and subsidies. This meant that NNPC could arrive at a position where it was unable to make any remittances to the Federation Account.

105

REGULATORY PWC RECOMMENDATIONS n The main recommendation that PwC made in its report was the urgent review and restructure of NNPC’s model of operations. n A determination was required as to whether all or a portion of “other costs not directly attributable to crude oil operations” could be defrayed by NNPC. n The analysis of the crude oil revenue and remittance for the period under review and the resulting potential excess remittance suggested the existence of liabilities to third parties incurred by the Corporation. The Corporation should be required to disclose details of all existing liabilities and the impact on proceeds of future crude oil sales. n All revenues and costs of the Corporation and all its subsidiaries should be accounted for in a consolidated position. A proper estimate of the actual potential excess remittance/under-remittance could only be arrived at if that was done. All

the costs of the Corporation, including those of its loss making subsidiaries were defrayed and yet, the profit making subsidiaries and dividends received were excluded from the analysis provided by NNPC. This suggested that there were other sources of net revenues available to the Corporation not currently disclosed. n The nature of costs that were allowable should be pre-determined by all relevant parties. n The NNPC Act should be reviewed. Whilst the Act required NNPC to be run as a commercially viable entity, however, it perversely gave the Corporation a “blank” cheque to spend money without limit or control. PwC called the position untenable and unsustainable and called on the government to address the position immediately. PwC said the Corporation should be required to create value, and meet its expenses entirely from the value created. PwC called for proceeds from the federal government’s

crude oil sales to be remitted entirely to the Federation Accounts from which commissions for the Corporation services could then be paid based on agreed terms. n NPDC should remit dividends to NNPC and ultimately the Federation Accounts, based on NPDC’s dividend policy and declaration of dividend for the review period. n An official directive should be written to support the legality of the kerosene subsidy costs. This should also be followed by adequate budgeting and appropriation for the costs. n NNPC should be required to explain the reason for selling DPK at N40.90, rather than the regulated ex-depot price of N34.51. The Corporation should also be required to explain the reason for selling DPK to bulk DPK marketers at a location on the coastal waterways (off shore Lagos) rather than at the incountry depots.

CATALOGUE OF MISSING INFORMATION The forensic exercise was greatly hampered by missing information. Some of these are detailed below:

divestments, the Deeds of Assignment for OML’s 26,30,40,42 were provided but not those for OML’s 4,38,41,34.

n The summary of crude oil revenue and remittance by NNPC for the period under review indicated a potential excess remittance to the Federation Account of $0.74 billion. The Corporation represented that this potential excess was funded from proceeds of PMS sales for which the suppliers of the PMS were yet to be paid in cash or crude oil. NNPC failed to provide details of the affected suppliers that funded this potential excess remittance.

n As a result of not having NPDC’s full accounts, PwC was not aware whether NPDC declared dividend for the review period, which if it did would be revenue due to be remitted to the Federation Account.

n No information came directly from NPDC on the revenue generated by NPDC for the period. Instead PwC relied on the submissions of the former NPDC Managing Director (Victor Briggs) to the Senate Committee that NPDC generated $5.11billion (net of royalties and petroleum profits tax paid) for the period under review. n PwC did not receive any direct information and had to rely on the Legal Opinion provided to the Senate Committee by the Attorney General (AG) on the subject of the transfers of various NNPC (55%)

106

n Details of costs of $2.81 billion incurred by NNPC, not directly attributable to domestic crude were only provided in 2015 AFTER the initial report had been submitted. portion of Oil leases (OMLs) involved in the Shell (SPDC) Divestments. n PwC did not obtain any information to suggest that NPDC has been assessed for PPT and royalty for the review period. The former MD of NPDC had admitted at the Senate hearing that the only assessment that was done was an unpaid selfassessment of PPT and royalty to the tune of $0.47 billion for the review period. n In relation to PwC’s consideration of the amounts due regarding the Shell

n The accounting and reconciliation system for crude oil revenues used by Government agencies appeared to be inaccurate and weak. There were significant discrepancies in data from different sources. The lack of independent audit and reconciliation led to over reliance on data produced from NNPC. This matter was further compounded by the lack of independence within NNPC as the business had conflicting interests of being a stand-alone self-funding entity and also the main source of revenue to the Federation Account.

EXTENDED FEATURE

DR IBE KACHIKWU:

MAKING WAVES

AT NNPC Dr Emmanuel Ibe Kachikwu, was brought in to spearhead the transformation and clean up of NNPC. He immediately set about his task in earnest. What happened next, as the man, a known workaholic, set about his task, prompted references by NNPC staff to a tsunami sweeping through NNPC. This is the story of the year and from which our cover illustration is taken. In this article, we chronicle the transformational changes that NNPC has undergone in 5 months under Kachikwu as he works tirelessly to rid the institution of its cobwebs and usher in a new era of openness and transparency in a Corporation, which had been racked with scandal after scandal over the years.

108

EXTENDED FEATURE

CHANGING OF THE GUARD After months of delay in appointing Ministers to his cabinet, it was the appointment of Kachikwu as Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC) on the 4th of August that signalled that the new government under President Buhari was finally beginning to take shape. Kachikwu is a graduate of the University of Nigeria, Nsukka where he studied law. After qualifying as a Barrister at the Nigerian Law School, he went on to Harvard where he obtained his Masters and Doctorate Degrees in Law. He then went into law practice in the US, joining Texaco later, eventually moving on to Exxon Mobil eventually becoming Executive Vice Chairman and General Counsel before his appointment. Kachikwu has published a number of books, including his book on the Law and Practice of Corporate Governance in Nigeria. He has also written books on Investment Law and Contracts. It may well be this kind of expertise, in addition to his other accomplishments, including lecturing at Harvard Law School and the Nigerian Law School, which earned him the credentials for the appointment to the crucial position. NNPC had been racked with scandal over the years with accusations of failing to remit billions of dollars in revenue due to the Federation Account. Under Buhari’s administration, which came in on an anti-corruption platform, corporate governance was crucial to maintaining the transparency that the general public needed to see in the management of NNPC affairs. As a corporate governance expert, Kachikwu, much was expected of the man, who in his previous role as Vice Chairman and General Counsel advised ExxonMobil on compliance and anti-corruption matters. A brief handover ceremony was held at the NNPC Towers, Abuja, to mark the changing of the guard. At the event, Kachikwu expressed gratitude to his predecessor, Joseph Dawha, for his hard work in heading the corporation. He pledged to work assiduously in achieving the President’s growth aspiration for the oil and gas industry in the country. It was expected that this would mark an end to the revolving door era under Goodluck Jonathan which saw 5 GMDs appointed and dismissed in as many years. With a seemingly unfettered discretion given by his boss, President Buhari, Kachikwu seemed unstoppable as he worked to plug the leaks in revenue. He was working hard to dismantle the largely opaque processes and systems that were created in the past to enable corruption and mismanagement. He was able to continue the process seamlessly when his appointment as Minister of State, Ministry of Petroleum Resources was confirmed. He continued to report directly to the President who became the Minister of Petroleum Resources. At his screening at the National Assembly, he pledged his readiness to work closely with the National Assembly to ensure the speedy growth and development of the sector. Kachikwu’s first 40 days in office as GMD went by in a flash but the reaction to his changes were positive. One

House of Representatives member in an interview said: “My interactions with the personnel has revealed that Mr. Kachikwu has changed the way business was done hitherto in the Corporation. They gave examples of the so-called untouchable contracts that he cancelled; the unbundling of PPMC. He introduced whistle blowing and recognition of personnel contribution to the overall performance of the Corporation (reward system). They also mentioned that the quality of communication within the Corporation has increased a great deal and finally that he has given management and staff hope. If he can replicate these in the subsidiaries then he would have set the agenda for change in the industry.” Shortly after resuming in August, the newly appointed Kachikwu explained the three arms of his multi-faceted restructuring approach.

1. THE PEOPLE PHASE The first stage was what he called the “People Aspect.” The GMD’s approach was to purge the top echelon of a Corporation. There was no suggestion that all of those removed were involved in wrong doing but his view was that it was best to get a clean start and get new people in.

2. THE PROCESS PHASE The next stage of his battle to reform the Corporation was about processes. In that phase, he intended to get a forensic audit done. He said: “We are going to put processes and controls in place. We are going to do retraining and repositioning and then, we are going to re-engage our majors and minors, all those who are active in the sector, for us to work as a team to take Nigeria forward.” Then, said the man, who was chosen to wield the axe in the President’s laudable ambitions for the State corporation, he would be able to say to the nation: “This is the state of the company.”

3. THE BUSINESS PHASE Kachikwu’s plans in his three-phase project would culminate in a thorough review of the existing contracts. He intended to use this stage to look at all the existing contracts, which made the Corporation’s legal adviser, a key appointee in the process. He said: “The final stage will be the business stage, which will be looking at all the existing contracts. Are they good? Are they okay? Do they need to be re-kitted and redone?” Buhari’s hatchet man as not sleeping very much. He said: “It is very intensive work; very calibrated work. A new process of oil administration in the country and obviously, giving fillip to Mr. President’s dream of taking the oil industry back to where it should be.”

109

EXTENDED FEATURE

FIRINGS AND HIRINGS AT NNPC Immediately after his appointment as Group Managing Director, Kachikwu’s first step was to take all the Group Executive Directors out in one fell swoop. Many wondered if he wasn’t throwing the proverbial baby out with the bath water. Surely they couldn’t all be tainted by the corruption and mismanagement that was rife at the old NNPC? There must be some he could surely work with? Not with Kachikwu. He insisted that he needed a clean slate. He needed to appoint new people who would understand that it was no longer business as usual. A new sheriff was in town and this sheriff was taking no prisoners. Not one to shy away from the tough side of his responsibilities, Kachikwu assembled the GEDs and delivered the news to them personally. He expressed gratitude to them for their services to the Corporation and wished them success in their future endeavors. With that very act, a new era was ushered in. The 8 Directorates were reduced to 4, with Finance merged with Services, Refining merged with Technology whilst Business Development as well as Gas and Power were done away with altogether. The other surviving Directorates were Exploration and Production as well as Commercial and Investment. New GEDs were appointed to head up the restructured

110

Directorates: Maikanti Baru, Exploration & Production; Isiaka Abdulrazaq, Finance & Services; Dennis Nnamdi Ajulu, Refining & Technology; and Babatunde Victor Adeniran, Commercial & Investment. Kachikwu was going to need someone strong to head legal in his bid to reform and restructure the contracts that had created huge avenues for revenue leakage. He handpicked Chidi Momah for the job of Group General Manager, Company Secretary & Legal Adviser. Until then, Momah was Executive General Manager, Government Relations & Communications, Total Upstream Companies in Nigeria. Next were new heads for the subsidiaries. Other appointees in the culling exercise which the Group General Manager, Group Public Affairs, said in a statement, was intended turn the Corporation into a lean, efficient, business-focused, transparent and accountable national oil company, included the following appointees to head the NNPC subsidiaries: Esther Nnamdi Ogbue - Pipelines and Products Marketing Company (PPMC), Chinedu Ezeribe - Warri Refining & Petrochemicals Company (WRPC), Babatunde Bakare - Nigerian Gas Company (NGC), Inuwa Ibrahim Waya Hyson; Abubakar Mai-Bornu - Nigerian Petroleum Development Company (NPDC), Ladipo Fagbola - NNPC Retail, Rowland

Ewubare - Integrated Data Services Ltd (IDSL), Modupe Bammeke - NNPC Properties, Abdulkadir Saidu - Duke Oil, Dafe Sejebor - Nigerian Petroleum Investment Management Services (NAPIMS). That wasn’t all. In total, Kachikwu axed 38 top management staff and reduced their numbers from 122 to 83 in his bid “to jump-start a new business outlook to enhance the operational environment as a profit-driven business as against the current civil service orientation.” Among the top managers relieved of their duties were General Manager (GM) Commercial, GM NNPC Retail, GM Sales and Marketing NNPC Retail, GM Operations NNPC. Kachikwu had still not finished his people process by the end of the year. Denying reports that he planned to sack 1,000 workers, NNPC admitted that as part of the reorganization programme of the Corporation, half of the over 2,200 staff presently at the corporate headquarters would be redeployed to the subsidiaries with a view to making them more effective. Kachikwu has said of his tough approach: “The exercise, apart from gearing the Corporation in the direction of a leaner and more efficient organization, has enormous cost-saving benefits.”

EXTENDED FEATURE OLD OFFSHORE PROCESSING AGREEMENTS WERE CANCELLED AND NEW TENDERS INVITED As had been predicted, the largely criticised Offshore Processing Agreements (OPAs) and Crude Oil Swap deals were cancelled towards the end of August. Nigeria’s national refineries together have a nameplate capacity of 445,000 barrels of crude oil per day but have been performing at only a small fraction of their capacity for years. A scheme was devised in which just under half of that amount of oil would be allocated to traders and swapped for processed products under Crude Oil Swap Arrangements. The problem was that the deals were so slanted in favour of the traders that they were largely uneconomic for Nigeria. Yet the scheme continued for years with the last ones eventually lapsing in December 2014. The scheme was reincarnated as OPAs, where traders were once again given the crude oil to process abroad, in a variation on the old theme. It was business as usual as the contracts were designed to favour the traders to the detriment of the nation. There are also tales of under-deliveries with one non-governmental organization accusing NNPC in a report of colluding with traders to defraud the nation, although all the traders mentioned in the report denied the accusations. The deals were criticised by many, including the Nigerian Extractive Industries Transparency Initiative (NEITI), the Swiss NGO, Berne Declaration (BD) and recently, the New York-based Natural Resource Governance Institute (NRGI), for the heavily loaded landed costs that made them

extremely uneconomical for the nation. Cancelling the OPAs, NNPC said in a statement,: “After detailed appraisal of the operation and its terms of agreement, the NNPC is convinced that the current OPA is skewed in favour of the companies such that the value of product delivered is significantly lower than the equivalent crude oil allocated for the programme.’’ Meanwhile the traders involved in the old arrangement were invited for discussions to ascertain whether they had all delivered the quantities of products they were contracted to deliver. Soon after, tenders for the new Offshore Processing Agreements were announced. The qualification criteria were intended to weed out briefcase companies. In the pre-

qualification stage, the minimum turnover required from bidders was $1.5 billion while the companies were required to have a net worth of at least $500 million. If that requirement was strictly complied with, it would sort out the wheat from the chaff. The pre-qualification process closed on 14th October 2015, and NNPC received 101 bids. A special bid evaluation committee was constituted to conduct due diligence on successful applicants. However, the tender was cancelled after an evaluation of the bids revealed that there were only a few refineries that bid. Kachikwu decided that he would rather deal directly with the refineries in order to cut out all the extra costs involved in using traders as middlemen. The refineries that submitted bids were contacted and the process continued without the other bidders.

TERM CRUDE OIL LIFTING TENDERS WERE INVITED Whilst Kachikwu was dealing with the Offshore Processing Agreements, he also had his eye on the Crude Oil Term Contracts, which is how Nigeria normally disposes of its share of crude oil from joint venture operations. The contracts typically last for a year. NNPC revealed that as part of the restructuring it would whittle the number of off-takers from 43 down to 16. At the last bid for the term contracts under Diezani Alison-Madueke, many were surprised at the large number of Nigerian companies that qualified in spite of the impossibly high turnover requirements. The former Minister of Petroleum said it was done to support the local content development aspirations. Critics however said the process was intended to enable cronies to be rewarded directly rather than having to partner with Swiss traders.

The tender for the new contracts was released and the pre-qualification criteria required bidders to have an annual turnover of $750 million and a net worth of at least $300 million. This would ensure that only serious traders were admitted to the process. In spite of the steep qualification criteria, 278 bids were received for the 26 Nigerian crude oil grades on offer. The bids were opened publicly in a new era of transparency under the new Group Managing Director, Dr Ibe Kachikwu. Out of the 278 offers, only 21 offtakers were successful in getting allocations for the 991,661 barrels of Nigeria’s equity crude oil on offer. The successful companies were split into five categories: refineries, international trading companies, trading affiliates of international oil companies (IOCs), Nigerian downstream players and NNPC affiliates. More details of the winners are in the section on Downstream News.

111

EXTENDED FEATURE PPMC WOULD BE SPLIT INTO THREE COMPANIES Kachikwu revealed plans to unbundle the NNPC subsidiary, PPMC, which is responsible for products marketing for the Corporation into three companies. It is seen as too big and unwieldy and largely inefficient as a result.

outage as pipelines are hacked into.

Firstly, there would be a separate pipeline company whose job would be to focus on maintaining the Corporation’s five thousand kilometres of pipelines which were constantly under attack from oil thieves, resulting in constant delivery

Finally, there would be a third company, a products marketing company, that would concentrate on doing what the subsidiary was set up to do in the first place and that was, marketing and selling petroleum products.

Secondly, there would be a separate storage company that would be responsible for maintaining NNPC’s 23 storage depots around the country.

KACHIKWU PUT REFINERIES ON A FIX OR FULLY SHUT PROGRAMME Soon after he took office, Kachikwu made a tour of the refineries a priority and said he would provide everything necessary to get the refineries operating commercially and optimally. He gave the refineries 90 days to commence viable production. He would shut down any that were not able to meet that deadline. He would then make plans for the complete overhaul or re-building of those that were not commercially viable within that time. By December, Port Harcourt and Kaduna were in production. Kachikwu had an urgent mission to deliver petroleum products to the nation. With the national refineries moribund, the only option was the importation of petroleum products underscored by a subsidy the

nation could not afford, in order to make the product more affordable to the end user. He had no choice but to get the refineries working quickly in order to reduce the cost of importing petroleum products. Kachiwku also confirmed that the national refineries were not for sale. He was keen to see the ongoing phased turn around maintenance of the refineries accelerated to give the nation access to a supply of 10 million litres of petroleum motor spirit (PMS), which the refineries

were potentially capable of delivering when working at optimum capacity. Kachikwu intended to invite joint venture partners with established track records in successfully operating refineries to enter into joint ventures to help run the refineries. The last Minister of Petroleum had admitted that the government was no good at running the refineries after they had been left to deteriorate and become almost totally incapacitated, before the commencement of the ongoing rehabilitation exercise. Kachiwku believed that a joint venture would increase efficiency in the refineries.

CRUDE OIL DELIVERY CONTRACTS TO REFINERIES WERE CANCELLED

NNPC WOULD RELY ON ITS OWN STORAGE DEPOTS Kachikwu vowed to end the Corporation’s reliance on private depots for the storage of a large part of its petroleum products. He recalled the era, when he was growing up in the industry and everyone got their products from PPMC. Now, he said, PPMC is putting products more in the tanks of marketers and letting them run the show. “That is not going to continue under my watch,’’ he pledged. Carving out a separate arm from PPMC to run the depots was a step towards achieving his goal.

112

Recent media reports brought to light the high cost at which crude oil was being delivered to the national refineries at Warri, Port Harcourt and Kaduna. The reports also criticised the opaque method of award of the contracts, which saw delivery of crude being undertaken by marine vessels. These contracts went hand in hand with security contracts for ensuring the deliveries were made. The security contracts were said to have cost as much as the delivery contracts themselves under which NNPC was spending $7 million a month. The former Minister acknowledged it publicly although without admitting that the cost was really double that, when the security contract was added on. Insiders also suggested that the amounts contracted were not even all delivered. NNPC resorted to delivery of crude oil by marine vessels after regular attacks on crucial pipelines from Bonny and Escravos rendered them unusable for most of 2013. Whilst the decision was a pragmatic one in view of the insecurity of pipeline delivery, the problem was the way in which the contract was awarded, which did not meet the standards for due process.

After resuming office, Kachikwu cancelled the contracts, with NNPC engaging its own subsidiary, NIDAS Marine Ltd, to provide the marine delivery service as a stopgap measure. In a statement, the Corporation said: “We have also commenced a rigorous and transparent process of securing capable and competitive contractors for the delivery of crude oil by marine vessels to Port Harcourt and Warri/ Kaduna Refineries pending the restoration of the crude pipeline infrastructure.”

EXTENDED FEATURE BRASS LNG WAS TO BE GIVEN TOP PRIORITY

LICENCES TO ESTABLISH MODULAR REFINERIES WERE GRANTED Under the previous administration, a new policy to support the construction of modular refineries was announced although there was no outward demonstration of this new policy. Seen as a quick fix solution to the petroleum shortage problem, Buhari’s administration, licences rushed out licences to 65 Nigerian companies out of 285 applicants, to construct modular refineries after undergoing screening in respect of their capabilities. The successful companies were granted licences Licence to Establish (LTE), Approval to Construct (ATC) and the Licence to Operate (LTO) to set up mini-refineries that would refine from 1,000 to 10,000 barrels per day. The modular refineries, which can be assembled easily, are expected to enhance the availability of crude oil products in the country. 18 LTEs were granted in 2002, but the only awardee that had managed to come on stream was Niger Delta Petroleum Resources (NDPR) with a 1,000 barrels per day (bpd) capacity, producing automotive gas oil (AGO) more popularly known as diesel. Most of the awardees said that the government had not created a conducive environment to operate private refineries. As a result they could not get investors interested in financing the refineries within a short time. Kachikwu also announced plans for new national refineries. He said; “I am pushing to build new refineries next to our existing plants in order to boost the nation’s refining capacity for the common good.” He envisages joint ventures with private investors with NNPC’s role being to provide them with space close to existing refineries which would make it possible for them to share facilities like pipelines and storage in order to keep costs down.

The Brass LNG project may have had new life breathed into it after Kachikwu re-affirmed NNPC’s commitment to move forward with the project. He confirmed that the project would be given top priority by the Federal Government. A “seniors” meeting is planned for early October. It was expected that some irrevocable decisions would be taken by the shareholders at that meeting to put plans in progress for the development of the project. Planned as a world-class, greenfield LNG facility located in Brass Island in Bayelsa State, the project was designed to produce 10million metric tonnes of LNG per year.

COMMUNITY ENGAGEMENT IN PIPELINE SECURITY WAS UNDER CONSIDERATION One of the biggest problems facing Kachikwu was delivery of petroleum products by pipeline. That should be the most efficient way to get the products to their destination but pipeline insecurity had become an endemic problem with daily breaches disrupting supplies. One option, Kachikwu was exploring for securing pipelines was a community based model. He has said that in the months ahead, the Corporation would initiate discussions with community leaders and interest groups with a view to working out some kind of community oriented pipeline protection model. This measure was one which some had advocated in the past. The idea was to give communities responsibility for the security of the pipelines passing through their territories and reward them for uptime whilst penalising them for any breaches. He also expected the armed forces to play its part, with the Nigerian Airforce providing aerial surveillance whilst the Nigerian Navy would provide marine surveillance for the network of pipelines. Meanwhile the Nigerian Army Engineering Corps would be engaged to fix and police the pipelines on the ground.

DEEP OFFSHORE PRODUCTION CONTRACTS WERE TO BE RENEGOTIATED Something that created some concern within the international oil companies (IOCs) was Kachikwu’s intention to re-visit the deep offshore Production Sharing Contracts (PSCs). When these PSCs were set up the fiscal terms were extremely benign and designed to encourage investment by the multinationals in frontier territories deep offshore. The Petroleum Industry Bill (PIB), the fiscal terms of which had been vehemently opposed by the IOCs, had sought to re-dress the balance. The IOCs’ issue with the terms of the PIB was that they went too far the other way. As a result of the impasse, IOCs had withheld billions of dollars worth of investment from Nigeria. Many have accused the IOCs of being partly responsible for the failure of the PIB. They had been campaigning for a

review of the fiscal terms in the PIB. Some of the benign fiscal terms they currently enjoy under the PSCs include royalty at 0% and 50% investment tax relief/uplift. A senior NNPC official was quoted as saying: “Under the terms in the current PSCs, Nigeria is losing on three fronts – quantities, taxes and revenue.” Kachikwu was now seeking to do by negotiation, what the PIB had tried to do by legislation. “We intend to begin the process of the re-negotiation of the PSCs to see what value chain and improvements we can have from these contracts. Some of the contracts were negotiated over 20 years ago and they have since been overtaken by new realities in the industry,” he said. IOCs were reported to be unhappy at the

move to renegotiate the contracts, with one telling Platts: “Companies have taken risks to develop several huge fields deep offshore based on the terms offered by the government, so NNPC can’t come up in the middle of the contracts to review.” Analysts from Platts said plans to review the PSCs to help stem the impact of a slump in global oil prices could prove a counterproductive quick fix adding to uncertainties plaguing the country’s oil sector. A successful re-negotiation of the fiscal terms together with some guarantee of the terms against legislative changes, could unlock the process towards Final Investment Decisions (FIDs) for new projects. This could be the shot in the arm the Nigerian oil industry so badly needs right now.

113

EXTENDED FEATURE NNPC BANK ACCOUNT SHAKEUP As President Buhari embarked on his “War on Graft” he ordered the Nigerian National Petroleum Corporation (NNPC) to stop using multiple accounts. The State agency had been plagued by accusations of missing funds that should have been remitted to the federal revenue account. Some of the funds had mysteriously turned out to be lurking in some obscure NNPC account or other. This was a bid by the President to drive out corruption and improve transparency. The directive, which also included the Department of Petroleum Resources, required that all receipts due to the government or any of its agencies must be paid into accounts maintained by the Central Bank unless specific permission had been granted to do otherwise.

KACHIKWU REVEALED PLANS TO PRIVATISE PRODUCTS PIPELINES The Federal Government unveiled plans to privatise the country’s petroleum products pipeline chain. Kachikwu stated this while on a tour of petroleum products depots in Apapa, Lagos. He said the move to privatise the pipelines was part of efforts aimed at reducing the issue of petroleum products theft. He said it would also address the challenge of constant vandalism. He said: “Ultimately, we are going to look at pipelines early next year in January to see how we can privatise the management of these pipelines and get them out of these perennial problems they have, because if we are pumping directly through these pipelines, some of these problems will be reduced.”

TRANSPARENCY WAS THE NEW ORDER AT NNPC In a signal to the changing times, NNPC issued a notice warning the general public not to hand over money to anyone claiming to be able to procure appointments with the GMD or contracts with the Corporation. The statement said; “The new NNPC is transparent and follows due process and requires no intermediaries to procure contracts or engage in any business with it.” “The reform of the petroleum industry is key and it is an area where we are going to put a lot of focus. Transparency is key. Restructuring is key. Sometimes people don’t realise that the problem hasn’t been NNPC. It is a problem of political will to go forward and implement the outcome of researches and reports that had been done but fortunately for us this time around, that is what the President has brought to the table. He has strong political will to see this through,’’ he also said. Noting that President Buhari’s vision for the industry was absolutely on track, Kachikwu said: “It is being honed every day: there is focus, transparency and diversified income streams.”

ALTERNATIVE JOINT VENTURE FINANCING WAS BEING EXPLORED Kachikwu said he was planning to engage in innovative finance mechanisms. His dream was that by the end of 2016 NNPC would have completely eliminated cash calls. Some of these new financings are discussed under Financial News.

114

KACHIKWU TOOK TO TWITTER TO REACH A WIDER AUDIENCE In the wake of the crippling fuel shortage that persisted to the end of the year, the public relations machinery of the Minister of State, Ministry of Petroleum Resources and Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), Dr Ibe Kachikwu, went into overdrive. NNPC Group General Manager (GGM), Public Affairs, Ohi Alegbe, was on Twitter on an almost daily basis to brief the general public of the steps they were taking to solve the problem. As the problem refused to go away, the GMD took to Twitter himself, keen to engage on a personal basis with Nigerians on the subject.

NNPC UNBUNDLING BEGAN WITH SUBMISSION OF NEW NNPC RESTRUCTURING BILL Steps to begin NNPC restructuring with the unbundling of the state corporation into 4 components namely the upstream downstream, midstream and refining components, began with the submission of a new bill. More details of the Bill are given under Legal News.

EXTENDED FEATURE KACHIKWU REVEALED HIS 20 FIXES The Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), Dr Ibe Kachikwu revealed at the Petroleum Club in Lagos, that his team had identified 20 critical issues that needed to be addressed in order to re-position the 37-year old national oil company on the track to efficiency and profitability. With this long list of 20 Fixes, Dr Kachikwu and his team have their work cut out for them. The “20 Fixes” project include: n Reduction and audit of cost n Restructuring the corporate centre and staffing n Renegotiation of existing contracts, including PScs n Streamlining subsidy management n Boosting pipeline security n Enhancing transparency and accountability n Achieving zero tolerance for corruption n Rebranding NNPC n Unbundling PPMC n Unbundling the Nigeria Gas Company n Reducing contracting cycles n Restructuring the refineries n Improving technology to drive business n Embed staff and business performance management n Restructuring JV Funding and reducing cash call n Improving overall retail profitability n Deploying and attracting focused investments n Re-kitting NPDC n Expanding crude marketing n Generating power profitability

NNPC MONTHLY REPORTS WERE RESTARTED NNPC’s Monthly report was restarted in a bid to entrench the new era of transparency at NNPC. The Report was designed to provide key reports and highlight management initiatives aimed at transforming NNPC. Kachikwu said that he was pleased with the reception the release of these reports have had. He said that NNPC would strive to improve on the processes.

SUBSIDY WAS SUSPENDED AND PRICE MODULATION FOR PETROL INTRODUCED Just after the last payment of outstanding subsidies of over N400 million to marketers, Kachikwu announced that the government had suspended the subsidy on petroleum products as from December 27 due to falling oil prices. He said there would be a review if prices increased under the newly introduced price modulation in the sector. Clearing up any lingering questions on the issue, Kachikwu confirmed that the payment of subsidy on petroleum products was suspended due to the current low prices of crude oil on the international market. He said that the situation would only be reviewed if crude oil prices improved. Answering a barrage of questions on the issue of subsidy or no subsidy, he said his commitment was threefold. 1) To provide products all the time so that there is efficiency. 2) To provide it at the least possible price that you can and let it have some relationship with what the trends are. 3) To look at those trends and look at how to adjust the pricing when oil prices begin to rise and begin to impact the selling price of local products. The day after announcing the suspension of subsidies, PPRC announced that the new regulated price of petrol under the price modulation structure now in place would be N86.50 from the 1st of January 2016.

The New NNPC says it is now a FACT based organization: Focused, Accountable, Competitive, When Kachikwu got Transparent. to NNPC, he met staff

KACHIKWU BEGAN WEEKLY PODCASTS WITH STAFF

with a lack of focus and directional ability. With incessant allegations of corruption making the rounds, staff moral was low. For Kachikwu, the first thing he needed was to build morale by restructuring the organisation and identifying people with different skillsets. In an attempt to reach out to the entire staff he began a weekly podcast in which he engages with staff and tries to build their morale through the weekly engagement.

NNPC LAUNCHED ENERGY IN BRIEF PUBLICATION The NNPC Group announced the launch of a newsletter, Energy in Brief which is going to be available online. He said that the aim was to let Nigerians know that NNPC is their company and that everyone should strive to make it succeed. NNPC’s new organizational setup

115

REPORT

EXTRACTS FROM NNPC MONTHLY FINANCIAL AND National Crude Oil and Condensate Production (Fiscalised)

Total Monthly Crude Oil & Condensate Production

Millions Barrels

National Crude Oil and Condensate Production 2 January - October 2015 Chart 2.1.2: Average Daily Crude Oil & Condensate Production & Percentage distribution 2.5 2.0

Average Daily Crude Oil & Condensate Production 2.20 2.21

2.07 2.03 2.05

1.97

2.18

2.04

Percentage Distribution of Crude Oil Production by Commercial Arrangements

2.20 2.21 JVs

5%5%

1.5 1.0

PSC

32.0%

16.1%

0.5

NPDC

0.0

Independent / Marginal Fields

41.6%

Table 2.1.2: NPDC monthly Crude oil & Condensate Production 116 Field/Company

Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

2015 YTD

16.1%

1.0

REPORT

0.5

NPDC

0.0

Independent / Marginal Fields

41.6%

OPERATIONS REPORT: JANUARY â&#x20AC;&#x201C; OCTOBER 2015 TableMonthly 2.1.2:Crude NPDCOilmonthly CrudeProduction oil & Condensate Production NPDC and Condensate Field/Company

Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

2015 YTD

OML 111

Okono_Okpoho SUB-TOTAL NPDC JV Direct Operated Assets

OML 119

Barrels 99,773 140,231

Barrels 127,658 159,110

Barrels 58,167 34,382

Barrels 0 35,112

Barrels 2,167 63,068

Barrels 0 137,803

Barrels 0 127,796

Barrels 89,074 175,734

Barrels 110,761 84,938

Barrels 598,443 1,032,759

Oziengbe

Barrels 110,843 74,585

900,295 809,733 757,583 567,076 1,085,723 1,049,737 1,083,437 664,655

592,383 634,915

705,329 786,407

682,491 849,979

665,826 818,915

583,879 881,223

658,431 877,549

6,923,026 8,732,540

Ogini_Isoko/FHN

OML 26 OML 40

Batan_Odidi/Netconde

OML 42

93,809

1,634,931

Opuama/Elcrest Afiesere_Kokori/Shoreline

OML 30

Utorogu_Ughelli/NDW

OML 34

Block NPDC Owned Direct Operated Assets Abura OML 65 Oredo OML 111

SUB-TOTAL NPDC JV Non-Operated Assets OBEN_Amukpe_Sapele/SEPLAT Brass/NAOC 6.2 Accounting SUB-TOTAL

GRAND TOTAL

32,427 37,392

325,465 198,708

72,484 50,317

358,605 494,598

39,086

74,209 52,724

434,495 550,060

5,030

4,973

49,254

40,484

7,420

209,347 27,213

142,692

38,846

1,421,263

277,131

271,514

316,736

216,558

OML 4,38&41 633,961

879,776

1,180,247

167,728

15,843

27,791

32,773

314,153

29,685

42,309

34,784

513,171

25,293

978,556

148,710 278,883

32,536

99,026

45,837

468,420

23,419

49,438

470,015

528,442 3,346,383 4,183,728

154,132

121,914

416,571

182,232

546,038

829,456

799,174

1,381,604

272,020

1,214,791 1,090,161 8,448,918

253,075

204,753

242,352

335,412

178,312

233,601

2,291,766

871,123 1,247,518 1,428,224 350,115 1,954,647 496,631 1,259,910 1,793,134 1,401,673 1,182,275 11,985,250

60-63 for OML Federation

633,961

Crude Oil & Gas

879,776 1,180,247 167,728

829,456

799,174 1,381,604 272,020 1,214,791 1,090,161 8,448,918

2,590,807 3,177,031 3,691,908 1,182,498 3,419,018 2,082,212 3,491,493 2,884,069 3,497,687 3,149,985 29,166,708

The summary of Oil & Gas Sales and inflow to Federation Account can be depicted as 83,574 113,465 119,094 39,417 110,291 69,407 112,629 93,034 116,590 101,612 follows:

Average Daily Production

95,943

The NPDC YTD into cumulative from all fields amounted to 29,166,708 barrels of Oil and gas inflows Federationproduction Account Figure 6.2.1 Accounting for Federation Crude Oil & Gas

Crude oil which translated to an average daily production of 95,943 barrels. Comparing NPDC performance to National Production, the company production share amounted to 4.61%. NPDC production is expected to hit production level of 250,000bp/d after the completion of the on-going NPDC re-kitting project.

Production from NPDC wholly operated assets amounted to 8,732,540 barrels (or 30% of the total production) with Okono Okpoho (OML 119) alone producing more than 79% of the NPDC operated Assets or 24.08% of the total NPDC production. Also on the NPDC operated JV assets, in which NPDC own 55% controlling interest, Crude Oil production amounted to 11,985,250 (or 41% of the NPDC total production). On the JV assets not operated by NPDC, production level stood at 8,448,918 barrels or 29% of the company production. 6

Monthly Financial and Operations Report November 2015| NNPC

6.3 Dollar Payments to Federation Account Total export proceeds of $402.55 million was recorded in November, 2015 with

117

LEGAL NEWS

JANUARY-MARCH NLNG SECURED US SHELL AGREED TO PAY £55 MILLION COMPENSATION COURT PROTECTION OVER NIGER DELTA OIL SPILLS Obodoekwe, Director of Programmes of CEHRD. ORDER ON LNG FINIMA Six years after two devastating oil spills that Nigeria LNG Ltd. and its shipping affiliate, Bonny Gas Transport Ltd, secured a court order in a US federal court in New York to protect their vessel, LNG Finima, and their other vessels from arrest or attachment. US company, NuStar Energy Services alleged that it supplied bunker to the 1984 built, 133,000cbm LNG Fininma through OW Bunker and Trading. Soon after, OW went into bankruptcy, leading to the non-payment of $2.46 million for the delivery. NuStar obtained an order for the arrest of the ship from a US federal court in Lake Charles, Louisiana. In the meantime, NLNG and its subsidiary sought a court order from a federal court in New York to block the arrest of the ship. Granting NLNG’s request, District Judge Valerie Caproni, ordered OW, NuStar Energy Services and ING Bank to desist from issuing arrest orders against LNG Finima.

destroyed the livelihoods of communities in the Bodo area of the Niger Delta, Dutch oil giant Shell agreed to make an out-of-court settlement of £55 million to victims of the oil spills. The £55m would be split between £35m for 15,600 individuals and £20m for the community. The announcement was made by Amnesty International and the Centre for Environment, Human Rights and Development (CEHRD), which had been monitoring the developments and campaigning for the rights of the affected communities. Shell had long since admitted responsibility for the 2008 spills but the two sides continued to argue over the amount of oil spilled and the quantum of compensation to be paid. With the case headed for a hearing in a London court in spring, both parties were able to reach agreement on the compensation to be paid to the victims, many of whom had their fishing and farming livelihoods destroyed in the spill. “The compensation is a step towards justice for the people of Bodo, but justice will be fully achieved when Shell properly cleans up the heavily polluted creeks and swamps so that those who rely on fishing and farming for their income can begin to rebuild their livelihoods,” said Styvn

Shell had always accepted that the two oil spills were the fault of failures on the company’s pipeline at Bodo, but publically claimed that the volume of oil spilt was approximately 4,000 barrels for both spills combined, even though the spills were reported to have gone on for weeks. In 2012 Amnesty International, using an independent assessment of video footage of the first oil spill, calculated that the total amount of oil split exceeded 100,000 barrels for that spill alone. During the legal action in the UK, Shell admitted that its figures were wrong and that it had underestimated the amount of oil spilt in both of the Bodo cases. Shell was also forced to reveal that it had been aware, at least since 2002, that most of its oil pipelines were old, and some sections contained “major risk and hazard”. In a 2002 document Shell stated that outright replacement of pipelines was necessary because of extensive corrosion. Another internal email in 2009 said: “the pipelines in Ogoniland have not been maintained properly or integrity assessed for over 15 years.” With these damning revelations, Shell was left with no choice but to seek to settle rather than let the case proceed to full trial.

FEDERAL HIGH COURT ORDERED STATUS QUO IN TOTAL’S EGINA FPSO CONTRACT In November 2014. Port Harcourt based lawyer, John Iyene Owubokiri, the national coordinator of the Initiative for NonViolent Change in the Niger Delta filed a suit claiming that the award of the engineering, procurement, construction and commissioning (EPCC) contract for Egina floating production storage and offloading (FPSO) unit to Samsung Heavy Industries (SHI) was unlawful and tainted by irregularities in that National Petroleum Investment Management Services (NAPIMS), Nigerian Content Development Monitoring Board (NCDMB) and Total Upstream Nigeria Ltd ignored all extant laws, regulations, directives, and guidelines guiding such awards. Owubokiri asked the court to set aside the EPCC contract to Samsung Heavy Industries and declare it null and void. In addition, he wanted a perpetual injunction restraining the defendants from executing, carrying out or taking any further step pursuant to the

118

award of the contract. This would effectively bring work on the $3 billion FPSO to a halt if granted. He also asked the court to issue an order compelling the defendants to reopen the process for the award of the Egina FPSO EPCC contract. In January, a Federal High Court in Lagos ordered the Attorney General of the Federation (AGF), SHI, NAPIMS, NCDMB and Total to maintain the status quo in the implementation of the multi-billion dollar contract for the controversial Egina FPSO pending the determination of the suit. Nearly 2 years ago, SHI beat Hyundai Heavy Industries in the hard fought competitive bidding process conducted by NAPIMS, the investment arm of the Nigerian National Petroleum Corporation (NNPC) to clinch the lucrative deal to build the two million barrels capacity FPSO. NNPC’s Group Executive Committee, headed by the Minister of Petroleum Resources, Diezani Alison-

Madueke, approved the award. The FPSO will be one of the largest in the world, with a storage capacity of 2.3 million barrels of crude oil and a targeted production capacity of 200,000 barrels per day. In October last year, SHI and its local content partner, Lagos Deep Offshore Logistics (LADOL), established a new partnership called SHI-MCI Free Zone Enterprise to build Africa’s first FPSO integration and fabrication facility in LADOL free zone in Lagos. The yard’s first job will be the integration of the Egina FPSO topside. The lawsuit came barely one month after SHI and LADOL began the construction of the facility at LADOL. The multi-billion dollar Egina field in OML130 is the third deep offshore development project of the French oil giant, Total, in Nigeria with reserve potential in excess of 550 million barrels and a peak production of 150,000b/d.

LEGAL NEWS CAMAC AND NORTHERN OFFSHORE SETTLED $50 MILLION DISPUTE OVER DRILLSHIP CONTRACT A major contractual dispute developed after Northern Offshore, which operates offshore oil and gas drilling units issued the Nigerian based subsidiary of Houston based CAMAC Energy with a Notice of Contract Termination. The notice was issued to Oceanic Consultants Nigeria Ltd. (Oceanic), an affiliate of CAMAC, which contracted the Energy Searcher from Northern Offshore to work on the plugging and abandonment operations on the Oyo-5 and Oyo-6 wells. Northern Offshore claimed that Oceanic breached various terms of the drilling contract for the drill ship Energy Searcher. They filed a claim against CAMAC, because CAMAC for $50 million. Meanwhile, CAMAC

said that it was the one that terminated the contract with Northern due to a repudiatory breach of contract and other material breaches by Northern. They claimed that the breaches had apparently caused significant damage and loss to the company. In June, Erin (the new name for CAMAC) reached an agreement with Northern Offshore to settle their dispute out of court. Oyo field is located on CAMAC’s principal assets, oil mining leases (OMLs) 120

and 121 in deep water, offshore Nigeria. Oyo was the first deep water discovery in Nigeria and has been in production since December 2009. Drilling operations at the Oyo-7 well commenced in September 2013 using Transocean’s Sedneth 701 drilling rig. At the end of last year, they contracted Transocean’s Sedco Express ultra deepwater semisubmersible rig, which arrived on location in December to expedite the timing of production tie-in from the Oyo-7 and Oyo-8 development wells.

JAMES BAY WENT TO COURT OVER FAILED OML 25 BID The legal action launched by James Bay Resources, on behalf of Crestar Integrated Natural Resources, the company that won the bid for oil mining lease (OML) 25 in the divestment exercise by Shell in 2014 received a boost. Later, James Bay, the 45 per cent equity owner of Crestar, was granted an injunction by the Federal High Court requiring Shell and its joint venture partners, Total and Agip, to preserve their 45 per cent participating interests in OML 25. This effectively prevented them from transferring their interests to the Nigerian National Petroleum Corporation (NNPC) until the matter was ruled upon finally by the court. The dispute arose after Shell and its partners put their stake in 4 onshore assets up for sale. Crestar, which was formed by James Bay and a group of Nigerian oil and gas professionals including Adeniyi Olaniyan who became the CEO of the special purpose vehicle (SPV) formed to bid for the acquisition of the asset, and former Director of the Department of Petroleum Resources (DPR), Osten Olorunsola who became the Chairman, emerged as the highest bidder. With many ex-Shell people on board Crestar had a distinct advantage in the bidding process. They had experience of the Shell assets and in particular OML 25, and in the end their intimate knowledge would enable them to put in a well-informed bid. Their winning bid of $453 million was accepted by Shell and Crestar deposited 100 per cent of the purchase price into an escrow account with JP Morgan in London. The parties signed the Sales Purchase Agreement (SPA) on the 3rd of July 2014 and celebrations began, with no forewarning of the trouble that lay ahead. Unfortunately the celebrations did not last long. According to Crestar, about 100 days after the execution of the SPA, NNPC, which owns a 55 per cent share of the asset said it had exercised its right of pre-emption in the Joint Operating Agreement between it and the Shell joint venture. This right of pre-emption, which is not uncommon in joint venture agreements, gives NNPC the right of first refusal over any assets to be divested by its partners. The problem, according to Crestar, was that NNPC was obliged to exercise that right of pre-emption within 30 days and so was out of time by the time it did so. Most industry watchers were puzzled by the move by NNPC, which had never sought to exercise the right of pre-emption in all the other Shell divestments. Why this asset in particular? It was not

even the most sought after of the 4 assets put up for sale in this tranche by Shell and its partners. That honour went to OML 29, which, along with the vital Nembe Creek Trunk Line, was won by the Aiteo-led consortium. NNPC and the Ministry of Petroleum remained tight-lipped on the issue, giving no official explanation. Crestar and James Bay tried everything they could to get the decision reversed without reverting to legal action. They sent emissaries to the very top, including the Canadian Ambassador, enlisted by shareholder, James Bay Resources. As speculation mounted about the reasons for this unprecedented exercise of the right of pre-emption, a theory emerged that an alleged rift between the Minister of Petroleum Resources and the former DPR Director, who she had sacked the year before, was to blame. In a bid to salvage the situation, Olorunsola resigned as Director, but to no avail. At the beginning of the year, James Bay decided it had had enough and fired the warning salvo by hiring hardnosed UK litigation firm, Amsterdam & Partners to commence legal action. On the 4th of February, a Lagos Federal High Court Judge, presided over by Honourable Justice IDRIS made an Order directing the Shell Petroleum Development Company of Nigeria Ltd, Total E & P Nigeria Ltd and Nigeria Agip Oil Company Ltd to preserve their 45 per cent participating interests in OML 25. This meant that they could not transfer their interests to NNPC. Following that ruling, Shell went to court to try and get the injunction discharged and failed, with the Federal High Court affirming the injunction pending a further hearing. The timing of the lawsuit, just before the election, was intended to cause political embarrassment. Now, with a new administration in power, and government coffers empty, Crestar is hoping to persuade the President (who is also the Minister of Petroleum Resources) to withdraw the exercise of the right of pre-emption. The bigger question, however is, with the crash in oil prices, will Crestar still want the asset? If NNPC does withdraw the right of preemption, Crestar will no doubt wish to re-negotiate the acquisition terms with Shell, but will Shell agree? Crestar may yet want to thank Alison-Madueke for taking the step she did, if it means that it is now in the fortuitous position of acquiring the asset at a steep discount.

119

LEGAL NEWS

APRIL-JUNE

ADDAX PETROLEUM AND NNPC REACHED SETTLEMENT IN ROYALTY DISPUTE Addax and the Nigerian National Petroleum Corporation (NNPC) reached a settlement in their long running dispute over past royalties. The settlement agreement stated that NNPC and Addax entered into a production sharing contract (PSC) on 6th May 1998, covering oil prospecting licence (OPL) 98 and 118. These have now been converted to oil mining leases 123, 124, 136 and 137. The background to the dispute can be traced back to a letter dated the 21st of November 2001, by the Group Managing Director (GMD) of NNPC and the Chairman of the Federal Inland Revenue Service (FIRS) during President Obasanjo’s regime (at a time when he was also Minister of Petroleum) approving a new fiscal regime for onshore and shallow offshore PSCs. They duly notified Addax of the new regime by a letter dated 11th December 2001. The letter confirmed 1st January 2000 as the effective date for the implementation of the new fiscal regime applicable in the computation of Addax’s taxes and royalty. The new fiscal regime granted Addax an incentive of a graduated rate of royalty based on the volume of crude oil produced from OMLs 123, 124, 126, 137 rather than the 20 per cent flat rate paid by the previous licensees, Ashland Oil Company. In 2003, given that only Addax was enjoying this favourable fiscal regime, the DPR issued

120

new Petroleum Regulations applying the same terms to other PSCs. In July 2011 the Federal Inland Revenue Service (FIRS) and the Department of Petroleum Resources (DPR) raised an objection to Addax’s calculation of its tax and royalty obligations. FIRS alleged that instead of paying royalty based on its daily production as stipulated in the side letter and later in the amended Petroleum Regulations, Addax calculated its royalty obligations in tranches citing a heading in the side letter that read “Production in tranches as recommended by IC” whilst ignoring the actual stipulations of the letter. The FIRS said it meant royalty and tax underpayments of $1.7 billion and $1 billion respectively were made y Addax. Addax said this objection was contrary to the rule of law, doctrine of legitimate expectation and a breach of the side letter, which all parties had relied upon and implemented for over 10 years, saying that it had committed investment in excess of $3 billion in developing the licence areas, reliant on the new fiscal regime. Addax asked a Federal High Court in Abuja in 2014 to stop the demand for payment of the disputed unpaid royalty and taxes requested by the DPR. Addax also accused NNPC of arbitrarily and unilaterally over-lifting $390 million worth of crude from the licence areas.

In a settlement brokered by then Attorney General of the Federation and Minister of Justice, Mohammed Bello Adoke, Addax won all it was asking the court for. All parties agreed that the federal government would continue to give effect to the side letter meaning that they would follow Addax’s computation of the taxes due. In addition, the parties agreed in the settlement that there had been an overlift of crude by NNPC, which had to be remedied in favour of Addax. Following the settlement, the media was awash with accusations of foul play by the Attorney General. News reports said that Adoke put pressure on the lawyers involved to settle the case. Vigorous denials of the accusations have been issued on his behalf. However, lawyers involved in the case said that in spite of being named as a defendant in the suit, the Attorney General was not represented in the hearings and only became involved in the settlement negotiations. Again his office has denied this. There have been suggestions by commentators that there might have been a rush to settle the case before the elections. This view relies on the fact that in the settlement, the federal government seemed to have capitulated to Addax on all points, leading to a very costly precedent for the interpretation of the royalty obligations on the PSCs.

LEGAL NEWS Photo: www.gotcredit.com

FG PROSECUTED 23 FOR ILLEGAL BUNKERING The Federal Government began the prosecution of 23 people for involvement in the use of barges and vessels for oil theft and illegal oil bunkering. Commander, Joint Task Force (JTF), Major-General, Emmanuel Atewe, said the cases were at the Federal and State High Courts in Yenagoa, Bayelsa State capital, and Federal High Court, Port Harcourt, Rivers State. Barges and other vessels were used in the incident to steal crude oil worth several billions of naira. Atewe said they were at various levels of litigation against the 23 and that the JTF was pursuing the cases vigorously. He urged the courts to fast track the hearing of these cases as a quick hearing would help in dealing with the menace of crude oil theft. Other wins for the JTF included: In May, the JTF recovered 4.2 million litres of crude oil allegedly stolen in the Niger Delta region. One of the JTF team leaders, Captain Sunday Olaleye, said that the antiillegal bunkering and oil theft outfit of the JTF, Operation Pulo Shield, made the discovery in two vessels. One of the vessels was arrested in Okrika Local Government Area of Rivers State while the other was arrested in Forcados, Warri waterways, in Delta State. In July, the Nigeria Navy arrested one of the suspected oil theft and bunkering kingpins, along the creeks of the oil producing territory of Akwa Ibom State. Although the identity of the suspect was not disclosed, the Commander of NNS Jubilee, Ikot Abasi Local Government Area of Akwa Ibom State, Commodore David Adeniran told newsmen that he would be handed over to the Nigeria Security and Civil Defense Corps (NSCDC) for further investigation.

EFCC COMPLETED N963.7M PROSECUTION CASE AGAINST BRILA ENERGY The Economic and Financial Crimes Commission (EFCC) on Monday completed its case in the high profile prosecution against Rowaye Jubril and his company Brila Energy before Justice Lateefa Okunnu of an Ikeja High Court over a charge of N963.7 million fuel subsidy fraud. Jubril was accused of committing fraud by collecting N963.7 million in subsidy payments for petroleum products, which the EFCC said he never imported. The allegation was that the accused obtained the subsidy for payment under the pretext of importing 13,500 metric tonnes of Premium Motor Spirit (PMS) into Nigeria. The EFCC investigations revealed that Brila sourced the products from within the shores of Nigeria. As a result, Brila was accused of making a false declaration in its claim that there was a ship-to-ship transfer of the product between the mother vessel, MT Overseas Lima and the first daughter vessel, MT Delphina.

In August, the Nigerian Navy said that it destroyed 78 illegal crude oil refineries in Rivers State. The Chief of Naval Staff, Vice Admiral Ibok-Ete Ibas, warned officers and men of the Navy against aiding oil theft in the Niger Delta region . Destruction of the illegal refineries commenced on June 15 in the Onne axis, Bolo, Alakiri, Cartharwn channels, Bille and Ke in Port Harcourt and Bonny areas.

The EFCC said that although the accused claimed that the transfer occurred between the 26th and 27th of January 2011 offshore Cotonou in Republic of Benin, their investigations revealed that the Overseas Lima was not in the West African coast at the time. EFCC claimed that although a second daughter vessel, MT Danni I, did eventually discharge 13,000 metric tonnes of PMS in Lagos, it was only 3,000 metric tonnes that the ship received from the first daughter vessel MT Delphina.

Also in August, The Joint Military Task Force in the Niger Delta, codenamed Operation Pulo Shield, says it arrested 21 suspects and destroyed six illegal refineries in Delta, Edo and Bayelsa states. The suspects were arrested along Ughelli–Warri and Orerokpe Community in Okpe and Ughelli North Local Government Areas of Delta State for various criminal activities in the region ranging from oil theft, kidnapping, piracy and illegal oil bunkering.

EFCC’s case was that the remaining PMS that was discharged at Obat Tank Farm in Lagos came from within the shores of Nigeria. Accordingly the subsidy payment for the petroleum products was fraudulently claimed. The defence case opened later in the year.

In October, the Central Naval Command of the Nigerian Navy confirmed the arrest of eleven sailors aboard a vessel MT Dera and a tugboat Runner Charley with an estimated 6,000 tons of stolen crude oil along the waterways in Bayelsa State. The detained vessel and tugboat were found along the Eremor 1 Marginal Oil Field located off Peretorugbene in Ekeremor Local Government Area (LGA) of Bayelsa State.

Spring Bank financed the transaction after giving Brila Energy a credit facility of $11.9 million. Called by the prosecution, Deputy Manager, Energy Group of Spring Bank, Uchenna Adobaka, testified that Jubril followed due process in the importation of 13,500 metric tonnes of PMS for which they were given the subsidy payment and that the bank believed the products were imported. Adobaka however admitted that the bank did not supervise the transaction, itself relying solely on documents presented for the transaction, which he said was the standard practice. He revealed that General Marine and Oil Services Ltd, which was appointed by the bank to supervise the importation and discharge of the product on its behalf, had admitted to the bank that it did not in fact supervise the discharge of the PMS at Obat Tank Farm in Lagos.

121

LEGAL NEWS

HIGH COURT ORDERED STATUS QUO IN ARCO, AGIP DISPUTE The dispute between Nigerian Agip Oil Company and Arco Petrochemical and Engineering Company over the maintenance contract for the Ebocha/ Kwale/Obob gas plants in Delta State rumbled on. The Federal High Court in Port Harcourt ordered all parties to maintain the status quo in the suit filed by Arco Group Plc. The judge adjourned till October 26 when he would determine his jurisdiction over the case. The Nigerian National Petroleum Corporation (NNPC), Conoco Philips Petroleum Nigeria Limited and the Nigeria Petroleum Investment Management Services (NAPIMS) are the other defendants in the suit. The plaintiff wanted the court to determine whether, in view of the provision of section 3 (2) and (3) of the Nigerian Oil and Gas Industry Content Development Act 2010, and having demonstrated ownership of equipment, personnel and capacity to execute the task of performing the contract for the maintenance of equipment at the gas plants, it was entitled, being a Nigerian company, to the exclusive right to be considered and granted such contract, including any extension of its duration. The dispute stemmed from the award of the contract maintenance of the gas plants by joint venture partners, Agip and NNPC. The original 5-year maintenance contract was awarded in 2006 to GE, with Arco, an indigenous company, as its local Technical Partner. When the initial 5-year contract expired in 2011, a 1-year stopgap extension of the contract was issued. At the end of that period another 1-year stopgap extension was granted.

Meanwhile, a new tender process for the maintenance contract was begun. NNPC, the majority shareholder of the NNPC/ NAOC joint venture, had directed that the contract to Arco should subsist pending the conclusion of the processes leading to an award of a replacement “four plus one-year” contract for the maintenance of the gas plants. Arco alleged that Agip was trying to award the stopgap contract to a company “with Italian roots and antecedents”. Arco also accused Agip of reducing its role to that of a subcontractor rather than a technical partner, in breach of local content laws, when the extension of the contract was granted in 2011. Arco said it had proved its capability when it executed the contract by itself for a period of six months after GE had to evacuate its engineers at the height of the Niger Delta militancy.

Arco petitioned the Nigerian Content Development and Monitoring Board (NCDMB) and the Executive Secretary tried to mediate in the dispute but the matter proceeded to court. Later in the year, Arco complained that Agip went ahead and awarded the contract to another company, Plantgeria Limited, leading the court to ask the Managing Directors of both company to come before the court to explain why they should not be committed to prison for contempt of court in view of the existing order for the status quo to be maintained. In November they were back in court for a hearing on the substantive suit. The parties are now exploring a settlement after being urged by the trial judge at the hearing in November to try to settle the matter out of court.

JULY-SEPTEMBER AG BUTLER PETITIONED NCDMB OVER $150 MILLION NLNG CONTRACT The Nigerian Liquefied Petroleum Gas (NLNG) Company’s process for the award of a $150 million contract for a Liquefied Petroleum Gas (LPG) Vessel for domestic LPG operation generated some controversy. Claiming to have won the contract, indigenous company A.G. Butler Nigeria, petitioned the Nigeria Content Development and Monitoring Board (NCDMB), accusing the NLNG management of declining to

122

contract and was awaiting for the award of the contract when it was reliably informed that the tender had been awarded to a foreign company.

award the contract to an indigenous Nigerian company. The indigenous firm, which said it had got information from the management of NLNG that it won the

NLNG denied the allegations however saying the contract was yet to be awarded and that no foreign company was involved in the bid and that the tender process was still in motion.

LEGAL NEWS

LADOL COURT INJUNCTION HALTED RELOCATION OF OIL AND GAS CARGOES TO ONNE, WARRI AND CALABAR In April, Nigerian Ports Authority (NPA) issued a circular to operators in the country’s free zones. The letter signed by Engr. AR. Mohammed, General Manager, Capital Projects said that the President had directed that henceforth all oil and gas related cargoes must be handled only at the designated terminals in Onne, Warri and Calabar ports. In addition, the NPA wrote to the management of LADOL Integrated Logistics directing it to relocate its ongoing $500 million fabrication and integrated yards project in Tarkwa Bay within Apapa pilotage area in Lagos State to Aggey, Bayelsa State. The Directive meant that the $500 million topside fabrication and integration for the Egina Floating Production Storage Offloading (FPSO) could no longer be carried out at the LADOL yard in Tarkwa Bay. The Directive came just as Senate approved the amendment of the Oil and Gas Free Zone Act to give legal backing to the Directive. Before the President could assent, however, LADOL had gone to court. Following an ex parte application by LADOL, a Federal High Court in Lagos granted injunctions restraining President

Goodluck Jonathan and other relevant government agencies from carrying out the order to relocate the $500 million oil project from LADOL Free Trade Zone (FTZ) in Lagos to Agge in Bayelsa State. Other defendants in the case were the National Assembly, the Minister of Transport and the Attorney General of the Federation. The Court said they were also being restrained from implementing the directive of President Jonathan that oil and gas-related cargoes must be discharged at Intels facilities in Onne, Warri and Calabar Ports. The injunction in effect prevented the President from assenting to the Bill for an Act to amend the Oil and Gas Free Zone Act, which would have given effect to the President’s directive. The parties were ordered to maintain the status quo pending the hearing and determination of the main suit. According to Prof. Fidelis Oditah, Queen’s Counsel (QC) and Senior Advocate of Nigeria (SAN), who filed the motion on behalf of LADOL, the injunctions ensured that all related agencies, including the Nigerian Ports Authority (NPA), must allow vessels and cargoes, including oil and

gas cargoes to proceed directly to any port of choice. LADOL is designated as a deep offshore logistics base permitted to receive two international vessels weekly. When the Presidential Directive was sent out LADOL and other industry stakeholders and operators, they immediately pointed the finger at Integrated Logistics Services Nigeria Ltd (INTELS) accusing it of instigating the issuance of the Directive. INTELS stood to gain the most as implementation of the Directive would give it a near monopoly given that it had concessions to operate three terminals that handle oil and gas cargoes in Warri, Onne and Calabar ports. The NPA however said that the Directive was issued because of the risk of continuing to allow private jetty operators to handle oil and gas cargo given the specialised nature of such cargoes. INTELS brought an application to be joined in the suit as a defendant and another company, Associated Maritime Services (AMS) also joined it. In November, the court granted their applications to be joined as defendants and reserved the hearing on the discharge of the injunction for January.

OCTOBER-DECEMBER UK NATIONAL CRIME AGENCY ARRESTED DIEZANI ALISON-MADUEKE The UK National Crime Agency (NCA) arrested former Petroleum Minister, Diezani Alison-Madueke after asking her to attend a police station. They seized the sum of £27,000 that was found on her and have been given permission by a judge to retain the sum till April 2016 whilst they continue their investigations to determine whether the money emanated from the proceeds of crime. They have now launched a full investigation into her activities. Provided they can present satisfactory prima facie evidence to the judge, they will now be able to subpoena documents from relevant sources including banks. If the NCA’s investigation reveals that a crime has been committed, including money laundering or bribery, they will be able to bring charges. For now, they are concentrating on completing their investigation, which began in 2013. There are unconfirmed reports that Alison-Madueke’s passport was seized meaning that her movements are restricted. She has said that she is undergoing treatment in London for breast cancer.

123

LEGAL NEWS

SUPREME COURT SET DATE FOR INJUNCTION DECISION IN BRITTANIA-U, CHEVRON CASE After a long wait, the Supreme Court fixed a date for judgment on an interim injunction in the dispute between American oil giant Chevron and indigenous company, Brittania-U over Chevron’s failure to declare Brittania-U the winner of the bid for Oil Mining Leases (OMLs) 52, 53 and 55 in 2013. In December 2013, a Federal High Court granted an interim injunction against Chevron ordering it to maintain the status quo, effectively barring it from transferring the assets. Chevron appealed and in June 2014, the Court of Appeal overturned the decision of the Federal High Court, discharging the injunction. In the current appeal to the Supreme Court, Brittania-U is asking the court to grant its motion for a mandatory, restorative order to revert the parties to the status quo. The dispute in which Brittania-U is claiming specific performance or $10 billion damages for wrongful repudiation over its bid for OMLs 52, 53 and 55. The Nigerian National Petroleum Corporation (NNPC) and the Minister of Petroleum Resources were joined in the suit against Chevron and Seplat after the Federal High Court in May 2014 decided that it had jurisdiction to hear the suit. The judge also found that NNPC and the Minister were necessary parties to the lawsuit. The dispute arose after US oil giant Chevron put up its 40 per cent share of the three OML’s, part of a planned five-asset onshore divestment, for sale. The oil major, which confirmed the auction of the three onshore blocks in June 2013, was reportedly keen to wrap the process up quickly. After an initial invitation to 20 companies, Chevron had to open the process up to more companies as it was inundated with applications. A preferred shortlist emerged in mid August enabling the preferred bidders to do more in-depth due diligence and finalise their bids. They were then expected to submit their final bids by the 30th of September and to pay 15 per cent of their bids as a deposit. The three blocks were said to have total oil reserves of around 555 million barrels of oil equivalent. It soon became clear that trouble was brewing after conflicting rumours began to circulate regarding who had won the

124

Appeal decision. The core issue raised by the Brittania-U appeal was whether or not the Court of Appeal was right to set aside the injunction granted by the trial court.

bids. On the one hand, Brittania-U said it won with a $1.667 billion bid for all three assets. On the other hand, Amni International and Belema Oil, working in close co-operation with Seplat, said they won the bids for the three assets. Seplat, just fresh from its dual listing on the London and Nigerian Stock Exchanges at the time, was said to be leading the consortium, which together put in a combined bid of $900 million for the 3 blocks. As time went on, Chevron notified the losers, but continued to drag its feet over declaring the winners. According to Brittannia-U, it came to their notice that Chevron was communicating with Seplat. They went to court to ask to be declared winners of the auction after putting in the highest bid. Brittania-U immediately secured a High Court injunction, preventing Chevron from transferring the assets to Seplat or any other bidder. Chevron had sought to have the case thrown out for lack of jurisdiction on the basis that it was a private commercial matter and further that it should be referred to arbitration on the basis of the confidentiality agreement signed by the parties. The court ruled that there was a triable dispute over which it had jurisdiction. Chevron, appealed to the Court of Appeal against the interim injunction granted by the Federal High Court ordering the parties to maintain the status quo pending the determination of the suit. The Court of Appeal ruled in Chevron’s favour, discharging the injunction. Following that decision, Chevron transferred the assets to Seplat, Amni and Belema Oil. Brittania-U took its case to the Supreme Court asking it to overturn the Court of

In the substantive case, trial of which is still pending, Britannia-U Nigeria Limited is seeking a declaration that its final bid of $1.01 billion for the acquisition of Chevron’s 40 per cent participating interest of Nigeria in oil mining leases 52, 53 and 56 had been accepted by Chevron. Brittania-U said it had provided an Irrevocable Standby Letter of Credit for the sum of $250 million representing 15 per cent of company’s initial bid price of $1.667 billion, opened in favour of the first/second defendants on September 30, 2013, which it said remained in force. Brittania-U said that Chevron USA had requested the firm to provide firm Board Commitment Letter issued by the plaintiff ’s bankers for payment of the balance of $765million, which it complied with. In June, Brittania-U’s case was boosted after it achieved success in the District Court sitting in Harris County in Texas, United States of America. There, Judge Baker ordered Chevron and its advisers in the deal, BNP Paribas, to produce all documents and communication between them and any officer, employee or agent of Amni, Seplat, BNP Paribas or Belema Oil mentioning or discussing the bidding process, the OMLs, the companies or Brittania-U. Brittania-U says the correspondence will show that it had already reached agreement with Chevron before the about-turn by the US company and its Nigerian subsidiary. Amni had sought to use the motion of forum non conveniens to have the case thrown out of the US court but the Judge denied it. Forum non conveniens is a discretionary power that allows a court to dismiss a case where another court, or forum, is much better suited to hear the case. Should the Supreme Court decision in Nigeria go against Chevron, the matter could become quite complicated given that Chevron has already transferred the assets. That means that even if the substantive case, yet to be heard, should go in BrittaniaU’s favour, specific performance of the contract will not be possible. Not unless the court rescinds the sale to the trio.

LEGAL NEWS

SACOIL BECAME EMBROILED IN LEGAL DISPUTES OVER OPLS 233 AND 281 EXIT South African explorer, Sacoil’s exit from its current commitments in Nigeria has not gone quite as smoothly as it would have hoped. Sacoil acquired interests in oil prospecting licences (OPLs) 233 and 281 some years ago. As oil prices began to slide, the company said that it had decided on a portfolio rationalisation to focus on cash generative assets. The South African company said it was quitting OPLs 233 and 281, both exploratory assets. Unfortunately, its disengagement from both assets has now become embroiled in legal disputes.

OPL 233 Sacoil officially notified Nigdel of its decision to terminate its joint venture with indigenous company, Nigdel, and consequently its participation in OPL 233 on 19 May 2015. SacOil claimed it had the right to be refunded by Nigdel for all costs expensed to date on OPL 233. Sacoil said it no longer had any future commitments and obligations associated with the appraisal of OPL 233. Furthermore, the farm-in fee which would have been payable to Nigdel and the transaction fee which would have been payable to EERNL (through whom it acquired the interest) of US$10.6 million and US$2.5 million, respectively, were no longer due and payable. Nigdel took a different position, claiming that Sacoil had defaulted in the delivery of its financial obligations under the joint operating agreement (JOA) relating to OPL 233. Nigdel’s version of events was that SacOil had consistently and continually failed to fulfil its financial obligations under the Agreements between the parties. As a result of the “prolonged and cumulative failure” by SacOil, it opened discussions with the company aimed at remedying the situation. It proferred various alternatives to SacOil, eventually issuing a default notice to SacOil, which expired on 18 April 2015. Nigdel said that under the JOA, it had the right to require that SacOil completely

withdraw from the JOA and the contract in OPL 233, thereby resulting in Sacoil’s loss of its title, rights and beneficial interest in the OPL 233. According to Nigdel, SacOil could not validly withdraw from OPL 233 under the provisions of the Farm In Agreement, without remedying its existing default first. Nigdel has initiated arbitration and court proceedings to dispute the terms of SacOil’s exit from the asset. SacOil said it remained confident that their claim against Nigdel was valid.

OPL 281 SacOil terminated its participation with Transcorp, the operator of Oil Prospecting Licence 281 and said that Transcorp acknowledged the termination of the Farm Out and Participation Agreement (FoPA) in a letter dated 10 December 2014 and in the letter acknowledged its liability to refund the farm-in fees and interest to SacOil. According to Sacoil, the only issue at that time was the interest rate to be paid although SacOil says that the interest rate to be paid was clearly written in the agreement. SacOil subsequently received notice on 18 June 2015 from Transcorp that its termination of the FoPA was wrongful and amounted to a repudiation of the FoPA. Transcorp initiated court proceedings in this

respect, claiming damages from SacOil. SacOil is opposing these proceedings and has engaged counsel to recover all monies due and payable pursuant to the FoPA. Transcorp instituted action in the High Court of Lagos State on 18 June 2015 against SacOil and EERN (through whom Sacoil obtained its interest) for the wrongful termination of the FoPA and sought special damages. In support of its action Transcorp claimed that SacOil and EERN were not entitled to any refund or repayment, in particular the $8.75 million (signature bonus) and $3.75 million (initial fee). In the interim and pursuant to the FoPA, SacOil filed a notice for arbitration on 28 August 2015 with the Nigerian Chartered Institute of Arbitrators, to recover its farm-in and related fees plus contractual interest thereon. SacOil said it remained committed to recovering from Transcorp all amounts owed. Regarding its reported exit from Nigeria, Sacoil said its termination of the Group’s participation in OPLs 233 and 281 did not represent an exit from Nigeria, as the country has significant oil and gas opportunities, which the Group will continue to investigate. Instead, he said, it was part of the portfolio rationalisation undertaken by the Group to move away from high risk assets and focus on cash generative opportunities.

125

LEGAL NEWS

STATOIL SHARE IN AGBAMI REDUCED BY 5% AFTER Norwegian oil company, Statoil, lost an arbitration ruling relating to its stake in the prolific deep offshore producer, Agbami Field. After losing the latest round in the dispute with the Nigerian National Petroleum Corporation (NNPC), Statoil said the new calculation of its cost, tax and profit oil volumes, if implemented, would result in a reduction of 5.17 per cent in Statoil’s equity interest in the field, from 20.21 per cent down to 15.04 per cent. Statoil brought this arbitration, the latest round in the dispute, to set aside interim decisions made by an Expert in the dispute. The arbitration tribunal however declined to set aside the Expert’s interim decisions. Consequently, Statoil said that it was currently assessing its position in relation to the Expert’s decision and the decision of the arbitration tribunal. The implications of the decision were that Statoil would have to compensate other equity owners at Agbami to the tune of $1.85 billion in addition to accruals as of end of Q3 of 2015. The company said the eventual settlement of any imbalance amount would be made over time through cash-calls issued by the unit operator.

The initial dispute between NNPC and Statoil concerned the interpretation of the Production Sharing Contract (PSC) governing the oil mining lease (OML) 128, between the parties. The dispute related to the allocation between NNPC and the contractor (Statoil) of cost oil, tax oil and profit oil volumes. NNPC claimed that in aggregate, from the year 2009 to 2012, the Contractor had lifted excess volumes compared to the PSC terms and that consequently, NNPC had increased its lifting of oil. Statoil disputed NNPC’s position and initiated arbitration proceedings in respect of the terms of the PSC. The issues for determination by the arbitral tribunal included the manner in which Tax Oil was computed and the manner in which Statoil prepared its Petroleum Profits Tax (PPT) returns. As the arbitration proceedings progressed, the Federal Inland Revenue Service (FIRS) became aware of it and objected to the proceedings on the basis that tax issues were under the exclusive jurisdiction of the Federal High Court. They contended that any determination by the arbitral tribunal could ultimately

impinge on the functions and powers of FIRS to collect tax under the relevant tax laws. The arbitration tribunal dismissed the objection and carried on with the proceedings. FIRS then brought an action before the Federal High Court seeking various orders and declarations that the arbitration tribunal could not continue with the proceedings on the grounds of the illegality of the arbitration process regarding the resolution of the tax dispute. Statoil objected to the suit by FIRS on the grounds that FIRS was not entitled to bring the action, as it was not a party to the arbitral proceedings. The Federal High Court dismissed the objections of Statoil and ruled in favour of the FIRS. Statoil then appealed to the Court of Appeal against the decision. Upholding the decision of the Federal High Court, the Court of Appeal held that whilst the position of the law is that only a party to an arbitration agreement can sue on the agreement, there was an exception to be made in this case where the FIRS is the agency of the Federal Government statutorily charged with the duty of tax collection. As such, the FIRS

NNPC SUED NNPG, CAC, OVER TRADEMARK INFRINGEMENT Nigerian National Petroleum Corporation Retail Limited sued Natural Network Petroleum and Gas Company Limited (NNPG) and two others over infringement of its trademark. NNPC had joined the Corporate Affairs Commission (CAC) and Registrar of Trade Marks, Patent and Designs as 2nd and 3rd defendants, respectively, in the suit. The first defendant, NNPG was alleged to have been imitating NNPC by using its colour combination of red, yellow, green, uniform, emblem and the acronym NNPG to deceive the public, adding that this was a sabotage of the government’s effort to provide petroleum products to the common man. The first defendant was selling petroleum products under the confusing brand design of NNPG in Akure, Ondo State. NNPC said the infringement on the NNPC trademark by the first defendant had begun to cause a dwindling in NNPC’s sales in Ondo State. NNPC asked the court to make an order of perpetual injunction restraining NNPG from selling, offering any service, advertising for sale or promoting howsoever the name and consequently the acronym of NNPG in any of its service outlets, or any similar acronym, mark design and /or trade logo identical or similar to its own. NNPC also asked for damages.

126

LEGAL NEWS

ARBITRATION LOSS Conciliation Act is a court empowered to halt arbitral proceedings through the issuance of an injunction. The Court of Appeal said that the Act provides for judicial assistance in various ways including through stay of court proceedings, the removal of an arbitrator for misconduct, the setting aside of the award and the enforcement of an award. As the Act did not provide for the intervention of the court to restrain arbitration by injunction, the court lacked the jurisdiction to do so. had locus standi to approach the court in respect of the arbitration agreement and the proceeding arising therefrom as a result of the fact that whatever the award the tribunal would have rendered, would have touched on the powers of the FIRS to collect the necessary taxes prescribed by law. NNPC thereafter sought and ultimately obtained an injunction at the Federal High Court to prevent the continuation of arbitration. They had argued that the subject matter of the claims in the arbitration involved taxation, and that

by law only a tax tribunal could hear the matter. Statoil launched an appeal to the Court of Appeal against the decision of the Federal High Court. The Court of Appeal in July 2013 overturned the Federal High Court Decision. It held that it was wrong for the lower court was wrong to grant an injunction to a party that wanted to prevent the continuation of arbitration proceedings even though that party had entered into an agreement to resolve all disputes through arbitration. It held that nowhere in the Arbitration and

As such the arbitration was able to continue. But this is not Statoil’s only brush with the judicial system in Nigeria. In 2012, the company was ordered to pay Nigerian businessman, Dr John Abebe and his company, Inducon Nigeria Limited, 1.5 per cent of its profit accruable from the three oil blocks it is currently operating in the Niger Delta. The payment amounted to about $3 billion. The Lagos Court of Appeal, in a unanimous verdict, dismissed the appeal by Statoil against the Federal High Court decision that it should pay Dr Abebe for bringing the oil company to Nigeria in the early 1990s.

COURT GRANTED INJUNCTION AGAINST AFREN ASSET SALE A Lagos High Court granted Earl-Act Global Associated Company Limited an interlocutory injunction restraining Afren and its administrators Alix Partners, the Blackstone Group from dealing with Afren assets. They were also restrained from taking any steps or further steps to register or seek the consent of any government authority in respect of any disposition, transfer or dissipation of the assets pending the hearing and determination of the substantive suit. A Federal High Court issued an interim injunction against the directors of First Hydro Carbon Nigeria Company Limited (FHN) and its subsidiaries of FHN from approving any sale of shares in those companies or from any person selling or transferring any shares in those companies pending the hearing and determination of the motion on notice for interlocutory injunction. London Stock Exchange FTSE 250 listed Afren Plc, announced the suspension of its shares in July following which administrators were called in. Earl-Act Global Associated Company Limited is a shareholder in FHN.

127

LEGAL NEWS

LONDON COURT REFUSES ETETE’S BID TO UNFREEZE $85 MILLION OPL 245 DEAL PROCEEDS As the oil prospecting licence (OPL) 245 deal continued to play out on the London judicial scene, Southwark Crown Court in London refused a bid by Malabu Oil and Gas, a company linked to former Nigerian petroleum minister, Dan Etete, to unfreeze $85 million of the proceeds of the controversial deal described in court as a “smash and grab raid.” The proceeds were part of a $1.1 billion payment by Shell and Eni in 2011 for the block. The block reportedly holds probable reserves of 9.23 billion barrels of oil, which if proven, would represent the equivalent of a third of Shell’s proven reserves, and two thirds of Eni’s. The funds were frozen at the request of Italian authorities investigating the sale of the block by Malabu Oil and Gas, a company found by a UK court to be beneficially owned and controlled by Mr Etete. The block had been originally awarded to Malabu at a time when Dan Etete was Minister of Petroleum. Later the licence was revoked and re-awarded to Shell and Eni. Malabu Oil sued. The federal government, under Goodluck Jonathan’s presidency, brokered a settlement deal under which Shell/Eni would pay $1.1 billion to the federal government in settlement and they would retain the block whilst the funds would be paid to Malabu. The OPL 245 deal is currently under investigation by the Public Prosecutor of Milan, the UK’s National Crime Agency (NCA), and the Nigerian Economic and Financial Crimes Commission (EFCC). Italian authorities are investigating the role of Eni and that of its its current and former CEOs Claudio Descalzi and Paolo Scaroni, as well the company’s Chief Development, Operations & Technology Officer Roberto

allegations are that they were involved in the deal and references in the taped discussions to “Fortunato” and “the Lady” wanting the deal closed “by tomorrow” are said to refer to the two. Of the sum paid by Shell and Eni to the Federal Government, $522 million was transferred through circuitous routes to accounts held by one Abubakar Aliyu who is said by the Italian prosecutors to have been fronting for Nigerian public officials. Casula and former executive Vicenzo Armanna. Justice Edis of Southwark Crown Court turned down Malabu’s application to discharge the freezing order, rejecting Malabu’s arguments that the Crown had failed to follow proper procedures in securing the freezing. Justice Edis stressed in his judgement that he was not making any findings of facts about misconduct by anyone. His role was simply to assess the evidence to determine whether a restraining order should be discharged, which was granted to support an investigation by Italian authorities. He noted that the investigation was far from complete and was apparently still at an early stage. Declining to vary or discharge the freezing order, Justice Edis said: “Precisely because I cannot reach firm factual conclusions, I cannot simply assume that the FGN which was in power in 2011 and subsequently until 2015 rigorously defended the public interest of the people of Nigeria in all respects.” Wiretaps in relation to the Italian investigation have also allegedly implicated former president, Goodluck Jonathan and his oil minister, Diezani Alison-Madueke. The

Italian prosecutors are also looking into the roles of Dan Etete and middlemen Emeka Obi, Gianluca Di Nardo and Luigi Bisignani. Shell and Eni have denied any wrongdoing. The EFCC have reportedly recently interviewed Abubakar Aliyu in connection with the case, and earlier this year interviewed Dan Etete. Obi’s lawsuit heard in London last year against Malabu for the payment of commission for its role in the deal was what brought the case into the limelight. Simon Taylor, a Director of Global Witness, a non-governmental organization that campaigns for full transparency in the extractive industries and has been keeping an eye on the case, said: “Given the gathering pace of the EFCC investigation in Nigeria under new leadership and a call by the Nig.erian House of Representatives to cancel the deal in 2014, investors in Shell and Eni should demand to know why they were exposed to such risk.” Dotun Oloko, a Nigerian activist, said: “$1.1bn was diverted from the public purse. This needs to be recovered and we must get to the bottom of the role companies and individuals played in this heist.”

9 FOREIGNERS JAILED 5 YEARS FOR OIL THEFT A Federal High Court sitting in Lagos sentenced nine foreign citizens to five years imprisonment each after convicting them for stealing 3,423,097 metric tons of crude oil from Nigeria. Five of the convicts are Filipinos while the other four are from Bangladesh. The Nigerian Navy intercepted the men on March 27, 2015 while trying to load the stolen product onto their vessel, MT Asteris. Each of the men was convicted on four counts in relation to the crime and sentenced to a jail term of five years with an option to pay a N5 million fine on each count instead, making a total of N20 million fine.

128

LEGAL ANALYSIS

RENEGOTIATION OF NIGERIA’S PRODUCTION SHARING CONTRACTS The Nigerian Government (FGN) recently announced its intention to revisit the fiscal terms of existing Production Sharing Contracts (PSCs) with international oil companies (IOCs). In this analysis, Templars discusses some of the issues raised by the proposed renegotiation. From the FGN’s perspective, given that some of these PSCs were negotiated and entered into over 20 years ago, there is a need to update them to reflect current realities and also to ensure that they produce a lot more benefits in terms of rights and revenue for the government. From the perspective of the FGN’s PSC counterparties and the private sector generally however, this decision of the FGN has created some level of uncertainty and anxiety. In a bid to calm some of that anxiety, the FGN has stated that it would be careful in the proposed review so as not to create a counter productive anti-investment atmosphere. That assurance notwithstanding, the proposed renegotiation of the PSCs raises a number of issues including the following:

THE BASIS FOR RENEGOTIATION: The existing PSCs can only be amended in writing by mutual consent of the parties. The FGN cannot therefore unilaterally alter their terms - except as provided in the Deep Offshore and Inland Basin Production Sharing Contracts Act (“PSC Act”). The PSC Act (which grants certain fiscal incentives to exploration and production companies operating in the deep offshore and inland basin area of Nigeria) allows the FGN to adjust the revenue sharing formula in the PSC whenever the price of crude oil exceeds $20 per barrel, with a view to making the PSC more economically beneficial to the government. On this basis, the Nigerian government can be said to be well within its rights in seeking to increase its share of the economics under the existing PSCs. The question may however be asked whether the government’s failure to ever invoke this statutory right at any time since the enactment of the PSC Act in 1999 constitutes a waiver and therefore an impediment to the assertion of that right today.

Another point that is worthy of consideration here is that while the PSC Act provides for adjustment of the revenue sharing ratio in favour of the FGN in the event of oil price exceeding $20 per barrel, no provisions has been made for adjustment in the opposite direction in the event of prices falling below $20 per barrel. Given the recent trend in the global price of crude oil, it is not impossible to imagine such a drastic fall, hence it is in the interest of the PSC counterparties of the FGN to canvass the introduction of a two-way adjustment mechanism into the PSCs going forward.

RENEGOTIATION OF PROFITS VERSUS TAXES Although as shown above, the FGN is entitled under the PSC Act to extract additional revenue from the PSCs when the price exceeds $20 per barrel, no such provisions have been made under the PSC Act or any other law in relation to the royalties or petroleum profits tax applicable to PSCs. For this reason, any alteration of the relevant taxes and royalties would require the amendment of such laws as the Petroleum Profits Tax Act and the Petroleum Act under which these taxes and royalties were set in the first place. Strictly speaking, such amendments are not a matter of contractual negotiation between the FGN and the IOCs, but more than likely, the IOCs as well as other stakeholders, would have the opportunity during the legislative consultation process, to make an input into the amendments.

FISCAL RENEGOTIATION AND STABILIZATION TRIGGERS If the FGN goes ahead to amend the relevant laws to alter the taxes payable in relation

to the PSCs, such alterations would almost certainly trigger the stabilization clauses in the PSCs. Briefly, these stabilization clauses were designed to protect the PSC counterparties of the FGN from any material adverse effects of any changes in law, policy, directives, procedure etc.

IMPACT OF RENEGOTIATION AND EXISTING PSC DISPUTES WITH IOCS On the bright side, any “negotiated” amendments to the fiscal terms of the PSCs may offer a useful opportunity for the resolution of some of the various disputes that has arisen (and been litigated) between the IOCs and FGN on PSC-related fiscal issues in the recent past. In summary therefore, if these issues are thoroughly considered, the proposed “renegotiation” may prove useful to both the FNG and the IOCs by not only ensuring that the terms of the PSCs reflect current economic realities for both parties but also providing clarity on the hitherto unclear or controversial provisions of the PSCs that have given rise to expensive and protracted dispute between the IOCs and government. Hopefully, the proposed review process would, in addition to the NNPC, include such critical agencies of the FGN as the Federal Inland Revenue Services so as to ensure a consistency and coherent public sector approach to the exercise. This analysis by Templars is intended only as a general discussion on the subject matter. It should not be regarded as legal advice. For further details, please contact Templars’ Head, Energy and Projects, Oghogho Akpata or Head of Dispute Resolution, Adewale Atake.

129

LEGAL LEGALANALYSIS NEWS

TWO OPTIONS FOR CONVERTING NPDC’S UNINCORPORATED The IJV structure had been floated at least since 2008 when the first draft of the Petroleum Industry Bill (“PIB”) was issued. That draft of the Bill mandated the formation of IJVs with respect to joint ventures between the Nigerian National Petroleum Corporation (“NNPC”) and its partners (mostly international oil companies). The IJV was seen as a solution to the perennial difficulties faced by NNPC in financing its share of the joint venture cash calls. This was based on the theory that an IJV was likely to be in a better position to raise money from loan and equity markets. This concept, loosely based on the NLNG model, was resisted by the joint venture partners for a variety of reasons and was removed from subsequent drafts of the PIB. The recent proposal is a bit different. Firstly, it is targeted at companies in joint ventures with NPDC, a subsidiary of NNPC. These companies are typically Nigerian owned and/or Nigerian-led companies. It is not clear whether NNPC/NPDC believes that the local companies are soft targets for implementing the IJV strategy

BACKGROUND Before looking at the options available, it would be useful to comment on the characteristics of the current unincorporated joint venture structure, which may impact on its conversion. Rights to explore for, develop and produce petroleum are granted in Nigeria through the award of Oil Prospecting Licences (“OPL”) and Oil Mining Leases (“OML”). Typically, two or more parties would become the licensees and enter into a joint venture governed by a joint operating agreement (“JOA”). The JOA, amongst other things, spells out the participating interest (or the share of costs and oil) to which each party is entitled. Each joint venture party holds its participating interest as an asset on its own books and is entitled to assign the asset (subject to certain controls) and to pledge the asset. It is worth mentioning that the pledge of OML/OPL assets is not typical in Nigeria due to the requirement for ministerial consent and the time it takes to achieve such consent.

130

It was announced recently that President Buhari had given the Nigerian Petroleum Development Company (“NPDC”) the approval to incorporate its joint venture assets and convert them into Incorporated Joint Ventures (“IJV”). In this article, Adeoye Adefulu explores two options for converting from unincorporated joint ventures to IJVs. or whether this is a first step, which may be extended to all companies in a joint venture with NNPC. Whatever the case, it is worth noting that unlike the IOCs, most of these companies are single asset companies, which means two things. One, the success of the asset means everything to the company, its owners and its employees. Therefore, these stakeholders will be averse to any change, which they consider may affect the economic potentials of the company. Two, most of the companies and/or its owners are substantially leveraged from the acquisition of the assets and the lending banks will have a say in any proposed reforms.

There is no indication (at least not yet), that these companies would be compelled by law, as previously proposed under the 2008 PIB draft, to enter into these IJVs. This allows for detailed negotiations on the form and substance of the IJV structure, which may emerge. This brief paper will not be examining the merits or demerits of the IJV structure. It only seeks to enunciate two options, which may be taken by the NPDC and the joint venture partners in achieving the IJV structure. In doing this, we show that the process of conversion itself is not that simple and requires all parties to put a lot of thought to the issues likely to be faced.

LEGAL ANALYSIS

JOINT VENTURES TO INCORPORATED JOINT VENTURES OPTION 1

OPTION 2

REVERSE TAKEOVER

TRANSFER TO A NEW COMPANY

This is not an RTO in the technical sense where a private company takes over a (dormant) public company. Under this structure, NPDC transfers its rights in the underlying OML in exchange for shares in the indigenous company. The indigenous company would be required to substantially increase its share capital in order to allot the requisite shares to NPDC. This option, therefore, requires a thorough valuation of the assets and the liabilities of the indigenous company as well as that of NPDC’s interest in order to determine the appropriate level of shareholding to be allocated. This process is likely to lead to NPDC holding majority shares in the indigenous companies (hence the RTO) and where the shareholdings of the companies are already relatively fragmented, NPDC would be the largest shareholder by a significant margin. This may raise concerns from the existing shareholders in terms of their ability to influence the operations of the new entity. A number of these concerns may be dealt with by putting in place a robust shareholders’ agreement, which addresses voting rights, pass mark issues and other minority protection mechanisms. NPDC may also be concerned that at the end of this process, it would have only transferred assets and not achieved the capacity building objectives of this exercise. This concern may be ameliorated by allowing the process to accommodate the transfer of staff. Regulatory & Other Considerations: The transfer of assets from NPDC under this option would require the consent of the Minister, which is unlikely to be a problem, given that this initiative is being driven by the government side. The process may also require the approval of the Securities and Exchange Commission as it is likely to fall under the mergers and acquisitions rules of the Investments and Securities Act. Further, the required increase in share capital by the indigenous companies would incur fees at the Corporate Affairs Commission as well as stamp duty fees. Banks and other lenders to the indigenous companies as well as those of its existing shareholders may also need to approve the transaction under the terms of their existing loan arrangements.

A second option, which may be utilised to achieve the IJV structure, is for both parties, NPDC and the indigenous companies, to transfer their assets and liabilities with respect to that OML to a newly created entity. In this scenario, the shareholders in the new company would be NPDC and the existing indigenous company. The posttransaction shareholding structure should broadly reflect the current participating interest ratio between NPDC and the indigenous company on the asset. This may provide some level of comfort for the indigenous shareholders as they may act as one block, reducing NPDC’s influence as the majority shareholder. It will still be necessary to put in place a shareholders’ agreement, which addresses minority protection rights. In adopting this structure, however, there may be concerns about the tax exposure of the shareholders of the indigenous company. Under the current arrangements, the indigenous company pays petroleum profits tax (“PPT”) after which its shareholders may take dividends from the remainder profit. The dividends are not subject to the payment of tax under Nigerian law although the company that receives the dividends may be further subject to companies’ income tax (“CIT”) on any profits it makes. The addition of another layer through the establishment of this new company may subject the current shareholders in the indigenous company to additional tax, potentially whittling down profits. Regulatory & Other Considerations: The transfer of assets from NPDC under this option would also require the consent of the Minister. As the option would require the incorporation of a new company with sufficient share capital to accommodate the assets being transferred, there are likely to be substantial CAC fees as well as stamp duty fees. Banks and other lenders to the indigenous companies and/or its existing shareholders may also need to approve the transaction under the terms of their existing loan arrangements. The process is unlikely to require SEC approval.

CONCLUDING REMARKS There are a number of questions that need to be asked around the desirability of the proposed conversion to IJV status. As private sector entities, concerns may be raised around the governance of such an institution, incorporation of politics into the affairs of the organisation and public procurement obligations amongst other issues. Even where these hurdles are scaled, the fulfilment of the process requires both NNPC/NPDC and the private companies to think through how to implement the change. That process will not be straightforward and may take a number of years to reach an agreement. During that period, however, the NNPC/NPDC and its joint venture partners must come to an agreement on appropriate structures to enhance the efficiency of these joint venture operations. This means agreeing on alternative finance structures and how operations are managed and this would involve at the very least, executing new joint operating agreements. Dr Adeoye Adefulu is a Partner in the Energy Practice Team at the law firm of Odujinrin & Adefulu.

131

LEGAL ANALYSIS

REVIEW OF THE PETROLEUM INDUSTRY GOVERNANCE AND INSTITUTIONAL FRAMEWORK BILL INTRODUCTION Many commentators and stakeholders, in the Nigerian oil and gas industry have called for the much-publicized Petroleum Industry Bill to be enacted into law in piecemeal. Thus, it comes as no surprise that there is presently in circulation, an Executive sponsored Bill titled the “Petroleum Industry Governance and Institutional Framework Bill 2015” (the “Bill”), which we understand is yet to be formally presented to the National Assembly. In this article, Banwo & Ighodalo considers the salient provisions of the Bill. The main objectives of the Bill include: i) the creation of efficient and effective governing institutions with clear and separate roles for the petroleum industry; ii) establishment of a framework for the creation (out of existing government-owned entities) of commercially oriented and profit driven entities that will ensure value-add and internationalization of the petroleum industry; iii) the promotion of transparency and accountability in the petroleum industry; and iv) the creation of a conducive business environment for operators in the petroleum industry. Presumably, the intent of the proponents of the Bill is to ensure that there is a high level of transparency in the Nigerian Petroleum Industry whilst at the same time ensuring that the industry is commercially driven and attractive to potential investors. Highlighted below are salient provisions of the Bill, which may impact the Nigerian Petroleum Industry, if same is passed into law in its current form.

POWERS OF THE MINISTER Section 2 of the Bill sets out the functions and powers of the Minister of Petroleum Resources (the “Minister”). The Bill in its current form seeks to fetter the discretion of the Minister by subjecting the exercise of his powers to grant, amend, renew, extend or revoke petroleum exploration and production licenses and leases to the recommendation of the Commission, which is not the case under the Petroleum Act, Cap P10, Laws of the Federation of Nigeria (LFN) 2004 (the “Extant Act”). Under the Extant Act, the Minister has an absolute discretion to grant, amend, revoke and extend oil prospecting licenses and oil mining leases to applicants that satisfy statutorily prescribed conditions. This presupposes that there will be a new process for applying for an amendment, renewal, extension or revocation of a license or lease, which will involve applying through the Commission and not directly to the Minister.

132

However, the Bill is silent on the procedure to be followed when making such applications. Further, according to the Bill most of the members of the Commission’s board would be appointed by the President of the Federal Republic of Nigeria and not the Minister, which in our view, further dilutes the power vested in the Minister.

ESTABLISHMENT OF THE NIGERIAN PETROLEUM REGULATORY COMMISSION The Bill seeks to establish a body to be called the Nigerian Petroleum Regulatory Commission (the “Commission”) which shall assume the rights, interests, obligations and liabilities of the Petroleum Inspectorate, the Department of Petroleum Resources (“DPR”) and the Petroleum Products Pricing Regulatory Agency (“PPPRA”) as well as serve as the regulator of the upstream, midstream and downstream sub-sectors of the oil and gas industry. It is clear from the provisions of section 4 of the Bill that the draftsman intends to reduce the number of regulators in the petroleum industry by subsuming the powers of the PPPRA and the DPR into the regulatory purview and the remit of the Commission. It is also pertinent to note that the Bill does not require the Minister to sit on the Board of the Commission. There is, therefore, a presumption that the Commission shall be independent and shall not be subject to the influences of the Minister. Establishment of the Nigerian Petroleum Assets Management Company and the National Petroleum Company Similar to the previous drafts of the PIB, which sought to split the NNPC into three commercial entities, Section 36 of the Bill provides for the incorporation of two entities to be known as the Nigerian Petroleum Assets Management Company (“NPAMC”) and the National Petroleum Company (“NPC”), which will be vested with certain liabilities and assets of the NNPC.

NIGERIAN PETROLEUM ASSETS MANAGEMENT COMPANY The NPAMC shall be responsible for the management of the NNPC’s oil and gas investment in assets where government is not obligated to provide any upfront funding (essentially the production sharing contracts). Pursuant to Section 37 of the Bill the initial shares of the NPAMC at incorporation shall be held by the Federal Ministry of Finance Incorporated (“MOFI”) and the Bureau for Public Enterprises (“BPE”) in a ratio of 99% to

1% respectively. Further, Section 40 provides that within 3 months of incorporation, the Minister shall make an order that the assets, rights, obligations, employees and liabilities of the NNPC shall be transferred to the NPAMC however the Bill does not specify which assets, rights, obligations, employees and liabilities will be transferred and we presume that these will be specified in the said Order. Additionally, Section 47 provides that the NPAMC shall be entitled to charge the Federal Government of Nigeria (“FGN”) fees for the management of its oil and gas investments/ interests and such fees shall be a percentage of the revenue generated by the NPAMC for the FGN, as determined and appropriated by the National Assembly. All income of the NPAMC (other than its operating funds provided by its shareholders, fees earned from the FGN, gifts and donations it receives) shall be paid into the Federation Account.

NIGERIAN PETROLEUM COMPANY Pursuant to Section 36(2) (b) of the Bill, the NPC will be an integrated oil and gas company operating as a fully commercial entity across the energy value chain. Section 60 provides in relation to the NPC, that its initial shares as in the case with the NPAMC will be held by the MOFI and the BPE at incorporation. Further, the Bill provides that within 6 years from the date of incorporation of the NPC, it shall divest of not less than 30% of its shares to the public in a transparent manner. It is however, unclear, as the section is silent on whether or not, the contemplated divestment of the NPC’s shares will be limited to Nigerians.

REPEALS, TRANSITIONAL AND SAVINGS PROVISIONS These provisions are set out in Part 6 of the Bill and propose modifications to all existing enactments or laws in order to bring them in conformity with the Bill. Additionally, Section 86 provides that every permit or license issued by the DPR before the commencement of the Bill will continue to be effective as if same was issued by the Commission.

CONCLUSION It is evident from our review of the Bill that the draftsman seeks to ensure that the petroleum industry is run in an efficient and transparent manner for the benefit of the country and we can only hope that this is ultimately achieved. Contacts: Stella Duru is a Partner and Chisom Orakwusi is an Associate at Banwo and Ighodalo.

LEGAL ANALYSIS

MEDIATION:

A TOOL FOR RESOLVING OIL AND GAS DISPUTES A major reason for which Mediation is to be preferred above litigation and arbitration is cost – in time and money. More than just being less costly than arbitration or litigation, it also promotes goodwill and preserves relationships. Mediation affords parties the opportunity to forge a settlement of their differences on a mutually acceptable basis outside the adversarial environment created by litigation or arbitration. This adversarial environment fosters disparagement and the consequent tarnishing of relationships. As previously mentioned, this damage is often permanent. Mediation’s major plus is removing fault from the equation so that the parties can simply agree a solution to their dispute that both can live with. At the end of the day, that is what really matters. Moreover, unlike the judge or arbitrator, the Mediator is all the while in the role of a peacemaker and bridge builder, facilitating the reconciliation of estranged parties and helping them to chart a way forward where all sides are satisfied. It has been said that companies that have used Mediation as a major dispute resolution tool, have found that the practice of it is also less traumatic on the emotions and feelings of their personnel. Best of all, it frees up their time to concentrate on those cases which, inevitably, must be litigated. And, there will always be such cases.

a binding precedent. The advantage of Mediation here is that, if parties deem it suitable in the circumstances for the reasons mentioned, they might safely capitulate or otherwise compromise on an issue in an isolated case without fearing the repercussions in the form of a multitude of additional lessor actions. Parties can achieve all of the foregoing without the stress of going through a stressful discovery process, without being constrained by technicalities of the rules of evidence and docked testimony. They can achieve all these at lower cost in legal and court fees, and the physical, mental and emotional energy generally required to prosecute or defend a lawsuit. The main downside is that there is no guarantee of success in mediation. But then, there is no guarantee either that parties will be satisfied with the outcome of an adjudicated settlement. A case of the lesser of two evils, one may say. Yemi Akisanya is a CEDR Accredited Mediator, and Principal, AdeyemiAkisanya Associates

The confidentiality of the mediation process means that parties are able to reach decisions and agree actions they would rather not have publicly followed. They remain in control of their process and its outcome. It provides a venue to pursue a moderated negotiation without the potential for creating an undesirable precedent as might occur with the outcome of a litigation. A solution, while serving well the immediate shortterm exigency, may not necessarily be expedient in the longterm; however, the short-term may be what is essential to the resolution of the disputants’ issues at the particular point in time. Perhaps the state of the relevant law or legal principle is unsettled and an adverse ruling could severely impact either or both parties if a litigation outcome were to establish

133

LOCAL CONTENT NEWS

JANUARY-FEBRUARY SHELL AWARDED SEISMIC PROCESSING CONTRACT TO CBGS Shell Nigeria awarded a one-year seismic processing contract to CB Geophysical Solutions (CBGS), a Nigerian technical service company. The initial commitment is 1,000sq kilometres threedimensional (3D) seismic data. The company says its processing suite can handle 8000 km2 of 3D seismic data in parallel.

PETROLOG ACQUIRED LARGEST DP2 VESSEL IN SUB-SAHARAN AFRICA

CBGS Chairman and Chief Executive Officer, Bank Anthony Okoroafor said: “It’s a major step in domesticating seismic data processing in the country.” The 100 per cent Nigerian company is involved in Seismic data acquisition, processing, interpretation, field development planning, geological and geophysical studies and seismic acquisition QA/QC as well as data storage.

NLNG ANNOUNCED PLANS FOR BADAGRY OIL AND GAS DOCKYARD Nigeria Liquefied Natural Gas Company (NLNG) announced that it was looking for investors for a new dockyard planned for Badagry, Lagos State. The company said it needed the dockyard due to the $1.6 billion contract for 6 new vessels, awarded to Hyundai Heavy Industries (HHI) and Samsung Heavy Industries (SHI). It will need new dry-docking facilities for the very large crude carriers (VLCC) when they arrive. Without new facilities in the country, the vessels will have to be taken abroad for servicing at very high cost, in terms of time and money, to the company. The company however stressed that it was only a facilitator of the dockyard and not an investor in the project as reported by some in the media. The new dockyard will fill a long-standing need for an operational dockyard to cater for very large crude carriers (VLCCs) and liquefied natural gas (LNG) carriers. NLNG will be a major client, with 13 vessels currently in its fleet and 6 new vessels to come. It will also be able to cater, not just to the Nigerian market, but also to the wider West African sub region where owners of such vessels currently have to use docking facilities in Asia, Europe and the Americas at very high expense.

NLNG SET ASIDE $1 BILLION FOR LOCAL VENDOR FINANCE SCHEME The Nigeria Liquefied Natural Gas (NLNG) Company set aside $1bn to support its registered local vendors under the NLNG Local Vendors’ Financing Scheme. The fund would be used to facilitate access to funds from participating banks by NLNG-registered vendors. These could either be suppliers of goods or contractors of services. NLNG said it recognised the fact that funding was the bane of the Nigerian manufacturing industry. This way, vendors could get speedy access to finance for their contracts, or procurement orders, at competitive rates. So far, over $20m had been disbursed to NLNG vendors.

134

In a distinct boost to local content and indigenous capacity building, indigenous oil service company, Petrolog, unveiled its newly acquired DP2 Dive Support Vessel, the 85 metre long DSV Vinnice, the largest of its class in sub-Saharan Africa. The company, which was established 30 years ago and has expanded its services across the service spectrum, now has one of the most technically advanced fleets of Diving Support Vessels in the industry. The ABS Classed vessel is Nigerian flagged and 100 per cent Nigerian owned. It is fitted with a 100T AHC, 182 man capacity, 9 man saturation diving system, air dive spread, ample deck space, 4 point mooring, amongst other world class features. The vessel is valued at $170m and is equipped for shallow and deepwater operations and can be used for the construction, repair and maintenance of oilrigs and other offshore naval constructions. The company said in a statement: “The DSV Vinnice is a bold addition to our ongoing fleet expansion in response to the Local Content and capacity building drive by NCDMB.”

EXXONMOBIL INVESTED $1 BILLION IN LOCAL CONTENT DEVELOPMENT Chairman, Managing Director, ExxonMobil Upstream Companies in Nigeria, Nolan O’Neal, extolled the American giant’s Nigerian content credentials. Speaking at the Nigeria Oil and Gas Conference (NOG) in Abuja he revealed that ExxonMobil Nigeria Unlimited had awarded projects worth over $1 billion to Nigerian firms in the last few years. He said the company was determined to grow local capacity in line with the local content agenda. Speaking in greater detail, O’Neal said its employee work force was 88 per cent Nigerian. Mobil became the first oil company in Nigeria in 2011 to deploy Nigerian-made pipes (30kms) in its pipeline network. It worked with an indigenous pipe manufacturing company to develop new specifications for Double Submerged Arc Welded Helical (DSAWH) pipes that would meet international standards for low pressure and shallow water applications. ExxonMobil also completed the development of three wellhead platforms under the Satellite Fields Development Project Phase-1 for the Abang, Itut and Oyot (AOI) oil fields located offshore Nigeria. They were the first ever wellhead platforms to be designed, fabricated and commissioned by Nigerian companies.

LOCAL CONTENT NEWS

APRIL - JUNE KENTEBE TOOK OVER AS EXECUTIVE SECRETARY OF NIGERIAN CONTENT BOARD In May, Denzil Amagbe Kentebe replaced Ernest Nwapa as the Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB) promising to deepen the local content implementation process and break new grounds in the attainment of Nigerian Content goals. He commended his predecessor and the staff of the Board for the achievements they recorded in implementing the Nigerian Content Act in the first five years of the existence of the Board and promised that his leadership would work to improve on the accomplishments.

n Strengthening the Board’s internal processes n Enforce the compliance monitoring system. n The Nigeria Oil and Gas Park Scheme (NOGIPS) n Polaku Pipemill project n Human capital development programs n Youth Employment, Empowerment & Entrepreneurship Initiative n Marine Service Sector Strategy Denzil Amagbe Kentebe, Executive Secretary, NCDMB

Areas in which he planned to focus and key projects he wanted to prioritise and accelerate include:

Kentebe pledged to galvanize industry stakeholders to improve on the achievements recorded in the first five years of implementing Nigerian Content. He said, “I have followed NCDMB for a while and what we are doing today is not to fix something but to build on what was started off on a wonderful manner. We are going to build on that foundation and I appeal for everyone’s cooperation.”

JULY- SEPTEMBER AVEON OFFSHORE COMPLETED BRASS OIL AND GAS FREE ZONE IN BAYELSA SAIL AWAY OF ERHA NORTH PHASE STATE MOVED ONE STEP CLOSER 2 SUBSEA STRUCTURES The Brass Oil and Gas Free Zone to be located in Bayelsa State was a step closer Aveon Offshore, a fully Nigerian owned engineering and fabrication services company, successfully completed the fabrication, supported Manifold/ Suction Pile testing and loading out of these components for the Erha North Phase 2 project. The load out and sail away of the 5 suction piles, production and water-injection manifolds and Riser Base Lift Module with Choke Loop Bridge had been going on since October 2014 and was completed with the final batch of 5 Mudmats with Foundation Base and 2 Production Manifolds with Pigging Loop recent sail away. Other works on the project remained ongoing, including the fabrication of the Xmas tree elements for which delivery was said to be on schedule. Aveon won the work for the Erha North Phase 2 project from OneSubea Offshore Systems Nigeria Limited. The contract was for the fabrication and load-out of approximately 1,200 tons of subsea structures including 5 manifolds and modules with associated suction piles, various Xmas tree frame elements and control system foundations for the Esso Exploration and Production Nigeria Limited (EEPNL) Erha North Phase 2 Project in 2013. Aveon added a dedicated 2,000 m2 high-bay workshop to its 280,000 Sqm fabrication yard in Rumuolumeni, near Port Harcourt to accommodate the workload. The company said that the project had generated over 550,000 productive man-hours of over 20 months.

to reality after the Governor of the State, Seriake Dickson, set up a committee for the project. The Committee will work with the management of the Oil and Gas Free Zone Authority to work out a detailed plan for the new Free Zone. The project would transform the economy of the State, according to Dickson. He explained that the Government intended to expand the State’s economy beyond oil and gas. He said: “We have formulated a lot of policies to enable us expand our economy to attract industrialists and promote industrialisation; to create wealth, jobs and a stable environment for business.”

OIL TOOLS ACHIEVED FIRST FULLY IN-COUNTRY FABRICATED WELLHEADS FOR FMC TEHNOLOGIES FMC Technologies recently delivered four subsea wellheads, the first to be entirely fabricated in country, for Total’s Egina project. The wellheads were fabricated for FMC Technologies by Oiltools Africa Limited (OAL), a Nigerian company, and featured a 36-inchdiameter conductor housing and a 20-inch-diameter wellhead assembly. The project was conducted by a team of 44 Nigerian OAL employees and completed on time without any safety incidents.

FMC Technologies provided training for OAL personnel for the advanced welding techniques and post-weld heat treatment procedures required for the manufacturing process. “Locally manufacturing these wellheads marks a significant milestone for the company and for Nigeria’s energy industry,” said Shelagh Daley, Area Manager at FMC Technologies. She said FMC Technologies was committed to developing local talent.

135

LOCAL CONTENT NEWS

IMPORTERS BOYCOTTED ONNE PORT FOR FOREIGN PORTS OVER CHARGES Following the directive from the former President, Goodluck Jonathan, that all oil and gas cargoes be consigned to Intels Logistics terminal in Onne, Rivers State, importers of oil and gas cargoes are choosing to boycott the port. They have made good on their threat to consign their good to ports at neighbouring countries rather than pay the high charges at the Intels terminals. The President of the Nigerian Association of Licensed Customs Agents, (ANLCA), Prince Olayiwola Shittu said that importers refused to be blackmailed into using the Oil and Gas terminal in Onne. The Lagos Deep Offshore Logistics (LADOL) facility currently has an injunction preventing the government from enforcing the Directive. The matter remains in court and the Seaports Terminals Operators Association of Nigeria and the Port and Terminal Operators Limited (PTOL) have also joined the court case.

NOVASEIS SIGNED MOU WITH NORTHBRIDGE ENERGY FOR SEISMIC ACQUISITION JV NovaSeis, a subsidiary of AIM listed San Leon Energy, signed a Memorandum of Understanding with Northbridge Energy Ltd a Nigerian-based integrated energy company. The MoU sets out a Joint Venture between the two parties, to provide seismic acquisition and interpretation services in Nigeria. NovaSeis will contribute acquisition equipment and personnel together with interpretation expertise. Northbridge will provide work sourcing, permits, local personnel and services. One of the conditions for San Leon entering into a MoU with Northbridge was the award of a Permit to undertake Seismic Data Acquisition and Processing and Interpretation. This has already been issued to Northbrigde. Oisin Fanning, San Leon Executive Chairman commented: “The MoU signed with Northbridge is expected to generate near-term seismic acquisition and interpretation cashflow in Nigeria by combining NovaSeis’ extensive acquisition and interpretation experience and capability, with Northbridge’s local knowledge and networks.

ROYAL NIGER PROGRESSED PLANS TO BUILD NIGERIA’S FIRST FINISHED UMBILICAL PRODUCTS PLANT Royal Niger Emerging Technologies said it had made some progress this year in its plans to build Nigeria’s first facility for the manufacture of finished umbilical products for the local market. Anthony Okolo, Managing Director of the company, said they had made slow progress on the facility throughout 2015 due to increased load requirements on the factory floor and also the prevailing economic climate. Foundation works were completed on the factory floor and they have also placed the order for the steel frame. Erection of the

136

steel frames will go in tandem with the block work, which should be completed by March 2016. Wiring and fixtures are scheduled for May completion. Work has also commenced on the quayside works with land filling ongoing. When completed the plant will supply flying leads in Nigeria in the first phase of its facility development. Located on 25,000 square metres it will be capable of receiving umbilical components from multiple manufacturers in a variety of configurations, lengths and materials.

NCDMB TO REQUIRE IOCS TO DOMICILE R&D IN NIGERIA The Nigerian Content Development and Monitoring Board (NCDMB) said it would soon require all international oil companies (IOCs) to domicile all their R & D activities within the country. The NCDMB said this was in accordance with the provisions of Sections 37 to 39 of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act of 2010. The Executive Secretary of NCDMB, Denzil Kentebe was determined to enforce compliance by the IOCs.

SURVEY

NIGERIAN CONTENT DEVELOPMENT PERCEPTION INDEX SURVEY 2015 In commemoration of the 5th anniversary of the Nigerian content law, Borderless – a Nigerian content advocacy group – carried out the “Looking back, looking forward” survey on the progress of Nigerian content.

6th MOBIL

The goal of the survey is to raise awareness and promote greater commitment towards Nigerian content development. It generated feedback from a cross-section of indigenous oil and gas companies on how the Nigerian Content Act could be better implemented. Included in the survey is the Nigerian Content Perception Development Index (NCPDI), an annual ranking, of International Oil Companies (IOCs), in order of commitment to Nigerian Content, with 1, representing the most committed IOC and 6, representing the least committed IOC to Nigerian content development.

ANALYSIS In comparison to 2014 results, Shell retained its position as the most committed IOC to Nigerian content development. Addax, also, retained its 2nd position. At 3rd place, Mobil moved up a position, while Total dropped a position to 4th place. Agip (NAOC) retained its position at 5th place. For a second year, Chevron remained the least committed to Nigerian content development in the Perception Index. The 2015 survey did not record any significant change in the commitment by IOCs to value addition - Nigerian Content development.

OUTCOME OF THE SURVEY 1. Most indigenous still view access to funds as a main challenge, and want greater access to cheap funds. They also want a clearer and less cumbersome process of accessing the Nigerian Content Fund. 2. IOCs are perceived as progressively more committed to Nigerian Content development. 3. As developmental partners, the Nigerian Content Development and Monitoring Board (NCDMB) is seen to have performed well in assisting indigenous companies. 4. As regulators, the NCDMB has failed to effectively and/ or sufficiently monitor the activities of IOCs, and/or is lagging behind in its enforcement role. 5. Transparency - the NCDMB should readily make information accessible to the public for greater transparency and in ensuring Nigerian content compliance by IOCs. 6. Non-passage of the Petroleum Industry Bill (PIB) remains a major threat to Nigerian content development, with the creation of an uncertain investment climate.

5th TOTAL

4th AGIP (NAOC)

3rd CHEVRON

2nd ADDAX

1st SHELL

CALL TO ACTION n NCDMB should be more transparent in its activities, by making information readily available to the public, and to live up to its regulatory duty of effectively monitoring and enforcing compliance by international oil companies with the requirement to add value to the Nigerian economy. n Speedy passage of a Nigerian content-friendly PIB.

137

ENVIRONMENTAL NEWS

JANUARY-MARCH

TOTAL ACHIEVED FLARE-OUT ON OFON FIELD Total completed the flare out of the Ofon field on Oil Mining Lease (OML) 102 offshore Nigeria. The associated gas of the Ofon field is now being compressed, evacuated to shore and monetised via Nigeria LNG. “The flare-out of the Ofon field illustrates our commitment to developing oil and gas resources around our existing hubs in Nigeria. This important milestone of the Phase 2 of the Ofon project was achieved in a context of high levels of local content,” commented Guy Maurice, Senior Vice President Africa at Total Exploration & Production. “The flare-out on Ofon is also significant for Total’s environmental targets, representing a 10% reduction in the Group’s E&P flaring. This achievement is a clear demonstration of Total’s commitment to the Global Gas Flaring Reduction Partnership promoted by the World Bank,” he added. The Ofon field is located 65 kilometers from Nigerian shores in water depths of 40 meters. The field initially commenced production in 1997 and is currently producing about 25,000 barrels of oil equivalent per day (boe/d). This flare-out milestone will allow for the gradual increase of production towards the 90,000 boe/d production target through monetization of around 100 million cubic feet of gas per day, followed later in 2015 by the drilling of additional wells. The execution of the project also involved significant local content, including the first living quarters platform to be fabricated in Nigeria. Total E&P Nigeria operates OML 102 with a 40% interest, alongside the Nigerian National Petroleum Corporation (60%). In 2012, Total celebrated fifty years of its presence in Nigeria. Total said its deep offshore developments are one of its main growth avenues in Nigeria, where they currently operate the Akpo field in OML 130 and launched the development of the Egina field in the same lease in 2013. The flare out achievement at Ofon is welcome news given the amount Nigeria is said to lose from gas flaring – $1 billion over the last three quarters of 2014. Whilst Nigeria has laws banning flaring of associated gas, it continues to allow it subject to a financial penalty. Unfortunately, this has not proved to be a sufficient deterrent as the penalty is not stringently enforced. Some producers argue that it is actually cheaper to continue to flare the gas and pay the penalty than to produce gas because of the controlled price of gas in the domestic market.

138

SHELL APPOINTED NEW MANAGING DIRECTOR AFTER BODO COMMUNITY $86 MILLION SETTLEMENT Only days after agreeing an $86 million settlement with the Bodo Community, Shell announced the retirement of Mutiu Sunmonu after 36 years of service with Shell. Osagie Okunbor succeeded him as Managing Director of the Shell Petroleum Development Company of Nigeria Ltd (SPDC) and Country Chair of Shell Companies in Nigeria. Shell reached a settlement with the Bodo community in the Niger Delta over two oil spills that devastated the community in 2008. Internally, there was said to be some consternation over Sunmonu’s handling of the dispute. The situation became a public relations disaster after Amnesty International revealed that during the legal process Shell was forced to admit that it had been aware, at least since 2002, that most of its oil pipelines were old, and some sections contained “major risk and hazard” and that outright replacement of pipelines was necessary because of extensive corrosion. The question was why had it taken 6 years to get to a settlement over the spills, which Shell had long since accepted responsibility for. The spill and the subsequent settlement negotiations all happened under Sunmonu’s watch. Okunboh’s first task would be to rebuild Shell image following the revelations from the Bodo community legal action.

COMMUNITIES AFFECTED BY BONGA SPILL PROTESTED SHELL’S NON-PAYMENT OF COMPENSATION Barely a month after an $86 million settlement with the Bodo Community Shell was dealing with community disagreements over another spill. This time, the Itsekiri and Ijaw riverine dwellers affected by the December 2011 Bonga oil spill descended on the offices of the National Oil Spill Response and Response Agency (NSODRA) located in Warri, Delta State, demanding enforcement of the $3.6 billion compensation order imposed on the Shell Nigeria Exploration Company (SNEPCo) in November 2014 by the House of Representatives. The villagers were angry over NOSDRA’s failure to enforce the compensation order. The House Committee on the Environment estimated that 40,000 barrels of oil was spilled into the marine environment in Bonga. According to the independent report adopted by the Committee, the

oil spillage and harmful chemical pollutants affected 350 coastal communities and satellite villages in the State. SNEPCo was said in the Committee’s report to have agreed the estimate. The compensation was broken down as follows: N63.6bn for direct losses, being irreversible damage made up of N103.192bn for loss of income, N85bn for provision of water, while N27.4bn was for forestry. For the indirect losses, the oil company was ordered to pay N14.35bn for health hazards, N8million for injurious affection and N302.4bn as punitive damages. A community leader, Chief Otobo Itiemogha, said Shell had refused to call a meeting for negotiations even after several letters, which were not responded to. He said: “We are tired of waiting for Shell to decide whether it wants to obey Nigerian law or not.”

ENVIRONMENTAL NEWS NOSDRA SIGNED DEAL WITH OMNI-BLU FOR OIL SPILL AERIAL MANAGEMENT The National Oil Spill Detection and Response Agency (NOSDRA) entered into a partnership with Omni-Blu Aviation Limited to use specialised aircraft (air tractors) for emergency oil spill combat in Nigeria. The aerial spill combat programme involves using customised

aircrafts to undertake surveillance and aerial dispersant spraying. The DirectorGeneral of NOSDRA, Peter Idabor said that NOSDRA’s partnership arrangement with Omni-Blu meant that a tier-three oil spill response capacity fully domiciled in the country was coming to fruition,

with the Ground Receiving Station of the aerial surveillance equipment positioned at the agency’s Incident Command Centre. Production companies have to pay an annual subscription for the service, based on their average production.

APRIL-JUNE EUNISELL INTRODUCED SECONDARY CONTAINMENT SYSTEM Eunisell Solutions began the use of a secondary tank containment system on its production facilities. The move, said the Chief Executive Officer of the company, Dickson Okotie, would further minimize oil spills in the country. He explained that the secondary containment system was designed to withstand fluid pressures resulting from rapid fluid fill from a non-catastrophic failure of up to 15,000 barrel of oil. This was in line with the company’s commitment to a growing need to find more innovative ways to protect the environment especially where containment of environmentally hazardous fluids were stored within its production facilities.

BONGA OIL SPILL COMMUNITIES BEGAN VERIFICATION Communities impacted by Shell’s Bonga offshore oil spill in 2011 commenced verification of claims. Speaking about the exercise, George Ibobra, past Chairman of the Community Development Committee Chairman of Koluama 2 in Southern Ijaw Local Government of Bayelsa, said the verification had reached its final stages in April. The oil spill, which occurred in areas around Bayelsa and Delta States, saw 40,000 barrels crude oil spilt into the Atlantic. The House of Representatives and National Oil Spills Detection and Response Agency recommended a compensation of $3.96 billion for victims of the incident.

BAYELSA STATE ANNOUNCED NEW ENVIRONMENTAL BEST PRACTICE REGULATIONS FOR OIL COMPANIES The Bayelsa State government announced that it was setting up administrative, regulatory and legal enforcement regulations to compel environmental best practices by oil firms and other operators in the state. According to the Commissioner for Environment, Iniruo Wills, the priority placed on pollution prevention and diligent postspill management by the oil industry was abysmally low. He said: “A considerable dose of regulatory shock therapy was needed to cure the errant practices of these corporate giants.”

SHELL BLAMED SABOTAGE FOR KOLO CREEK OIL SPILL Shell Petroleum Development Company (SPDC) blamed sabotage for the oil spill at the Kolo Creek Manifold in Bayelsa State. A spokesman for SPDC said that the report of the Joint Investigation Visit (JIV) on the oil spill, which occurred in April, attributed the incident to sabotage of the facility. SPDC claimed that the volume spilt was 27 barrels and that the spill affected mainly the manifold grounds and part of the surrounding vegetation. SPDC said it was able to contain the leak soon after it began.

Royal Dutch Shell and ENI admitted to more than 550 oil spills in the Niger Delta in 2014: Amnesty International

139

ENVIRONMENTAL NEWS

JULY-AUGUST BUHARI APPROVED NEW GOVERNANCE FRAMEWORK TO KICKSTART OGONI CLEANUP

FRESH OIL SPILL HIT BAYELSA COMMUNITIES A new oil spill occurred around the communities of KemeEbiama,Okpotuwari and Ondewari communities in Southern Ijaw Local Government Area of Bayelsa State. The spill was from the Nigerian Agip Oil Company (NAOC)’s pipelines and was the second in four months, the last being in April. Agip technicians visited the spill site to carry out repairs.

SHELL CONFIRMED OIL SPILLS AT IKARAMA FIELD The Shell Petroleum Development Company (SPDC) confirmed multiple oil spills from its pipeline network in Ikarama fields in Yenagoa Local Government Area of Bayelsa State. SPDC said the cause of the seven spills was yet to be determined and that it was finalizing plans for the Joint Investigation Visit (JIV) to the sites.

Only months into his presidency, Muhammadu Buhari said they would fast track the implementation of the recommendations of the United Nations Environmental Programme Report (UNEP) report on the devastation that had been wreaked on Ogoniland in the Niger Delta. To kick start the process, Buhari approved the amendment of the official gazette establishing the Hydrocarbon Pollution Restoration Project (HYPREP) to reflect a new governance framework. The new framework includes a Governing Council, a Board of Trustees for the HYPREP Trust Fund and a Project Management Team. The HYPREP Governing Council will be made up of representatives of the Ministry of Petroleum Resources, Federal Ministry of Environment, impacted States, oil companies, Ogoniland, the United Nations and the Nigerian National Petroleum Corporation. A contribution of $10 million (N2 billion) was to be made by stakeholders within 30 days of the appointment of members of the Board of Trustees for the Trust Fund. The Board will be responsible for the collection of and management of funds from donors. The environmental clean-up of Ogoniland was expected to commence in earnest with the inauguration of the HYPREP Governing Council and the Board of Trustees for the Trust Fund. The establishment of the trust fund was a key recommendation of the UNEP report although, as human rights watchdog, Amnesty International pointed out, the promised $10 million was far below the $1 billion that UNEP said should be paid into the fund to cover the first five years of a clean-up job which could take up to 30 years. The UNEP study recommended that the contributions should be made by both the oil industry and the government. The UNEP study also called for Shell’s clean-up methods to be urgently overhauled, including reviewing its methodology and addressing serious delays in responding to spills.

OCTOBER-DECEMBER SAHARA GROUP JOINED STAKEHOLDERS FOR SUSTAINABILITY REPORT LAUNCH Sahara Group joined other stakeholders in New York in November for the launch of the Sustainable Development Goals Fund (SDG-F) new report, “Business and the United Nations: Working together towards the Sustainable Development Goals: A framework for Action”. The UN estimates indicate that achieving the SDGs will require $3.3-4.5 trillion a year.

140

NOSDRA THREATENED MOBIL WITH LEGAL ACTION OVER N10 MILLION UNPAID OIL SPILL FINE The National Oil Spill Detection and Response Agency (NOSDRA) threatened to take Mobil Producing Nigeria Unlimited to court over its non-payment of the N10 million imposed on the company. NOSDRA said it had directed the oil company to pay the said fines or face the legal machinery available to the Agency to compel the company to comply with the directive. NOSDRA imposed the fine on Mobil for its failure to effect the clean up of an oil spill at Qua Iboe Terminal.

CORPORATE SOCIAL RESPONSIBILITY NEWS

CORPORATE SOCIAL RESPONSIBILITY NEWS In spite of the challenges the oil and gas industry faced with dwindling oil prices, the industry stood by its corporate social responsibility programmes, continuing to invest in the development of their communities and the improvement of lives. Here are a selection of corporate social initiatives from this year.

SHELL PARTNERED BRUCE ONOBRAKPEYA TALEVERAS PARTNERED FOUNDATION TO TRAIN 60 YOUNG ARTISANS

WITH NIGERIA FOOTBALL FEDERATION TO BUILD TECHNICAL PERFORMANCE TEAM

The Taleveras Foundation partnered with the Nigeria Football Federation (NFF) to build a Technical Performance Team around the National Teams, starting with the sponsorship of 17 qualified persons for a three-week match-reading technique and backroom analysis exercise in the United Kingdom. As part of the initiative, Taleveras Foundation will provide full sponsorship for 15 male and two females who will be qualify in matchreading and backroom analysis exercise. Chief Executive Officer of Taleveras Foundation, Igho Sanomi said he was excited to be involved with a programme designed to enhance capacity for Nigerian legends like Augustine Azuka “Jay-Jay” Okocha, Nwankwo Kanu, Yisa Sofoluwe, Shaibu Amodu, David Ngodigha, Garba Lawal, Dahiru Sadi, Kelechi Emeteole and Florence Omagbemi. NFF President Amaju Pinnick praised the Taleveras Foundation for their contribution to helping take Nigerian football to a new high. He said: “Lack of qualified match readers has impacted negatively on Nigerian football over the decades.”

The Shell Petroleum Development Company (SPDC) Joint Venture partnered with the Bruce Onobrakpeya Foundation for the training of 60 young artists from the Niger Delta. The youth, from Abia, Akwa Ibom, Bayelsa, Delta, Imo and Rivers States, were enrolled at the Prof. Bruce Onobrakpeya Training Centre in

Agbarha-Otor, Delta State Delta State where they spent 2 weeks training in arts and craft. They focused on metal construction, ceramics (pottery) and leather crafts. Following the training, the youth were expected to be mentored by internationally acclaimed Nigerian artist, Professor Bruce Onobrakpeya.

NLNG AGREED N4.5BN FUNDING FOR BONNY SCHOOL The Nigeria Liquefied Natural Gas (NLNG) Company signed an agreement guaranteeing funding of N4.5 billion for the development of a new model secondary school on Bonny Island, Rivers State. The agreement with the Rivers State Government and Tianjin Energy Resources Limited would provide the guiding framework for building infrastructure necessary to deliver quality education at the school. NLNG supplies uninterrupted power to inhabitants and businesses through a rural electrification project.

SPDC MIDWIVES TRAINING ENTERED SECOND YEAR The Shell Petroleum Development Company (SPDC) training of 300 midwives from the Niger Delta entered its second year. The initiative, sponsored by the SPDC Joint Venture in collaboration with the governments of Rivers, Bayelsa, Delta, Imo, Abia and Akwa Ibom states and New Partnership for Africa Development, NEPAD is an 18-month midwifery certification training, which commenced in 2014. In 2014, the beneficiaries received the first instalment of the scholarship fund and in June they received the second (and final) instalment. As part of the programme, the 300 trainees were studying in accredited state schools of midwifery and also sent on clinical attachments in community hospitals, in preparation for the final qualifying examination of the Nigerian Nursing and Midwifery Council. SPDC also provided them with modern laptops to assist them in their training.

141

CORPORATE SOCIAL RESPONSIBILITY NEWS SHELL EXTENDED COMMUNITY WEST AFRICAN VENTURES DONATED $1 MILLION TO VICTIMS OF NEPAL EARTH QUAKE HEALTH INSURANCE SCHEME TO ANAMBRA Indigenous oil and gas company, West African Ventures Limited, donated $1 million to victims of the devastating earthquake in Nepal. The earthquake in April, which reached a magnitude of 8.2, killed over 8,000 people and injured more than 21,000. It was the worst natural disaster to strike Nepal since 1934. The earthquake triggered an avalanche on Mount Everest, killing at least 19, making April 25, 2015 the deadliest day on the mountain in history. Hundreds of thousands of people were made homeless with entire villages flattened, across the country. Centuries-old buildings were destroyed at UNESCO World Heritage sites in the Kathmandu Valley.

Shell’s deepwater subsidiary in Nigeria, Shell Nigeria Exploration and Production Company (SNEPCo) extended its Community Health Insurance Scheme to Anambra State, with the inauguration of the initiative at the Iyi-Enu Mission Hospital. The scheme was executed in partnership with the Anambra State government, the Idemili CHIS Board, and two Health Maintenance Organisations – Proserve and Avon.

TOTAL LAUNCHED SOLAR HOME SOLUTIONS Total Nigeria launched an alternative energy solution, Solar Home Solutions, for families. It will be implemented in phases in homes across the country. Although the commercial offering was only just being introduced, the project had long since been developed. Their other solar solutions include the Hybrid energy solutions for industries and the portable, mobile Awango Total Solar lamps. The company said the need for the development of alternative energy sources with lower carbon footprint could not be overemphasised.

SAHARA GROUP INDUCTED INTO SDG-F ADVISORY GROUP TOTAL COMPLETED CSR PROGRAMMES IN AKWA IBOM COMMUNITIES Total Exploration and Production (E&P) extended its CSR to various communities in Adwa Ibom State. The projects, which were located in various parts of the State included a health center with state-of-the-art equipment at Atan Offot, a solarpowered water scheme at Mkpanak and six classroom blocks all in Ibeno. In addition, they completed 4 classroom blocks at Obio Itak in Ikono, 6 classroom blocks at Nsit Oton, Nsit Ubium and renovated the Assembly Hall in Ebughu, Mbo. The Manager, Community Affairs, Offshore, for Total, Chief Onome Unuavwodo, said the gesture was borne out of the cordial relationship existing between the company and Akwa Ibom State government, adding that the facility was an appreciation for the good working environment the company had enjoyed in in the state.

142

The Sahara Group was inducted into the Private Sector Advisory Group of the Sustainable Development Goals Fund (SDG-F). The induction was in recognition of its sustainable development activities driven by strategic funding, partnerships and volunteer activities involving Sahara’s staff. The Sustainable Development Goals Fund (SDG-F) is a development cooperation mechanism created in 2014 by UNDP, on behalf of the UN system, with an initial contribution of the Government of Spain to support sustainable development activities through integrated and multidimensional joint programmes. The SDG-F builds on the experience, knowledge, lessons learned, and best practices of the MDG experience, while expanding its activities towards sustainable development and a higher attention on public-private partnerships. Sahara Group’s co-founder and Executive Director, Tonye Cole, will represent the Group on the advisory board. He said the Sahara Foundation focuses on sustainable community development, education and capacity building, healthcare and the environment.

CORPORATE SOCIAL RESPONSIBILITY NEWS SHELL SPONSORED 3 NIGERIAN UNIVERSITIES TO SHELL ECO-MARATHON COMPETITION Shell Petroleum Development Company of Nigeria Limited (SPDC) Joint Venture sponsored three university teams for the Shell Eco-marathon Africa competition in Johannesburg, South Africa. Team Nigeria, made up of students from University of Lagos, University of Benin and Ahmadu Bello University, Zaria, joined 40 teams from four countries to test the energy efficiency of their cars at the Zwartkops Raceway, near Pretoria. The competition, hosted by the University of Johannesburg School of Electrical Engineering, challenges students in four continents to build and race energy-efficient cars. Last year, at the maiden edition of the Africa event, the University of Benin won the Best Designed Car Award.

SHELL BEGAN LAGOS PILOT STUDY ON USE OF ETHANOL COOKING STOVES

OANDO BEGAN $3 MILLION ROAD PROJECT IN APAPA Oando Marketing Plc initiated a road project in Apapa aimed at improving the access into its depots. The latest improvement is to the access road and mashing yard, to be done at a cost of $3 million. Chief Executive Officer of Oando Marketing, Abayomi Awoboku, said they moved back to the terminal 2 years ago and had been making improvements since, spending close to N1 billion in the last 12 months. They have their tank farm and operational base there. He said they would be inaugurating the company’s jetty, which has cost them close to $150,000,000. The improvement means that the jetty is now capable of accommodating a mother vessel of about 30,000 tonnes. Awoboku said the company was also intent on continuing to give back to the community and their investment in Apapa would create more jobs and improve the welfare of the community.

Shell Nigeria Exploration and Production Company (SNEPCo) entered into an agreement with Project Gaia Prospects Limited (PGPL) for the conduct of a pilot study on the use of ethanol cooking stoves as a cleaner and safer way of cooking. During the pilot, Shell will provide 2,5000 clean cookstoves and 15,000 canisters for distribution to households in Lagos. PGPL will be responsible for ensuring the supply of ethanol fuel blended with methanol during the one-year study. The ethanol clean cookstoves project aims to reduce mortality associated with indoor air pollution by providing cleaner and healthier cooking alternative to kerosene, firewood and charcoal. The Global Alliance for Clean Cookstoves (GACC) estimates that household air pollution contributes to 70,000 premature deaths every year and affects 127 million people in Nigeria. SNEPCo hopes to promote wider usage of the new cooking system and encourage families to switch from unclean fuels through the Lagos pilot.

KADUNA POLYTECHNIC WON SAHARA ENERGY’S LIGHT UP NIGERIA CHALLENGE Kaduna Polytechnic won Sahara Energy second Light Up Nigeria Challenge. The competition, now in its second year and hosted in partnership with ENACTUS Nigeria, seeks to inspire students of higher institutions of learning across the nation to explore opportunities for achieving sustainable power supply within their environment. The 2015 challenge involved the development of simple Power Models that could reduce production costs and encourage the broad utilization of different energy sources to power communities and schools. Kaduna Polytechnic’s Renewable Energy Advancement Project (R.E.A.P) emerged as the winning entry in the competition that had impressive projects from 28 schools. The team created a self-running hydro-power system that runs solely on the kinetic energy of water. The energy produced is stored in a 75-litre enclosed

water tank that houses a pump and other materials required to drive generation of electricity. The technology is made from locally modified and recycled parts to ensure that it is environmentally friendly.

The development of this project has brought about an alternative to electricity generation for small businesses, a health care centre and a school within the impact area of the project.

143

CORPORATE SOCIAL RESPONSIBILITY NEWS SHELL AND SINGER, AKON, UNVEILED AFRICA’S FIRST SOLAR-POWERED FOOTBALL PITCH Shell called on global music star, Akon, to join it as it unveiled Africa’s first human and solar powered football pitch at the Federal College of Education, Akoka, Lagos. The innovation is the latest initiative from Shell’s #makethefuture programme, which the company said puts bright energy ideas into action to bring benefits to local communities around the world. The football pitch was refurbished by Shell using more than 90 underground tiles that capture kinetic energy created by the movement of the players. The tiles are the invention of a young British entrepreneur and founder of Pavegen, Laurence Kemball-Cook, who has been supported through Shell LiveWIRE. The kinetic energy is then stored and combined with power generated by solar panels to operate the new floodlights. This bright energy idea allows the students to play at night and provides a safer and more secure space at the heart of the community.

Music superstar and solar entrepreneur Akon joined Shell to officially open the pitch and continue his commitment to teaching young Africans the importance of harnessing the power of Africa’s renewable energy. Through his foundation, Akon Lighting Africa, the star is spearheading, a large-scale effort to

develop solar-powered solutions that will provide African communities with access to clean and affordable sources of electricity. The innovative football pitch will feature in Akon’s upcoming music video for the song “Tell Me We’re OK” – a collaborative effort with DJ artist Philip “Hardwork” Constable.

EXXONMOBIL UNIVERSITY PARTNERING

NLNG AGREED TO FUND BONNY KINGDOM PROGRAMME PRODUCED 8 NEW CSR WITH N3 BILLION ANNUALLY Nigeria Liquefied Natural Gas (NLNG) Limited and Shell Petroleum Development Company, SPDC, signed a new memorandum of understanding (MoU) with Grand Bonny Kingdom in Rivers State, transferring the responsibility of driving sustainable community development from the corporate organisations to the community. As part of the MoU, NLNG would make available N3 billion yearly through the Bonny Kingdom Development Foundation (BKDF). The MoU set the terms for the establishment of BKDF that would manage all the community developmental activities, supervise initiatives by NLNG and SPDC and implement a revised Bonny Master Plan in Bonny.

NIGERIAN GEOLOGICAL MAPS

As part of its University Partnering Programme (UPP), ExxonMobil launched seven new geological maps showing mineral deposits, produced by geology students from 8 Nigerian universities. That brought to 17, the number of geological maps produced so far through the programme and certified worthy by the relevant authorities including Nigerian Geological Survey Agency (NGSA). Exxon has invested over N2 billion so far in the programme, which began with six universities and is now up to 14 institutions. In support for the programme, the company has also provided vehicles, equipment, cash for field trips, as well research analysis.

TOTAL LAUNCHED “STARTUPPER OF THE YEAR” COMPETITION IN NIGERIA Total Nigeria Plc and Total Upstream Companies in Nigeria launched the “Startupper of the year by Total.” Initiated simultaneously by the Total Group in 34 countries in Africa, the competition aims to identify, reward and provide support to the best business creation and business development projects under two years of existence in Nigeria. The winning projects will be granted

144

the “Startupper of the year 2016 by Total” label, as well as financial assistance and coaching from Total Nigeria Plc and Total Upstream Companies in Nigeria. The Challenge “Startupper of the year by Total” is part of Total’s global initiative of supporting the socioeconomic development of all the countries where it operates worldwide.

CSR PROFILE: NEWCROSS PETROLEUM LIMITED Newcross Petroleum Limited (NPL) is a growing Nigerian Company with a primary interest in harnessing oil and gas exploration and production acreages in the Niger Delta region of the country. With experienced and highly motivated professional teams who exhibit varied expertise in their respective fields, Newcross, as Joint Venture Partners with Platform Petroleum Limited (Operator of Egbaoma (formerly Umutu/Asuokpu) Marginal Field in OML 38, Nigeria), has been an active equity partner in the daily operations of the field which has been in continuous production of crude oil and gas since August 2007. While there is an underlying interest in creating value for its promoters and stakeholder Newcross Petroleum Limited (NPL) hinges her Corporate Social Responsibility (CSR) activities on the growing passion for working together with its stakeholders and modest commitment to laying a solid foundation for building long-term partnership, through a constructive engagement model geared towards realizing the corporate vision of “Growing Together” (Newcross’ community engagement model), with the primary aim of delivering tangible benefit to the host community for mutual relationships. In ensuring that long term visible values translate to the community, the company is focused on impacting its hosts in the areas of educational support, improvement in the quality of care and creating sustainable economic gains. This focus led to the commissioning (in partnership with NNPC) her first community development project (reconstruction and furnishing of a 4 classroom block, with toilet and borehole facilities) at Baptist Junior High school Eku Delta state, on 25th of May, 2011. The company has since progressed its commitment towards sustainable development of its host communities, with the commissioning of a similar project in Ato Primary School Iwevbo, Orhionmwon LGA, in Edo state on 31st July, 2013. In addition to their activities as Operator in September of 2010, in partnership with their Partner/ Operator (Platform Petroleum Limited) in Egbaoma Marginal Field (formerly Umutu) on OML-38, Newcross has equally invested in infrastructural, health care and human capital development within its host and neighbouring communities; i.e Umutu, Adonishaka, Ogbueze, Ilogori, Umueziogoli and Akoko-Unor. These are aimed at increasing the indigenous economic power of their hosts,

where quality of life is optimized, economic growth potential is on the rise and infrastructural development is sustained. While they have focused on ensuring value is created with their hosts, Newcross has continued its major objective of creating hydrocarbon reserves and production in its operations through gas and oil discoveries. With the Egbaoma Marginal Field, with continued oil production, the gas plant is currently being constructed (via PNG) to optimize the gas feedstock from the field. This is also aimed at reducing carbon emission and compliance with the Federal Government support on gas flare out with the Clean Development Mechanism (CDM) as initiated by the Kyoto Protocol and now supported by the outcome of the Conference of Parties (COP) 21 in Paris 2015. As part of the growth strategy, Newcross acquired the interest of Centrica Resources Nigeria Limited (CRNL) and CCC in OPL 283 and OPL 276 based in Delta/ Edo state. Newcross has successfully fulfilled its regulatory commitment on the mandatory minimum Work Program obligation on OPL 283 consequent upon which it had applied for conversion to OML and currently focussed on commercializing the asset. Newcross subsequently acquired

the interest of CRNL/ CCC in OPL 276 concession (formerly OML 14) in Akwa Ibom State. Newcross plans to complete the initial work program (IWP) within the residual validity of the exploratory phase. In carrying out all the above activities, NPL has been doing these in line with the health, safety and environmental regulations as it concerns the oil and gas industry while maintaining strong quality control and Nigerian Content Development, without losing focus on its community relations and development responsibilities. Worthy of note is the impressive safety record of One (1) million Zero-LTI man-hours achieved during the seismic data acquisition, coupled with MoUs executed with its host communities. This portends a strong and dedicated CSR and HSE commitment, thus ensuring that field operations and activities witnessed enduring peace and cordial relationships within and around the company’s operating environment. While focused on creating values for their stakeholders, Newcross is also focused on growing by integrating cultural and strategic steps towards creating a working environment that enables its team members to constantly reach beyond their boundaries, with the ultimate objective of value creation for the country.

145

HUMAN CAPITAL NEWS Some of the human capital, employment and labour related news this year included:

NUPENG SHUT DOWN HALLIBURTON OPERATIONS OVER JOB CUTS The National Union of Petroleum and Natural Gas Workers (NUPENG) shut down the operations of oil services provider, Halliburton, over job cuts. The main oil worker’s union in Nigeria accused Halliburton of not following due process in its decision to cut 46 local jobs. Halliburton said the job cuts were part of a company-wide job cut in reaction to dwindling oil prices that have seen profits in the oil industry shrink to their lowest in years.

NCDMB REVEALED ADOPT A UNIVERSITY FACULTY INITIATIVE The Nigerian Content Development and Monitoring Board (NCDMB) urged oil companies to adopt a university faculty in a new drive to get on-the-job experience for students. Then Executive Secretary of NCDMB, Dr. Ernest Nwapa said that he would go even further and make it a requirement for all contracting entities in the Nigerian oil and gas industry to adopt a faculty or department in any Nigerian university. He wanted to see the oil companies develop programmes that would allow the students to learn on the company’s assets as a means of bridging the gap between universities and the oil and gas industry.

NCDMB UNVEILED OIL AND GAS SECTOR YOUTH EMPOWERMENT STRATEGY The Nigerian Content and Development Monitoring Board unveiled its Youth Empowerment Strategy for the oil and gas sector. The Strategy is an entrepreneurship, empowerment and employment initiative. Annabel Group is on the advisory team for the programme under which young registered entrepreneurs will be equipped with training and funding to participate in the oil and gas sector, create jobs and expand beyond Nigeria.

SAMSUNG AND NLNG SPONSORED 60 YOUTH FOR SOUTH KOREAN TRAINING Samsung Heavy Industries partnered with the Nigeria Liquefied Natural Gas (NLNG) to sponsor 60 Nigerian youths for training in shipbuilding at Samsung’s shipyard in Korea. The youth were trained in different aspects of ship building including fabrication, painting, scaffolding, welding, naval architecture, ship design, fitting, mechanical and maintenance. The trainees were to be engaged by the firms following the completion of their training programme. Last year, 57 youth received shipbuilding certification from Samsung’s shipyard.

FMC TECHNOLOGIES PARTNERED WITH PORT HARCOURT UNIVERSITY FOR MSC DEGREE FOR SUBSEA ENGINEERS FMC Technologies, an oil services company which provides over 80% of subsea production systems in country, agreed to collaborate with the University of Port Harcourt to create the first Master of Science degree in Subsea Engineering to be offered in Nigeria. The program curriculum would be developed in collaboration with industry experts to ensure that students were prepared for work in the offshore oil and gas industry. The University began accepting enrolment applications for the new program in 2015.

146

Graduates of the programme will have expanded opportunities to work in the energy industry, including potential employment with FMC Technologies in Nigeria. FMC Technologies has been in the country for 16 years and currently employs

approximately 250 personnel in country. A global market leader in subsea systems, FMC says Nigerian employees have received more than 70,000 training hours since 2012 to expand their skills and increase the number of job functions that can be executed in Nigeria by locals.

HUMAN CAPITAL NEWS NCDMB EMPLOYEES THREATENED TO WALK OUT OVER PROMOTIONS AND PENSIONS ISSUES Employees of the Nigerian Content Development and Monitoring Board (NCDMB) decided to strike over issues related to staff promotion, pension remittance and unionisation in the organisation. The workers, members of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), issued the strike notice after accusing the management of violating labour laws on promotion, payment of non-regular allowances, allowing willing employees to join union and pension remittance. The union demanded that the management constitute a promotion committee made up of all general managers from various directorates and divisions in the Board. They also wanted the management to allow senior staff to join the union without fear of intimidation.

DELTA GROUP THREATENED TO DISRUPT CHEVRON OPERATIONS OVER EMPLOYMENT POLICIES Kombot Employment Front based in the Egbema and Gbaramatu Kingdoms threatened to disrupt operations at Chevron over the company’s employment policies. The Front also wanted Chevron to recall a community member who was sacked by the company. They threatened to disrupt operations at the company’s flow-stations and other facilities if their demands were not met.

DIVERS COMPLAINED ABOUT THE INFLUX OF FOREIGN DIVERS President of the Under Water and Hyperbaric Medical Society of Nigeria (UHMSON), Emmanuel Ekugo, raised concerns over the influx of foreign divers, mainly from South Africa, which left about 2,000 Nigerian divers unemployed. The foreign divers were accused of dominating the sector leading to a 90 per cent decline in the employment of Nigerian divers. Ekugo urged the Federal Government to promote the engagement of local divers in line with the Nigerian Content agenda.

DANGOTE OIL REFINERY SECURED TRAINING GRANT FROM USTDA The U.S. Trade and Development Agency (USTDA) signed a training grant agreement with Dangote Oil Refining Company to help the company develop the critical human capacity resources necessary to successfully operate and maintain its proposed greenfield petroleum refinery located in Lekki. The grant from the agency will go towards funding a multi-year program to train more than 100 company staff on refinery fundamentals. The grant is said to be worth around $990 million although this has not been confirmed by the USTDA. Deputy Director of USTDA, Enoh Titilayo Ebong said they were pleased to support Dangote’s efforts to increase Nigeria’s domestic refining capacity.

CHEVRON CONTRACT WORKERS PROTESTED OVER NON-PAYMENT OF TERMINAL DUES

PTDF URGED FG TO COMPEL OIL COMPANIES TO EMPLOY NIGERIANS The Petroleum Technology Development Fund (PTDF) advised the Federal Government to compel both local and international oil companies (IOC) operating in the country to employ Nigerian oil and gas professionals. Executive Secretary of the Fund, Femi Ajayi, said it was disappointing that after undergoing rigorous and worldclass training in both local and international institutions, most of the professionals ended up without jobs. He wants the Federal Government to put measures in place to ensure that local and international oil companies employ graduates of the PTDF scholarship scheme, especially, after completing their training.

Chevron contract workers staged a protest at the company’s premises. One group of contract workers were complaining that they were not paid terminal dues when their previous contracts expired. The other group were angry that they were not paid when their 5-year contracts elapsed in March. The contract workers were members of the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG). The protest spread to other Chevron locations, including Port Harcourt and Warri.

147

HUMAN CAPITAL NEWS NCDMB SPONSORED 22 TO CHINA FOR TRAINING ON PIPE MILL PROJECT The Nigerian Content Development and Monitoring Board (NCDMB) concluded arrangements to sponsor 22 young persons for training in China. The trainees were expected to acquire critical skills needed to operate and maintain machines that would be used at the pipe mill being set up at Polaku, Bayelsa State by Mainland Pipe Mill Nigeria with the support of the NCDMB. The trainees were due to travel before the end of August to the facilities of Baoji Petroleum Steel Pipe Company Limited (BSG) located at Baoji in Shaanxi Province, China to undergo 45 days of training.

SEPLAT SET UP LONG-TERM INCENTIVE PLAN FOR EMPLOYEES Seplat Petroleum Development Company listed its Long-Term Incentive Plan for employees. The supplementary listing of 10.13 million ordinary shares of 50 kobo each, valued at about N2.33 billion took Seplat’s total issued shares up to 563.44 million. The scheme is intended to increase employee productivity, morale and loyalty by focusing their performance more on longterm goals through tying employee performance to rewards. The new shares rank equally with the other shares of the company both in terms of voting and dividends.

ROBERT GORDON UNIVERSITY LAUNCHED OIL AND GAS INSTITUTE IN NIGERIA Aberdeen based Robert Gordon University (RGU) launched its Oil and Gas Institute in Nigeria. The new Nigerian based Oil and Gas Institute was made possible by a £3.6 million donation from The Wood Foundation, a philanthropic foundation set up by Sir Ian Wood, as well as a further £4.1 million of funding from RGU. The RGU Oil and Gas Institute is designed to provide a one-stop shop for industry and other stakeholders to access RGU’s oil and gas expertise, with four main areas of focus: drilling and wells excellence; operations excellence; decommissioning excellence; and business excellence.

148

PTDF TRAINED 1,200 OIL AND GAS INDUSTRY WELDERS The Petroleum Technology Development Fund (PTDF) said it had trained 1,200 Nigerians under its Welders Training and Certification Programme (WTCP). Many of those have been fully integrated into the industry as practitioners and instructors. Twelve beneficiaries of the programme emerged as the first set of Nigerians to acquire international certification in advanced and specialized welding processes following their successful completion of an advanced welding course at the German Institute of Welding, Eskisehir, Turkey in November 2015.

CONTRACT STAFF AT WARRI REFINERY STAGED WALKOUT OVER UNPAID SALARIES Contract staff carrying out vital repair work to the Warri Refinery went on strike to protest over the non-payment of salaries owed them. They complained that some of them had not been paid their salaries for up to 12 months.

“A plan without action is a daydream. Action without a plan is a nightmare” -Japanese Proverb

Let us bring out the BEST in you

OUR SERVICES

People Development Finance and Accounting, Management and Administration, Personal Development and Soft Skills, Governance and Risk Management

Consulting KIMAVI CHRISTOPHER CONSULTING LIMITED Address: Suites 101 -104 Arcade Club Suites Plot 68 First Avenue Opposite Federal High Court Headquarters Central Business District, Abuja, Nigeria Phone: +234 -7042113961, 9033130321 E-mail: kimavichris.consulting@gmail.com

Entrepreneurial Development and SME, Corporate Structuring, Feasibility Studies and Business Plans.

KIMAVI CHRISTOPHER

TRAINING

B U S I N E S S C O N S U LT I N G

C A PA C I T Y B U I L D I N G

HEALTH AND SAFETY NEWS KIDNAPPING INCIDENTS As usual there were a number of incidents of kidnapping, though fortunately nowhere near what obtained during the militancy period. Fortunately, the kidnapped personnel were recovered although most of them, only following the payment of a ransom. Among the incidents recorded were: In February, gun-toting pirates kidnapped 4 personnel working for the Nigerian Agip Oil Company (NOAC). The men who were said to be travelling by boat without an escort were overpowered by the gunmen and taken away to the Ijaw area of Bayelsa State. In April, five Nigerian ExxonMobil staff were kidnapped by gunmen from the Floating Storage and Offloading Vessel (FSO) in Ibeno Local Government Area, Akwa Ibom State. ExxonMobil said that production was not disrupted at QIT, Ibeno. In May, three Nigerian crewmembers of French oil services company, Bourbon were kidnapped after pirates overcame the crewmembers of one of its vessels off Nigerian coast on April 8. The event took place at night on one of the company’s speedboats usually used to transport personnel. The company said that its emergency unit based in Nigeria had been immediately activated. Bourbon operates a range of offshore marine services, including vessels for integrated support for offshore exploration, development and production.

SAFETY MILESTONES Many safety milestones were achieved during the year, some of which include the following: General Electric recorded another milestone in its oil and gas facility at Onne, Rivers State exhibiting an exceptional safety record. In the last 10 years of operations, GE has not had any incidents at its Onne facility resulting in lost work time for any of the technicians, engineers or other personnel working in the facility. Eunisell Solutions achieved a milestone of 100,000 plus man-hours without loss time incident on one of the nation’s marginal oil fields in Qua Iboe. Oando Energy Resources had reason to celebrate after 5 years of continuous operations without a Loss Time Incident (LTI) on its OES Teamwork swamp drilling rig. The company also saw 3 years without LTI on its OES Passion swamp drilling rig.

150

PIPELINE FIRE INCIDENTS The vandalisation of pipelines by oil thieves continued to wreak havoc on operations with fires often an inevitable consequence. Some of the incidents recorded were: In June, a fire at two crude oil storage tanks at the Ebocha Oil Centre owned by Nigerian Agip Oil Company (NAOC), a subsidiary of Italy’s Eni disrupted the production of 20,000 barrels of oil equivalent per day. The fire was said to have started at the Ebocha plant in Ogba Egbema Ndoni Local Government Area in Rivers State. In July, a fire occurred during the inspection and repair of the Tebidaba-Clough Creek pipeline resulting in the death of 14 contract personnel at Eni’s oil field. The line was fully repaired and brought back on-stream during the quarter.

Also in July, a pipeline explosion at Arepo, Ogun state, killed a number of vandals. The fire started after a clash over territory by two rival gangs. During the altercation a shot fired by one of the vandals hit the pipeline, causing the explosion. The fire was put out the next day by the Nigerian National Petroleum Corporation (NNPC). The pipeline from Atlas cove pumps products to Arepo pipeline for onward transfer to Mosimi, from where it is distributed to the South West states. The area around Arepo has become overrun with vandals. They have been able to create new pipelines to siphon off products from the NNPC pipeline at Arepo and into their own. Reports suggest that there are over 300 armed vandals living in the creeks around Arepo and they will fight tooth and nail to protect their territory.

BRISTOW GROUP HELICOPTER CRASH KILLS OIL WORKERS RETURNING FROM RIG In August, one of Bristow Group’s helicopters crashed, killing four people. Six are said to have survived the crash, which occurred as the helicopter, an Americanmade Sikorsky S-76C, was traveling from

an oil rig in the Lagos lagoon. It crashed on approach to Lagos airport. Bristow, a leading charterer of helicopters to the oil and gas industry in Nigeria lost one of its helicopters in the crash.

PETROL TANKER ACCIDENTS Due to the incessant vandalisation of pipelines, more petroleum products had to be transported by tanker. Unsurprisingly, this led to a number of incidents including these: In June 69 people were killed in Onitsha, Anambra State when a tanker laden with Premium Motor Spirit lost control and crashed into Asaba Motor Park. The tanker exploded killing 69 people after commuter buses loading passengers at the motor park became engulfed in the fire. Again in June, a tanker transporting fuel was involved in an accident at Owena, on the border of Ondo and Osun States, killing at least 10 people and injuring 20 others. The brake of the vehicle was said to have failed. In December, many people were killed in a deadly gas tanker explosion in Nnewi, Anambra State, which occurred as people queued to fill up their gas cylinders on the premises of the Inter Corp Oil Limited gas plant. Official accounts were that 8 people died although witnesses claim the number of fatalities was much higher.

COMMUNITY RELATIONS NEWS

With international oil companies (IOCs) relocating to offshore areas to avoid community issues, there was less community agitation against oil operations. The sale of the assets to indigenous companies seem to be yielding fruit on the community relations front as there seems to be a greater understanding between indigenous companies and their host communities. Community relations news recorded during the year included the following.

NPDC AND ND WESTERN JOINT VENTURE COMMISSIONED 3 PROJECTS IN OWROHDE Nigerian Petroleum Development Company Limited (NPDC) and ND Western commissioned 3 projects in their host community for the Oil Mining Lease (OML) 34. The projects were in line with their Global Memorandum of Understanding (GMoU) with the Owrohde community. The projects commissioned included a hall, a block of three classrooms and a 500 KVA Transformer/Substation balancing of load/ erection of units of existing substation. The companies said the projects would accelerate the growth and development of the community.

NNPC RENEWED HOST COMMUNITIES PIPELINE PROTECTION CONTRACTS The Nigerian National Petroleum Corporation (NNPC) renewed the pipeline protection contract with some of its host communities. The measure was intended to help fight the problem of pipeline sabotage that has impacted negatively on the corporation’s operations. Group General Manager, Group Public Affairs Department (NNPC) Ohi Alegbe, said the contracts would complement the work of the police and other security agencies responsible for pipeline protection. He said that attacks on crude oil, products and gas pipelines had gone up since the expiration of the contracts. He explained that pipeline protection contracts were part of their community engagement programmes across their host communities.

MOSOP WAS NOT OPPOSED TO BELEMA OIL OPERATIONS IN OGONILAND Following Shell’s completion of the sale of oil mining lease (OML) 55 to Belema Oil, there were indications that the company would not meet with opposition from the Ogoni communities in relation to their oil operations in Ogoniland. The Ogoni community said that indigenous oil companies with good intention to help eradicate poverty in the land could resume oil production in the area. The Movement for the Survival of Ogoni People (MOSOP) President, Legborsi Pyagbara, said: “Mosop is not opposed to oil production in Ogoniland, but my stand is that whatever decision we take, the people need to agree.” They resolved, together with the traditional rulers in Ogoniland, to set up a committee to study all proposals for oil exploration and production. Pyagbara stressed that it was necessary to get the consent of all Ogoni people.

IJAW YOUTH COUNCIL BACKED DECISION TO MOVE OIL AND GAS CARGOES THROUGH WARRI, CALABAR AND ONNE The Ijaw Youth Council (IYC) reacted angrily to the court injunction obtained by LADOL preventing the Federal Government from implementing a directive by former president, Goodluck Jonathan. Before leaving office, Jonathan had issued a directive requiring all oil and gas cargoes to be brought in through the ports at Onne, Warri and Calabar. In addition, he ordered the relocation of the fabrication of the Egina Floating Production Storage and Offloading (FPSO) topside and integration from LADOL’s yard in Lagos, to Agge in Bayelsa State. The contract was awarded to LADOL as the local content partner of the main contractor, Samsung Heavy Industries (SHI). A spokesperson for the IJC said: “Henceforth, Niger Deltans would take steps to ensure that any oil company without its headquarters in the Niger Delta region would not be allowed to operate in the region. The IYC frown upon and condemn the ex-parte order of the federal High Court.”

COMMUNITY YOUTH HELD NPDC CONTRACTOR HOSTAGE OVER OIL SPILL Youth of the Emede, in Isoko South Local Government Area of Delta State, held a Nigerian Petroleum Development Company (NPDC) contractor hostage, preventing him from carrying out a clean-up exercise at the site of an oil spill. The spill was said to have occurred as a result of the vandalisation of a crude oil pipeline at Owhelogbo. They were demanding compensation over the spill, which they claimed destroyed their agricultural produce in the area. They refused to allow the contractor to do any work on the site until compensation was paid. The traditional ruler of the community, Johnson Egbo Ewhiri II, who is in charge of the security and surveillance of the vandalized pipeline, condemned the action of the youth. He said there was a standing rule by NPDC that no compensation would be paid to communities where oil spills occured as a result of vandalism. Hence, he said, there was no compensation due to the community.

151

TECHNOLOGY NEWS

OTC 2015 SPOTLIGHT ON NEW TECHNOLOGY AWARD WINNERS The prestigious Spotlight on New Technology SM Award at the Oil Technology Conference (OTC) 2015 went to 17 technologies. The Spotlight on New Technology Awards - a program for OTC exhibitors - showcase the latest and most advanced hardware and software technologies that are leading the industry into the future. Winning technologies were selected based on the following five criteria: n New: less than 2 years’ old n Innovative: original, groundbreaking, and capable of revolutionizing the offshore E&P industry n Proven: through full-scale application or successful prototype testing n Broad Interest: broad appeal for the industry n Significant Impact: provides significant benefits beyond existing technologies “I congratulate this year’s Spotlight Award recipients for helping the industry reduce risk and increase productivity in ever-more extreme conditions,” said OTC 2015 Chairman Ed Stokes. “Cutting-edge technologies like these are always a highlight of OTC, as they demonstrate the ingenuity and forward thinking that is advancing the industry to new levels of safety, productivity and efficiency.”

AND THE WINNERS ARE: BAKER HUGHES, PRODUCER OF MULTINODE™ ALLELECTRIC INTELLIGENT WELL SYSTEM: The Baker Hughes MultiNode™ all-electric intelligent well system is the industry’s first advanced completion system that provides remote-controlled monitoring and precise control of production zones to manage water and gas breakthrough, and improve ultimate recovery. The system adjusts to changing reservoir conditions by choking back high-water and high-gas producing zones, balancing production along the lateral.

CAMERON INTERNATIONAL, PRODUCER OF MARK IV High-Availability (HA) BOP Control System: Cameron’s Mark IV High-Availability (HA) BOP Control System features an industry-first three-Point of Distribution (POD) design option for subsea BOPs. The third POD provides added redundancy for improved operational availability of the drilling system to as much as 98%. Each POD’s simplified design improves reliability.

HALLIBURTON ENERGY SERVICES, PRODUCER OF REZCONNECT™ WELL TESTING SYSTEM:

FMC TECHNOLOGIES, PRODUCER OF ANNULUS MONITORING SYSTEM: Fishbones Dreamliner defines a new level of simplicity, accuracy, and efficiency in reservoir stimulation. Dreamliner increases productivity by creating an array of targeted small diameter laterals into formations. Numerous laterals are individually but simultaneously drilled by harnessing fluid flow through turbines utilizing standard rig pumping equipment and existing wellbore fluid.

152

The RezConnect™ Well Testing System is the industry’s first system to offer full acoustic control of drill-stem testing tools. Downhole samplers, valves, and gauges are controlled in real-time and their status is communicated to the surface for confidence in your ability to control, measure, and analyze your well.

OCEANEERING INTERNATIONAL, PRODUCER OF DEEPWATER PILE DREDGE:

OCEANEERING INTERNATIONAL, PRODUCER OF MAGNA SUBSEA INSPECTION SYSTEM™:

The Oceaneering Deepwater Pile Dredge is an electrically-driven system with pumps that provide water jetting and suction to excavate piles at any depth. The jetting provides a 360° pattern to fluidize the soil inside the pile, and then suction pumps remove the soil from the pile.

The Oceaneering Magna Subsea Inspection System™ is a versatile screening inspection tool that assesses the mechanical integrity of assets at a high rate of speed without disrupting production. The advanced system is ROV-deployable, inspects 360° around the pipe, and provides real-time data of the wall condition with a single deployment.

TECHNOLOGY NEWS SBM OFFSHORE, PRODUCER OF ARCA CHAIN CONNECTOR:

A new design of chain connector attaching mooring lines to floating units. Placing the chain articulation in the mooring line allows them to be recovered for inspection and maintenance. In response to market demand, the ARCA also enables for diverless connection /disconnection and significant cost reduction for turret mooring systems

TRACERCO, PRODUCER OF TRACERCO DISCOVERY:

Discovery® revolutionizes subsea pipeline inspection, allowing operators to externally inspect coated lines for flow assurance and pipeline integrity issues without removing any coatings.

WEATHERFORD, PRODUCER OF RED EYE™ SUBSEA WATER-CUT METER: ONESUBSEA, PRODUCER OF MULTIPHASE COMPRESSOR: The OneSubsea® Multiphase Compressor is the world’s first and only true subsea wet gas compressor. The multiphase compressor, developed with Statoil and Shell, represents a break-through in technology, enabling compression of the unprocessed well stream without any need for pre-processing. The technology was primarily developed to increase recovery rates and to cost-effectively increase the tieback distances of subsea gas fields.

VERSABAR, INC., PRODUCER OF VERSACUTTER:

The Versacutter provides a fundamentally new way of cutting through offshore platform piles and well conductors at a depth of up to 20 feet below the mudline. The Versacutter delivers a long reciprocating cutting wire below the mudline by jetting, with the wire continuously cutting through the piles and conductors.

The Red Eye® Subsea Water-Cut Meter uses near-infrared absorption to provide water-onset detection, water-cut measurement, and water-to-hydrate inhibitor-ratio measurement. The meter can operate in full three-phase flow streams at any gas-volume fraction and is not affected by changes in salinity, eliminating the need for corrections related to these factors.

WEATHERFORD, PRODUCER OF TOTAL VIBRATION MONITOR WITH ANGULAR RATE GYRO:

SCHLUMBERGER, PRODUCER OF GEOSPHERE RESERVOIR MAPPINGWHILE-DRILLING SERVICE: GeoSphere* reservoir mappingwhile-drilling service reveals subsurface-bedding and fluidcontact details more than 100 ft [30 m] from the wellbore. This reservoir-scale view provides an unprecedented depth of investigation, enabling operators to optimize landing, maximize reservoir exposure, and refine field development plans using deep-directional measurements enabled by real-time interpretation solutions.

SCHLUMBERGER, PRODUCER OF QUANTA GEO PHOTOREALISTIC RESERVOIR GEOLOGY SERVICE: Quanta Geo* photorealistic reservoir geology service redefines imaging in oil-base mud to provide highly detailed, core-like microresistivity images that visually represent formation geology. These images enable confident visual identification of facies and determination of directional trends, thus reducing uncertainty in reservoir models, making better field development plans, and quantifying project economics

The Weatherford Total Vibration Monitor with Angular Rate Gyro (TVM+) is a downhole sensor that provides critical drilling dynamics data in realtime and recorded formats and utilizes the industry’s first MEMS-based (micro-electromechanical system) angularrate gyro. This unique device enables downhole-sensor measurements of angular rotation in never-before-seen detail, yielding new insights into drillstring dynamics and drilling management.

WELLTEC, PRODUCER OF WELLTEC® ANNULAR BARRIER (WAB®):

The Welltec® Annular Barrier (WAB®) is an expandable, metal annular barrier engineered and qualified to replace cement in well construction. It’s rugged design, qualified to ISO V0 meeting regulatory standards, has been utilized as a cementless, primary well barrier to prevent surface annular pressure over the life of the well.

153

MOVERS

company appointments SHELL PETROLEUM DEVELOPMENT COMPANY OF NIGERIA LTD (SPDC) OSAGIE OKUNBOR Osagie Okunbor succeeded Mutiu Sunmonu as Managing Director of the Shell Petroleum Development Company of Nigeria Ltd (SPDC). He will combine that role with the role of Country Chair of Shell Companies in Nigeria as his predecessor Sunmonu did.

NECONDE ENERGY LIMITED MALIJE OKOYE Malije Okoye was appointed Chief Executive officer of Neconde Energy Limited, the operator of oil mining lease (OML) 42 in which the company has a 45% stake.

PETRALON ENERGY AHONSI UNUIGBE Ahonsi Unuigbe became Chief Executive of new Nigerian independent, Petralon Energy, which farmed into the Dawes Island Marginal Field.

CHEVRON MONDAY OVUEDE Monday Ovuede was appointed Executive Director in charge of Chevron’s Joint Venture with the Nigerian National Petroleum Corporation (NNPC) making him the company’s no. 2 in command.

SNEPCO BAYO OJULARI Bayo Ojulari took take over the role of Managing Director of SNEPCO, the offshore exploration arm of the Shell operations in Nigeria, from Tony Attah who was sent on assignment to the company’s global headquarters in The Hague, Netherlands.

MILLENNIUM OIL AND GAS CECILIA AQUA UMERON Cecilia Aqua Umoren took over the helm at Millennium Oil and Gas, owners of a 60 per cent interest in Oza Marginal Field.

154

MOVERS

company appointments AITEO EXPLORATION AND PRODUCTION CHIKE ONYEJEKWE Chike Onyejekwe became Managing Director of Aiteo Exploration and Production Company, well known for its downstream operations and now the lead partner (with an 85% stake) in the consortium that bought Shell’s divested interest in oil mining lease (OML) 29.

TOTAL EXPLORATION AND PRODUCTION NICOLAS TERRAZ Nicolas Terraz took over as the Managing Director and Chief Executive of Total Exploration and Production (E&P) Nigeria Limited, succeeding Elisabeth Proust, who has gone on to other duties within the Total Group.

EROTON CHIMA IBENECHE Chima Ibeneche was made CEO of Eroton, a special purpose vehicle formed for the purposes of acquiring Shell’s divested interest in oil mining lease (OML) 18, with partners Midwestern Oil and Gas Limited, Suntrust Oil and Gas Limited and Canadian company, Mart Resources Limited.

TOTAL E&P NIGERIA LTD

AHMADU-KIDA MUSA

VICTOR BANDELE

Ahmadu-Kida Musa was appointed as Deputy Managing Director, DeepWater District of Total E&P Nigeria Ltd based in Lagos. He replaced Charles Ngoka who has retired.

Victor Bandele was made Executive Director, JV District of Total E&P Nigeria Ltd.

TOTAL E&P NIGERIA LTD

ERIN ENERGY CORPORATION

PATRICK OLINMA

SEGUN OMIDELE

Patrick Olinma was also appointed Executive Director, Oil & Gas Commercial of Total E&P Nigeria Ltd.

Segun Omidele was appointed Chief Operating Officer at Houston based Erin Energy Corporation, known until its recent change of name as CAMAC Energy, operators of the Oyo fields.

ERIN ENERGY CORPORATION

OANDO PLC

DANIEL OGBONNA

DR TANIMU YAKUBU MUHAMMAD

Daniel Ogbonna was appointed Senior Vice President and Chief Financial Officer (SVP and CFO) of Erin Energy.

Dr Tanimu Yakubu Muhammad was appointed to the role of nonexecutive director on the Board of Oando Plc.

155

MOVERS

stepping down AFREN PLC EGBERT IMOMOH Egbert Imomoh stepped down as Executive Chairman of Afren Plc just before the former FTSE 250 London Stock went into administration.

PANORO ENERGY ASA

SIRIUS PETROLEUM

NISHANT DIGHE

STEPHEN FLETCHER

Nishant Dighe stepped down as Chief Operating Officer of Panoro Energy ASA, a partner in offshore Aje Field, nearing production. He was due to stay on board as advisor to Panoro during the transitional period.

Stephen Fletcher resigned as a director of Sirius Petroleum, the Alternative Investment Management listed company which has an interest in the Ororo marginal oil field, located in Oil Mining Lease (OML) 95.

regulatory appointments NIGERIAN NATIONAL PETROLEUM CORPORATION (NNPC) DR IBE KACHIKWU Dr Ibe Kachikwu was appointed to the dual role of Group Executive Director, Nigerian National Petroleum Corporation (NNPC) and Minister of State, Ministry of Petroleum Resources.

NIGERIAN CONTENT DEVELOPMENT AND MONITORING BOARD (NCDMB) DENZIL AMAGBE KENTEBE Denzil Amagbe Kentebe replaced Dr Ernest Nwapa as Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), a role Nwapa had been in since the inception of the Board in 2010.

DEPARTMENT OF PETROLEUM RESOURCES MORDECAI DANTENI BABA LADAN Mordecai Danteni Baba Ladan became the new Director of the Department of Petroleum Resources (DPR) taking over from George Osahon, whose 2-year tenure, which began under the former Minister of Petroleum Resources, Diezani Alison Madueke, expired on the 19th of June.

156

MOVERS

regulatory appointments NIGERIAN PETROLEUM DEVELOPMENT COMPANY (NPDC) ABUBAKAR MAI-BORNU Abubakar Mai-Bornu became the Managing Director, Nigerian Petroleum Development Company (NPDC), the exploration and production subsidiary of NNPC.

PIPELINES AND PRODUCT MARKETING COMPANY (PPMC) ESTHER NNAMDI OGBUE Esther Nnamdi Ogbue was appointed Managing Director of NNPC subsidiary, the Pipelines and Products Marketing Company (PPMC).

MINISTRY OF PETROLEUM RESOURCES PRESIDENT MUHAMMADU BUHARI President Muhammadu Buhari became Nigeriaâ&#x20AC;&#x2122;s Minister of Petroleum Resources, meaning that Ibe Kachikwu reports directly to him as his Minister of State.

157

AWARDS Gongs won this year for work in the Nigerian oil and gas industry included:

OIL AND GAS COUNCIL’S AFRICA ASSEMBLY EXECUTIVE OF THE YEAR AWARD

Seven Energy International Limited won the Petroleum Africa Magazine’s Indigenous Firm of the Year Award.

Conoil Producing won BusinessDay Newspapers and Oval Energy’s Award for Best Company in Local Content.

Continental Oil & Gas won BusinessDay Newspapers and Oval Energy’s Award for Best Company in Corporate Social Responsibility (CSR).

Waltersmith Petroman Oil Limited was selected as a member of the World Economic Forum’s Global Growth Companies (GGC).

Wale Tinubu, CEO, Oando Plc won the Oil and Gas Council’s Africa Assembly Executive of the Year Award.

ENGINEERING PROJECT OF THE YEAR 2015

Niger Delta Petroleum Resources (NDPR)’s Ogbele Gas project in eastern Nigeria won the World Bank sponsored 2015 Global Gas Flare Reduction Excellence (GGFRE) award.

CORPORATE SOCIAL RESPONSIBILITY INNOVATION AND SUSTAINABLE STAKEHOLDER ENGAGEMENT

The Bonga Floating Production, Storage and Offloading Vessel

Shell’s Bonga North West deep-water development won Engineering Project of the Year 2015 at the Platts Global Energy Awards in New York. It also picked up the silver prize for the Project Integration Excellence Award of the International Petroleum Technology Conference (IPTC) in Doha.

158

Shell companies in Nigeria won best in Corporate Social Responsibility Innovation and Sustainable Stakeholder Engagement at the Social Enterprise Report and Awards (SERAs).

AWARDS The Shell Petroleum Development Company (SPDC) won the Petroleum Technology Association of Nigeria (PETAN)’s Local Content Operator of the Year Award.

Dr. Uwem Ite of Shell Petroleum Development Company of Nigeria Ltd (SPDC) won Nigeria’s Corporate Social Responsibility (CSR) Practitioner of the year award at the SERAs.

General Electric (GE) won a "Meritorious Safety Performance Award" award from Shell Nigeria Exploration and Production Company (SNEPCO).

Dr. Emmanuel Enu won the Nigerian Association of Petroleum Explorationists (NAPE)’s prestigious Aret Adams Award.

BEST DISTRIBUTOR IN OANDO MARKETING’S GOLD CATEGORY Alhaji Hamisu Dantiki won Best Distributor in Oando Marketing’s Gold Category at the Lubes Distributors Award 2015

2015 PETAN LOCAL CONTENT OPERATOR AWARD GM Business and Government Relations, SPDC, Simbi Wabote (right) receiving the award from the Executive Secretary, NCDMB, Denzil Kentebe

OIL & GAS CIRCUIT

NOGINTELLIGENCE ORGANISED ROUNDTABLE SECRETARY, DR ERNEST NWAPA TO MEET WITH The former Executive Secretary of the Nigerian Content Development and Monitoring Board, Dr Ernest Nwapa (FNSE) met with Chief Executive Officers (CEOs) of indigenous oil and gas exploration and production (E&P) companies at a historic roundtable conference organized by NOGintelligence in Lagos. The event, which was attended by CEOs of leading indigenous producers, including Mr Austin Avuru, CEO of Seplat Petroleum Development Company and Chief Tunde Afolabi, CEO of Amni International Petroleum Development Company, met to discuss local content

challenges faced by indigenous producers. Most CEOs and Executive Directors of producing Nigerian independents were present, whilst highlevel executives represented those CEOs that were unable to attend. There was an air of expectancy about the event, as the CEOs expressed their appreciation for the importance of the engagement and the potential that it had to deliver solutions that could be the driver for a re-writing of local content policy for Nigerian independents. The roundtable conference was designed as a forum at which indigenous E&P

FINDINGS OF THE FACILITIES AND OPERATIONS GROUP:

set up a Nigerian Content Unit in their organizations to interface with the Board from the beginning to the end.

n Export pipelines and oil terminals

They had expressed fears that the Nigerian Content evaluation process may lengthen their tender process. The Board however assured the operators that the Nigerian Content evaluation process would not add to the cycle time of their tender process.

First, a case was made for dedicated export pipelines and oil terminals for oil producers. It was emphasized that the E & P companies would prefer that a pipeline operator manages and maintains the pipelines for which the E & P companies pay throughput charges to transport their crude. This would ensure efficiency and reduce pipeline downtimes. n Production Sharing Contracts (PSCs) The second issue they discussed was about PSCs and they would like to see some way of creating a new model for indigenous operators. n Developing the capacity of local service providers The third issue was developing local services and capacity of local service providers for more efficient service delivery.

FINDINGS OF THE COMPLIANCE GROUP n NCDMB involvement in contract awards The first issue was the impact of NCDMB participation in the tender process. They proposed that operating companies

160

n Sanctioning of non-performing contractors The other issue they were concerned about was sanctioning of non-performing contractors. They would like NCDMB to find a way of sanctioning them and perhaps removing them from the list of eligible companies if they are non-performing.

FINDINGS OF THE FINANCE GROUP n Raising funds locally First, they looked at raising funds locally and their main concern was the recent Ministry of Finance directive that specifies that banks cannot lend more than 25 per cent of their portfolio to the oil and gas sector. What they are saying is that this directive does not look at any kind of differentiation between downstream and upstream activities. They draw on the fact that downstream is rather more speculative whereas upstream is more structured. These new rules are going to

companies could come together collectively to articulate their challenges and work together to come up with solutions and recommendations to NCDMB and the government for making indigenous oil and gas production sustainable. At the event, several CEOs made presentations about the challenges they currently face both in terms of local content compliance and also in terms of government policies generally. The working groups created during the all day roundtable conference, discussed three main areas: finance; facilities and operations; and compliance and policing. make it much more difficult for operators to look for funds locally and in fact is going to go contrary to local content because local banks will lose out as operators will have to go abroad to seek more competitive finance. It was proposed that a strong institution be appointed to consult and lobby Government to address this issue. n Tax incentives The group proposed that indigenous E & P companies that are investing be granted pioneer status with 5-year tax incentives/ tax holidays. It was also proposed that a consultant/subject matter expert be engaged to lobby Government to address this issue.

A CASE FOR AN INDEPENDENT PRODUCERS GROUP At the conference it was resolved that an Independent Producers Group would be formed to advance the case of indigenous producers and lobby the government for policies that create a more sustainable operating environment for independents who are now producing close to 20 per cent of Nigeria’s production.

OIL & GAS CIRCUIT

CONFERENCE FOR FORMER NCDMB EXECUTIVE CEOs OF INDIGENOUS PRODUCING COMPANIES

The former Executive Secretary, NCDMB, Dr Ernest Nwapa

Chief Afolabi, Chairman/CEO of Amni International

Mr Avuru, CEO of Seplat

Remi Aiyela, Publisher/Editor-in-Chief, NOGintelligence and Dr Nwapa

Dr Ladi Bada, CEO, Shoreline Natural Resources

Mr Ademola Adeyemi-Bero, CEO, First E&P

161

OIL & GAS CIRCUIT

Dr Dada Thomas, CEO, Frontier Oil

Dr Layi Fatona, Managing Director, Niger Delta E&P

From left: Dr Ernest Nwapa; Remi Aiyela, Chief Chambers Oyibo, Executive Director, Prime E&P

162

Above and below, Working Groups at the Roundtable Conference

OIL & GAS CIRCUIT

163

OIL &XXXXXX GAS CIRCUIT

PETROLEUM CLUB HOSTED KACHIKWU, GMD OF NNPC The Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), Dr Ibe Kachikwu honoured the Petroleum Club’s invitation to speak in Lagos in December. During his presentation, entitled Ongoing Reforms in the Oil Industry: Impact of NNPC Reforms on the Nigerian Economy, Kachikwu noted that in driving and developing Nigeria’s oil and gas sector, certain key areas of urgent intervention had been identified including: running production acreages with transparent and profitable partnerships to bridge capacity and funding gaps; Encouraging investment inflow into Nigeria’s oil and gas industry; engaging with local communities; driving regulation to develop the sector income through the encouragement of fast track the Petroleum Industry Bill (PIB), thus encouraging long-term investment in the industry. Kachikwu said NNPC was projecting an inflow of $20 billion worth of investment in 2016 to enable the Corporation fund major projects and improve its bottom line going forward. He said 2016 was going to be crucial for NNPC as it struggles to make the transition from a historic loss environment to a profit-making domain.

From left: Chairman Petroleum Club, Otunba Funso Lawal (CON); tMinister of State, Ministry of Petroleum Resources, Dr. Ibe Kachikwu

From left: Chairman Petroleum Club- Otunba Funso Lawal (CON); Minister of State, Ministry of Petroleum Resources, Dr. Ibe Kachikwu; Chief Sena Anthony

From left: Country Manager, British Petroleum, Mr Gidado Olakunle; Former MD, ConOil , Dr. Ebi Omatsola

164

Vice Chairman, Petroleum Club, Dr. G.S. Ihetu

OIL & GAS CIRCUIT

From left: MD, Total Upstream Companies in Nigeria, Mr. Nicolas Terraz; Chairman, Sea Trucks Group Mr. Jacque Roomans

From left: GMD, Hobark Group of Companies, Engr. Obi Okoroafor; MD Tecon Nig Ltd, Mr. Casmir Maduafokwa; Country Manager, Nig, Halliburton, Mr. Okey Okoli.

From left: Chairman, Prime Exploration and Production Ltd, Chief Chambers Oyibo; MD Tecon Nig Ltd, Mr. Casmir Maduafokwa; Principal Partner, Adeyemi-Akisanya Associates, Mr. Adeyemi Akisanya

From left: Mr. Atanu Dikko, Neoleum Ltd; Mr. Chuka Mordi, CBO Capital

165

OIL & GAS CIRCUIT OIL AND GAS COUNCIL HELD AFRICA ASSEMBLY IN PARIS The Oil & Gas Council is a network that specializes in gathering the most senior and influential network of oil and gas executives together. Its Africa Assembly normally takes place in Paris every year. Wale Tinubu, CEO of Oando Plc won this yearâ&#x20AC;&#x2122;s Executive of the Year Award.

166

OIL & GAS CIRCUIT PETROLEUM CLUB HELD FIRST POLICY DIALOGUE ROUNDTABLE The Petroleum Club held its first Policy Dialogue Roundtable in April. The key topics discussed were: Developing gas as a business; Deregulation of the downstream and elimination of subsidy on petrol and kerosene; Developing liquid petroleum gases (LPG) penetration by subsidizing LPG used for cooking; Reviewing the status of the Petroleum Industry Bill (PIB) and action points arising therefrom.

167

OIL & GAS CIRCUIT

THE NIGERIAN ASSOCIATION OF PETROLEUM EXPLORATIONISTS (NAPE) HELD SPECIALISED CHANGE WORKSHOP The Nigerian Association of Petroleum Explorationists (NAPE) held a Special Workshop in July with the theme "Positioning the Oil Industry for Enhanced Performance in the New Dispensation." Senior technical professionals and investors in the upstream oil and gas industry, the power and energy sectors participated in the workshop. The workshop was also attended by the Chairman of the Society of Petroleum Engineers (SPE) Nigerian Council, Emeka Ene, and the President of the Nigerian Mining and Geosciences Society (NMGS), Prof. Gbenga Okunlola. The Director of the Department of Petroleum Resources (DPR), Mordecai Danteni Ladan was represented by Mr. E.K. Bekee, Deputy Director (Upstream). The Chairman of the event was Mr. Jide Ojo, FNAPE, an Independent Oil and Gas Expert and a past president of the NAPE.

168

OIL & GAS CIRCUIT

OIL TRADING AND LOGISTICS (OTL) HELD 9TH AFRICA DOWNSTREAM WEEK At the 9th Oil Trading and Logistics (OTL) Africa Downstream Week, the industry agreed a number of resolutions as a contribution to policy definition and implementation. The OTL said the resolutions were its contribution towards long-term sustainability and development of downstream petroleum markets and operations. Below are just a few of the resolutions from the OTL: 1. Petroleum products subsidy is a disincentive to supply chain infrastructure investment, market innovation and consumer value. In view of current realities of low crude oil price and devalued naira, the country can no longer afford the burden of subsidies. The government is strongly advised to remove all petroleum products subsidies as a matter of immediate urgency and fully deregulate the downstream petroleum industry. 2. Local refining of petroleum products should be prioritized by the country and a deliberate shift initiated from importing products to building refineries. There is a need for a National Refining Policy, which defines the framework for encouraging investment in petroleum refining in Nigeria to facilitate increased national revenue and infrastructure development. 3. The legal framework on which the downstream petroleum sector is anchored, including the Petroleum Industry Bill needs to be clarified and enacted with a view to ensuring legal certainty and promoting efficiency and competitiveness. 4. The Central Bank of Nigeria (CBN) should make it easier in the interim, for importers of petroleum products to have access to Foreign Exchange while a transparent system for setting and publishing gasoline prices should be put in place. 5. Crude for product swaps is a shortterm solution for ensuring availability of petroleum products in Nigeria if managed transparently. Nigeria should move towards a collateralized crude for product swap which is more transparent and avoid offshore processing agreement that is grossly abused world-wide. 6. That downstream expansion of our natural gas utilization, with regulated gas price for domestic sales, governance limitation and institutional deficiency constitute both a challenge and opportunity for gas supply. 7. To stimulate investment in LPG, multiple

taxes and high tariffs should be reduced while development of infrastructure and distribution channels such as, local cylinder manufacturing, Storage facilities, Filling plants, Bob-tail trucks, gas pipeline for residential consumption, automobiles and petrochemical plants should be encouraged to enable the growth of LPG.

Subsidy on kerosene should also be removed to encourage the growth of LPG consumption in Nigeria. 8. There is need for a robust regulatory body with a clear and defined policy on its roles, to sustain a healthy competition to grow the downstream sector.

169

OIL & GAS CIRCUIT

ENERGY INSTITUTE HELD PRODUCERS FORUM As part of its Forum series, the Energy Institute Nigeria branch organises a forum, which focuses on producers in Nigeria's oil and gas upstream sector. The Forum has over the years encouraged high-level discussions on very topical issues that are of interest to both Independent Producers and Marginal Fields Operators in terms of policy, regulation, investment /funding and operations. This year's forum was themed 'Enhancing the oil & gas value chain for the domestic market'.

170

OIL & GAS CIRCUIT NIGERIAN ASSOCIATION OF ENERGY CORRESPONDENTS (NAEC) HELD ANNUAL CONFERENCE

From left, Manager Public and Government Affairs, Mobil Oil Nigeria Plc, Mr. Akin Fatunke; Manager, Media and Communications, ExxonMobil NIgeria, Mr. Oge Udeagha and Manager, Public Affairs, Total E&P Nigeria Ltd., Mr. Fred Ohwahwa.

From Left: Engr. james Oguntimehin; Engr. Muyiwa Akinkunmi; Deputy Director (Power), Bureau of Public Enterprise, Mr. Amaechi C. Aloke, Dr. Uche Okoro and Dr. Ramson Owan, all at the NAEC Conference.

The Ag. Managing Director, Nigerian Electrical and Technical Company (NETCO), receiving an award on behalf of the Group managing Director (GMD), Nigerian national petroleum Corporation (NNPC), Dr. Emmanuel Ibe Kachikwu, from the Chairman of NAEC, Mr. Yusuf Yunus.

From Left: Project Coordinator, Tradecodes Ltd, Environmental and Energy Consultant, Tola Bickersteth, Team Lead, Tradecodes Ltd., Alh. Yunus Akintunde and Mike Odinniyi of Conoil Plc.

Deputy Director (Power), Bureau of Public Enterprise, Mr. Amaechi C. Aloke; Managing Director, Mobil Oil NIgeria Plc, Mr. Tunji Oyebanji; Managing Director, NIPCo Plc, Mr. Venkataraman Venkatapathy; and Director General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf.

171

We thank our sponsors for making the 2015 edition of NOGintelligence Annual Review possible.

Millenium Oil & Gas Company Limited

173

THE MOST ADVANCED PIPELINE COATING SYSTEMS HAVE ARRIVED IN AFRICA Africoat is an indigenous Nigerian company with worldwide experience, offering a full range of coating services from the LADOL base in Lagos, Nigeria. Created to serve the West African coatings market, we offer high quality products, delivered on time and from a safe and secure environment.

www.africoat.com

info@africoat.com