NNPC - Monitoring Oil Production and Revenue Generation

8/12/2019 NNPC - Monitoring Oil Production and Revenue Generation

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February 2011

Processing & Monitoring of Nigerian Crude/GasProduction and Proper Accounting of Sales


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ONPROCESSING & MONITORING OF OIL/GAS PRODUCTION:

Presentation Outline

1. BackgroundNigerian Oil & Gas Fiscal Arrangement andSystems

Type of arrangementsJVs, PSCs, SCs & Independents

Production Contribution and trend

Contribution to Government Revenue

2. Role of NNPC In Nigerias Crude Oil/Gas Production &Accounting

Production Quota Allocation & Fiscal Price determination

Monitoring Oil & Gas Production and Cost

Oil & Gas Sales Revenue and Accounting3. Factors influencing Government Share of Oil & Gas Revenue

Applicable Fiscal System

Production Costs

Oil & Gas Price

Business Environment - Security2


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PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Presentation Outline (2)

3

4. Joint Venture Cash Call Funding Mechanism & Implication onGovernment Oil Revenues

Cash Call Funding Process

Implication of Cash Call Funding On Government Revenues

Alternative to Cash Call Funding

5. Issues, Challenges and Proposed Solutions

Funding

Managing Cost

Fiscal (AGFA)

Acreage Management System Institutional Framework

Downstream Subsidy

6. Conclusions


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Background

4


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Background - What is Oil & Gas Fiscal System

Petroleum means mineral oil (or any related hydrocarbon) ornatural gas as it exists in its natural state in strata and does notinclude coal or bituminous shales or other stratified deposits fromwhich oil can be extracted by destructive distillation

Fiscal system or arrangement is the Host Governments mostimportant tool for managing Oil and Gas resources

From the international oil companies (IOCs) perspective, fiscalregimes are some of the most critical factors to be considered forinvestment decisions

5


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6

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Background - Balance of Objectives

Realization of Countrys EconomicPotential

Development ofNational Expertise

Broad Control ofOverall Activity

Balanced Risk / RewardRelationship

Stable Politicaland Fiscal Environment

Management of Operationson Sound Commercial Basis

Government Investor Company

Maximum Economic Development of Hydrocarbon Resources

Fiscal Terms

Fiscal terms act as the contractual balance between the financial

Objectives of Government and the investor Company


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Background - Balancing Government Take

8

GovernmentRevenue($m

illion)

Government Take (% Project Profit)

Terms to o lenient Terms too toug h

Need to increase government

take

Optimal terms

Need to provid e greater

incent ive

GovernmentRevenue($m

illion)

Government Take (% Project Economic Rent)

Terms to o lenient Terms too toug h

Need to increase government

take

Optimal terms

Need to provid e greater

incent ive

1993/2000 PSCs JV Royalty/Tax Systems


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BackgroundTypes of Production Arrangements

9

SERVICE FEECONTRACTS

Includes Independents


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Background: Petroleum Contract Arrangement - JV

Joint Ventures (JV) operations

An arrangement whereby the government is in working partnershipwith the IOC on an equity contribution basis.

The relationship is governed by the Joint Operating Agreement (JOA).

Under the JOA the Partners retain their separate legal identities withone of them appointed as an Operator.

10


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Background: Petroleum Contract ArrangementPSC

Production Sharing Contracts (PSC)

Govt. is 100% owner of the Blocks.

Contractor provides all funds & and bears all risks

All equipments / assets become property of NNPC (Govt.) upon

arrival in Nigeria

Contractor Pays Royalty Oil

Recoups Its Operating Cost

Pays Tax Oil

Shares Part Of Profit Oil

There are currently over 60 PSCs, out of which about 6 are onproduction

12


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Background: Petroleum Contract ArrangementSC

Service Contracts (SC)

An Agreement to undertake exploration activities for a fee, either inCash or Kind.

Main Features Of Service Contract

Contractor Has No Title To Oil

Payment For Services In Cash Or Kind

Only One Block Per Contract

Agreed Level Of Work Must Be Met To Continue

Has First Option To Buy Fixed Qty Of Oil

Agip Energy & Natural Resources (AENR) is Only Service Cont. Coy.

AENR Operates the Agbara field as a Service Contractor

13


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PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Background: Petroleum Contract ArrangementMarginal Fields

Marginal Fields

Such fields as the President may from time to time identify as marginalfields (Sec. 17 of First Schedule)

Specific fields in the JV concession areas are farmed out to themarginal field operators.

The JV companies who are owners of these marginal fields receive anoverriding royalty in return for allowing the marginal field operatorswork these fields.

Farm-out of marginal fields is backed by Petroleum Amendment Act

No. 23, which introduced paragraph 16A into the First Schedule to thePetroleum Act. Under this amendment a farm-out can only bebrought about by the approval of the President under the terms as hemay approve.

14


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Background: Petroleum Contract ArrangementIndependents

Independents

This is a concession type arrangement

Concession licenses are granted to independents to work the blockson sole risk basis.

Government derives royalty and taxes only, from these set of investors

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Background: 2009 Lifting by Regimes (Sample)

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Background - JV and PSC Oil & Condensate Production Forecast

17

Oil & Cond Forecast

0

500

1,000

1,500

2,000

2,5003,000

3,500

4,000

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

BOPD

Base Production Dev Drilling & Work over Ongoing Oil ProjectsNew Oil Projects Ongoing Gas Projects New Gas ProjectsUnconstrained PSC

Deepwater PSC Production

JV & Deepwater productionare on track to achieve GDPgrowth target by 2011

JV Production will reach 2.5MMBOPD by 2011.

GDP growth aspiration

expects JV oil prod (incl. float)of 2.6 MMBOPD by 2011

JV Production will only beattained with sustainedinvestment at the levelsshown in the previous slide

Any JV production gap due to

lack of required investmentcould be partially filled bydeepwater production;however, this will not deliverthe expected revenues, asthe government take is muchless in the deepwater PSCs.


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Background - JV and PSC Oil & Condensate Production Forecast (2)

ALL FIGURES IN THOUSAND BARRELS OF OIL PER DAY (MBOPD) 2009 2010 2011 2012

Joint Ventures (JVs) 1,297 1,392 1,470 1,578

Production Sharing Contracts (PSCs)773

800 824 1,012

Service Contracts (SCs)8 7 5

Total 2,070 2,200 2,300 2,596

18

1297 1392 1470 1578

773 800824

1012- 8

75

0

500

1000

1500

2000

2500

3000

2009 2010 2011 2012

JVs PSCs SCs


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PROCESSING & MONITORING OF OIL/GAS PRODUCTION:2010 Crude Oil & Condensate Production Forecast by BusinessArrangement

20

Business Arrangement

Production inThousands Barrels

Per Day

Joint ventures 1050

Alternative Funding 342

Production Sharing Contracts 800Service Contracts 8

Total Production 2,200


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PROCESSING & MONITORING OF OIL/GAS PRODUCTION:BackgroundFederation Account Revenue Flows

2010 Approved Oil and Gas Fiscal Assumptions

Crude Oil & Condensate Production2.2 mbp

Natural Gas Production

Oil Price Joint Venture Cash Calls

21


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PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Background Government Revenue Sources

NNPC -NAPIMS

JOINT VENTURES (6)

FRONTIER EXPL.SERVICES (FES)

NNPC/SHELL/ELF/AGIP (55%)NNPC/MOBIL (60%)

NNPC/CHEVRON (60%)

NNPC/AGIP/PHILIPS (60%)

NNPC/ELF (60%)

NNPC/PAN OCEAN (60%)

PSC COMPANIES

1. ADDAX PET. DEV. CO. LTD

2. ADDAX PET. EXPL. LTD.3. ADDAX OIL & GAS NIG LTD

4. CHEVRON STARDEEP

5. CONOCO

6. ELF

7. TEXACO NIG OUTER SHELF

8. SHELL NIG. EXPL

9. STATOIL

10 . ESSO OPL 214

11. ESSO OPL 209

12. NAE

13. NAE/NPDC

14. NAOC

15. PETROBRAS

16. PHILLIPS

17.. ORANTO

18. OCEAN ENERGY

PRODUCTION SHARING CONTRACTS (PSC))

Over 50 blocks distributed among these coys

SERVICE CONTRACT (SC) (1) (AENR)

GOVERNED BY

JOA

GOVERNED BY

PSC

PSC COYS

Contd

19.TOTALUPSTREAM

20.BRITISH

GAS

21.CONOIL

22.CENTRICA

23.KNOC

24.OANDO

25.CNODC

26.CNPC

27. STERLINGGLOBAL

28.STERLING

EXP.

29.NNDC

30 OMEL

31.GAS

TRANSMISSION32. AENR (SC)


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PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Background - Comparative Revenue Flow to Federation Accountfrom JVs & PSCs

23

1. Shortfall in JV production due to lack offunding may be be filled by PSCproduction

2. However, PSC volumes will deliver onlyabout half of JV revenues togovernment due to the followingreasons:

Fiscal terms for the deepwater PSCs(especially the 1993 PSCs) from wherethe bulk of the deepwater productionwill come from are not as favourable togovernment

Costs are significantly higher in thedeepwater terrain compared to theconventional JV terrains

3. At a technical cost of $10.25/bbl andcrude oil price of $50/bbl GovernmentTake in the JVs is about 70% of totalrevenues compared to 37% in thedeepwater

4. Consequently, government interest isbetter served if the JVs are adequatelyfunded for incremental volumes.

Royalty, 9.25

PPT, 25.56

Cost Recovery,

10.25

Operator margin,

4.94

Royalty, 2.50

PPT, 16.50

Cost Recovery,10.25

Operator margin,

20.75

JV Oil PSC Oil

GovtTake(GT)70%o

fto

tal

revenues

$50/bblCrudeOilPrice

GT

37%o

ftotal

revenues

Royalty, 9.25

PPT, 25.56

Cost Recovery,

10.25

Operator margin,

4.94

Royalty, 1.0

PPT, 17.25

Cost Recovery,10.25

Operator margin,

21.50

JV Oil PSC Oil

GovtTake(GT)70%o

fto

tal

revenues

$50/bblCrudeOilPrice

GTrevenues

Data Set:

Well Cost $MM 100IDC % 80.0%TWI % 20.0%Facilities Cost $MM 150Operating Cost $MM 160Sales volume MMBbls 40Crude Oil Price $/bbl 50

JV 93 PSCPPT Rate 85.0% 50.0%Average Royalty Rate 18.5% 2.0%Invest Tax Allowance (ITA) 10.0% NA

Invest Tax Credit (ITC) NA 50.0%

Update TechnicalCosts!!!


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Role of NNPC In Nigerias CrudeOil/Gas Production & Accounting

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Oil & Gas Sales Revenue and Accounting

3. Factors influencing Government Share of Oil & Gas Revenue

Applicable Fiscal System

Production Costs

Oil & Gas Price

Business Environment - Security25


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Presentation Outline (2)

26




Alternative to Cash Call Funding


Funding

Managing Cost

Fiscal (AGFA)

Acreage Management System Institutional Framework

Downstream Subsidy

6. Conclusions

ON


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Production Quota Allocation & Fiscal Price Determination

COMD & GFAD Input

27

IONA


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COMD & GFAD Input

28

TIONA


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JV Operations : Governance

29

J

O

A

DEFINES PARTICIPATINGINTERESTS AND

RESPONSIBILITIES

SETS OUT OPERATINGPROCEDURES

IncludingFunding Process

Format & frequency of ReturnsAccounting Policies & Procedures

TIONAL


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Monitoring Oil & Gas Production and Cost - JV

Operators are required to conduct operations in accordance with

good industry practice (JOA Section 2.2.1)

Governance

OPCOM is the highest operational decision making body;

TECOM reviews sub-committee report and makes recommendation

to OPCOM (JOA Art 3.1)

Technical Subcommittees serve as the initial point of contact

between \NNPC and the operators for budget and performance

review and makes recommendation to TECOM

30

TIONAL


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Monitoring Oil & Gas Production and CostJV (2)

Operator required to make full and frank disclosure of operation

(JOA Art. 2.2.3)

Specific approvals are required from non-operator

Uniform accounting procedure establishes formats for reporting

costs (OPEX & CAPEX)

Uniform Project Implementation Procedure: Sets out guidelines for

initiating, contracting and executing project.

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ATIONAL


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32

OPCOM / MACOM

TECOM

PED FACILITIES EXPLORATION GAS MMD

FINANCE/PLANNING& HUMAN RESOURCES COMMUNITY

RELATIONSENVIRONMENT &

SAFETY

SU OMMITTEES

OPCOM Operating CommitteeMACOM Management CommitteeTECOM Technical Committee

ATIONAL


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OPERATORS WORK-PROGRAMME & BUDGET

OBLIGATION AS DEFINED BY JOA

ARTICLE 2 OF JOA PROVIDES THAT:(i) OPERATOR SHALL DEVELOP & SUBMIT PROPOSED

WORK-PROGRAMME & BUDGET TO CHAIRMAN OF OPCOM,

(ii) PARTIES MUST MEET TO DELIBERATE ON SUBMISSIONS WHICH CAN

ONLY BE APPROVED BY OPCOM ,

(iii) OPERATOR MAY NOT DEVIATE FROM APPROVED WORK

PROGRAMME & BUDGET EXCEPT IN CASE OF EMERGENCY,

OR IF MODIFIED BY OPCOM.

ATIONAL


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Monitoring Oil & Gas Production and CostPSC

Funding of work programme & petroleum operations

Specifies minimum expenditure during the exploration period.

Requires contractor to submit a performance bond to cover amountagreed as minimum financial commitment for the phases of

exploration period. Additionally contractor provides necessary funds for payments of

operating costs.

Contractor permitted to finance petroleum operations from externalsources.

34

NATIONAL


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Monitoring Oil & Gas Production and CostPSC (2)

Review and approve annual work programme & budget andreported performance.

Review contracts in excess of contractors limit of authority(>$250,000 or N10 million).

Review project costs by project cost control teams

Carry out annual cost verification exercise.

Verify crude oil allocation for payment of Royalty, Cost Oil, PPT &Profit through Cost Recovery committee.

35

NATIONAL

P


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Project Monitoring / Audit

NAPIMS nominate a multidiscipline project monitoring team for allmajor development projects to work with the operator projectteams in a task force in order to ensure:

Cost effectiveness in project execution

Enhancement of Local content

Project controls and timely delivery

Compliance with due process

NAPIMS also constitute a separate multi - discipline Audit team tocarry out periodic audit of all major projects in order to:

Verify expenditure and system of internal control

Generate an asset register

Create data bank for bench marking and cost estimation36

NATIONAL

P


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Value for Money Audit

Periodically NNPC commissions consultants / firms of charteredaccountants to carry out value for money audit of the JVoperating companies in order to advise on:

Compliance with the operating agreements (JOA).

System weakness if any and recommendations to correct them.

Performance Measurement, Benchmarking and Value Analysis.

JV Upstream Monitoring

37

NATIONAL

P


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Monitoring Oil & Gas Production and Cost - Trial Marketing Period

Valuation of Available Crude On the attainment of commercial production Each party determines the assay of the new crude Quality - yield values from refinery modeling Engages in Trial Marketing Period (TMP) of 6 months or 10 lifting whichever is longer to establish

crude commercial price Shares the market so that each party markets approximately an equal amount of the new

crude oil Pays proceeds from lifting into Escrow Account

Exchanges information regarding the marketing of the new crudesales price and terms ofeach lifting

Reconciles the TMP within 90 of expirationdistribute proceeds with accrued interest to fiscalpots

Migrates into monthly nomination and lifting programming Agrees on allocation priorities

JVEquity share volume

PSC, SC Royalty Oil Cost Oil Tax Oil NNPC Profit Oil Contractor(s) Profit Oil

Equity Share, Royalty Oil, Tax Oil and NNPC Profit Oil to Federation Accounts

Cost Oil and Contractor(s) Profit Oil to Contractors Accounts

38

NATIONAL P


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Monitoring Oil & Gas Production and Cost - Lifting Programme

Each Lifters share in the Production determines its lifting entitlement (JV, PSC, SC,PSA)

Written statements are issued by each party to the operator at least 25 days inadvance on the nomination(s)

Operator endeavours to make volume available based on

Technical allowable production and commercial production quota

Credit/debits accruing after reconciliation with actual production

Normal operational carry forward

An agreeable Lifting programme is prepared by the Operator on the basis of eachLifters entitlement and the technical conditions of the Terminal

Principles

Right and obligation to lift allocated cargoes Over-lifting/under-lifting rules

Priority is given to the lifter having the highest entitlement

Operator has the right to modify the lifting programme if operational constraints atthe terminal so required

Curtailment meetings holds between Operators/Contractors and NNPC onproduction and lifting every month

39

NATIONAL P


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40

EASTERN OPERATIONAL BASE ODUDU (AMENAM) - EPNL ANTAN - ADDAX BONNY - SPDC BONNY RIVER - MOBIL

QUA IBOE - MOBIL BRASS - NAOC YOHO - MOBIL OKWORI - ADDAX OKONONPDC/AGIP ENERGY

IMA - AMNI

WESTERN OPERATIONAL BASE ESCRAVOS - CHEVRON PENNINGTON - CHEVRON SEA EAGLE (EA) - SPDC ABONAE

FORCADOSSPDC OBECAVENDISH UKPOKITIEXPRESS/ATLAS

LAGOS OPERATIONAL BASE

BONGASNEPCO ERHAMOBIL (ESSO) AGBAMICNL AKPO - TOTAL

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Monitoring Oil & Gas Production and Cost - Oil Terminal Locations

CRUDE AVAILABILITY AT TERMINALS CONFIRMED THROUGH DAILY

REPORTS, FIELD REPS AND CURTAILMENT MEETINGS

NATIONAL PE


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JVPRODUCTION

IOC

APPXM. 42%

NNPCAPPXM. 58%

Recovers Costs

Pays Royalty @19%to Govt.

Pays Taxes @85% oftaxable income

to Govt.

Keeps Profit

Deducts Costs(JV Cash call)

* Surplus swept into

Fed. Account

Federation AccountReceipts

* Surplus swept into Federation Account from NNPC equity is made up of Royalty, Taxes & NNPC net Profit

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:NNPCs Role in Oil & Gas Sales Revenue & Accounting - JVs

41

NATIONAL PE


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42

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:NNPCs Role in Oil & Gas Sales Revenue & Accounting - PSCs

GOVT. OF NIGERIA

NATIONAL PE


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PROCESSING & MONITORING OF OIL/GAS PRODUCTION:NNPCs Role in Oil & Gas Sales Revenue & Accounting Accountingfor Federation Crude Oil & Gas Revenue

JV MISC.

INCOME

CRUDE OILEXPORTS

LPG GASEXPORTS

NLNGFEEDSTOCKS

NNPC DOM.

CRUDE

FEDERATIONACCOUNT

JV CASH CALLSACCOUNTCBN/NNPC CRUDE OIL & GAS

US$ REVENUE ACCOUNTHELD WITH

JP MORGAN CHASE BANK,NEW YORK

CBN NNPC CRUDE OIL & GASNAIRA REVENUE ACCOUNT

HELD WITH THE CBN

SPDC JV

MPN JVCNL JVNAOC JVTEPNG JVPAN-OCEAN JV

NGC LOCALGAS SALES

SOURCES CUSTODY OF FUNDS DISBURSEMENTS

NATIONAL PE


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PROCESSING & MONITORING OF OIL/GAS PRODUCTION:NNPCs Role in Oil & Gas Sales Revenue & Accounting - Sources ofRevenue from Oil & Gas Sector

44

NNPCEXPORT SALES

J.V.s PPTROYALTIES

PPT

ROYALTIESPPT, PROFIT OIL

ROYALTIES

INDEPENDENTS

PSC & SC

DOMESTIC CRUDE

DPRFEES, RENTALS

PENALTIES, BONUSES

ORGANIZATIONS

VAT, DUTIES

FEDERAL GOVT.

STATE GOVTS.

LOCAL GOVTS.

OIL & GAS

Revenue sources largely depends on the contractual and fiscal frameworks ofexploration and production activities of the oil and gas business

NATIONAL PE


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PROCESSING & MONITORING OF OIL/GAS PRODUCTION:NNPCs Role in Oil & Gas Sales Revenue & Accounting - Paymentsinto Agencies/Federation Accounts

45

RoyaltiesMCA

PSC

DPRDesignated

Account

Taxes MCAPSC

FIRSDesignated

Account

Equity Crude JV

ConsolidatedCrude Oil

RevenueAccount

DomesticCrude

445 Kb/dAllocated

NNPC

NNPC PaysNaira Value

to FederationAccount

Credit Periods

NNPCDomestic Crude 90 Days

Bilateral 30days

InternationalTraders 30days

NNA

TIONAL PET


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PROCESSING & MONITORING OF OIL/GAS PRODUCTION:NNPCs Role in Oil & Gas Sales Revenue & Accounting EntitlementsDetermination & Lifting

46

Profit Oil

Tax Oil

Profit Oil

Share OilLifted by NNPCFed Account

JV Oil/GasProduced

PSC OilProduced

SC OilProduced

Carry Oil/GasProduced

Modified CarryOil/

Gas Produced

NNPC Equity

Total Prod

NNPC Equity

Total Prod

VolumeOil/Gas Price

Stock BalanceAvailable volumeOil/Gas PriceExpense CostAmortisable Cost

NNPC Equity

Stock BalanceAvailable VolumeOil/Gas PriceExpensed CostAmortised Cost

Stock BalanceAvailable VolumeOil/Gas PriceExpensed CostAmortised Cost

Cost Oil

Royalty Oil

Carry Oil

Share Oil

Carry Oil

Share Oil

Share Oil

Lifted by ContractorContractor Account

Lifted by NNPC

Fed Account

Lifted by NNPC

DPR - Fed Account

FIRS - Fed Account

Fed Account

Lifted by ContractorContractor Account

Lifted by NNPCCash to ContractorRoy PPT to Fed Acc

Lifted by NNPCFed Account

NNA

TIONAL PET


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PROCESSING & MONITORING OF OIL/GAS PRODUCTION:NNPCs Role in Oil & Gas Sales Revenue & Accounting -Management of Government Interest

09/08/1147

Internal & External AuditingReconciliation

Entitlement Estimation Lifting Programming Marketing & Sales

Revenue

Tech. Allowable - DPRMonthly Production Comml

Crude PriceCost dataLifting entitlements

JV Oil/Condensate/Gas (Equity)PSC Oil/Condensate (Roy, Tax, Profit)MCA Crude (Carry Oil/Gas & Share Oil/Gas)Cargo NominationsLifting Advice & Shipping Documents

Term ContractsLetter of CreditShipping DocumentsMonthly Lifting & Sales ProfilePricing & Valuation

Shipping Documents

Pricing & ValuationLifting & Sales ProfileCBN Account StatementsOffshore Bank StatementsFAAC / Other Financial Reports

Shipping Documents

Financial ReportsLifting ContractsBank StatementsMonthly Lifting & Sales Profile

DPR, FIRS, NAPIMS, NEITI,FAAC, FMF, RMAFC, OAGF,etc

NNA

TIONAL PET


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Processes and Controls

48

Investment in Assets through JVCC or other sources of financing dependingon the Operating and Financing Agreement

Crude Oil and Gas are produced and lifted based on Fiscal Arrangementin place

NNPC lifts share of Federation crude.

All Crude Oil & Gas Sales Contracts are secured by IRREVOCABLE LETTERSOF CREDIT from first class International Banks

LC Bank remits payment for Crude Oil & Gas liftings on behalf of their Customers into CBN/NNPC CRUDE OIL & GAS REVENUE ACCOUNT with JPMorgan Chase Bank, New York maintained and controlled by the CBN

Proceeds of Domestic Crude sold to NNPC and other Naira proceeds arereceipted into the CRUDE OIL & GAS REVENUE NAIRA ACCOUNT held withthe CBN

NNA

TIONAL PET


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Processes and Controls (2)

Only JV Cash Call payments are made out of the Oil and Gas Accountsand these are strictly in accordance with the JV Budget as appropriatedby the National Assembly. Every payment requires the approval of theGMD, NNPC.

All other Funds in the Oil & Gas Naira and Dollar Accounts are transferred

to the Federation Account

The Accounts are reconciled between NNPC & CBN on a monthly basis

Similar Reconciliation is carried out between NNPC & OAGF on monthlybasis; before each FAAC

A separate statutory Audited Financial Statement is prepared andsubmitted to the Auditor General for the Federation, FGN and theNational Assembly.

The office of the Auditor General in carrying out their statutory duty auditsthe Federation Account and by extension, the O&G Accounts as well as

the JVCC Accounts49

NNATIONAL PET


50/104

NIGER

IAN

ETR

OLEUM

CORPORATI


Processes and Controls (3)

Monthly profile of Crude Oil and Gas Sales are received from COMD Actual receipts are verified in the NNPC/CBN Crude Oil and Gas

Accounts

Review calendarized monthly Cash Call requirement

Recommend Cash Call amount to be deducted to the AGF and the

HMSF and obtain alignment. Obtain the GMDs approval.

Prepare mandates to CBN for transfers to the Federation and the JVCash Call Accounts with CBN

Clarify Components of NNPCs Notional Monthly Contribution to

Federation Account: Royalty from JV Oil and Gas

PPT from JV Oil and Gas

JV After Tax Profit Oil and Gas

PSC After Tax Profit Oil and Gas

50

NNATIONAL PET


51/104

NIGER

IAN

TRO

LEUM

CORPORATI

ON

Joint Venture Cash Call FundingMechanism & Implication onGovernment Oil Revenues

51

NNATIONAL PETR


52/104

NIGER

IAN

TRO

LEUM

CORPORATI

ON

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Presentation Outline












Alternative to Cash Call Funding52

NNATIONAL PETR


53/104

NIGER

IAN

TRO

LEUM

CORPORATI

ON


53

4. Factors influencing Government Share of Oil & Gas Revenue Applicable Fiscal System

Production Costs

Oil & Gas Price

Business Environment - Security


Funding

Managing Cost

Fiscal (AGFA)

Acreage Management System

Institutional Framework

Downstream Subsidy

6. Conclusions

NNATIONAL PETR


54/104

NIGER

IAN R

OLEUM

CORPORATI


Cash Call Process

Cash Call

A monthly request by an Operator to other partners in their respectiveparticipating interests for advance payment to meet anticipatedcosts and expenditures in the Cash Call month

Based on Annual Budget appropriated by the National Assembly

Made in the currency stipulated in the Joint Operating Agreement(Naira and Dollar)

54

AN

NATIONAL PETR


55/104

NIGER

IAN R

OLEUM

CORPORATI


JV Work Program & Budget Process

55

JVC

NAPIMS

WORK PROG/

BUDGETS

SUB-COM

TECOM

JOINTLY

RECOMMEND TO

OPCOM

RECOMMENDS TO

NNPCCORPORATE

GOVT (FMF)

NATIONALASSEMBLY

PRESIDENCY

APPRVD DISTR.BUDGET

AN

NATIONAL PETR


56/104

NIGER

IA R

OLEUM

CORPORATI

ON

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Alternatives to Cash Call Funding

Alternative Funding

Carry Agreements

Modified Carry Agreements (MCAs)

IOC Bridge/Term Loans 3rd Party Debt Finance

56

AN

NATIONAL PETR


57/104

NIGER

IA

RO

LEUM

CORPORATI


Alternatives to Cash Call Funding

The Carry Agreements had been the most common form of AlternativeFunding. The 1st was entered into with SPDC in 1999 called the EA andwas followed by Amenam Kpono (AK I) with Total and later with Mobiland Chevron

Modified Carry Agreements (MCAs) was a very recent phenomenonhaving came into being only in 2008. The MCA was designed to correctsome defects associated with the traditional Carry Agreements andprovide funding for unpaid performances of prior years

3rd Party Debt Financing option was also introduced in the late 1999s tofund certain projects with robust cash flow for which equity fundingthrough JVCC was not available. Four projects all under the NNPC/MPN

JV have been funded under this arrangement: NGL I, NGL II, SatelliteFields Phase I. NGL I loan has been fully repaid and all its cash flows go tothe Federation Account

IOC Bridge/Term Loan was negotiated with Shell to pay for unpaidperformance of years prior to 2008 most of which relate AFAM

NNPC/SPDC JV IPP.57

AN

NATIONAL PETR


58/104

NIGER

IA

RO

LEUM

CORPORATI


Impact of Financing Arrangement on Revenues to Federation Account

58

Attribute Debt Equity

CapitalCosts

Normally funded 100% by Bankloan

Funded through JV Cash Call

OperatingCosts

Funded through JV Cash Call Funded through JV Cash Call

Production/Lifting

Ring fenced to pay principaland interest first beforedistribution to sponsors.Therefore less funds will beavailable to Federation

Account in the early years

100% flows into FederationAccount

FinancingCosts

Can be high due to interest andfees

No additional costs other thanthe opportunity cost of capital

Covenants Can be restrictive, onerous andburdensome

No restrictions

AN

NATIONAL PETR


59/104

NIGER

IA

RO

LEUM

CORPORATI


Impact of Financing Arrangement on Revenues to Federation Account

59

Attribute JV PSC

Royalty Rate 18.5% 1.75%

PPT Rate 85% 50%

Profit SharingRate

Equity Interest in JV: Ave 57%across the 6 JVs

Graduated beginning at 20%in the early years

Cost

RecoveryRate

Normal Accelerated as Contractors

primary goal is to recover allcosts as quickly as possible

AN

NATIONAL PETR


60/104

NIGER

IA

RO

LEUM

CORPORATI

ON

Factors influencing Government Shareof Oil & Gas Revenue

60

IAN

NATIONAL PETRO


61/104

NIGER

IA

RO

LEUM

CORPORATI

ON

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Presentation Outline













IAN

NATIONAL PETRO


62/104

NIGER

IA O

LEUM

CORPORATI

ON


62

4. Factors Influencing Government Share of Oil & Gas Revenue Applicable Fiscal System

Production Costs

Oil & Gas Price

Business Environment - Security


Funding

Managing Cost

Fiscal (AGFA)

Acreage Management System

Institutional Framework

Downstream Subsidy

6. Conclusions

IAN

NATIONAL PETRO

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:


63/104

NIGER

IO

LEUM

CORPORATI

ON

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Comparative Revenue Flow from JV & PSC Fiscal Regime Comparison -Fiscal Assumptions

PPT Assumptions PIB Assumptions

Item (/ bbl) JV PSC

Opex ($/bbl) 6.52 8.15

Capex ($/bbl) 6.12 13.36

PPT 85% 50%

Education Tax 2%

NDDC Levy 3%

Royalty 5%

ITA 15% NA

ITC NA 50%

Item (/ bbl) JV PSC

Opex ($/bbl) 6.52 8.15

Capex ($/bbl) 6.12 13.36

NHT 50% 30%

CITA 30%

Education Tax 2%

NDDC Levy 3%

Royalty (Tranche Based) 5%

Overseas Cost Limit 80%

IAN

NATIONAL PETRO



64/104

NIGER

IO

LEUM

CORPORATI

ON

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Comparative Revenue Flow from JV & PSC Fiscal Regime Comparison(PPT Case @ $50/ bbl Oil Price)

PPT Computations ($/ bbl) PPT Computations (%)

RI

AN

NATIONAL PETRO



65/104

NIGER

O

LEUM

CORPORATI

ON

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Comparative Revenue Flow from JV & PSC Fiscal Regime Comparison(PIB Case @ $50/ bbl Oil Price)

PIB Computations ($/ bbl PIB Computations (%)

RIAN

NATIONAL PETRO


66/104

NIGER

OLEUM

CORPORATI


JV Funding Requirements

66

Production shut-in

mainly from militancyactivities

Higher

investmentsrequired to bring

back and

eventually grow

production

RIAN

NATIONAL PETRO


67/104

NIGER

OLEUM

CORPORATI


Implication of Crude Production Decline

67

Revenues Implication of continuedProduction Decline

Crude Price Forecast 2007 & Beyond - $60/bbl

RIAN

NATIONAL PETRO


68/104

NIGER

LEUM

CORPORATI


Joint VentureFederation Account Revenue Flows

68

Crude Price $/bbl 45.00 100.00

Technical Cost $/bbl 22.32 22.32

Gross JV Volumes MMBOPD 1,402 1,402

NNPC Equity % 58% 58%IOC Equity % 42% 42%

Govt. Revenue from IOC Equity barrelsIOC Revenue $MM 9,672 21,493Roy @18.67% $MM 1,806 4,013IOC cost recovery $MM 4,797 4,797

IOC Taxable Income $MM 3,069 12,683IOC PPT payment $MM 2,609 10,780

Govt. Rev. From IOC Equity Volumes (Roy + PPT) $MM 4,414 14,793

Govt. Revenue from NNPC Equity barrelsNNPC Revenue $MM 13,356 29,680NNPC cost recovery $MM 6,625 6,625

Govt. Rev. from NNPC Equity Volumes (Rev - cost) $MM 6,732 23,056

Total Govt Rev from JV Petroleum Operations $MM 11,146 37,849

Impact of declining Prices on Government Revenues - JV

RIAN

NATIONAL PETRO

L


69/104

NIGER

LEUM

CORPORATI


PSCFederation Account Revenue Flows

69

Crude Price $/bbl 45.00 100.00

Technical Cost $/bbl 25.23 25.23

Gross JV Volumes MMBOPD 760 760

NNPC Profit Oil Share % 20% 20%

IOC Profit Oil Share % 80% 80%

Govt. Revenue from Taxes & RoyaltyGross revenues $MM 12,483 27,740Roy @2.76% $MM 345 766Cost recovery $MM 6,999 6,999

Taxable Income $MM 5,140 19,976PPT payment @50% $MM 2,570 9,988

Govt. Royalty & Taxes $MM 2,914 10,753

Govt. Revenue from NNPC Profit OilProfit oil available for allocation $MM 2,570 9,988NNPC share of profit oil @20% $MM 514 1,998

Total Govt Rev from PSC Petroleum Operations $MM 3,428 12,751

Impact of declining Prices on Government Revenues - PSC

RIAN

NATIONAL PETRO

L


70/104

NIGER

LEUM

CORPORATI


BackgroundGovernment Revenue Sources

Main source of Government revenues in the petroleum sector isthrough the imposition of royalties & taxes on petroleumoperations

Government derives additional revenue over and aboveimposition of taxes & royalties, however, this is dependent on thecontractual arrangement with other investor:

Joint Venture All of NNPCs equity revenues less cost sweptinto Federation Account

PSC - All of NNPCs Profit oil share swept into Federation

Account

70

RIAN

NATIONAL PETRO

L


71/104

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LEUM

CORPORATI


The Petroleum Industry Bill - General Objectives of PIB

Establish clear and enduring good governance principles in the Nigerianoil & gas industry.

The need to remove obsolescence and outdated provisions in ourcurrent laws

Encourage alignment with international best practice

Remove opaqueness and lack of transparency in the current statues

Establish fiscal provisions that are flexible, encourages investment whileguaranteeing optimal take for Government.

Strengthens tax administration with requisite powers and rules for theeffective management of the industry.

Establish clear principles for the working of the Incorporated JointVentures (IJVs).

Support domestic gas utilization through National Gas Master Plan

Proper alignment of the roles and functions of the institutions.

RIAN

NATIONAL PETRO

L


72/104

NIGER

LEUM

CORPORATI


Factors Impacting Government Revenue Outside Crude Oil Price

72

Niger Delta Related Non-Niger Delta Related Fiscal Regimes applicable to the various oil

contract typesGas cost accounts forbetween 40% & 43% of total CAPEX,recovered from oil tax revenues via AGFA

Under funding of Joint Venture Operationsover a long period of time

Increase in cost of materials & services asa result of increasing crude oil prices.

Aging facilities with attendant increase inmaintenance cost

Matured reservoirs leading to high naturaldecline rates

More investments required for infillopportunities and integrity / productionsustenance

Need for more exploration to find andreplace reserves.

Non competitive price fixing behaviours inthe contracting environmentlimitednumber of service contractors.

Production deferment due to securitysituation in the Niger Delta, includingdeferred production due to scheduledelays on projects

Oil theft and losses arising from thesabotage of oil facilities

Cost of environmental clean up following

sabotage.

Projects become even more expensiveafter security incidents

Cost of repairing or replacing damagedfacilities as a result of militancy activities

for example cost of replacing damagedfacilities has $1.26 million in 1999 to almost$400 million in 2008 in the SPDC JV

Additional cost premium as a result ofNiger Delta Security situation:

ER

IAN

NATIONAL PETRO

L


73/104

NIGE

LEUM

CORPORATI


Impact of Niger Delta Security - SPDC Hot Spots (Eastern Operations)

73

Port Harcourt Kidnapping at least 79 Nigerianand 8 Expats since 01 Jan 08. Armed robbery common Violent crime frequent

Rumuekpe Area Community based groups vying forpower Violent clashes during 2008 Two warlords have establishedpresence in this area and at Egbema

West

Diebu Creek Militants fighting for control Explosive attacks / vandalism onSPDC ROW

Cawthorne Channel Militant camps / activity Social fault line between Kalabariand Bonny clans Militant attacks on infrastructure Bunkering

Alakiri Militant Threat Bunkering

Bomu/Kdere Ogoni issue Sabotage Bunkering

Bonny Channel Piracy Militant attacks Kidnapping

ER

IAN

NATIONAL PETRO

L


74/104

NIGE

LEUM

CORPORATI

ON

Isoko South Bunkering Community threats and blockades vandalism/sabotage

Agge / Aghoro Militant presence. Violent attack on SPDC houseboats Community challenges to projectwork

Odimodi / Ogulagha Inter-communal dispute over HostCommunity Status Community threats and blockades Militant Presence

74

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Impact of Niger Delta Security - SPDC Hot Spots (Western Operations)

ER

IAN

NATIONAL PETRO

LPROCESSING & MONITORING OF OIL/GAS PRODUCTION:


75/104

NIGE

EUM

CORPORATI

ON

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Security Situation in the Nigerian Oil and Gas Industry -Re-entry and Restoration of Vandalized Facilities

75

ER

IAN

NATIONAL PETRO

LE


76/104

NIGE

EUM

CORPORATI

ON

Issues, Challenges and ProposedSolutions

76

ER

IAN

NATIONAL PETRO

LE


77/104

NIGE

EUM

CORPORATI
















78/104

ER

IAN

NATIONAL PETRO

LE


79/104

NIG

EUM

CORPORATI


Total JVBudget Evolution

79

Joint Venture Operations

Industry Budget has increased from about $6.0 billion in 2002 to nearly $18.0

billion projected for 2010.

ER

IAN

NATIONAL PETRO

LE


80/104

NIG

EUM

CORPORATI


Deployment of Government US$5.0 Billion Equity Funds

80

Government share of operating cost,exploration expenses, productionoperations sustenance, and assetrestoration costs for 2010 is about US$4.9billion.

Operating cost is about 8590% fixedas a result of industry structure.

Also at this time industry is poised togrow, to be driven by projects to beexecuted through MCAs. Growth incapital expenditure results in increase inoperating costs.

Cost captured here excludes provision

for NAPIMS overhead, Exploration in theFrontier Basins, and Provision for securityrelated operations in the Niger Delta,amounting to almost US$0.6 billion.

All of the cost described above arebetter funded through equity.

GER

IAN

NATIONAL PETRO

LE

PROCESSING MONITORING OF OIL/GAS PRODUCTION


81/104

NIG

EUM

CORPORATI

ON

PROCESSING & MONITORING OF OIL/GAS PRODUCTION:Objective: Create JVs That are Value Creating

The PIB requires the creation of Incorporated Joint Venture Companies.These companies will substitute the current unincorporated joint ventures.

The reason is that this will make financing of ongoing operations and thedevelopment of new oil and gas fields easier to achieve and willtherefore permit an acceleration of petroleum activities.

It should be noted that the IJVs will pay a government take on existingproduction in onshore and shallow water equal to almost 90% in terms ofroyalties and taxes and therefore there will be no loss of revenues as aresult of the creation of the IJVs.

IJVs will not be subject to the provision of the Fiscal Responsibility Act and

the Public Procurement Act.

Board decisions must be made based on international best practice.


82/104


83/104

GER

IAN

NATIONAL PETRO

LEU



84/104

NIG

UM

CORPORATI

ON

Nigeria has the Least Government Take !

PSC Economics Review: Comparison of Global PSC Fiscal Regimes($60/bbl)

84

GER

IAN

NATIONAL PETRO

LEU

PROCESSING MONITORING OF OIL/GAS PRODUCTION


85/104

NIG

UM

CORPORATI


Issues & Challenges of PSCs

Contract clarity & Conflict with legislations

Interpretation Disputes between Govt. & IOCs

Divergent entitlement claims

Rising Production with declining Government take

Potential Zero Government take

High Technical Cost

Weak accounting procedures

Stability clauses

85

GER

IAN

NATIONAL PETRO

LEU

PROCESSING & MONITORING OF OIL/GAS PRODUCTION


86/104

NIG

UM

CORPORATI


Part III: Upstream Petroleum - Regular Acreage Management

The Government Memorandum proposes to establish the internationalconcept of drill or drop. This means a company is required to carry outan intensive work program on the acreage that is being granted. It thecompany does not want to carry out further work, a part of the acreageor all the acreage needs to be returned to the Federal Government. Theacreage management provisions consist in particular of:

National grid system :

An orderly national grid system is proposed. This permits the granting and

relinquishment of acreage based on specific 1 by 1 square km parcels.

PPL Acreage relinquishment provisions:

50% based on parcels after initial exploration period

all acreage after renewal, except for

appraisal areas and significant gas discovery areas, which need to be

relinquished after certain period if no declaration of a commercial discovery is

made.

GER

IAN

NATIONAL PETRO

LEU



87/104

NIG

UM

CORPORATI


Part III: Upstream Petroleum - Mandatory Acreage Relinquishment

One of the main bottlenecks to increased activity in Nigeria is lack of newlicense and contract areas. The petroleum prospective part of Nigeria iscovered with existing licenses, leases and contracts. These areas weregranted without implementing strong relinquishment practices.

As a result, in Nigeria petroleum companies are sitting on acreage.There is no access to acreage for new investors. This harms petroleum

investment activity. Under the Government Memorandum petroleum companies will have to

give acreage back from existing oil prospecting licenses and oil miningleases within 2 years after the effective date of the Act. Existingcompanies can keep all areas that are in production or will be appraisedor developed in the near future. Also certain exploration areas can bemaintained based on new work commitments.

However, the acreage that companies are not using, will have to bereturned to the Government. This may free up probably as much as 30%of the prospective petroleum area of Nigeria for new investors. Inparticular, small Nigerian companies will be offered major new

opportunities in this regard.

GER

IAN

NATIONAL PETRO

LEU



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NI

UM

CORPORATI


Part II: Institutions - Regulatory Institutions (1)

Upstream Sector

Oil Exploration &Development

Gas Exploration &Development

Midstream Sector

Oil Transportation & GasTransmission

Gas Processing

LNG/CNG/GTL

Derivative

Processing/Production

Oil Refining

Downstream Sector

Gas Distribution /Sale

Petroleum productdistribution & Storage

Petroleum Product Retail

Technical &CommercialRegulation

by NPI

Technical &CommercialRegulationby NAMIRA

Technical &CommercialRegulationby PPRA

Upstream Sector

Oil Exploration &Development

Gas Exploration &Development

Downstream:(Midstream)Sector

Oil Transportation & GasTransmission

Gas Processing

LNG/CNG/GTL

DerivativeProcessing/Production

Oil Refining

Downstream Sector

Petroleum productdistribution & Storage

Petroleum Product Retail

TechnicalRegulation

byInspectorate

CostControl byNAPIMS

CommercialRegulation

by PPPRA

OLD INSTITUTIONAL FRAMEWORK NEW INSTITUTIONAL FRAMEWORK


89/104

IGER

IAN

NATIONAL PETRO

LEUM



90/104

NI

M

CORPORATI


Objective: Deregulate Petroleum Products Prices

PROBLEMS Current levels of subsidies for petroleum products are

unsustainable. Poor infrastructure and low refinery throughputcreate significant bottlenecks in petroleum product supplies.Corruption and smuggling operations are rampant.

Impediments:

Regulated prices are a disincentive for private investment.

Equalisation Fund operations are cumbersome

Strain on NNPC financial performance No adequate regulatory framework for investors

IGER

IAN

NATIONAL PETRO

LEUMROCESSING & MONITORING OF OIL/GAS PRODUCTION:


91/104

NI

M

CORPORATI

ON

ROCESSING & MONITORING OF OIL/GAS PRODUCTION:Objective: Deregulate Petroleum Product Prices (2)

SOLUTIONS

Complete deregulation of the petroleum product sector

Equalisation Fund will be scrapped.

Strong midstream regulatory framework will be established with one

shop stop for certificates for new refineries and terminals and

open access provisions for bulk plants, product pipelines andterminals.

Price monitoring will be put in place to avoid misuse of free marketenvironment.

Private investment framework will be established.


92/104

NIGER

IAN

NATIONAL PETRO

LEUMThe Petroleum Industry Bill :


93/104

NM

CORPORATI

ONThe Petroleum Industry Bill :

Overview of PIB

The Petroleum Industry Bill contains a number of initiatives:

It creates a single Act for the entire petroleum industry andrepeals 16 prior Acts, thereby creating transparency

It strengthens the administration, by creating four well

financed administrative institutions as follows: Directorate,Inspectorate, Authority and Agency

It converts NNPC to a self-financing NOC It converts NNPC joint operation agreements to NOC

incorporated joint ventures

It creates a new acreage management system in line withinternational best practice

It requires bid system for all upstream licenses and leases It removes confidentiality on royalty and tax payments It separates oil and gas for Tax purposes.

NIGER

IAN

NATIONAL PETRO

LEUMThe Petroleum Industry Bill:


94/104

NM

CORPORATI

ON

The Petroleum Industry Bill:Key Elements of PIB Fiscal Framework

Capturing the full gas value chain (upstream, midstream anddownstream) within and without Nigeria

Developing a fiscal regime for gas that is decoupled from oilthereby creating a level playing field for all investors in gas

Promoting the effective management of costs across the industry

and maximising Government take Developing a fiscal system that is responsive to the significant shift

in energy prices

Clarifying inconsistencies and/ or conflicts in the application offiscal terms for oil and gas and

Developing a fiscal rule of general application based on a bodyof fiscal laws rather than incentive letters.

94

NIGER

IAN

NATIONAL PETRO

LEUMThe Petroleum Industry Bill :


95/104

NM

CORPORATI

ON

The Petroleum Industry Bill :Proposed Fiscal Provisions in the PIBOverview

Simplification of collection of government revenue Capture of windfall profits

Encouragement of cost efficient operators

Development of small oil fields & indigenous

companies

Increase of government take from largedeepwater fields

Enhancement of transparency & accountability

Many nations have changed Fiscal systems to respond to operational andEconomic realities :UK, Alaska(USA), Venezuela, Russia, Algeria, Alberta, Angolaetc, without recourse to NOC or IOCs

NIGER

IAN

NATIONAL PETRO

LEUM

Understanding Joint Venture IncorporationJV Today I ti


96/104

NM

CORPORATI

ON

96

JV Today Incorporation

Income statement

Balance sheet

Income

Expenses

Assets Liabilities

60

100

FGN

X X

Income statement

Balance sheet

Income

Expenses

Assets Liabilities

Oil revenues Gas revenues

JV OPEX/CAPEX Taxes & Royalties

Dividends

JV assets PPE Cash

Capital

Debt

AssetUtilizationDrivesIncome

Key Messages Incorporation enables NNPC to leverage asset base of JV to finance operations Key difference between incorporation and status-quo is NNPCs ability to raise debt, while

the government can still maintains same share of ownership in JV via NNPC share.

RetainedEarnings

InterestCharge

Incorpo ration allows NNPC to finance its sh are of JV

operations through a balance sheet..

NNPCs only means of financing share of investment is

from FGN cash calls.

40

Chevron

NIGER

IAN

NATIONAL PETRO

LEUM

JV Incorporation Environment Key Changes


97/104

NM

CORPORATI

ON

97

JV Incorporation EnvironmentKey Changes

Before

NNPC funds share of investments FGN cash call Third Party financing

After

Investment

Revenue NNPC receives share of sales proceedswhich is passed directly to FGN

Taxes

Retained earnings

FGN receives taxes and royalties from JV

partners only

Control/Transparency

There are no retained funds for future, FGNtakes all its proceeds out of organization

There is no balance sheet, organization

has no assets or liabilities

NNPC control is limited to level ofinvestment that is put in.Lack of transparency constrains level ofdecision making

Removes the need for cash call & annual

funding strategy One off equity injection JV Inc raises debt financing

NNPC receives share of revenues afterexpenses & taxes via Dividend

FGN receives taxes and royalties from

entire JV Inc ( JV Partner + NNPC )

JV Inc will retain some portion of earningsto fund future investment. Dependent on dividend policy

JV Inc will have balance sheet with ownassets & liabilities Balance sheet used to raise finance

NNPC will exercise greater direct controlvia board & management.Makes operations and financial datatransparent

Balance Sheet

NIGER

IAN

NATIONAL PETRO

LEUM

JV Incorporation provides an industry wide solution with


98/104

NM

CORPORATI

ON

98Source: Team analysis

Increased transparency &accountability will drivedown industry costs andincrease efficiencies

Increased transparencywill ensure less opex,capex are claimed againstrevenues thus increasingtax revenues.

In the long-term JV Incswill be able to raise

increased amounts of debtfinancing, boostinginvestment levels andrelated revenue

JV Inc is a robust

industry solution

Removes the need for cashcall and piecemealfinancing

Provides a viable andsustainable method forindustry to self-finance

Can be applied across thewhole sector in a uniformmanner.

Globally tried & tested Incorporation is the

dominate model acrossNOCs around the world

Aligns industry & FGNaspirations

It also increases net

proceeds to FGN

substantial additional benefits to NNPC & Nigeria

NNPC gets direct accessto expertise and

operational excellence ofthe worlds top oilcompanies

NNPC develops skills to bean operator in future or atleast benchmark futureoperator performance

NNPC can expandinternationally via JV Incs,

thus sharing internationalrisk with IOCs

and sets NNPC on the

road to of being worldclass

NIGER

IAN

NATIONAL PETRO

LEUM


99/104

NM

CORPORATI

ON

99

PSC Production Outlook

PSC Production / forecast

0

200

400

600

800

1,000

1,200

1,400

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

CrudeOilPro

dMBOPD

Bonga Main Bonga SW Bonga NW Erha Erha North Agbami Bosi / Bosi Ser 2 Akpo

Usan Abo Main Abo Extension Agbara OML 123 / 124 Okwori / Nda

NIGER

IAN

NATIONAL PETRO

LEUM


100/104

CORPORATI

ON

100

Oil & Cond Forecast

0

500

1,000

1,500

2,0002,500

3,000

3,500

4,000

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

BOPD

Base Production Dev Drilling & Work over Ongoing Oil ProjectsNew Oil Projects Ongoing Gas Projects New Gas ProjectsUnconstrained PSC


JV & Deepwater productionare on track to achieve GDPgrowth target by 2011

JV Production will reach 2.5MMBOPD by 2011.

GDP growth aspirationexpects JV oil prod (incl. float)

of 2.6 MMBOPD by 2011

JV Production will only beattained with sustainedinvestment at the levelsshown in the previous slide

Any JV production gap due tolack of required investment

could be partially filled bydeepwater production;however, this will not deliverthe expected revenues, asthe government take is muchless in the deepwater PSCs.

NIGER

IAN

NATIONAL PETRO

LEUM

JV Funding Outlook Gas Production Forecast


101/104

CORPORATI

ON

101

Gas Production Forecast

0

3,000

6,000

9,000

12,000

15,000

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

MMSCFD

Base Production Dev Drilling & Work over Ongoing Oil Projects

New Oil Projects Ongoing Gas Projects New Gas ProjectsUnconstrained PSC

Even with the investmentlevels outlined in the previousslide, GDP gas aspiration willnot be achieved. 9 BCFD willbe attained by 2011,compared to the expected 14BCFD

Deepwater PSC gasproduction still low

Proper definition could unlockadditional gas volumes in duecourse


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ON

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Picture of drilling session showing

Men and and drill string

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ONWay Forward

Niger Delta security situation needs urgent attention toimprove Oil & Gas production and reduce costs

The Petroleum Industry Bill (PIB) currently before theNational Assembly needs speedy passage to deal with thefiscal and joint venture financing issues affectingGovernment revenues.

Despite all the security challenges in the Niger Delta there isstill need for greater cost efficiency in the petroleum sector.

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ON

Thank You

NNPC - Monitoring Oil Production and Revenue Generation

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Transcript of NNPC - Monitoring Oil Production and Revenue Generation