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THE FACE OF NIGERIAN OIL & GAS INDUSTRY IN 2017 Presented by Dr Jude O. Amaefule SPE Intl. Distinguished Member Vice Chairman/CEO Emerald Energy Resources Limited (EERL) On behalf of Dr Emmanuel Egbogah, OON SPE Intl. Honourary Member

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Presented by

Dr Jude O. Amaefule

SPE Intl. Distinguished Member Vice Chairman/CEO Emerald Energy Resources Limited (EERL)

On behalf of

Dr Emmanuel Egbogah, OON

SPE Intl. Honourary Member Chairman EERL & Former Special Adviser to the President on Petroleum Matters

At

SPE - NAICE 2016

EKO Hotel & Towers Lagos, August 4th, 2016

THE FACE OF NIGERIAN OIL & GAS INDUSTRY IN 2017

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  • YOUR EXCELLENCIES,

PROFESSIONAL COLLEAGUES, FELLOW PANELISTS, DISTINGUISHED LADIES & GENTLEMEN, MAY I PLEASE STAND ON EXISTING PROTOCOLS

PROTOCOLS

2

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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SLIDE 3

OUTLINE

INTRODUCTION

GLOBAL OVERVIEW…

NIGERIA PROACTIVE OR REACTIVE? 2017

Recommendations/Conclusion

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Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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SLIDE 4

Banking/ Finance Insurance

Petrochemicals

Agriculture

Pharmaceuticals

Education

Manufacturing

Power Refinery Fuels

Infrastructure

The Petroleum Industry Drives The Nigerian Economy 14.4% GDP; 80% Govt Revenue; 90% Of Foreign Exchange

$$$ Oil & Gas

4

INTRODUCTION

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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  • US Oil & Gas Supply
  • Changes in Global Oil and Gas production
  • Geopolitical Developments & Risks
  • Increase in Oil and Gas Production from

Iran & Iraq

  • GDP Growth
  • Oil Prices & Linkage to US$
  • OPEC & NON-OPEC Production: Changes in

OPEC Objectives

  • Sustained US Production
  • Spare Capacity & Inventories
  • Global Production of Biofuels; shale Oils;

Oil Sands

  • Oil Intensity of Energy Consumption & GDP
  • Weakening Global Demands

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Global Economic Drivers of Oil Price Decline

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

Long Term Drivers of Oil & Gas Price Decline Short Term Drivers of Oil Price Decline

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  • While current crude oil markets prices reflect a dire situation for much of the

industry, sizeable capital and operating budget cuts over the last year are going to leave a lasting impact.

  • A supply shortfall of over 1 million b/d as early as 2018 based on canceled or

delayed investments and factoring in investment carryovers and excess storage drawdowns. This shortfall should generate a much-needed price increase to around $58/bbl, but not the return of $100+/bbl oil in the near term.

  • Sources such as the major US tight oil basins, Iran, Iraq, and possibly Russia

could potentially cover the first two years of production shortfall at the $58/bbl price range. Beyond 2019, continued demand growth and production declines will require further price increases to cover full cycle costs for high- cost producers such as Canadian oil sands and deep water, off-shore sources.

  • Source: MarketPoint

GLOBAL OVERVIEW…

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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  • POOR GOVERNANCE
  • LACK OF

TRANSPARENCY

  • HIGH LEVELS OF

CORRUPTION

  • LIMITED REFINING

CAPACITY

  • OIL ECONOMY

MINIMAL LINKAGES TO OTHER SECTORS

Challenges

WEALTH CREATION TRIANGLE

TECHNOLOGY

CAPITAL

RESOURCES

NIGERIA HAS RESOURCES, NO TECHNOLOGY & DEAD CAPITAL

WEALTH($$$)

7 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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  • Most of the existing wells within Nigeria’s

Oil Fields are currently

  • n

production decline.

  • Low Exploration and Appraisal Drilling for

the past several years due to policy uncertainties and lack of adequate funding

  • Delay in the Passage of the Petroleum

Industry Bill (PIB) - Nigeria.

  • Lack of adequate capital availability at

competitive interest rates(<10%)

  • Low Infrastructural Investment
  • Partnerships in Trouble: Forced Marriages

by Government

  • Technical & Financial Capacity of

Prospective Foreign Partners/Investors

  • Limited Availability of Cost-Effective

Technologies

  • Stringent Conditions of IOC’s on use of

existing facilities

  • Host Community Management
  • Operational & Security Challenges

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W X Y Z

Typical Production Decline

Current Challenges

INTRODUCTION

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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OPEC NATIONS WITH REFINERIES IN FOREIGN COUNTRIES

OPEC COUNTRY FOREIGN COUNTRY PARTICIPATION IN CAPACITY (103 BBL/D) (%)

ABU DHABI AUSTRIA/GERMANY OMV 282 19.6 SPAIN CESPA 360 10 SAUDI ARABIA UNITED STATES STAR ENTERPRISE 625 50 (50% TEXACO) KOREA SSANGYONG 146 35 PHILLIPPINES PETRON 147 40 EUROPE MOTOR OIL HELLAS 100 60 KUWAIT DENMARK KPC (CLOSED) 56 100 NETHERLANDS KPC 75 100 ITALY KPC-ENI 300 50 (50% ENI) LIBYA ITALY TAMOIL 95 45 GERMANY HOLBORN 78 30 SWITZERLAND COLLOMBEY 72 45 VENEZUELA UNITED STATES CITGO 725 100 OTHERS 260 35 965% LYONDELL) GERMANY RUHR OEL 716 50 (50% VEBA) BELGIUM/SWEDEN/UK NYNAS 62 50 (50% NESTE) NIGERIA ??? ??? ??? ???

9 SOURCE: PETROSTRATEGIES

ADVANTAGES

  • FOREIGN

EXCHANGE EARNER

  • TECHNOLOGY

TRANSFER MEDIUM

  • CRUDE OIL

VALUE CHAIN MANAGEMENT

  • FOREIGN

REFINED CRUDE IS NOT SUBJECT TO OPEC QUOTA

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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  • Exports of Crude

Petroleum less than $US50/bbl

  • Imports of

Refined Petroleum & Petroleum based goods above $US200/bbl

  • Nigeria Exports

Wealth and Imports Poverty Nigeria’s Petroleum Industry: Value Destruction

Exports of Crude Petroleum less than $US50/bbl Imports of Refined Petroleum & Petroleum based goods above $US200/bbl

10 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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GLOBAL OVERVIEW…

Global Competition For Oil & Gas Investments

  • A major concern in a case of prolonged

economic downturn is the inability of the international energy industry to secure investment due to credit squeeze on the

  • ne hand and unattractiveness of some

projects under the current oil price on the other.

  • Estimates of oil price required to make

new oil supplies viable range between $28 & $114 per barrel

  • Nigeria ranks low on the table as a

result of Investment insecurity due to

  • perations risks
  • poor infrastructural development
  • Niger Delta Militancy etc

Project Location/Type $/B Middle East 20 China 28 Libya 42 Mexico 55 Brazil 61 US Deepwater 65 Angola 71 Nigeria 78 Canadian Oil Sands 87 Venezuela Heavy Oil 114

Source: CERA. Note: assuming 15% internal rate of return.

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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ESTABLISHMENTS & GOVERNMENT AGENCIES LEGAL FRAMEWORK

Policy Issues

ENERGY TECHNOLOGIES FINANCING

COMMUNITY RELATIONS

INDUSTRY

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NIGERIA PROACTIVE OR REACTIVE?

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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LEGAL FRAMEWORK

Policy Issues: Taxation Superfluity

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NIGERIA PROACTIVE OR REACTIVE?

The key legislation and taxes applicable to companies operating in this industry are summarized below: 1. The Petroleum Act 2. Petroleum Profits Tax Act (PPTA) 3. Deep Offshore and Inland Basin Production Sharing Contracts Act (DOIBPSCA) 4. Companies Income Tax Act (CITA) 5. Tertiary Education Trust Fund Act (TETFA) 6. Value Added Tax Act (VAT Act) 7. Withholding Tax (WHT) 8. Capital Gains Tax (CGT) 9. Royalties

  • 10. Niger Delta Development Commission Levy
  • 11. Cabotage Act and Nigeria Maritime Administration Safety

Agency Act (NIMASA)

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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SLIDE 14

ESTABLISHMENTS & GOVERNMENT AGENCIES

Policy Issues: Plethora of Regulatory Agencies in Nigeria’s E&P Space

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NIGERIA PROACTIVE OR REACTIVE?

Regulatory Agencies The key regulatory agencies are; 1. Ministry of Petroleum Resources 2. Nigeria National Petroleum Corporation (NNPC)

  • The National Petroleum Investment Management

Services (NAPIMS) 3. Department of Petroleum Resources (DPR) 4. Nigerian Investment Promotion Commission (NIPC) 5. National Maritime Administration and Safety Agency (NIMASA) 6. Nigeria Customs Service Board (NCSB) 7. Nigerian Content Development & Monitoring Board (NCDMB) 8. Niger Delta Development Commission (NDDC)

Numerous Legal & Regulatory Framework In Nigeria

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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SLIDE 15

Policy Issues

INDUSTRY

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NIGERIA PROACTIVE OR REACTIVE?

  • Since mid-2014, the crude oil markets cycle has turned

downward, resulting in ever lower prices, leading to deep CAPEX spending reductions, and creating turmoil across the oil and gas industry. Recently, market prices had briefly slipped below $30/bbl. Some analysts are predicting even lower prices while others are arguing for a modest recovery—at least in the near term.

  • The current downturn has been brought on by a variety
  • f factors including, but not limited to, the US tight oil

revolution, the Organization

  • f

Petroleum Exporting Countries’ (OPEC) new strategy led by Saudi Arabia to protect market share rather than balance the market, the lifting of sanctions on Iran, growing inventory levels of crude

  • il

and refined products worldwide, and expectations of lower world oil demand growth due to a worldwide economic downturn. Today’s low crude prices are forcing powerful innovation in the way oil is being developed and produced.

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Policy Issues: Lack of Effective Host Community Empowerment

COMMUNITY RELATIONS

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NIGERIA PROACTIVE OR REACTIVE?

  • For the avoidance of doubt, the militants fighting

in the Niger Delta were not set up by the

  • communities. They are able-bodied youths who

according to the government, are unemployed but have been recruited by illegal oil bunkerers to participate in the struggle against the Nigerian state (Sunday Independent on-line, 12th March, 2006).

  • Weaving community relations strategies around

such traditional rulers or Engaging the Military could be counter-productive.

  • The alternative is to adopt a grassroots-focussed

and democratic-participant approach to community relations plans and programmes.

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Threats to the Gulf of Guinea’s Petroleum Export Market Creates Opportunities for the Midstream & Downstream Sector

Strategic Options

While the impacts of Alternative Energy Sources (Non Conventional Hydrocarbon Resources) development can be mitigated in the short to medium term, via the sourcing of new markets, there is need of awareness of the long term implications, which primarily has been drop in oil prices. Broader Value Chain Enhancement as

  • pposed to direct lifting of crude is

The Way to go. This begins from refining, gas utilization, and other spin-

  • ff sectors from oil & gas, such as

petrochemicals.

17 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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GAS LNG (EXPORT) POWER PETRO- CHEMICALS NGLs, LPGs & CONDENSATE NH3 / UREA FERTILIZER PHARMA- CEUTICALS MENTHANOL ETC.

ANIMAL PROTEIN

GLOBAL NUTRITIONAL MARKET US$370 BILLION

GAS UTILIZATION STRATEGIES & VALUE CHAIN

18 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Typical (Gas to Methanol): Value Chain

Strategic Options

Value Creation Drivers

1.

Demographic: Rapid population in the developing world with increased ageing in the developed world shift demand profile

2.

Economic: Standard of living rises rapidly, merging developing country standards with that

  • f the developed world and leading to rapid technology take-up

3.

Sustainability: Growing populations and economies create needs for innovative solutions.

Source: IHS Inc.

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Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Enhanced Income Earnings: Petrochemicals Add Greater Value Than Sell of Raw Crude & Gas

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Strategic Options

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Build Gas to Nitrogenous Fertilizer Plants to Guarantee Food Security and Enhance Foreign Income Earnings

Strategic Options

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Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Investment in Gas Based Ammonia-Urea Petrochemical Plants are Highly Profitable & Enhances Food Security

  • Gulf of Guinea’s Private Sector should invest in petrochemical plants in

partnership with foreign experts.

  • Government should create attractive fiscal policies to encourage FDI in this

sector.

Strategic Options

TYPICAL PROJECT ECONOMICS

UNITS TIC CAPACITY PRODUCTION SALES GROSS RETURN PHASES MMUS$ T/D $/T $/T MARGIN($/T) PERIOD(mo) 1 NGL(C3+) 246 2175 85 300 215 12.6 AMMONIA/UREA 449.2 2260 248 500 4 41.4 POWER 350 2 ETHYLENE/POLYETHY 656 550 496 1160 670 34.1 3 METHANOL 479 4050 92 230 138 17.2 FORMALDEHYDE 12.6 150 127 286 159 9.8 ACETIC ACID 148.5 1370 494 660 166 5.5 TOTAL 2341.3 10550 1,612,645 2,892,700 1,280,055 61

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Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Emerging Technology Revolution: Conversion of Natural Gas to Animal Protein

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Through Collaborative Research between Students & Industry DTU & UniBio (a Startup Company)

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Unique Fermentation Technology to produce Protein from Menthane

24 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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  • Focus on being competitive in the global market.
  • Improve Fiscal & Regulatory Frameworks to Encourage

Investment & Capital Inflow

  • Improve Security
  • Improve Industry Efficiency and Transparency
  • Put in place clear and coherent laws and policies with strong

independent regulators.

  • Phased Removal Of Fuel Subsidies

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Recommendations

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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SLIDE 26
  • Review Existing Petroleum laws and Pass the PIB (Nigeria)

in Modular Components:

  • PIB 1:Fiscal Regimes
  • PIB 2: Host Community Empowerment & Management
  • PIB 3: Regulatory Agencies & Management
  • PIB 4: NNPC Restructuring
  • PIB 5: Energy Research /Technology Institutes & PTDF
  • Incorporate NOC’s into IJVs.
  • Review & Revise The Y2000-MOU (Nigeria) to guarantee certain

profit margins in the era of low oil price regime(<$50/bbl), while reducing UTC & Increasing EMV

  • Commercialize Mid Stream and Downstream activities

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Recommendations

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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  • Technology Applications
  • Increase reserves from existing wells
  • Improve Production Efficiency and target to be lower-cost

producer

  • Enhance Well Productivity
  • Collaborative; Interdisciplinary and Multidiscipline Research and Development

to solve Oil and Gas Challenges

  • Agro based Solutions to Community Empowerment in Oil Producing Regions
  • Implement the Nigeria Gas Master Plan
  • Increase Investments in AG/NAG exploration and

production

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Recommendations

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Low Oil Price Environment: Cost Reduction & Production Enhancement Strategies

  • Need Vision & Technology to Improve

Returns, Reduce Risks & Increase Sustainability

  • Improve Cashflow by Faster Extended

Revenue Streams at Significantly Lower Costs

  • Minimize Reservoir Uncertainty;

Maximize Production Rates while Reducing Capex

  • Reduce Uncertainty : Capitalize on

Extended Reach Drilling Technology for Maximum Reservoir Contact (MRC); Thereby Maximizing Drainage & Reducing the Optimum Number of Wells with CAPEX Reduction

  • Enhance Productivity: Reduce Skin

Damage During Well Construction Through Innovative Techniques including Cementless Completions

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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  • Refinery
  • Nigeria can and should acquire foreign based refineries
  • With the intent of Foreign Income Earnings from Sales of Refined Products
  • Technology Transfer
  • In Low Price Environ
  • Reduce Cost of Services (OPEX & CAPEX)
  • Remove Bureaucratic and Operational Bottlenecks &

SNAFUS

  • Revise Fiscal Terms to attract Investments
  • Value Creation through Technology

29

Recommendations

Conclusion

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

Recommendations

Land Owner Royalty “LOR” Concept (Host Community Act)

  • To create the enabling environment for sustained

investment and inflow

  • f

capital for E&P Operations, Government should consider giving “Land-Owner Royalty” Percent of Gross Royalty to Host Communities.

  • This will ensure un-interrupted production and

safeguard investments as Royalty is based on production.

  • Royalty should vary by Terrain
  • LOR Concept has been tried and proven in Texas,

Oklahoma, Louisiana and elsewhere

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  • The African Diaspora has an important

role to play to this end, through greater involvement in business activities in the continent.

  • The large African diaspora now residing

in North America, Latin America, the Caribbean,and Europe should participate in the development of the Gulf of Guinea, whose potential, if properly exploited would spill over and benefit the whole African continent.

  • The actions of the diaspora should take

multiple forms, including political and economic lobbying to induce direct investment in the region, especially in mining, manufacturing, tourism, and urban development; the diaspora’s participation in joint-venture businesses; increased remittances FUNDING & TECHNOPRENEURALSHIP

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Recommendations

  • Diversify The Economy
  • Agriculture And Agro-related

Industries

  • Increase Refining Capacity
  • Focus on Value-Adding

Petrochemical And Pharmaceutical Industries

  • Invest in Human Capacity Development
  • Focus on Technology Development
  • Attract Diaspora – Based

Technology Experts (Software/Tools Development/Materials Management & Efficiency)

  • Invest in Research and Technology

Source: FAO (Terrastat, Aquastat), Standard Chartered

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Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Concluding Remarks

  • ONE BARREL OF CRUDE OIL @

$50/BBL WILL YIELD VALUE IN EXCESS OF $200/BBL WHEN PROCESSED

  • EFFECTIVE UTILIZATION OF OUR

GAS IN PETROCHEMICALS WILL LEAD TO INCREASED AGRICULTURAL YIELD & FOOD SECURITY

  • ABUNDANT REFINED PETROLEUM

PRODUCTS WILL EARN HUGE FOREIGN EXCHANGE FROM THE EXPORT OF THE PROCESSED CRUDE OIL & GAS

  • GROW OUR ECONOMY, & CREATE JOBS FOR

OUR TEAMING YOUTHS THROUGH PROPER UTILIZATION OF EFFECTIVE LINKAGES WITH

  • AGRICULTURE
  • EDUCATION
  • MANUFACTURING
  • PETROCHEMICALS
  • TECHNOLOGY
  • INFRASTRUCTURES
  • BANKING-FINANCE & INSURANCE
  • TRANSPORTATION
  • SOUND ENERGY POLICY PROVIDES THE

CLARITY AND CLIMATE FOR LONG-TERM INVESTMENT & INNOVATION

THE GULF OF GUINEA CAN DEVELOP & GROW A ROBUST ECONOMY BY PROCESSING ITS CRUDE OIL AND GAS AT HOME WITH ATTENDANT VALUE CREATION AS FOLLOWS:

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Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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AGRO-BASED COMMUNITY EMPOWERMENT INITIATIVES:POTENTIAL PANACEA TO HOST COMMUNITY CHALLENGES

Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

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Technology Is a Game Changer Lets Embrace It

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Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016