THE FACE OF NIGERIAN OIL & GAS INDUSTRY IN 2017 Presented by Dr - PowerPoint PPT Presentation

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 Chairman EERL & Former Special Adviser to the President on Petroleum Matters At SPE - NAICE 2016 EKO Hotel & Towers Lagos, August 4 th , 2016

PROTOCOLS • YOUR EXCELLENCIES, PROFESSIONAL COLLEAGUES, FELLOW PANELISTS, DISTINGUISHED LADIES & GENTLEMEN, MAY I PLEASE STAND ON EXISTING PROTOCOLS 2 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

OUTLINE INTRODUCTION GLOBAL OVERVIEW… NIGERIA PROACTIVE OR 2017 REACTIVE? Recommendations/Conclusion 3 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

INTRODUCTION The Petroleum Industry Drives The Nigerian Economy 14.4% GDP; 80% Govt Revenue; 90% Of Foreign Exchange Agriculture Power $$$ Refinery Petrochemical s Fuels Oil & Gas Education Pharmaceuticals Banking/ Finance Manufacturing Insurance Infrastructure 4 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

Global Economic Drivers of Oil Price Decline Short Term Drivers of Oil Price Decline 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 • Long Term Drivers of Oil & Gas Price Decline 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 • 5 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

GLOBAL OVERVIEW… • 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 6 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

WEALTH CREATION TRIANGLE Challenges RESOURCES • POOR GOVERNANCE • LACK OF TRANSPARENCY • HIGH LEVELS OF CORRUPTION WEALTH($$$) • LIMITED REFINING CAPACITY TECHNOLOGY CAPITAL • OIL ECONOMY MINIMAL LINKAGES NIGERIA HAS RESOURCES, TO OTHER SECTORS NO TECHNOLOGY & DEAD CAPITAL 7 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

Current Challenges INTRODUCTION Most of the existing wells within Nigeria’s • Typical Production Decline Oil Fields are currently on 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 W Prospective Foreign Partners/Investors X • Limited Availability of Cost-Effective Y Z Technologies • Stringent Conditions of IOC’s on use of existing facilities • Host Community Management • Operational & Security Challenges 8 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

OPEC NATIONS WITH REFINERIES IN FOREIGN COUNTRIES OPEC COUNTRY FOREIGN COUNTRY PARTICIPATION IN CAPACITY (%) ADVANTAGES (10 3 BBL/D) • FOREIGN AUSTRIA/GERMANY OMV 282 19.6 ABU DHABI EXCHANGE SPAIN CESPA 360 10 UNITED STATES STAR ENTERPRISE 625 50 (50% TEXACO) EARNER KOREA SSANGYONG 146 35 • TECHNOLOGY SAUDI ARABIA PHILLIPPINES PETRON 147 40 TRANSFER EUROPE MOTOR OIL HELLAS 100 60 MEDIUM DENMARK KPC (CLOSED) 56 100 • CRUDE OIL NETHERLANDS KPC 75 100 KUWAIT VALUE CHAIN ITALY KPC-ENI 300 50 (50% ENI) ITALY TAMOIL 95 45 MANAGEMENT GERMANY HOLBORN 78 30 LIBYA • FOREIGN SWITZERLAND COLLOMBEY 72 45 REFINED CRUDE UNITED STATES CITGO 725 100 IS NOT SUBJECT OTHERS 260 35 965% LYONDELL) VENEZUELA TO OPEC QUOTA GERMANY RUHR OEL 716 50 (50% VEBA) BELGIUM/SWEDEN/UK NYNAS 62 50 (50% NESTE) ??? ??? ??? ??? NIGERIA 9 SOURCE: PETROSTRATEGIES Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

Nigeria’s Petroleum Industry: Value Destruction • Exports of Crude Petroleum less than $US50/bbl • Imports of Refined Petroleum & Petroleum based goods above $US200/bbl • Nigeria Exports Wealth and Imports of Refined Petroleum & Petroleum Exports of Crude Petroleum based goods above $US200/bbl less than $US50/bbl Imports Poverty 10 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

Global Competition For Oil GLOBAL OVERVIEW… & 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 one hand and unattractiveness of some projects under the current oil price on Project Location/Type $/B the other. Middle East 20 China 28 Estimates of oil price required to make • Libya 42 new oil supplies viable range between Mexico 55 $28 & $114 per barrel Brazil 61 Nigeria ranks low on the table as a • US Deepwater 65 result of Investment insecurity due to Angola 71 • operations risks Nigeria 78 Canadian Oil Sands 87 • poor infrastructural development Venezuela Heavy Oil 114 • Niger Delta Militancy etc 11 Source: CERA. Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016 Note: assuming 15% internal rate of return.

NIGERIA PROACTIVE Policy Issues OR REACTIVE? ESTABLISHMENTS & COMMUNITY LEGAL GOVERNMENT AGENCIES RELATIONS FRAMEWORK ENERGY TECHNOLOGIES FINANCING INDUSTRY 12 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

NIGERIA PROACTIVE Policy Issues: Taxation Superfluity 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) LEGAL 4. Companies Income Tax Act (CITA) FRAMEWORK 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) 13 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

NIGERIA PROACTIVE Policy Issues: Plethora of Regulatory OR REACTIVE? Agencies in Nigeria’s E&P Space Regulatory Agencies The key regulatory agencies are; 1. Ministry of Petroleum Resources 2. Nigeria National Petroleum Corporation (NNPC) • The National Petroleum Investment Management ESTABLISHMENTS & Services (NAPIMS) GOVERNMENT AGENCIES 3. Department of Petroleum Resources (DPR) 4. Nigerian Investment Promotion Commission (NIPC) Numerous 5. National Maritime Administration and Safety Agency Legal & (NIMASA) Regulatory 6. Nigeria Customs Service Board (NCSB) Framework 7. Nigerian Content Development & Monitoring Board In Nigeria (NCDMB) 8. Niger Delta Development Commission (NDDC) 14 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016

NIGERIA PROACTIVE Policy Issues 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 INDUSTRY a modest recovery—at least in the near term. • The current downturn has been brought on by a variety Today’s low of factors including, but not limited to, the US tight oil crude prices revolution, the Organization of Petroleum Exporting are forcing Countries’ (OPEC) new strategy led by Saudi Arabia to powerful protect market share rather than balance the market, the innovation in lifting of sanctions on Iran, growing inventory levels of the way oil is crude oil and refined products worldwide, and being expectations of lower world oil demand growth due to a developed and worldwide economic downturn. produced. 15 Dr Amaefule's Presentation on Behalf of Dr Egbogah at NAICE 2016