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Nigeria: Nigeria: Negotiating With Negotiating With

The African Energy The African Energy GiantGiant

Nigeria: Nigeria: Negotiating With Negotiating With

The African Energy The African Energy GiantGiant

By Jonathan BearmanBy Jonathan Bearman

Managing DirectorManaging Director

Clearwater ResearchClearwater Research

By Jonathan BearmanBy Jonathan Bearman

Managing DirectorManaging Director

Clearwater ResearchClearwater Research

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IntroductionIntroductionIntroductionIntroduction

Our BackgroundOur Background Offices in London, Abuja, Lausanne and LagosOffices in London, Abuja, Lausanne and Lagos Advisor on bid evaluation to the Nigeria-Sao Advisor on bid evaluation to the Nigeria-Sao

Tome Joint Development Authority.Tome Joint Development Authority. Advisor to Nigerian government on illicit Advisor to Nigerian government on illicit

bunkering in the Niger Delta.bunkering in the Niger Delta. Consultant to NNPC on Risk in the Niger Delta Consultant to NNPC on Risk in the Niger Delta

Our BackgroundOur Background Offices in London, Abuja, Lausanne and LagosOffices in London, Abuja, Lausanne and Lagos Advisor on bid evaluation to the Nigeria-Sao Advisor on bid evaluation to the Nigeria-Sao

Tome Joint Development Authority.Tome Joint Development Authority. Advisor to Nigerian government on illicit Advisor to Nigerian government on illicit

bunkering in the Niger Delta.bunkering in the Niger Delta. Consultant to NNPC on Risk in the Niger Delta Consultant to NNPC on Risk in the Niger Delta

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Why Is Nigeria important for Why Is Nigeria important for the energy industrythe energy industry ? ?

Why Is Nigeria important for Why Is Nigeria important for the energy industrythe energy industry ? ?

Biggest exporter of oil and gas in Africa Biggest exporter of oil and gas in Africa will probably remain so for the next three decades or will probably remain so for the next three decades or

moremore

Performs a pivotal role in the Atlantic market Performs a pivotal role in the Atlantic market influence in the market will grow as North Sea flows influence in the market will grow as North Sea flows

decline The impact of Nigerian price volatility will decline The impact of Nigerian price volatility will

therefore growtherefore grow

Open accessOpen access Prolific rate of discovery Prolific rate of discovery

Has yet to reach a peak of maturity as a hydrocarbons Has yet to reach a peak of maturity as a hydrocarbons

province province

Biggest exporter of oil and gas in Africa Biggest exporter of oil and gas in Africa will probably remain so for the next three decades or will probably remain so for the next three decades or

moremore

Performs a pivotal role in the Atlantic market Performs a pivotal role in the Atlantic market influence in the market will grow as North Sea flows influence in the market will grow as North Sea flows

decline The impact of Nigerian price volatility will decline The impact of Nigerian price volatility will

therefore growtherefore grow

Open accessOpen access Prolific rate of discovery Prolific rate of discovery

Has yet to reach a peak of maturity as a hydrocarbons Has yet to reach a peak of maturity as a hydrocarbons

province province

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Hydrocarbon PotentialHydrocarbon PotentialHydrocarbon PotentialHydrocarbon Potential Recoverable reserves estimated at 33.7 billion barrels (Mar Recoverable reserves estimated at 33.7 billion barrels (Mar

2003) 2003)

Real potential for further reserve growth up to and possibly Real potential for further reserve growth up to and possibly

beyond the government’s 2010 target of 40 billion barrels beyond the government’s 2010 target of 40 billion barrels

Current crude production is approximately 2.25 mln b/d and Current crude production is approximately 2.25 mln b/d and

Opec quota is 2.018 mln b/d Opec quota is 2.018 mln b/d

Proven and probable gas reserves approximately 178 trillion Proven and probable gas reserves approximately 178 trillion

cubic feetcubic feet

LNG plans would total 28 million tonnes of product a yearLNG plans would total 28 million tonnes of product a year

Nigeria has the potential to dominate the Atlantic market in oil Nigeria has the potential to dominate the Atlantic market in oil

and gas supplyand gas supply

The decline in North Sea grades means that Forcados may The decline in North Sea grades means that Forcados may

become the most important benchmark in the eastern Atlanticbecome the most important benchmark in the eastern Atlantic

Recoverable reserves estimated at 33.7 billion barrels (Mar Recoverable reserves estimated at 33.7 billion barrels (Mar

2003) 2003)

Real potential for further reserve growth up to and possibly Real potential for further reserve growth up to and possibly

beyond the government’s 2010 target of 40 billion barrels beyond the government’s 2010 target of 40 billion barrels

Current crude production is approximately 2.25 mln b/d and Current crude production is approximately 2.25 mln b/d and

Opec quota is 2.018 mln b/d Opec quota is 2.018 mln b/d

Proven and probable gas reserves approximately 178 trillion Proven and probable gas reserves approximately 178 trillion

cubic feetcubic feet

LNG plans would total 28 million tonnes of product a yearLNG plans would total 28 million tonnes of product a year

Nigeria has the potential to dominate the Atlantic market in oil Nigeria has the potential to dominate the Atlantic market in oil

and gas supplyand gas supply

The decline in North Sea grades means that Forcados may The decline in North Sea grades means that Forcados may

become the most important benchmark in the eastern Atlanticbecome the most important benchmark in the eastern Atlantic

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1.Onshore Expansion1.Onshore Expansion1.Onshore Expansion1.Onshore Expansion

Shell Petroleum Development Co Shell Petroleum Development Co

Western Delta – possible big expansion Western Delta – possible big expansion of Forcados from just over 500,000 b/d of Forcados from just over 500,000 b/d to 900,000 b/dto 900,000 b/d

Eastern DeltaEastern Delta - Shell to raise Bonny - Shell to raise Bonny Light production to 790,000 b/d from Light production to 790,000 b/d from 550,000 b/d550,000 b/d

Shell Petroleum Development Co Shell Petroleum Development Co

Western Delta – possible big expansion Western Delta – possible big expansion of Forcados from just over 500,000 b/d of Forcados from just over 500,000 b/d to 900,000 b/dto 900,000 b/d

Eastern DeltaEastern Delta - Shell to raise Bonny - Shell to raise Bonny Light production to 790,000 b/d from Light production to 790,000 b/d from 550,000 b/d550,000 b/d

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SPDC ReservesSPDC Reserves SPDC ReservesSPDC Reserves

Mln barrels Oil Condensate P1 P1+P2 P1 P1 & P2 UR as at 1Jan 2002 21, 275.5 25,592.90 1,711.20 2,374.50 Cumulative production 11,427.70 11,427.70 66.8 66.8 Reserves 9,847.80 14,165.20 1,644.40 2,307.70 UR as at 1 Jan 2003 22,336.40 26,713.50 1,783.20 2,454.60 Cumulative production 11,682.20 11,682.20 73.7 73.7 Reserves 10,654.20 15,031.30 1,709.50 2,380.90

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Nigerian Agip Oil CoNigerian Agip Oil CoNigerian Agip Oil CoNigerian Agip Oil Co

NAOC operates inland in Rivers State and NAOC operates inland in Rivers State and in the swamp area of Bayelsa State.in the swamp area of Bayelsa State.

NAOC operates inland in Rivers State and NAOC operates inland in Rivers State and in the swamp area of Bayelsa State.in the swamp area of Bayelsa State.

NAOC oil and gas reserves (actual and forecast) 2001 2002 2003 2004 2005 2006 Oil (mln stb) P1 622 684 690 780 795 818 P2 222 147 210 130 134 98 Condensates (mln stb) P1 181 229 230 260 264 272 P2 59 37 53 32 34 34 Gas (billion SCF) AG P1 5,508 4,254 6,746 5,082 7,046 4,923 P2 1,052 1,738 882 213 926 223 NAG P1 7,113 4,920 7,122 4,918 6,961 4,865 P2 948 251 945 238 850 235

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Indigenous ProducersIndigenous ProducersIndigenous ProducersIndigenous Producers Recent years have seen the growth in production Recent years have seen the growth in production

by a series of indigenous producersby a series of indigenous producers Most have occupied marginal and declining Most have occupied marginal and declining

acreage but two operations are significant – acreage but two operations are significant – Moni Pulo and Conoil Moni Pulo and Conoil and its affiliate and its affiliate ContinentalContinental

Together, Conoil and Continental have plans that Together, Conoil and Continental have plans that will raise output to over 100,000 b/d by 2007, will raise output to over 100,000 b/d by 2007, some from undeveloped acreage in OPL 458some from undeveloped acreage in OPL 458

Added to these should be the joint venture Added to these should be the joint venture between Pan Ocean and NNPC in OML 98. Pan between Pan Ocean and NNPC in OML 98. Pan Ocean has plans to be a sizeable gas producerOcean has plans to be a sizeable gas producer

Recent years have seen the growth in production Recent years have seen the growth in production by a series of indigenous producersby a series of indigenous producers

Most have occupied marginal and declining Most have occupied marginal and declining acreage but two operations are significant – acreage but two operations are significant – Moni Pulo and Conoil Moni Pulo and Conoil and its affiliate and its affiliate ContinentalContinental

Together, Conoil and Continental have plans that Together, Conoil and Continental have plans that will raise output to over 100,000 b/d by 2007, will raise output to over 100,000 b/d by 2007, some from undeveloped acreage in OPL 458some from undeveloped acreage in OPL 458

Added to these should be the joint venture Added to these should be the joint venture between Pan Ocean and NNPC in OML 98. Pan between Pan Ocean and NNPC in OML 98. Pan Ocean has plans to be a sizeable gas producerOcean has plans to be a sizeable gas producer

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Continental Production Continental Production Activities Activities

Continental Production Continental Production Activities Activities

2002 Actual Production 32,008 (b/d) Producibility 60,000 Forecast 2003 target 45,000

Gas Flaring By Continental (M,scf/d)

Year Average Daily Utilization Average Flared %

flared 2000 31.509 0.221 31.288 99.3 2001 20.186 0.221 19.965 98.9 2002 16.7 0.254 16.44 98.5

2003 Budget (in 000 naira or USD E &P Other Activities Total

Naira USD Naira USD Naira USD 745,141 57,813 42,035 3,261 787,176 61,074

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2. Shallow Water2. Shallow Water2. Shallow Water2. Shallow Water

SPDC moves to shallow offshore SPDC moves to shallow offshore developmentdevelopment e.g. EA field, now producinge.g. EA field, now producing HD field and other prospectsHD field and other prospects

Exxon Mobil aims for liquids output of 1.1 bn Exxon Mobil aims for liquids output of 1.1 bn bblsbbls Gas injection to boost productionGas injection to boost production Yoho DevelopmentYoho Development

Chevron Texaco Chevron Texaco Aiming to achieve producibility of 500,000 b/d, Aiming to achieve producibility of 500,000 b/d,

mainly through shallow water developments such mainly through shallow water developments such as Tubuas Tubu

SPDC moves to shallow offshore SPDC moves to shallow offshore developmentdevelopment e.g. EA field, now producinge.g. EA field, now producing HD field and other prospectsHD field and other prospects

Exxon Mobil aims for liquids output of 1.1 bn Exxon Mobil aims for liquids output of 1.1 bn bblsbbls Gas injection to boost productionGas injection to boost production Yoho DevelopmentYoho Development

Chevron Texaco Chevron Texaco Aiming to achieve producibility of 500,000 b/d, Aiming to achieve producibility of 500,000 b/d,

mainly through shallow water developments such mainly through shallow water developments such as Tubuas Tubu

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Mobil Producing NigeriaMobil Producing NigeriaMobil Producing NigeriaMobil Producing Nigeria

2001 2002 2003 2004 2005 2006 Base production 558 501 441 388 341 305 Infill 78 168 216 279 299 306 Development 0 28 183 368 481 496 Total 636 697 840 1,036 1,121 1,106

producibility (000 b/d)producibility (000 b/d)

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3.3. DeepwaterDeepwater 3.3. DeepwaterDeepwater Field Estimated Reserves

1. Bonga North-West 300 mln bbls 2. Bonga 700 mln bbls 3. Bonga South-West/Apparo 1 bn bbls 4. Agbami/Ekoli 792 mln bbls 5. Erha 600 mln bbls 6. Akpo 600 mln bbls 7. Abo 125 mln bbls 8. Bosi 300 mln bbls 9. Ukot/Usan 270 mln bbls 10. Bolia 200 mln bbls 11. Chota 200 mln bbls 12. Nnwa/Doro 200 mln bbls Total: 5.2 Bn bbls

Likelihood that other discoveries will be successfully explored and developed. E.g Ikija, Oberan, Okodo.

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StatoilStatoil StatoilStatoil

Estimated Recoverable Oil Reserves in OPL 218

Prospect Volume (mmb)

Bilah 194 Sekhi 101 Nnwa 50 Sekhi Thrust 174 Ejo 71 Ake 113 Ayun 261 Ododo 198 Odo 53

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StatoilStatoil StatoilStatoil

Estimated Recoverable Oil Reserves in OPL 217

Prospect Volume (mmb)

Igi 276 Iri 367 Imado 105 Efon 186 Keke 58 Afin 79 Omo 157 Adan 56 Afin East 19 Bata Esin 172

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Nigeria-Sao Tome Joint Nigeria-Sao Tome Joint Development ZoneDevelopment Zone

Nigeria-Sao Tome Joint Nigeria-Sao Tome Joint Development ZoneDevelopment Zone

First licensing round underwayFirst licensing round underway 60% Nigeria – 40% Sao Tome60% Nigeria – 40% Sao Tome Possible 4 billion bbls in place in Possible 4 billion bbls in place in

northern JDZ area.northern JDZ area.

First licensing round underwayFirst licensing round underway 60% Nigeria – 40% Sao Tome60% Nigeria – 40% Sao Tome Possible 4 billion bbls in place in Possible 4 billion bbls in place in

northern JDZ area.northern JDZ area.

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The Risks & ChallengesThe Risks & ChallengesThe Risks & ChallengesThe Risks & Challenges

Negotiating RisksNegotiating Risks The importance of the correct introduction and The importance of the correct introduction and

personal relationship in developing a negotiating personal relationship in developing a negotiating positionposition

Understanding the politics of your approach. Does it fit Understanding the politics of your approach. Does it fit with the objectives of policy-makers and decision–with the objectives of policy-makers and decision–makers ?makers ?

Will you be compromised by non-performing Will you be compromised by non-performing relationships ?relationships ?

The importance of following process and compliance The importance of following process and compliance locally (and internationally)locally (and internationally)

Requirements for local contentRequirements for local content

Negotiating RisksNegotiating Risks The importance of the correct introduction and The importance of the correct introduction and

personal relationship in developing a negotiating personal relationship in developing a negotiating positionposition

Understanding the politics of your approach. Does it fit Understanding the politics of your approach. Does it fit with the objectives of policy-makers and decision–with the objectives of policy-makers and decision–makers ?makers ?

Will you be compromised by non-performing Will you be compromised by non-performing relationships ?relationships ?

The importance of following process and compliance The importance of following process and compliance locally (and internationally)locally (and internationally)

Requirements for local contentRequirements for local content

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The Risks & ChallengesThe Risks & ChallengesThe Risks & ChallengesThe Risks & Challenges

Nigerian RisksNigerian Risks 1. Ethnic Troubles in the Niger Delta:1. Ethnic Troubles in the Niger Delta:

Ijaw-Itsehiri clash in western DeltaIjaw-Itsehiri clash in western Delta Restive communities such as Nembe, Eggi, Restive communities such as Nembe, Eggi,

Omoko Omoko 2. Extortion from Oil companies2. Extortion from Oil companies

BlockadesBlockades StrikesStrikes

3. Illicit bunkering operations3. Illicit bunkering operations Metre tamperingMetre tampering Pipeline theftPipeline theft

Nigerian RisksNigerian Risks 1. Ethnic Troubles in the Niger Delta:1. Ethnic Troubles in the Niger Delta:

Ijaw-Itsehiri clash in western DeltaIjaw-Itsehiri clash in western Delta Restive communities such as Nembe, Eggi, Restive communities such as Nembe, Eggi,

Omoko Omoko 2. Extortion from Oil companies2. Extortion from Oil companies

BlockadesBlockades StrikesStrikes

3. Illicit bunkering operations3. Illicit bunkering operations Metre tamperingMetre tampering Pipeline theftPipeline theft

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