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1 Oando Q1, 2012 Interim Update. 2 ne Contents 3 Downstream Industry Industry Overview  January 1, 2012: Subsidy on PMS was removed by the Federal Government.

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Presentation on theme: "1 Oando Q1, 2012 Interim Update. 2 ne Contents 3 Downstream Industry Industry Overview  January 1, 2012: Subsidy on PMS was removed by the Federal Government."— Presentation transcript:

1 1 Oando Q1, 2012 Interim Update

2 2 ne Contents

3 3 Downstream Industry Industry Overview  January 1, 2012: Subsidy on PMS was removed by the Federal Government resulting in the pump price increasing from N65/liter to N141/liter.  Subsidy: 54% of the landed price of PMS.  Negotiations with NLC and TUC carried on for a two week period, with the Nation being brought to a stand-still during that time frame.  January 16, 2012: Subsidy is partially re-instated with the pump price reverting to N97/liter.  Subsidy: 31% of the landed price of PMS.  3 Month window for current subsidy platform  The Federal Government plans to completely remove subsidies in April. Industry Update Sources: (a) NNPC – conservative consumption in line with Cote d’Ivoire and potential consumption in line with Senegal, Gabon; (b) World Bank (2008)  Nigeria is the largest consumer of refined petroleum products in Africa  Securitized subsidy payments under a regulated market structure  Working capital efficiencies due to correction of delayed subsidy payments  In a potential deregulated market, NNPC market share can be taken over by strong private players  NNPC’s market share of PMS supply is currently 55%  Opportunity for substantial supply volume increases in all white products  Refining capacity in the West African region is limited, creating ample opportunity for increasing supply into countries in this region  This will follow through on our existing footprints in Benin, Togo, Ghana, Cote D’Ivoire, Burkina Faso and Mali

4 4 Midstream Industry Industry Overview  Power Sector Road Map: The power sector roadmap was unveiled in August 2010.  6 power generation and 11 distribution companies of the PHCN are to be privatized through the sale of 51% equity.  The Multi Year Tariff Order (MYTO) has been reviewed and the new electricity tariff structure to be announced shortly.  NIPP: Numerous stations with immediate 5,000 MW add on to current National capacity. No gas supply.  $1MM/MW (Turbine Capacity)  The Nigerian Electricity Regulatory Commission (NERC) recently unveiled new rules allowing State/Local governments to generate and distribute electricity in that areas.  Gas Infrastructure: Gas infrastructure contracts have been awarded by the FGN to the private sector.  The Nigerian Gas Master plan aims to grow the Nigerian economy with gas by pursuing three strategic objectives:  Stimulate the multiplier effect of gas in the domestic economy  Position Nigeria competitively in high value export markets  Guarantee the long term energy security of Nigeria Industry Update  Nigeria intends to ramp up domestic power production  Since 2007, PHCN embarked on a robust new build programme under the National Integrated Power Plan (NIPP), aimed at adding at least 10,000 MW to the national grid. Current power generation is 3,600MW.  An estimated $15 Bn in private sector investment would be needed to meet all Gas & Power development goals  Gas will remain the dominant source of electricity, however efforts are underway to explore the country’s other energy sources  Target is to produce at least 3,000 MW from renewable sources including solar, wind and biogas by 2020  Potential for coal-fired power stations is being explored in the Kogi, Enugu and Benue areas  Nigeria’s current electricity consumption is estimated at 137KWh/capita in comparison to:  Egypt: 1,319KWh/capita  SA: 4,385KWH/capita Source: IEA Key World Energy Statistics 2009; Business Monitor International – Nigeria Oil and Gas Report Q1 2010

5 5 Upstream Industry Industry Reform  Oil Reserves: 36bnboe (10 th largest in the world); 2 nd in Africa)  Gas Reserves: 187 Tcf (8 th largest in the world; 1 st in Africa)  Current daily production of 2.18mmbpd (Largest producer in Africa).  The IOCs operate 87% of Nigeria’s production  60% of Nigeria’s production is via JV’s between IOCs and the National Oil Company.  The IOCs have a clear financial & technological advantage over the local Independents and control infrastructure.  Changed by the emergence of NOC’s, improved service companies, legislation and indigenization. Industry Overview  Petroleum Industry Bill (PIB). The Nigerian Government has tabled the PIB with the following objectives:  Reform the Oil & Gas sector and regulatory bodies  Turn NNPC into an autonomous, self-funding commercial oil company  Incorporate the main JV operations into limited liability companies to  Solve funding issues  Facilitate partnerships between Nigerian companies and foreign players  Consolidate the various tax laws into one Act  Local Nigerian Content  Encourages IOCs to partner with local players in exchange for benefits and concessions  Provides local companies with tax incentives  As the leading Nigerian integrated player, Oando has potential to benefit as IOCs seek out local partners under the new regime  Oando’s experience and existing presence in the Niger Delta means it may be viewed as a partner of choice  Opening of Nigeria to further international credit markets will impact Oando and peers  There are positive signs that the PIB will be passed this year. Source: BP Statistical Review, Company Estimates, Wood Mackenzie

6 6 Details of Press Release  Following the preliminary review of the Group’s Full Year accounts for the year ended 31 st December, 2011, the Company expects to announce a reduction in is budgeted profit forecast for the year.  This notice is driven principally by one off write-offs against earnings, including impairments of assets, project expenses from capital raising exercises, acquisitions, and termination of technical and managerial charges as highlighted below:  Impairment of OES Professionalism Rig(N854 Million)  Termination charges of TSA/MSA (N5.25 Billion)  Project Expenses (N3.52 Billion)  Management does not anticipate further similar exceptional items in FYE 2012 and following these actions, affirms that the Group's balance sheet and capital are in a robust position, providing a solid foundation for the Group's future growth path.  Turnover and Operating Profit for the year are in line with expectations, but Profit after Tax will be affected due to the provisions stated above.  The Group remains focused and dedicated on delivering on its promise to shareholders on value creation and looks forward to an improved earnings position for the FY 2012 with the addition of the earnings from newly commissioned assets.  Furthermore, the Group anticipates a robust performance for the FY 2012, with an indicative profit before tax of N3.6billion for Q2, 2012, which will be achieved, barring any unforeseen circumstances.

7 7 Operational Update for Q1 2012 Exploration & ProductionEnergyServices Gas & Power Supply & TradingMarketing Q1 Update  Third rig, Passion, has been deployed and is ready for operations  Fourth rig, Respect, has arrived in the United States to commence refurbishment  Teamwork and Integrity have continued to generate revenue.  Production volumes have remained at c5,000bopd  Preparations remain on track to commence production on OML 90 by Q3 2012  We maintain our target of increasing production in OML 56 by Q2 2012.  EHGC has commenced supply of gas to anchor customer, UNICEM  Gaslink pipeline and Akute Power continue to generate revenue for the Group.  3 new stations to come on board shortly  Refurbishment of 4 existing stations currently ongoing  New commercial customers signed up  Commenced LPG roll out strategy.  OST has maintained its position as the largest indigenous supply and trading player in the sub- Saharan region  11% market share in private PMS importation in 2011 is expected to be maintained. Upstream Division Midstream Division Downstream Division Third rig, OES Passion, has now been deployed and is ready for operations (Budgeted Revenue – N5.4 Billion). EHGC has commenced the supply of gas to its anchor customer, UNICEM, with other opportunities also being explored (Budgeted Revenue - N5.0 Billion). Guaranteed Revenue Drivers for FYE 2012

8 8 Q2 P&L Forecast Highlights

9 9 Profit & Loss Forecast Breakdown Increase in revenue is expected from the following: Commencement of operations of EHGC (Budgeted Revenue – N1.3 Billion) Revenue anticipated from third rig, OES passion (Budgeted Revenue N2.0 Billion) High Oil prices anticipated (Q2 average of $110/barrel) Increased Import volumes expected OES Passion to be depreciated: Budgeted Amount: N181.6 Million DepreciationDepreciation Interest charges on OES Passion are no longer capitalized, now expensed: Budgeted Amount: N703.4 Million InterestChargesInterestCharges Higher operating expenses due to: Deployment of 3 rd Rig (OES Passion): N984.5 Million. EHGC: N71.0 Million Operating Expenses RevenueRevenue

10 10 Q2 2012 Major Assumptions

11 11 Strategic Overview Transformation from a downstream giant to a full value chain indigenous champion across West Africa CurrentCurrent Fully contract Rig fleet to International Oil Companies Fully refurbish and deploy 4 th rig into operation. Commence construction of : GL4 CNG CHGC Sell 90% of current franchise capacity Intensify white product supply by leveraging new infrastructure Intensify new product offerings Increase distribution efficiency and expansion into high margin volumes, Lubes & LPG distribution Exploration & ProductionEnergyServices Gas & Power Supply & TradingMarketingTerminals Development of the Marina Jetty and subsea pipelines in the Lagos Port Mid Term Leverage local content policy opportunities Expand product offering (MWD, etc) Harness preferential resource access to dormant acreage due to indigenous status Production 20-50kbopd Reserves 2P: 100 – 150 mmbbls Commence construction of: EIIJ pipeline franchise OBOB Substantially increase crude oil market share Increase white products market dominance by leveraging new import infrastructure. Secure 40% market share in sales, storage and distribution of LPG Secure leadership position in all product offerings Development of a 210,000MT terminal facility in Lekki Free Trade Zone Long Term Consolidation of position as market leader and expansion into other countries Production 50- 100kbopd Reserves 2P: 300mmbbls Through a mixture of organic growth and acquisitions Commence construction of 1 st CPF and 2 more gas pipeline franchise areas in Nigeria Increase geographical presence Maintain leadership in all product lines Expand white product storage facilities in Nigeria Upstream Division Midstream Division Downstream Division Enhance Production from: Assets (5kbopd to 10kbopd) Accelerate near term and acquisition opportunities (50mmbbls 2P))

12 12 Q & A

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