1. UNDERSTANDING THE PETROLEUM INDUSTRY BILL (PIB) 1

2. OUTLINE o Preamble o Objectives of PIB o PIB Broad Recommendations o Petroleum Sector Unbundled o New Sector wide Structure o Key Business Deliverables o Opportunities Upstream o Opportunities Downstream o Regulatory Framework o New and existing Parastatals o Fiscal Incentives o Conclusion o The End 2

3. PREAMBLE The Nigerian Draft Petroleum Industry Bill 2012 has only been submitted to the National Assembly and when passed into law, shall be the overriding guide for Oil and Gas business in Nigeria The draft bill was drawn up to replace an aggregation of about 16 existing Petroleum industry laws which had governed the sector for the over 50 years of oil and gas operations in the country. Applying time tested principles and globally acceptable practices, the bill sets out to deregulate and liberalise business activities in the sector It provides for a dynamic but prudent fiscal policy framework across the value chain which incentivizes sustained investments and productivity whilst delivering best returns to Nigeria. It Creates a business environment that is transparent, globally competitive and attractive to investors and host communities alike 3

4. OBJECTIVES OF THE PIB To Enhance Exploration and Exploitation of Petroleum Resources To Significantly increase domestic gas supplies especially for power and Industry Create Competitive Business environment To Establish fiscal framework that is flexible, stable and competitively attractive To create Commercially viable National Oil Company To deregulate downstream petroleum business To Create efficient regulatory institutions To Engender Transparency and accountability To Promote Nigerian Content To Promote and protect Health Safety and Environment 4

5. The PIB recommends in the main; Unbundling of NNPC as presently constituted Creation of a National Oil Company that promotes indigenous operational capacity development Creation of an Asset Management Company Strengthening of Regulatory and Inspectorate institutions that promote transparency, safety, consumer rights and safe environments Establishment of a gas market and gas infrastructure development company Establishment of a department in the ministry charged with frontier exploration services A Petroleum Host Community Fund Adoption of flexible fiscal measures that attract investment and allows for production biased taxation A fiscal policy framework derived from a strategic National interest and incentives for attracting sustainable investment PIB BROAD RECOMMENDATIONS 5

6. PETROLEUM SECTOR UNBUNDLED S/N INSTITUTIONOWNERSHIPASSETGOVERNANCEFUNCTIONS 1Upstream Petroleum InspectorateFGN Upstream Components of DPR Directorate Upstream Industry Regulation 2 Downstream Petroleum Regulatory Agency FGN Downstream Components of DPR + PPPRA + PI Directorate Downstream Industry Regulation 3Nat Asset Mgt Corporation (NAMCORP)FGNJV AssetsCorporation BoardJV Asset Management 4Nat Asset Mgt Company (NAMCON) Nat Asset Mgt Corporation Assigned JV AssetsCAMA LTD JV Asset Management Subsidiary 5National Oil CompanyFG + Private NPDC, PPMC, Refineries, NLNG, PSCs + New Acreages CAMA PLCOperating company 6National Gas CompanyFG + Private NGC assets and pipelines CAMA PLC Mid and downstream operations 7 National Frontier Exploration Department. FGN Access to Unexplored basins Petroleum Ministry Front End Frontier Exploration 8 ParastatalsFGNStatutoryFGN Board Statutory Sector programmes 6

7. FUNCTIONAL STRUCTURE Ministry of Petroleum Resources NATIONAL GAS COMPANY NGC Assets NATIONAL OIL COMPANY NPDC Assets REFINERIES PSCs, PPMC, NLNG, ETC NATIONANAL ASSET MGT CORPORATION NAMCON PLC 6 JVs PARASTATALS PTDF, PEF, PTI, NCDMB, PHCF Downstream Petroleum Regulatory Agency Upstream Petroleum Inspectorate NATIONAL FRONTIER SERVICES 7

8. Accelerated expansion of the indigenous operational capability in the upstream segment through the proposed Nigerian Oil Company and in the process increase the upstream business participation by Nigerians and their partners. Building and positioning a robust, efficient and respectable regulatory framework to provide a level playing field for all players and protect the interest of all stakeholders in the industry. A framework for the implementation of a fully private sector driven domestic gas market with clear roles for the NOC, the IOCs and other indigenous investors. A Frontier Exploration Services programme to deepen/diversify the country’s proven gas and crude reserves. A framework for the full liberalisation of the downstream sector through the issuance of licenses for modular refineries aimed at meeting the domestic and regional demand as to drastically reduce the country’s huge annual foreign exchange exposure. The promotion of other downstream industries like petrochemical plants fertiliser plants, gas processing etc. A sustainable petroleum sector liberalisation policy aimed at incentivizing new investments across the value chain whilst consciously growing a spin-off of local enterprises through the local content policy. KEY BUSINESS DELIVERABLES 8

9. Upon the Unbundling of NNPC as presently constituted the upstream sub sector is thrown open for competitive businesses and services Allows for the creation of a National Oil Company that engages partners and investment interests to promote indigenous operational capacity development Creation of an Asset Management Company which manages existing Joint ventures whilst growing its assets by engaging in new relationships The deregulation allows for full private sector participation especially through the Capital market with an attendant impact on the finance industry A Petroleum Host Community Fund that allows for a win-win business environment with host communities as reliable partners Flexible fiscal measures aimed at retaining existing relationships and is also attractive to fresh investments A regulatory Agency solely to serve the upstream industry with a view to quickening business operation times and in the same vein developing efficiency OPPORTUNITIES UPSTREAM 9

10. The Bill sets out to establish a framework for the full liberalisation of the downstream sector through the issuance of licenses for downstream businesses hitherto operated by the NNPC Encouragement of small-sized modular refineries aimed at meeting the domestic regional demand so as to drastically reduce the huge import bill. Creation of a National Oil Company that promotes indigenous opportunities in both service and technical support systems Establishment of a gas market and gas infrastructure development company called National gas company which allows for private sector led development and fair competition in the sector A liberalised gas sector that allows for technical partnerships and investments in infrastructure developments that support the market through cost reflective tariffs. Adoption of flexible fiscal measures that attracts investment and provides for tax holidays and minimum threshold price biased taxation Gas market development that drives accelerated investments in the power sector and indeed the whole energy supply chain OPPORTUNITIES DOWNSTREAM 10

11. REGULATORY FRAMEWORK Two distinct regulatory Institutions are proposed according to the sector profile UPSTREAM PETROLEUM INSPECTORATE – Incorporating DPR Upstream functions – To regulate and monitor upstream industry operations DOWNSTREAM PETROLEUM REGULATORY AGENCY – Incorporating DPR downstream and PPPRA functions – To regulate down stream markets and operations 11

12. NEW & EXISTING PARASTATALS NEW The Petroleum Host Community Fund shall be created – Shall coordinate conditional participation of host communities in the petroleum industry National Frontier Exploration Services department shall be established. – It shall be vested with the responsibility to promote front end seismic data acquisition of hydrocarbons in the frontier basins in hinterland Nigeria EXISITING Existing parastatals of the ministry shall be maintained to pursue their public sector functions provided the basis for their relevance in the sector subsists. These include – PTDF – PEF – PTI and – NCDMB 12

13. FISCAL INCENTIVES Fiscal regime (Royalty and Tax) predicated on production as opposed to terrain and investment respectively. o Royalty by Production ‒ Captures the output of a company as opposed to its location. ‒ Creates a fair balance between small and big producers operating in the same terrain. ‒ Enables operators to continue to make fair returns during field decline. ‒ Lower rates proposed for condensate from NAG fields. ‒ Lower rates also proposed for frontier and ultra deepwater basins o Royalty by Price ‒ Trigger mechanism is fair to all irrespective of the terrain ‒ Self adjusting rate based on the price of crude oil (> $50/bbl) and natural gas price (> $2.0/Mmbtu).. 13

14. FISCAL INCENTIVES. Tax Regimes o CITA ‒ Puts all operating companies on the same pedestal ‒ Provides for the payment of minimum tax where incentives would otherwise not have made the company liable to NHT ‒ Removes all the rigours and intricacies involved in the calculation of NHT. ‒ CIT rate is 30% regardless of geographical location o NHT and Production Bonus (PB) ‒ PB based on production as opposed to investment (which may not fully capture the essence of capital deployed) ‒ Field size dependent, therefore, fair to both small and large producers ‒ NHT rate is 50% in the case of onshore/swamp/shallow offshore and 25% for deepwater operations. 14

15. 15 Generous production allowance, lower royalty rates and tax holiday assures existing and new gas projects’ profitability without government having to hand out cheques to investors.

16. CONCLUSIONS The new PIB allows for A totally liberalised private sector led industry operating on principles of international best practices An open and transparent framework for petroleum sector businesses An attractive investment environment that cuts across sectors A flexible fiscal and taxation model that allows for commensurate returns on investment A sustainable environment for petroleum industry business The time for partnering with the Nigerian petroleum industry is NOW 16