1. 1 Nigeria: Negotiating With The African Energy Giant By Jonathan Bearman Managing Director Clearwater Research By Jonathan Bearman Managing Director Clearwater Research

2. 2 IntroductionIntroduction Our Background Our Background Offices in London, Abuja, Lausanne and Lagos Offices in London, Abuja, Lausanne and Lagos Advisor on bid evaluation to the Nigeria-Sao Tome Joint Development Authority. Advisor on bid evaluation to the Nigeria-Sao Tome Joint Development Authority. Advisor to Nigerian government on illicit bunkering in the Niger Delta. Advisor to Nigerian government on illicit bunkering in the Niger Delta. Consultant to NNPC on Risk in the Niger Delta Consultant to NNPC on Risk in the Niger Delta Our Background Our Background Offices in London, Abuja, Lausanne and Lagos Offices in London, Abuja, Lausanne and Lagos Advisor on bid evaluation to the Nigeria-Sao Tome Joint Development Authority. Advisor on bid evaluation to the Nigeria-Sao Tome Joint Development Authority. Advisor to Nigerian government on illicit bunkering in the Niger Delta. Advisor to Nigerian government on illicit bunkering in the Niger Delta. Consultant to NNPC on Risk in the Niger Delta Consultant to NNPC on Risk in the Niger Delta

3. 3 Why Is Nigeria important for the 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 more will probably remain so for the next three decades or more 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 decline The impact of Nigerian price volatility will therefore grow influence in the market will grow as North Sea flows decline The impact of Nigerian price volatility will therefore grow Open access Open access Prolific rate of discovery Prolific rate of discovery Has yet to reach a peak of maturity as a hydrocarbons 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 more will probably remain so for the next three decades or more 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 decline The impact of Nigerian price volatility will therefore grow influence in the market will grow as North Sea flows decline The impact of Nigerian price volatility will therefore grow Open access Open access Prolific rate of discovery Prolific rate of discovery Has yet to reach a peak of maturity as a hydrocarbons province

4. 4 Hydrocarbon Potential Recoverable reserves estimated at 33.7 billion barrels (Mar 2003) Recoverable reserves estimated at 33.7 billion barrels (Mar 2003) Real potential for further reserve growth up to and possibly beyond the government’s 2010 target of 40 billion barrels Real potential for further reserve growth up to and possibly beyond the government’s 2010 target of 40 billion barrels Current crude production is approximately 2.25 mln b/d and Opec quota is 2.018 mln b/d Current crude production is approximately 2.25 mln b/d and Opec quota is 2.018 mln b/d Proven and probable gas reserves approximately 178 trillion cubic feet Proven and probable gas reserves approximately 178 trillion cubic feet LNG plans would total 28 million tonnes of product a year LNG plans would total 28 million tonnes of product a year Nigeria has the potential to dominate the Atlantic market in oil and gas supply Nigeria has the potential to dominate the Atlantic market in oil and gas supply The decline in North Sea grades means that Forcados may become the most important benchmark in the eastern Atlantic The decline in North Sea grades means that Forcados may become the most important benchmark in the eastern Atlantic Recoverable reserves estimated at 33.7 billion barrels (Mar 2003) Recoverable reserves estimated at 33.7 billion barrels (Mar 2003) Real potential for further reserve growth up to and possibly beyond the government’s 2010 target of 40 billion barrels Real potential for further reserve growth up to and possibly beyond the government’s 2010 target of 40 billion barrels Current crude production is approximately 2.25 mln b/d and Opec quota is 2.018 mln b/d Current crude production is approximately 2.25 mln b/d and Opec quota is 2.018 mln b/d Proven and probable gas reserves approximately 178 trillion cubic feet Proven and probable gas reserves approximately 178 trillion cubic feet LNG plans would total 28 million tonnes of product a year LNG plans would total 28 million tonnes of product a year Nigeria has the potential to dominate the Atlantic market in oil and gas supply Nigeria has the potential to dominate the Atlantic market in oil and gas supply The decline in North Sea grades means that Forcados may become the most important benchmark in the eastern Atlantic The decline in North Sea grades means that Forcados may become the most important benchmark in the eastern Atlantic

5. 5 1.Onshore Expansion Shell Petroleum Development Co Shell Petroleum Development Co Western Delta – possible big expansion of Forcados from just over 500,000 b/d to 900,000 b/d Western Delta – possible big expansion of Forcados from just over 500,000 b/d to 900,000 b/d Eastern Delta- Shell to raise Bonny Light production to 790,000 b/d from 550,000 b/d Eastern Delta- Shell to raise Bonny Light production to 790,000 b/d from 550,000 b/d Shell Petroleum Development Co Shell Petroleum Development Co Western Delta – possible big expansion of Forcados from just over 500,000 b/d to 900,000 b/d Western Delta – possible big expansion of Forcados from just over 500,000 b/d to 900,000 b/d Eastern Delta- Shell to raise Bonny Light production to 790,000 b/d from 550,000 b/d Eastern Delta- Shell to raise Bonny Light production to 790,000 b/d from 550,000 b/d

6. 6 SPDC Reserves

7. 7 Nigerian Agip Oil Co NAOC operates inland in Rivers State and in the swamp area of Bayelsa State. NAOC operates inland in Rivers State and in the swamp area of Bayelsa State.

8. 8 Indigenous Producers Recent years have seen the growth in production by a series of indigenous producers Recent years have seen the growth in production by a series of indigenous producers Most have occupied marginal and declining acreage but two operations are significant – Most have occupied marginal and declining acreage but two operations are significant – Moni Pulo and Conoil and its affiliate Moni Pulo and Conoil and its affiliate Continental Continental Together, Conoil and Continental have plans that will raise output to over 100,000 b/d by 2007, some from undeveloped acreage in OPL 458 Added to these should be the joint venture between Pan Ocean and NNPC in OML 98. Pan Ocean has plans to be a sizeable gas producer Added to these should be the joint venture between Pan Ocean and NNPC in OML 98. Pan Ocean has plans to be a sizeable gas producer Recent years have seen the growth in production by a series of indigenous producers Recent years have seen the growth in production by a series of indigenous producers Most have occupied marginal and declining acreage but two operations are significant – Most have occupied marginal and declining acreage but two operations are significant – Moni Pulo and Conoil and its affiliate Moni Pulo and Conoil and its affiliate Continental Continental Together, Conoil and Continental have plans that will raise output to over 100,000 b/d by 2007, some from undeveloped acreage in OPL 458 Added to these should be the joint venture between Pan Ocean and NNPC in OML 98. Pan Ocean has plans to be a sizeable gas producer Added to these should be the joint venture between Pan Ocean and NNPC in OML 98. Pan Ocean has plans to be a sizeable gas producer

9. 9 Continental Production Activities

10. 10 2. Shallow Water SPDC moves to shallow offshore development SPDC moves to shallow offshore development e.g. EA field, now producing e.g. EA field, now producing HD field and other prospects HD field and other prospects Exxon Mobil aims for liquids output of 1.1 bn bbls Exxon Mobil aims for liquids output of 1.1 bn bbls Gas injection to boost production Gas injection to boost production Yoho Development Yoho Development Chevron Texaco Chevron Texaco Aiming to achieve producibility of 500,000 b/d, mainly through shallow water developments such as Tubu Aiming to achieve producibility of 500,000 b/d, mainly through shallow water developments such as Tubu SPDC moves to shallow offshore development SPDC moves to shallow offshore development e.g. EA field, now producing e.g. EA field, now producing HD field and other prospects HD field and other prospects Exxon Mobil aims for liquids output of 1.1 bn bbls Exxon Mobil aims for liquids output of 1.1 bn bbls Gas injection to boost production Gas injection to boost production Yoho Development Yoho Development Chevron Texaco Chevron Texaco Aiming to achieve producibility of 500,000 b/d, mainly through shallow water developments such as Tubu Aiming to achieve producibility of 500,000 b/d, mainly through shallow water developments such as Tubu

11. 11 Mobil Producing Nigeria producibility (000 b/d)

12. 12 3.Deepwater Likelihood that other discoveries will be successfully explored and developed. E.g Ikija, Oberan, Okodo.

13. 13 StatoilStatoil Estimated Recoverable Oil Reserves in OPL 218

14. 14 StatoilStatoil Estimated Recoverable Oil Reserves in OPL 217

15. 15 Nigeria-Sao Tome Joint Development Zone First licensing round underway First licensing round underway 60% Nigeria – 40% Sao Tome 60% Nigeria – 40% Sao Tome Possible 4 billion bbls in place in northern JDZ area. Possible 4 billion bbls in place in northern JDZ area. First licensing round underway First licensing round underway 60% Nigeria – 40% Sao Tome 60% Nigeria – 40% Sao Tome Possible 4 billion bbls in place in northern JDZ area. Possible 4 billion bbls in place in northern JDZ area.

16. 16 The Risks & Challenges Negotiating Risks Negotiating Risks The importance of the correct introduction and personal relationship in developing a negotiating position The importance of the correct introduction and personal relationship in developing a negotiating position Understanding the politics of your approach. Does it fit with the objectives of policy-makers and decision–makers ? Understanding the politics of your approach. Does it fit with the objectives of policy-makers and decision–makers ? Will you be compromised by non-performing relationships ? Will you be compromised by non-performing relationships ? The importance of following process and compliance locally (and internationally) The importance of following process and compliance locally (and internationally) Requirements for local content Requirements for local content Negotiating Risks Negotiating Risks The importance of the correct introduction and personal relationship in developing a negotiating position The importance of the correct introduction and personal relationship in developing a negotiating position Understanding the politics of your approach. Does it fit with the objectives of policy-makers and decision–makers ? Understanding the politics of your approach. Does it fit with the objectives of policy-makers and decision–makers ? Will you be compromised by non-performing relationships ? Will you be compromised by non-performing relationships ? The importance of following process and compliance locally (and internationally) The importance of following process and compliance locally (and internationally) Requirements for local content Requirements for local content

17. 17 The Risks & Challenges Nigerian Risks Nigerian Risks 1. Ethnic Troubles in the Niger Delta: 1. Ethnic Troubles in the Niger Delta: Ijaw-Itsehiri clash in western Delta Ijaw-Itsehiri clash in western Delta Restive communities such as Nembe, Eggi, Omoko Restive communities such as Nembe, Eggi, Omoko 2. Extortion from Oil companies 2. Extortion from Oil companies Blockades Blockades Strikes Strikes 3. Illicit bunkering operations 3. Illicit bunkering operations Metre tampering Metre tampering Pipeline theft Pipeline theft Nigerian Risks Nigerian Risks 1. Ethnic Troubles in the Niger Delta: 1. Ethnic Troubles in the Niger Delta: Ijaw-Itsehiri clash in western Delta Ijaw-Itsehiri clash in western Delta Restive communities such as Nembe, Eggi, Omoko Restive communities such as Nembe, Eggi, Omoko 2. Extortion from Oil companies 2. Extortion from Oil companies Blockades Blockades Strikes Strikes 3. Illicit bunkering operations 3. Illicit bunkering operations Metre tampering Metre tampering Pipeline theft Pipeline theft

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