Emeka Unachukwu fsm,fidpm,fciaPresident.Port Harcourt Chamber Of Commerce

& Partnership in Nigeria Oil and Gas Industry Future Outlook on Investment Potentials

Nigerian - Netherlands Economic Forum15-17 September, 2014Hotel NovohotelThe Netherlands

Hofweg 5-7 The Hague,

Welcome to Nigeria

Welcome to Nigeria

With A rebased GDP of $510 Billion

26th largest economy in the world, and the largest economy in Africa, of 160.3 million people and 923,678 Km2 land area.Per capita income has risen from $1,555 to $2,688, ranked 121st in the world from 135th position

Welcome to Nigeria

GDP $522 billion (2013 est.)

GDP growth 7.1% (2012 est.)

GDP per capita $2,800 (2012 est.)

GDP by sectoragriculture: 40%; services: 30%; manufacturing: 15%; oil: 14% (2012 est.)

Inflation (CPI) 11.9% (2011 est.)

Gini coefficient 39.7 (2003)Labour force 48.53 million (2011 est.)

Labour force by occupation services: 32%; agriculture: 30%; manufacturing: 11%

Unemployment 24%

Welcome to Nigeria

Main industries

crude oil, coal, tin, columbite, uranium; palm oil, peanuts, cotton, rubber, wood; hides and skins, textiles, cement and other construction materials, food products, footwear, chemicals, fertilizer, printing, ceramics, steel, small commercial ship construction and repair, entertainment, machinery, car assembly

Building on a Solid Relationship

Reviewing 2003 Trading Year

Total Exports N14,245.3trillion Total Imports N7,015.8trillion Trade Surplus N7,229.5trillion

Contributions…India N613.8 Billion

Netherlands N393.7billion,Italy N310.7 BillionBrazil N289 Billion South Africa N218.9Billion

Building on a Solid Relationship

Our Historical Beginning

1908 Nigeria Bitumen Company - Activity terminated by 1st World War 1937 Shell D’ARCY Activity terminated by 2nd World War 1951 First Well Drilled by SHELL 1956 First Discovery (Oloibiri field) 1958 First Exportation 5000B/Day

Our Historical Beginning

Nigeria joined OPEC 1971

Export Value of crude oil in 1958 1% 2013 90%

8th Largest producer of oil in the World

Where do we have oil in Nigeria

Where do we have oil in Nigeria

Oil Producing States In Nigeria

How much oil do we have?

No. 1 oil exporter in Africa

Large oil reserves 30bln bbl 6000 wells & > 600fields

9th largest gas reserves in the World ( 187 TCF)*

How much oil do we have?

Other Abundant Natural Resources

Coal & Lignite – 2.7 billion tonnesTar Sands – 31 blnboeHydro Power – 14750 MWSolar – 7.0 Kwh/m2/dayWind – 2-4m/s at 10m heightBiomass – 320 mlnhectars

Structure of our Oil Industry

Indigenous Oil Companies Summit Oil International Ltd (OPL 205), SaharaEnergy Field Limited7 (OPL 274,286,284), and Peak Petroleum Industries NigeriaLimited8(OML 122).

Upstream Sector

How they are doing Business

How they are doing Business

Joint Venture Operating Agreement

How they are doing Business

Production Sharing Contract (PSC)

How they are doing Business

Signature Bonus

Payment in advance of exploration activities for the right to develop an exploration area.

The size of the signature bonus is based on the exploration licence's presumed recovery potential and value.

Understanding Fiscal policies

Petroleum Profit TaxOnshore & Shallow offshoreFirst Five years (New comers) 65%First Five years (Existing Companies) 85.5%Subsequent Years (All Players) 85.5%

Deep Offshore & Frontiers 50.0%

Investment Tax AllowanceLand Operations 5%Offshore Depth @ 100M 10%Offshore from 100-200M 15%Offshore more than 200M 20%Deep Offshore 50%Inland basin 50%

Understanding Fiscal policies

RoyaltiesOnshore 20.0%100m Water Depth 18.5%101-200M Water Depth 18.5%201-500M Water Depth 16.5%501-800M Water Depth 12.0%801-1000M Water Depth 8.0%Above 1000M Water Depth 0.0%

Inland basins 10.0%

Other TaxesVAT 5.0%NNDC and Education TaxTaxes to State and Local Governments

Proven Confidence in our Industry

Our Future is Bright

Top investment choices Upstream

• Oil block acquisitionOil block acquisition• Drilling Rig Leasing and drilling Drilling Rig Leasing and drilling

related servicesrelated services• Engineering servicesEngineering services• Heavy Equipment leasingHeavy Equipment leasing• Seismic Acquisition and Seismic Acquisition and

processingprocessing

Structure of Oil Industry

Downstream stream Sector

RefineriesTransportation & Marketing of Petroleum products

Structure of Oil Industry-Downstream

Structure of Oil Industry-Downstream

Refining Capacity 445,000BSPD

Structure of Oil Industry-Downstream

National Daily Consumption

Structure of Oil Industry-Downstream

• Near Term Impact• Expected Investment

estimated at US$23 billion.• Save about US$10.0 billion

spent annually on importation of White Petroleum Products.

• Engage about 15,000 construction workers at peak and 2,000 fulltime plant operators for the three Refineries.

• Long Term Impact• Achieve self sufficiency in

supply of Petroleum Products by 2018, and eliminate importation of Petroleum Products completely.

• Save over US$2.5 billion annually in subsidies on Petroleum Products.

• Become a major exporter of PMS in the energy market

• Trigger the switch from firewood, charcoal and kerosene to LPG

Invest & Partner with us!

Investing in Our Gas Industry

9th Largest proven Gas reserves in the world. Estimated quantity of reserves 187 TCF Reserves/production estimated to last 109 years

Investing in Our Gas Industry

“… By 2014, we would have positioned Nigeria firmly as the undisputed regional hub for gas-based industries such as fertilizer, petrochemicals and methanol.”

The Gas Reform Maximum economic impact through gas.

Aims to drive linkages with agriculture, manufacturing and dispersed small enterprise through Power

Gas Demand, Utilization & Export

Gas Demand, Utilization & Export

Reforms vs Opportunities

Regional PipelinesLNGGas to Power

HIGH VALUE EXPORT

Consolidate Nigeria’s position and market share in high value export marketsTargeted LNG export opportunitiesRegional gas pipelines that help consolidate nation’s footprint and influence

GAS TO POWER

Significantly increase gas supply to the Power Sector

Focused delivery plan to support existing and ongoing power plants by PHCN and NIPP

Deliver Gas for at least 12GW by 2015

Reforms vs Opportunities

Africa and Regional

West African Gas PipelineNigeria – Algeria Pipeline

West African Gas Pipeline

Nigeria – Algeria Pipeline

National Gas Infrastructure Blueprint layout

Exploring opportunities in the Gas value Chain

Fiscal Policies in the Gas Sector

ITEM PRODUCTION

SUPPLYTO LNG

TRANSPORTATION/UTILISATION

TAXRATE 30% 45% 30%

ROYALTY

ONSHORE 7% 7% NA

OFFSHORE 5% 5% NA

ITA 5% 10%15% (35%FORNGL AND GTL

AGFA APPLICABLE APPLICABLE NA

ITEM PRODUCTIONSUPPLYTO

LNGTRANSPORTATION/

UTILISATION

CAPITALALLOW

Y1-4 20% Y1-3 Y160%

Y5 19% 33% Y220%

Y319%

TAXHOLIDAY NA NA

APPLICABLEFOR5+2YRS

DUTY/VATONCONSTRUCTIO

NEQUIPMENT

NONE NONE NONE

Mouthwatering Incentives in the Gas Sector

Tax Free period of three years Renewable

Additional period of two Years

Accelerated Capital Allowances

Import duty exemption on plant, machinery and equipment.

Reserved Areas for Oil & Gas Business

Onne Oil & Gas Free ZoneAmazing Incentives

@ Kidney Island. Port Harcourt. NigeriaKidney Island. Port Harcourt. Nigeria. . Ready 2017Ready 2017

World Class Logistics Bases

Relevant State Agencies

Ministry of Petroleum Resources Department of Petroleum resources Nigeria National Petroleum Corporation Ministry Of Environment Niger Delta Development Company Federal Inland Revenue Service

5 Year Expenditure plan

Engineering Design• Over $500 Mln/year

Fabrication & Construction• Over $8 billion/yearMaterials, Manufacturing & Equipment Leasing• About $25bnBanking & Insurance• Financing of low risk Oil/Gas projects through direct funding

and venture capital• Partnering of Local insurance firms in the Insurance and

Reinsurance of small Oil and Gas projectsShipping & Logistics• Partnership with Nigerian shipping companies unlocks over $600 million annual spend on international transport of crude

Understanding our Laws

Nigeria Content Act

Quantum of composite value added to or created in the Nigerian economy, through a systematic development of capacity and capabilities through the deliberate utilisation of Nigerian human and material resources and services in the country’s oil and gas industry.

The ACT enacted 22nd April 2010.

Giving priority to Nigerian independent operators in the award of oil blocks, oil field licenses, oil lifting licenses and all projects, subject to the fulfilment of such conditions as may be specified by the Minister

Nigeria Content Act

Aim & Justification

To increase national wealththrough:

Economic growth More employment of locals Value creation in the country Local Participation/ Investment Induced expenditure in the local economy Enhanced human capacity Technology transfer

After 50 years, percentage of local content in the oil & gas industry is only 5-15%Of the average US$8 Billion spent annually in the petroleum industry, only about 5% is retained in Nigeria.0

 

• Develop local capacity in key areas such as manufacturing fabrication, engineering etc• Promote indigenous ownership of assets and utilization of indigenous assets in oil and

gas operations

• Develop local capacity in key areas such as manufacturing fabrication, engineering etc• Promote indigenous ownership of assets and utilization of indigenous assets in oil and

gas operations

• Develop indigenous skills pool across oil and gas value chain• Provides mandatory training requirements on the back of projects• Creates JQS to manage and track available skills

• Develop indigenous skills pool across oil and gas value chain• Provides mandatory training requirements on the back of projects• Creates JQS to manage and track available skills

• Promote establishment of support industries that will sustain oil and gas industry operations

• Enhance multiplier effect of oil and gas investments in economy

• Promote establishment of support industries that will sustain oil and gas industry operations

• Enhance multiplier effect of oil and gas investments in economy

• Develop pool of competitive supply chain rooted in oil bearing communities • Create customized training and sustainable employment opportunities • structured awareness and enlightment campaigns

• Develop pool of competitive supply chain rooted in oil bearing communities • Create customized training and sustainable employment opportunities • structured awareness and enlightment campaigns

Maximize utilization of Nigerian made goods

Maximize utilization of Nigerian human resources

Link the oil and gas industry with other sectors of the Economy

Focus on community participation in the supply chain

Foster institutional collaboration

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2

3

4

5

Nigeria Content Act

FOCUS

• Institutionalize inter-agency collaboration on local content development• Integrate NCDMB into planning and contracting process to ensure Nigerian Content COUNTS• Dedicated NCDF for capacity building

• Institutionalize inter-agency collaboration on local content development• Integrate NCDMB into planning and contracting process to ensure Nigerian Content COUNTS• Dedicated NCDF for capacity building

The Act further provides for exclusive consideration to be given to Nigerian companies with at least 51 per cent equity holding by Nigerians for all oil and gas projects in inland and swamp water areas, subject to proof of acquisition or lease of the equipment to be utilised during the project, verifiable by satisfactory evidence of such acquisition or lease. Compliance with the Act is mandatory for the award of all necessary licenses and permits in the industry.

The Act establishes the Nigerian Content Monitoring Board and charges it with the responsibility of providing guidelines, monitoring, coordinating and implementing the provisions of the Act.

Nigeria Content Act

The Act makes it mandatory for operators to submit a Nigerian Content Plan to the Board in the bidding stage and prior to executing any project.

The Act provides for minimum percentage specifications of Nigerian content in any project to be executed in the Nigerian oil and gas industry

The Act also provides for domestic provision of insurance, legal and banking services, except where it is impracticable to do so.

Nigeria Content Act

The Act further provides for operators to establish their offices within the catchment areas/host communities and to submit an employment and training plan, capacity building and succession plan where there is no immediate local capacity.The Act also establishes a fund to be known as the Nigerian Content Development Fund (‘the Fund’), for purposes of funding the implementation of Nigerian content development in the Nigerian oil and gas industry. Every operator, contractor, subcontractor, alliance partner or any other entity involved in upstream activity shall contribute one per cent of the contract value to the Fund.

Nigeria Content Act

An indigenous company, which has the capacity to execute a project, would not be disqualified in the bidding process as long as its quoted value is not 10 per cent higher than the lowest bid.

Operators and Project Promoters to give priority to bids containing the highest level of Nigerian content where the bids are within one per cent of each other at commercial stage, provided the Nigerian content in the selected bid is at least five per cent higher than its closest competitor

Nigeria Content Act

50 per cent of the equipment deployed for the execution of work will be owned by Nigerian subsidiaries where the international/multinational companies are working through such subsidiaries

• Strict compliance without disrupting industry activities –

Capacity Gaps

• Handling increased cost + schedule

• Transparent effective model for NCDF Management

• Ensuring Quality of delivery

• Absence of manufacturing capability and confidence to use

local goods- case for strong R&D base and interface with

RMRDC

• Extending implementation to Downstream

• Growing new organization to meet wide responsibility

• Exposure to frequent litigation

Nigeria Content Act- Challenges

Industry Challenges

Community and Environmental issues Infrastructure development and

capacity expansion Quota Restriction Local Content- To increase indigenous

participation in industry services

Summary & Conclusion

Active hydrocarbon exploration has been going on for

more than 50 years Nigeria has abundant Oil and Gas resources Exploration activities are shifting to deep offshore

areas Government objective is to grow reserve to 30MMMB Opportunities are abound in E&P and other related

service activities Government will continue to provide enabling

environment for prospective investors Fiscal terms and incentives are generous Abundant opportunities abound in the emerging Gas

and Down stream sectors

 Ranking of the World's Happiest Countries

1. Nigeria2. Mexico3. Venezuela4. El Salvador5. Puerto Rico

Source: http://thehappinessshow.com/HappiestCountries.htm

The World Values Survey, an inter-university study

 

We are working Real Hard!

Thanks for Listening is open for Business

Emeka Unachukwu President Port Harcourt Chamber Of Commerce emeka.unachukwu@gmail.com +447924575439, +2348134489407