Building an African Upstream: Oandos Experience

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Building an African Upstream Oandos Experience
By Eamon Labode Akinosho CEO, Oando Exploration
Production Limited (OEPL)
Presented at the 4th African Petroleum Forum
March 2007
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Outline

• About Oando
• Overview of Regional Oil and Gas Industry Africa
  Nigeria
• Challenges to building an African Upstream
• Conclusion

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Oando is one of the premier companies in Nigeria

• Largest indigenously owned integrated oil company
• Projected 2006 turnover of 2bn and EBITDA of
  48.5m
• Largest retail network in Nigeria
• 2nd largest quoted oil company by Turnover
• Winner of the Nigerian Stock Exchange
  Presidential Merit Award for Quoted Company of
  the Year in 2003 and 2004

2005 Year-end Figures
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and is positioning itself as an Integrated
energy company exploiting synergies between
subsidiaries
Oando Plc.
Gas (Pipeline Transmission of Natural Gas)
Power
Marketing
Exploration Production
Refining
Supply Trading
Energy Services

• Dominant local player
• Expansion into other West African Markets

• Offering Product service lines through strategic
  alliances (e.g. Baroid, Halliburton)

• 20-yr BOT Franchise Agreement with NGC
• New Industrial customer connects

• No. 1 marketer of Petroleum Products

• A Significant Opportunity for Oando

• Assets Acquisition and Monetization

• PHRC Bid
• New Build

• As an integrated indigenous company we would
  re-invest profits into the local economy, create
  opportunities, decrease unemployment, and develop
  local human capital

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Africa currently plays a key role on the global
energy scene creating opportunities for wealth
creation for Africans

• Approx 18bn bbls or 1.5 of proved oil reserves
• Approx. 5.7bn bbls/day or 6.9 of oil production
• 5.76 TCM or 3.2 of gas reserves
• Approx.305 BCM/yr or 11 of gas production

• Approx122bn bbls or 10.2 of proved oil reserves
• Approx. 12bn bbls/day or 14.8 of oil production
• 58.27TCM or 32.4 of gas reserves
• Approx.770BCM/yr or 27.5 of gas production

• 59.5bn bbls or 5 of proved oil reserves
• Approx.13.5bn bbls/day or 16.5 of oil production
• 7.46TCM or 4.1 of gas reserves
• Approx.761 BCM/yr or 27.2 of gas production

Former Soviet Union
Western Europe
North America
Asia/ Australasia
Middle East

• 40.2bn bbls or 3.4 of proved oil reserves
• Approx. 8bn bbls/day or 9.8 of oil production
• 14.84TCM or 8.3 of gas reserves
• Approx.364BCM/yr or13 of gas production

Africa

• 103.5bn bbls or 8.6 of proved oil reserves
• Approx. 7.4bn bbls/day or 9 of oil production
• 7TCM or 3.9 of gas reserves
• Approx.137.2 BCM/yr or 4.9 of gas production

South America

• 114.3bn bbls or 9.5 of proved oil reserves
• Approx. 9.8bn bbls/day or 12 of oil production
  (Nigeria 2.2m bbls/day)
• 14.39TCM or 8 of gas reserves (Nigeria5TCM)
• Approx.165.2 BCM/yr or 5.9 of gas production
  (Nigeria Exports 51BCM/yr)

• 742.7bn bbls or 61.8 of proved oil reserves
• Approx. 25.4bn bbls/day or 31 of oil production
• 72.1TCM or 40 of gas reserves
• Approx.296.8 BCM/yr or 10.6 of gas production

• Please Note All figures for 2005
• Sources
• BP Statistical Review, June 2006
• Energy Institute/ David Wood Associates, UK
• Oando Plc.

• Much of future oil gas supply will come from
  Africa (North West) after Middle-east and
  Caspian/Former Soviet Union region

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In Nigeria, there are significant opportunities
for increased upstream participation
50
30
N/A
2
N/A
5
6
5
Higher Value
Lower Value

• Historically, government owned all assets from
  refining to distribution with fixed prices and
  margins throughout the value chain
• In Nigeria, JVs between oil majors and Govt.
  accounted for 95 of the countrys production
• Today, significant encouragement of indigenous
  participation in Nigeria
• Recently allocated oil blocks
• Licenses granted for private Refinery,
  Petrochemicals, IPPs, etc.
• Partial price deregulation
• Local Content Policy forcing indigenous
  participation
• 40 local content by 2006, 70 local content by
  2010 with 50 of crude processed locally

Indicative Nigerian Gross Margin

• Building an African Upstream which will benefit
  Africans requires increased local participation
  which is now being encouraged

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Oandos Migration Path
Oando is pursuing its vision of creating a
world-class West African integrated energy
company
High
EP, OFS
Investment Required
Refining
Marketing
Supply Trading
Low
Very Good
Profitability
Poor
Size of bubbles represents relative revenue
potential of each opportunity

• Migrating methodically towards the higher-value
  segments in the Oil Gas Sector
• Made possible by enabling environment through
  favourable Government Policies

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by executing its upstream strategy
Oando Exploration Production (OEPL)

• Oando is building a diversified portfolio of low
  risk exploration, appraisal and development
  opportunities in Nigeria
• Portfolio of assets made up of proven reserves
  and low-risk exploration block
• Minimizing investment and exploration risks
  through farm-outs
• Accelerating monetization of assets via
  partnerships
• Cherry-picking proven swamp assets from
  government bid rounds or oil majors

• Oandos recent activities indicate its desired
  future

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Oandos Portfolio
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Oando faces a number of peculiar challenges and
are taking proactive steps to address them
Mitigating Actions
Challenges

• Partnering with experienced upstream players to
  build operating and project management
  capabilities
• Premier recruiter of repatriating Nigerian talent
• Constant development of people
• Recently concluded secondary listing on
  Johannesburg Stock Exchange
• Balancing the expectations of Nigerian Investors
  vis-à-vis international investors
• Consistent communication and dialogue with local
  and international industry stakeholders

New Entrant to Upstream EP
Shortage of Skilled Manpower
New Sources of Capital
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However, some crucial industry challenges still
need to be addressed
Industry Challenges
Inadequate Infrastructure limiting industrys
earnings potential

• Slow pace of infrastructural expansion (e.g. gas)
  limiting the growth of industry with significant
  value going offshore
• Under-investment and decay has affected existing
  infrastructure

• Niger-delta swamp assets the natural starting
  point for younger EP players currently not safe

Militancy/Insecurity in Niger-delta

• Significant red tape and lengthy process for
  securing necessary regulatory approvals

Lengthy Regulatory Approvals
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In Conclusion, the major challenges to building
an African upstream are infrastructure and an
enabling environment

• Local Content and Capacity Building Improvement
  is crucial
• Positive Impact of re-investment of profits into
  the local economies
• Retained value onshore with trickle down effect
  to Africans as household income
• Long-term lowering of industry costs
• Need for speedy implementation of key African gas
  infrastructure projects
• Gas is the future of the continent. Projects for
  Inter and Intra Africa Gas Transportation are key
  e.g.
• West Africa Gas Pipeline i.e. Approx.1,033 km
  from Nigeria to Ghana through Togo Benin
• Magreb-Europe Gas Pipeline i.e. Approx. 1,666 km
  from Algeria to Spain through Morocco
• Trans-Mediterranean Gas Pipeline i.e. Approx.
  1,110 km Algeria to Italy, through Tunisia
• Would create additional revenue opportunities in
  Gas Transmission and Power
• Insufficient infrastructure still the key
  limiting factor for local demand
• An enabling environment is required for the
  growth of African Upstream
• Business-friendly regulatory process
• Engaging with local communities e.g. a workable
  solution to Niger-Delta situation

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Thank You
http//www.oandoplc.com