Brief Summary of the Nigerian Crude Oil and Gas Industry by the CEO Integrity

Intercontinental Group.

Nigeria is rich in mineral wealth, with petroleum and natural gas being the country’s major
mineral products. Nigeria’s economic growth primarily comes from the country’s oil sector.

An Introductory Letter By The Chairman and CEO of Integrity Intercontinental Group on the
major investment issues of The Nigerian Oil and Gas Sector

On April 21, 2007, Nigeria held presidential elections, marking the first time in Nigeria’s
history that the country passed control from one civilian government to another. During the
16 months preceding the election, militant activity in the Niger Delta (especially near Warri
and Port Harcourt) has severely impacted Nigeria’s oil production potential by shutting-in an
estimated 20 percent of total production. The Nigerian economy is heavily dependent on the
oil sector, which accounts for 95 percent of the country’s total export revenues.

In 2008, Nigeria’s energy consumption mix was dominated by oil (58 percent), followed by
natural gas (34 percent) and hydroelectricity (8 percent). Coal, nuclear and other renewables
are currently not part of the country’s energy consumption mix. Between 1984-2008, the
share of oil in Nigeria’s energy mix has decreased from 77 percent to 58 percent. Natural gas
consumption increased from 18 percent to 34 percent. Hydroelectricity has seen a slight
increase as well from 5 percent to 8 percent.

The Nigerian Economy: Peeping Out of the Woods

With a Gross National Product, GNP, of some $48 billion, the size of the Nigerian economy
is undeniably small. Given a population of 150 million according to World Bank figures, the
per capita income comes down to a paltry $310. Not much to get by with, evidently. The
country’s infrastructure is down, power supply is epileptic, the roads are chaotic and queues
at petrol stations are long-winding, though the country is among the largest producers of
crude oil in the world.

And yet, scratch beneath the gloomy surface and the picture is a lot brighter. That goods and
services are so terribly made – if at all – turn out to be both a curse and a tremendous
opportunity. A curse for the Nigerians who have to trudge through life in such desperate
straits, but opportunity for anyone who could produce the goods or services with a modicum
of efficiency.

There in lie the vast opportunities and allures of the Nigerian economy. Whole swathes of the
economy offer unbelievable opportunities for making good money. According to figures from
the International Finance Corporation, IFC, the Nigerian stock market has consistently
outperformed returns on investment in emerging markets in the past few years. In the
informal sector – where, anyway, most of the economy is – returns are even much greater.
"According to figures from the IFC, the Nigerian Stock Market has constantly outperformed
returns on investment in emerging markets in the past few years" That things can only get
better is indicated by the economic moves of the new civilian government of President
Goodluck Jonathan. After 15 years of rampaging generals who ruled – and ruined – the
country, the new government seems to understand what needs to be done, and is making bold
moves to do them. Cleaning the mess left behind by years of military pillage won’t be easy,
but a credible campaign against corruption is being waged. The refineries are being repaired.
The economy is being opened up, and foreign direct investment is starting to pour in.
Privatization of the worst-run state firms is being pursued with relentlessness. This last point
bears some emphasis. The current exercise, unlike some that went before it, and unlike in
places like Russia, is seen as clean and transparent. There is a frenzy of competition from
both local and foreign bidders to buy the companies being sold.

Besides the state firms being privatized, new ones, especially foreign ones are on a long
queue to explore opportunities in wide areas: Enron in power, Citibank & Standard Chartered
Bank in financial services and a whole lot of others in water, agro-allied, construction and, of
course the flagship sector of oil and gas. Telecoms and IT need special mention because the
country has one of the lowest telephone access per person in the world – less than 4 in every
1000 persons. With serious government commitment to a viable telecoms policy, it is
expected that with so many people in need of phone lines, any investment in this area - and
indeed many foreign telecoms giants are lining up – would be especially lucrative.

These companies bring much needed, but also much profitable services. Above all, they bring
a verdict: that the Nigerian economy has a tremendously bright future.

Brief Background

Nigeria's oil industry is dominated by the National Oil Company, Nigerian National
Petroleum Corporation, NNPC founded in 1977. It is the major partner in the upstream joint
ventures with the ‘seven sisters’ or major multinational petroleum exploration and production
companies. These are the largest and oldest in Nigeria – Shell Petroleum Development
company – SPDC or better known as "Shell" others are: Mobil Producing Nigeria unlimited,
Chevron Nigeria, Elf Petroleum Nigeria and the Nigerian Agip Oil company, NAOC &
Affiliate, Agip Energy and Natural Resources, AENR.

The NNPC owns an average 57 per cent in these joint ventures (JV). Profits from the JV are
shared in the same ratio. For the NNPC/Shell JV: share structure: NNPC 55%, Royal
Dutch/Shell 30%; Elf 10% and Agip 5%. Until early 90's, NNPC held 75% in the JV. It sold
off 20 per cent. 10% sold to Shell, 10% to Elf and 5% to Agip.

Chevron JV: NNPC 60%; Chevron 40%

Mobil JV: NNPC 60%; Mobil 40%

Elf JV:NNPC 60%; Elf 40% (France)

Nigerian Agip JV; NNPC 60%; Agip, (Italy) 40%

Nigeria is regarded as mainly a gas province with some oil.

Proven Gas reserves are put at 100 trillion cubic feet, TCF. Whereas proven oil reserves were
16 billion in 1991 and 20 billion in 1992, Nigeria has set a target of 25 to 30 billion proven
crude oil reserves for 2012. Nigeria has seven sedimentary basins: Niger Delta, deep offshore
Niger Delta; Benue Trough; Lake Chad; Sokoto, Anambra, and Dahomey (Benin). Niger
Delta is a mature oil basin and is considered to be one of the most prolific oil bearing
sedimentary basins in the world.

Its adjunct deep offshore basin was opened for exploration in the 1991 (second) licensing
round. A frontier area, the Niger delta deep offshore is proving to be just as prolific. A big
gusher – Agbami oil field was found (1991) there. It holds 2 billion barrels of proven crude
oil-in-place. Nigeria produces over 2 million barrels of crude oil per day. Condensate
Production by Mobil accounts for another 50,000 barrels per day.

Most of Nigeria’s current natural gas production of about 100 million standard cubic feet/day
occurs as associated gas, i.e. produced along with crude oil. Since the 1960s, and until
recently, all of this associated natural gas was flared. But with the recent commissioning of
Nigerian LNG, in Bonny, started in 1999, some of this associated gas is processed into LNG
for export. With the completion of the NLNG’s fifth train expected in 2010, 60 per cent of
currently flared gas would be converted to liquefied natural gas.

Licensing Rounds

1st on February 26, 1970 the Nigerian government announced open bidding for 27 offshore
acreages. 15 (OPLS) oil prospecting licenses were offered to: Niger petroleum company –
Deminex (4) accidental (4) Japan Petroleum Co. (4) Nigeria oil Resources/Monsato (2) and
Henry Stephens Westates (1). 12 OPLS remaining were reserved for the proposed Nigerian
National Oil Co. NNOC, started in 1972, NNOC is the precursor of the present Nigerian
National Petroleum Corporation, started in 1977.

The second licensing round was announced in 1991 when the then Babangida military regime
offered 137 oil acreages for open, international competitive bidding. The acreages covered
seven sedimentary basins – Niger Delta and its deep offshore, Benue Inland Trough;
Anambra; Dahomey (Benin), Sokoto and Lake Chad.
1. Niger Delta

2. Deep offshore (Niger Delta)*

3. Benue Trough

4. Dahomey

5. Sokoto

6. Lake Chad *5-200 metres water depth

Nigerian Crude Types Specific Gravity Sulphur Content - (%)

Bonny light (sweet) 0.8398-37 api 0.14

Qua Iboe 0.8398-37 api 0.14

Escravos blend 0.8448-36 api 0.14

Brass river 0.8063-44 api 0.28

Forcados 0.8708-31 api 0.2

Pennington Anfan

Concession winners were:

Alfred James Nig. Limited OPL 30 2 Benue Basin

Amalgamated oil OPL 452 Niger Delta

Atlas Petroleum OPL 75 Niger Delta

British Petroleum/Statoil OPLS 213; 217 & 218

Cavendish Petroleum

Many of the concession winners were indigenous oil prospectors. Most of the acreages won
by them were concessions relinquished by the multi-national oil companies, for reasons due
to low oil reserve or unwillingness to develop concession.

Among the indigenous prospectors are Alfred James, owned by Oba Okunade Sijuawade, of
Ife; Summit oil owned by now late Bashorun Moshood Abiola, Consolidated oil, owned by
the US-based Nigerian multi-millionaire, Michael Adenuga Jnr.; Moncrief Oil, owned by
Benin mulit-millionaire, Gabriel Igbinedion; Dubri oil owned by Iduimo Itsueli and Amni
Petroleum.

The multinationals also came. Esso/Exxon staged a comeback, while Statoil, the Norwegian
state oil company made first foray in strategic alliance with BP, the British oil company; and
Conoco, the oil division of Dupont corp. Abacan resources, the Canadian energy company
worked with Amni International and Express Pet & Gas Company as technical and financial
partner.

Africa has over 360 oil fields accounts for 168. Sudan has about 300 million barrels reserves
and there are smaller deposits in Central African Republic. Some oil finds are also reported in
Niger, Chad, Ghana and the Cameroon (Bakassi area).

In 1991 estimated proven reserves of crude oil in Sub Saharan Africa was 21.7 billion barrels
or 2.2 per cent of world reserves. About 79 per cent is located in Nigeria, while other notable
oil provinces are in Angola and Gabon. By 1992, Nigeria had (7) seven sedimentary basins.
880 oil fields already discovered, whereas only 180 had been developed. In addition, there
are several undeveloped marginal fields and large tar sand (bitumen) deposits, estimated at
over 2 billion barrels of oil equivalent in Ondo and Ogun States.

Refining and Distribution

Nigeria’s total installed refining capacity is 445,000 barrels per day of crude oil, as at 1990 to
date. On paper 300,000 thousand barrels per day of crude is allocated to local refining and
consumption. But on average about 240,000 bbl/day is given to the local refineries, up till the
mid-90s. The breakdown of refineries and lack of TAM – turn-around – maintenance
between 96-98 under late General Abacha's regime may have reduced local processing of
crude oil to about 75,000 bbls/day.

Refineries-Warri and Port Harcourt presently operate at 30% capacity. Kaduna refinery is
still out, due to unsuccessful TAM, awarded to Total International in 1998.

In august 1976, NNPC begun an offshore crude processing scheme designed to complement
local refining and reduce frequent product outages – Contractor’s to NNPC were: Shell
Caracao; BP-Total consortium, Socap (elf) Stinnes, Interoil, Petrograd (brazil) Total
international (France and Bermuda-based Basic Resources Services Ltd.

In 1991, NNPC undertook N1 billion refinery rehabilitation program (under Gen.

Babangida's regime, with Professor Jibril Aminu as petroleum resources minister). NNPC
also spends about N400 million per annum for TAM on the four refineries.

In the early 1990s – the NNPC also spent about N12 billion to upgrade part of existing
petroleum products pipeline from 6" diameter to 12" (inch), and build a 3-phase pipeline
system. It also spent N1 billion to revamp the Apapa Jetty, a strategic fuel loading point, and
N1.5 billion on the expansion of the storage and handing capacity of the major fuel import
receiving facility, the Atlas Cove Marine depot in Lagos.

Currently, the NNPC is also undertaking a maintenance exercise on Atlas Cove.

MAJOR OIL DEPOTS

Aba, Benin, Enugu, Ibadan, Gombe, Ilorin, Jos, Kaduna, Kano, Lagos (Ejigbo) Maiduguri,
Makurdi, Mosimi, Ore Port Harcourt and Warri.

MAJOR OIL MARKETERS

National Oil PLC - (NOLCHEM)

Unipetrol Nigeria PLC

Elf oil Nigerian Limited

AP-African Petroleum PLC

Total Nigeria PLC

Agip Nigeria PLC

Mobil Oil Nigeria PLC

Oando PLC

Independent or Indigenous Oil Marketing Companies

These independent or Indigenous number over 350, spreading all over the country, from one
station to fairly large ones.

Notable among them are:

Fowobi Oil

Ladegbuwa Oil

Eterna Oil PLC

Lenoil

Ibeto (Oil) Lubricants

Sea Petroleum and Gas

Kaduna Refinery & Petrochemical Company

This was refinery built and commissioned in 1988 with processing capacity of 150,000
barrels per day. It has adjoining petrochemical plant which can produce asphalt, benzene and
heavy paraffin base oils, used in the manufacture of vehicular lubricants and oils. Under an
exchange arrangement with Saudi Arabia about 28,000 barrels per day of Arabian light –
which is an heavier crude is imported and processed for production of above stated non-
conventionals. In turn, Saudi Arabia receives 59,000 bbl per day of Nigerian crude oil, Qua
Iboe & Bonny Medium types.

Oso Condensate

Total reserves: 500 millions bbls owned by the NNPC/Mobil Joint venture. Came into
production in 1993. Nigeria’s first and largest condensate field, it was discovered in 1964 at
Oso, 56 kilometers offshore Akwa Ibom with reservoir 183 metres below the seabed.
Developed at cost $850 million, Oso was financed with foreign loans, especially by IFC. Oso,
produced 100,000 barrels per day initially, dropped to 60,000 bbls/day from1998. Condensate
output is outside OPEC quota. Other financiers: Japan Exim $47 million, European
Investment Bank, EIB; $65 million, total $330m to NNPC. IFC, $170m to Mobil, and US
Exim $95 million to Mobil. NNPC equity $190m; Mobil $100m. Oso yields about $300 -
$500 million per annum in tax & royalties to Nigeria.

Refineries:

Old Port Harcourt Refinery

60,000 barrels per day processing capacity. Built by Shell-BP in 1964. Taken over by the
Nigerian government in 1977. Its Nigeria’s first refinery. Located in Elesa-Eleme, near Port
Harcourt. Damaged by fire in 1988. Rehabilitated and put back in production in early to late
90s.

Warrri Refinery and Petrochemical Plan

Has installed processing capacity of 125,000 barrels per day of crude. Adjoining
petrochemical plant with production capacity for carbon black. Built in 1978 with initial
capacity for 100,000 bbl. per day. De-bottlenecked in 1991 to increase processing capacity to
125,000 bbl/day. Original process plant supplied by technical/Snamprogetti believed to be
defective. Result – frequent shutdowns and high running costs.

New Port Harcourt Refinery

Processing capacity is 150,000 barrels per day. Initially designed as an export refinery. Thus
its location at the coastal village of Eleme, near the old Port Harcourt refinery. It is the most
modern of Nigeria refineries and was commissioned in 1991.
Petroleum Products Marketing

Nigeria has a long history of oil or refined petroleum products marketing, dating back to
seventy years – early 1930s when precursors of Shell and Mobil engaged in the distribution
of petroleum products. The dominant brand of cooking oil or kerosene then was "sunflower."
The domestic petroleum products market is dominated by the downstream arms of the ‘seven
sisters’ or the multinational oil prospecting companies. National Oil (Shell), Mobil Oil, Elf,
total Nigeria, Agip Nigeria, AP (BP), and Unipetrol.

Royal Dutch/shell owns 40 per cent equity in National Oil. Other shareholders are Nigerian
government (through) NNPC 40%, 20% is held by the Nigerian public. Most of these
companies have been indigenized. All the majors are quoted on the Nigerian Stock Exchange,
with the exception of Elf oil, which is owned by private interest (Ibru organization and Elf
Inc.)

The local fuels market is still largely regulated. Pump price of fuels such as PMS – Premium
Motor Spirit – petrol, Kerosene, diesel, MP were fixed by government but now left to the
forces of demand and supply to decide. In the past, the bulk of domestic fuels consumption
was supplied by local refineries. But due to the parlous state of the refineries, the bulk of
local fuel requirements is met by importation. Massive importation started from 1996 under
the late General Abacha's regime.

In 1998, the erstwhile military regime of General Abdulsalam Abubakar moved towards
deregulation – which the industry had always wanted, by allowing the oil marketing
companies to import fuel directly. In the past, this was only done by the government through
the NNPC. More so, as importation was unattractive to the majors due to the local fixed price
regime.

The majors, as well as independents i.e. the small-to-medium-sized indigenous oil marketers
began to import fuels directly following the new policy. At the time, this helped to stem the
growing supply shortfalls, which had caused serious economic problems, and aggravated the
country’s economic downturn. A typical scenario were fuel queues that stretched for miles at
virtually in all parts of the country. But the respite was short lived. Whereas low international
price of crude oil $9 – 12 per barrel at the time made fuel imports economic, rising crude oil
prices in the following year (1999) made the oil marketing companies stop imports of fuels,
particularly petrol, diesel and kerosene.

By the second half of 1999, the NNPC had become the major importer of fuels for domestic
consumption, which it had to do for strategic reasons, to avoid a political backlash that may
have security implications.

Speaking for the major oil companies, AP’s managing director at that time, Umar Abba-Gana
said they were beginning to operate at a loss – if they are to import fuel at $21 per barrel of
crude and sell at fixed local price of N20 per liter of petrol.
The Obasanjo administration also continued importation of fuels while attempting to
complete the refurbishment and turn-around maintenance of local refineries. Obasanjo also
increased pump price of fuels in February. Petrol from N20 to N22 per liter, diesel N19 to
N21 per liter, kerosene however remained at N17 per liter.

The unilateral price increase by the President caused widespread protests and strikes, led
mainly by the Nigerian Labor Congress and, eventually lead to the reduction in originally
price changes by the NNPC. The corporation had proposed N30 per liter for petrol, before the
reduction to N22 by negotiation between the NLC and government. Fuel prices have since
increased to unbelievable prices at this time.

Gas Development

In specific term, Nigeria is more of a gas province than an oil one. Natural gas deposits out-
weigh oil by far. Nigeria has an estimated 120 trillion cubic feet of gas reserves, about three
times the size of oil reserves of 22 billion. Most of this occurs as associated gas i.e. gas
occurring along with crude oil in the same reservoir.

Generally, little exploration for gas is done in Nigeria. Thus, current gas production of about
120,000 million standard cubic feet per daily is associated gas produced during oil production
in the Niger Delta.

Some of this gas has been used by Shell to generate some electricity in the Niger Delta since
the 70s. Some of it is used by the Power Holding Company Of Nigeria also known as
National Electric Power Authority, NEPA, power plants at Ogorade, Afam, and Delta V1.
And the 220 Mega watt Egbin power plant, near Lagos. Ogorode, Afam and Delta VI are fed
from Sapele, Obigbo and Alakiri gas pipeline, while Egbin is supplied through an extended
pipeline to Lagos.

In 1991, NEPA power plants consumed 75.5 per cent of the over 109,000 supplied by the
Nigerian Gas Company, NGC. NGC is a subsidiary of the NNPC set-up to market the
country’s produced gas locally. NGC buys the gas from the oil producing companies at
agreed prices and then sells to its consumers.

The Nigerian Liquefied Natural Gas Company

NLNG, is another project that was started to utilize the nation’s abundant natural gas
reserves, profitably. Nigerian LNG was first broached in the early 1960s, but remained on the
drawing board until the late 1980s. The $3.8 billion NLNG sited on Bonny Island, several
kilometers off Port Harcourt started production in august 1999.
Liquefied Natural gas is a way of compressing large volumes of gas that can be carried to
markets thousands of kilometers away, via specially built ships. So far, NLNG capacity of 4.6
tons per annum has delivered over 60 cargoes to European buyers and sold 4 cargoes on the
US spot market.

Another plan to utilize Nigerian gas economically is the proposed West Africa Pipeline
WAGP, project. The Idea is to supply gas from Nigeria to neighboring West African
countries – Benin, Ghana, Togo, and later Ivory Coast. Started in the early 1990s, the WAGP
has been dogged by bilateral, multilateral problems between the countries involved. And of
course financing problems but its progressing swiftly now.

Another plan is progressing now to supply gas directly to Europe from pipelines built from
Nigeria, through Niger, through Algeria to Spain. The pipelines are being built even as I write
this and is due to be completed soon.

Nigerian Gas Company

Started in 1980 with headquarters in Benin City, Edo state. In 1988, it sold 84,479 million
standard cubic feet, mmsct of gas, valued at N130 million. 1990 it sold 95,396 mmscf valued
at N260m. 1991 NGC sold 109, /012mmscf of gas at N517.4m. NGC has also been looking at
ways to promote the use of compressed natural gas CNG to run vehicles in Nigeria.

Downstream - Fuel demand and consumption in Nigeria

1979, 2.3 million metric tons of petrol (pms) was consumed in Nigeria, according to NNPC
records 1989, 4.4 MMT was consumed. In the same year, consumption of petrol grew by
12.8%. The NNPC puts annual growth rate of petroleum products consumption (and demand)
at 12.4%. In 1993, NNPC calculated domestic need for petroleum products as requiring
270,000 barrels per day of crude oil to meet demand. But, according to the NNPC, as at 1994,
we (Nigeria) consumed in excess of 360,000 barrels per day. It is believed that much of this
"excess demand" is smuggled into neighboring ECOWAS states due to the comparatively
cheaper prices of Nigeria’s petroleum products. This is one reason why the NNPC has been
advocating for what it calls "appropriate pricing of petroleum products" since the late 80s.

Legislation Governing Petroleum Activities in Nigeria

Ever since the search for oil commenced, legislations have been passed to control various
petroleum activities in the country through the Petroleum Inspectorate, an independent
regulatory arm of NNPC. The Petroleum Inspectorate is a non-commercial division
responsible for issuing permits and licenses for all activities connected with Petroleum.
Section 9 (2) of NNPC act 1977 makes provision for the Minister of Petroleum resources to
delegate to the Chief Executive of the Inspectorate such powers conferred on the Minister
under the petroleum Act 1969, the Pipeline Act or any other enactment as he may deem fit.
The Petroleum Inspectorate is therefore principally responsible for the enforcement of the
following Acts and Regulations:

Oil Pipeline act cap 145, 1956.

The Minerals Oil Safety Regulations 1963

The Oil Pipeline Act No. 1965.

Petroleum Regulation 1967.

Oil in Navigable waters 1968.

Oil terminal Dues act 1969.

Petroleum decree 1969.

Petroleum (Drilling and Production) Regulation 1969.

Petroleum (Refining) Regulations 1974.

Petroleum Production and distribution (Anti-Sabotage) Act 1975

Associated Gas Re-injection Act 1979

Associated Gas Re-Injection (continued flaring of Gas Crude Oil (Transportation

Shipment) Regulations 1984

Associated Gas Re-Injection (Amendment) Decree 1985

Petroleum Products (Identification of Tankers) Regulations 1985.

To discharge some of its responsibilities, the Inspectorate requires the co-operation of Law
Enforcement Agencies, the Nigerian Ports authority, Customs and Exercise Department and
the Nigerian Navy. The objectives which the government seeks to achieve through the
various petroleum laws and regulations can be broadly defined as follows:

Assertion of national sovereignty; Continuous exploration within the national territory, so as

to have full assessment of the country’s petroleum potentials; Ensuring efficient petroleum
operations, having regard to methods of operation and conservation; Satisfying domestic
petroleum needs from domestic production and ensuring efficient distribution, marketing and
pricing of petroleum products; Securing maximum government revenue and foreign
exchange benefits from petroleum production; Obtaining the transfer of petroleum
technology and the development of domestic technical expertise with the aim of exercising
effective control over the petroleum industry; Protection of the environment from oil and gas
pollution; Exercising the maximum possible national control over the petroleum so as to
ensure that petroleum sector activities are consistent with national economic development
plans and policies.

In the absence of an independent Petroleum Inspectorate, the Department of Petroleum

resources, DPR, an arm of the Federal Ministry of Petroleum and Mineral Resources is
presently vested with the authority of the body referred to here as the Petroleum Inspectorate.

A brief summary of the current and most significant petroleum legislations is presented as
follows under appropriate headings.

Ownership Of Petrol

Under the Petroleum Act 1969, The entire ownership and control of all oil and gas in place
within any land in Nigeria, under its territorial waters and continental shelf is vested in the
state of Nigeria. The Constitution of the Federal republic of Nigeria 1979 further emphasized
the state ownership in section 40 (3) which provides that "the entire property in and control of
all mineral oils and natural gas in, under or upon the territorial waters and the Exclusive
Economic Zone of Nigeria shall be vested in the government of the Federal Republic of
Nigeria and shall be managed in such manner as may be established by law".

Pipelines

Oil Pipelines Act Cap 145,1958 of the Laws of the federation; Oil Pipelines Act 1965, No.
24. The Oil Pipelines Act of 1958 and updated in 1965 makes provisions for licenses to be
granted for the establishment and maintenance of pipelines incidental and supplemental to oil
fields and oil mining and for purposes ancillary to such pipelines. The Act provides, among
other things, for the right and obligations of the holder of a license, payment of compensation
for economic crops and property damaged, payment of survey fees and other miscellaneous
matters.
Petroleum Production

The following legislations relate to the production of petroleum:

The Act vests all petroleum in place in the state. It provides for the granting of Oil
Exploration Licenses, Oil Prospecting Licenses and Oil Mining Leases and Licenses to
construct and operate refineries by the Minister of Petroleum Resources. The act gives the
Minster power to control petroleum, petroleum products and pricing. The Act is the most
comprehensive legislation on petroleum and gas in the country.

Petroleum (Drilling and Production) Regulations 1969 and its Amendment 1973.

These relate to Oil Exploration Licenses, Oil Prospecting Licenses and Oil Mining Leases.
The regulation provides for the form of licenses and the right and powers of holders. It also
provides for the obligations of leases and licenses, recruitment and training of Nigerians.
Other regulations relate to commencement of exploration and drilling, field development,
accounts and records, fees, rent and royalties.

Oil Exploration License (OEL)

A non-exclusive license and limited period, and the regulation size of an OEL is 5,000 sq.
miles (12,959 sq. km).

Oil Prospecting License (OPL)

This confers exclusive rights of surface and subsurface exploration for petroleum in an area
not more than 2,590 sq. km. (100 sq miles) in size for an initial period of three years with an
option of renewal for a maximum of two years. The holder of an OPL has a right of
petroleum won during prospecting operations, subjects to obligations imposed upon him
under the Petroleum Profit act 1959.

Oil Mining Lease (OML)

This grants exclusive rights to explore, win, produce, transport and carry away petroleum
from leased area subject to the Petroleum Act 1969 and any special terms and conditions
imposed. The size of an OML as stipulated in the Regulations is 1,295 sq. km. (500sq. miles)
and the specified duration is 20 years, while only the holder of an OPL is entitled to apply for
an OML.

Fiscal Requirements:
Petroleum Profit Tax Act 1959

This is a principal legislation on Petroleum Profits Tax (PPT), with amendments in 1967,
1970, 1973, 1977 and 1979. It has now been consolidated into the main Act in the revised
edition of the Laws of the Federation of Nigeria 1990 and cited as the Petroleum Profits Tax
Act 1959, Cap 354, Laws of the Federation of Nigeria, 1990. The PPT imposes tax upon
profits from petroleum proceeds in Nigeria to the tune of 85% with effect from 1st April,
1975. A reduced rate of 65.75% is payable within the first five years, allowing for all pre-
production capitalized expenses to be fully amortized.

Exemption of Petroleum Operations from Companies Income Tax Act 1979 CITA, Cap 60,
Laws of the Federation of Nigeria 1990

The profits for any company engaged in Petroleum operation as defined by the PPT Act
1959, shall be exempted from the tax imposed by CITA, as long as those profits are derived
from such operations and liable to tax under that Act.

Royalty

Royalty is charged as a percentage of the official selling price (OSPs) of petroleum produced
at the rates varying between 161.3 and 20% depending on whether the concession is on or
offshore and on depth of water for offshore concession.

Memorandum of Understanding (MOU)

The Memorandum of understanding Agreement (MOU) was signed in January, 1986 between
the Federal Government and each of the oil producing companies on incentives for
encouraging investments in exploration and development activities and enhancing crude oil
exports. Designed to guarantee to the oil companies a profit margin irrespective of market
conditions, the MOU provided a minimum margin of $2 per barrel by January, 1986 and
$2.30 from July, 1991,after Tax and Royalty, to the companies on the equity crude oil.

Associated Gas Re-Injection Act 1979 No.99

This Act, which is the only legislation so far on gas, makes it obligatory for every company
producing oil in Nigeria to summit detailed plans for gas utilization. The Act also stipulates
that no company engaged in production of oil shall after January 1, 1984 flare gas produced
in association with oil without permission in writing from the Minister.
Associated Gas Re-Injection (Continued Flaring of Gas Regulations 1984)

In view of the limited domestic market for gas and the high cost associated with gas
development, the oil companies could not embark on any gas development program. Since
Government depends on oil production for her revenue, she had to review the 1979 gas Re-
Injection Decree to enable the oil companies to produce oil. The Regulations set out the
conditions for the issuance of Certificate by the Minister under Section 3 (2) of the
Associated Gas Re-Injection Act 1979 for the continued flaring of gas in a particular field or
fields by companies engaged in the production of oil and gas.

The Associated Gas Re-Injection (Amendment) Decree No. 7 of 1985

This Decree was promulgated with effect from 20th April, 1985 to deal the problems arising
from the implementation of the associated Gas Re-Injection Act 1979. A new subsection 2 in
the amended Decree was substituted for subsection 2 of section 3 of the 1979 Act. The 1985
Decree permits a company engaged in the production of oil and gas to continue to flare gas in
a particular field or fields if the issues a certificate to that effect and if he is satisfied after
January 1, 1984 that utilization or re-injection of the produced gas is not appropriate or
feasible in the particular field or fields. The certificate is subject to such terms and conditions
as the Minister may impose. The certificate may permit the company to continue to flare gas
in particular field or fields if the company pays such sum as the Minister may from time to
time prescribe for every 28.317 standard cubic meter of gas flared. The fee prescribed is
eleven kobo per 28.317 standard cubic meter of gas flared. Payments shall be made in the
same manner and subject to the same procedure as for the payment of royalties by companies
engaged in the production of oil i.e. in foreign currency.

Oil Pollution Control Provision Under Existing Statues

The Statues listed below which deal with oil pollution are designed to prohibit or control the
pollution of water, air and land and they also prescribe sanctions in the form of fines,
imprisonment or damages to be enforced against persons or companies who infringe the
provisions.

Petroleum Regulation 1967 Oil in Navigable Waters Act 1968 Oil in Navigable Waters
Regulations 1968 Petroleum Act 1969 Petroleum (Drilling & Production) Regulations 1969
Petroleum (Drilling & Production) Amendment Regulations 1973 Petroleum Refining
Regulations 1974; and Oil Pipelines Act 1956. Petroleum Product Pricing

The Petroleum Equalization Fund (Management Board etc.) Act 1975 establishes the Fund
which is to be applied for the reimbursement of oil marketing companies for any losses
suffered by them arising from the sale of petroleum products at uniform prices throughout the
country. The prices are fixed by the Minister pursuant to Section 5 (1) of the Petroleum Act
1969 and is managed by a Management Board also established by the Act.
Oil Pipeline The Oil Pipelines Act Cap 145 of the laws of the Federation 1958 lays down
penalties for any person who willfully hinders or obstruct any licenses from entering or
taking possession or using any land comprised in the license or without lawful authority
interferes with or causes damage to any oil pipeline. The Petroleum Production and
Distribution Anti-Sabotage Act 1975 prescribes more severe penalties.

The Decree creates the offence of sabotage in respect of willful acts calculated to disrupt or
interfere with the distribution of petroleum products. Offenders are to be tried by Military
Tribunals to be constituted by the Head of the Federal Military government. Persons found
guilty of the offence of sabotage are liable to death sentences or to imprisonment for 21
years. A stricter penalty of death by firing squad was provided under section 6 (2) (e) of the
Special Tribunal (Miscellaneous offences) Decree No. 20 of 1984, which provides that "any
person who willfully or maliciously obstructs, damages, destroy or otherwise tampers or
interferes with the free flow of any crude or refined petroleum product through an oil pipeline
shall on conviction be liable to suffer death by the firing squad".

Winners of the 2nd Bidding Round Concessions

NAME OF COMPANY CONCESSION HELD BASIN

ALFRED JAMES NIG. LTD. OPL-302 BENIN

AMALGAMATED OIL OPL-452 NIGER

ATLAS PETROLEUM OPL-75 NIGER

BRITISH PETROLEUM./STATOIL OPL-213,217,218 NIGER

CAVENDISH PETROLEUM OPL-453, NIGER

CHEVRON NIG. OPL-801,805,810,820,812,818,822 BENUE

CHEVRON NIG. OML-46-55,89-95,97 NIGER

CONOCO (DU PONT) OPL-220 NIGER

CONSOLIDATED OIL LTD. OPL-112,458 BENUE

DUBRI OIL OML-96 NIGER

EXXON OPL-209

ALLIED ENERGY OPL-210

ELF NIG. LTD OPL-447,93,95-97 NIGER

ELF NIG. LTD OML-99,102 NIGER

ELF NIG. LTD OPL-222,223,802,807 CHAD

ELF NIG. LTD OMLS-56-59 CHAD

EXPRESS PET. & GAS CO. OPL-74 NIGER

MOBIL PRODUCING OPL-94,221 NIGER

MOBIL PRODUCING OML-67-70 NIGER

MONCRIEF OIL OPL-471 NIGER

NIG AGIP OIL CO. OPL-228,221,316 NIGER

NIG AGIP OIL CO. OPL-808,811,818 BENUE

NIG AGIP OIL CO. 823,824,829,830,836. BENUE

NIG AGIP OIL CO. OLL-60-63 NIGER

IPEC GENERAL OIL OPL-304 BENIN

INKO PETROLEUM OPL-224 NIGER

NIGUS OPL-496 NIGER

NNPC/AERN OPL-472 NIGER

NNPC/ASHLAND OPL-90,98,118,225 NIGER

NNPC/(DES) N/A CHAD

NNPC/SUNLINK OPL-474 NIGER

NOREAST OPL-215 NIGER

NOREAST OPL-840 BENUE

NOREAST OPL-902 CHAD

NPDC OPL-91,110 NIGER

NPDC OML-64-66 NIGER

OPIC OPL-208 NIGER

PACLANTIC OPL-204 NIGER

PAN OCEAN OML-98 NIGER

QUEEN PETROLEUM OML-135 NIGER

SEAGULL OPL-230 NIGER

SHELL OPL-803,806,809 BENUE

SHELL OPL-212,219 NIGER

SHELL OML-1,4,5,7,11-46 NIGER

SHELL 71-74,76,77,79,81 NIGER

SOLGAS NIG. OML-226 NIGER

SUMMIT OIL SUMMIT OIL NIGER

TEXACO OPL-460 NIGER

TEXACO OML-83-88 NIGER

ULTRAMAR ENERGY INTL. OPL-227 NIGER

UNION SQ PETROGAS OPL-201 NIGER

YINKA FOLAWIYO OPL-309 BENUE

Crude Oil Export Terminals

BONNY: -Operator: Shell Petroleum Development

Location: About 560 km S.E of Lagos.

Loading Capacity: 6,500 T/H

22km of sea line with 2 single buoy moorings, for tankers

loading up to 300,000 – 230,000 DWTStorage Capacity: Not available

FORCADOS: -Operator: Shell Petroleum Development

Location: About 260 km S.E of Lagos.

Loading Capacity: 11,000 T/Hr

26 km sea line with 2 single buoy moorings for tankers loading up to 254,000 DWT

(Total storage capacity Bonny-Forcados: 13 million bbls.

ESCRAVOS: -Operator: Chevron Nigeria Limited

Location: About 220 km S.E. of Lagos

Loading Capacity: 3,750 T/Hr

30 km of sea line with 2 single buoy moorings for tanker, loading up to 350,00 DOT

Storage capacity: 3.6 million barrels

QUA IBO: -Operator: Mobil Producing

Location: About 650 km S.E. of Lagos

Loading Capacity: 3,750 T/Hr

21 km of sea line with 2 single buoy moorings for tankers loading up to 285,000 DWT

RASS -Operator: Nigerian Agip Oil Company, NAOC

Location: about 470 km S.E. of Lagos 26 km of sea line with 2 single buoy moorings for
tankers

Loading up to 300,000 DWT

Storage Capacity: 3,558 million barrels

PENNINGTON: -Operator: Texaco (Overseas) Nigeria

Location: About 370 km S.E. of Lagos

Loading Capacity: 2,000 T/Hr

Tankers up to 250,000: Not Available

We sincerely hope that this information will lure you to invest in the greatest country in
Africa and take advantage of the tremendous opportunities that exist in the Nigerian oil and
gas sector. The truth of the matter is that in spite of the negative international publicity about
the Nigerian economy and market, smart multibillion dollar companies are still investing in
the Nigerian economy and making billions of hard core foreign exchange.

We guarantee you a fraud free environment when you use our consulting, equipment and
licensing services to do business in the Nigerian crude oil and gas sectors.

Thanks