Heritage Oil PLC (TSX: HOC; LSE:HOIL) Capital Markets Day


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Heritage Oil Plc is an independent oil and gas exploration and production company with a Premium Listing on the London Stock Exchange (symbol HOIL). The Company is a member of the FTSE 250 Index. The Company has Exchangeable Shares listed on the Toronto Stock Exchange (symbol HOC) and the London Stock Exchange (symbol HOX). The Company has exploration assets in the Kurdistan Region of Iraq ("Kurdistan"), Malta, Tanzania, Mali and the Democratic Republic of Congo (the "DRC") and a producing asset in Russia.

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Heritage Oil PLC (TSX: HOC; LSE:HOIL) Capital Markets Day

  1. 1. Heritage Oil Plc Capital Markets Day, 30 January 2013January 2013
  2. 2. Disclaimer – Important NoticeCertain information in this presentation is based on management estimates. Such estimates have been made in good faith and represent the genuine belief of applicable members of management. Those management members believethat such estimates are founded on reasonable grounds. However, by their nature, estimates may not be correct or complete. Accordingly, no representation or warranty (express or implied) is given that such estimates are correct orcomplete. No representation or warranty (express or implied) is given that such estimates are so founded. Neither the Company nor J.P. Morgan Cazenove or Standard Bank undertake any obligation to correct or complete any estimatewhether as a result of being aware of information (new or otherwise), future events or otherwise.Overseas shareholdersThis presentation has been prepared for the purposes of complying with English law and the Listing Rules of the FSA and information disclosed may not be the same as that which would have been prepared in accordance with the lawsof jurisdictions outside England.Persons who are not resident in the United Kingdom may be affected by the laws of jurisdictions other than the United Kingdom. Such persons should inform themselves about and observe any applicable requirements of suchjurisdictions. Any failure by such persons to comply with any applicable restrictions may constitute a violation of the securities laws of any such jurisdiction. To the fullest extent permitted by applicable law, the companies involved inthe proposed Divestment, J.P. Morgan Cazenove and Standard Bank disclaim any responsibility or liability for the violation of such restrictions by any person.Copies of this presentation are not being, and must not be, mailed or otherwise forwarded, distributed or sent in, into or from any jurisdiction where to do so would constitute a breach of securities laws in that jurisdiction. Personsreceiving this presentation (including custodians, nominees and trustees) should observe these restrictions and should not send or distribute this presentation in, into or from any such jurisdictions.CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION:This presentation includes statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking statements include, but are not limited to, statements with regard to the outcome of the exercise of theShoreline Option, proposed Divestment, Loan, future production and grades, projections for sales growth, estimated revenues, reserves and resources, targets for cost savings, the construction cost of new projects, the timing andoutcome of exploration projects and drilling programmes, projected capital expenditures, the timing of new projects, future cash flow and debt levels, the outlook for the prices of hydrocarbons, the integration of acquisitions, theoutlook for economic recovery and trends in the trading environment, statements about strategies, cost synergies, revenue benefits or integration costs and production capacity and future production levels and timing, and may be (butare not necessarily) identified by the use of words such as “believes”, “estimates”, “plans”, “projects”, “anticipates”, “expects”, “intends”, “may”, “aims”, “plans”, “predicts”, “continues”, “assumes”, “positioned”, “will”, or “should” andother similar expressions that are predictions of or indicate future events and future trends or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are nothistorical facts and include statements regarding the Company’s intentions, beliefs or current expectations. An investor should not place undue reliance on forward-looking statements because, by their nature, they involve known andunknown risks, uncertainties and other factors and relate to events and depend on circumstances that may or may not occur in the future that are in many cases beyond the control of the Company. A number of factors could causeactual results and developments to differ materially from those expressed or implied by the forward-looking statements. In particular, there is no assurance that the conditions precedent to completion of the proposed Divestment willbe satisfied or waived and the Company may not realise the anticipated benefits, operational and other synergies and/or cost savings from the proposed Divestment or the Loan repayment.Any forward-looking statements in this presentation reflect the Company’s view with respect to future events as at the date of this presentation and are subject to risks relating to future events and other risks, uncertainties andassumptions relating to the Company’s operations, results of operations, growth strategy and liquidity. None of the Company, J.P. Morgan Cazenove or Standard Bank undertake any obligation publicly to release the results of anyrevisions or up-dates to any forward-looking statements in this presentation that may occur due to any change in its expectations or to reflect events or circumstances after the date of this presentation.Subject to certain exceptions, neither this presentation nor any copy of it may be taken or transmitted into the United States, its territories or possessions or distributed, directly or indirectly, in or into the United States, its territories orpossessions. Neither this presentation nor any copy of it may be taken or transmitted into any other jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction or to any securities analyst or otherperson in any of those jurisdictions. Any failure to comply with this restriction may constitute a violation of United States or other applicable securities law. The distribution of this presentation in other jurisdictions may be restricted bylaw and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. This presentation does not constitute or form a part of any offer or solicitation to purchase or subscribefor securities in the United States. The securities referred to herein have not been and will not be registered under the US Securities Act of 1933 (the “Securities Act”), and may not be offered or sold in the United States absent anexemption from, or in a transaction not subject to the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no publicoffer of any securities of Heritage in the United States. The securities referred to herein have not been and will not be registered under the applicable securities laws of any other restricted jurisdiction and, subject to certain exceptions,may not be offered or sold within any jurisdiction where to do so would constitute a violation of the relevant laws or to any national, resident or citizen of such jurisdiction.This presentation constitutes an advertisement within the meaning of the Prospectus Rules of the FSA and is not a prospectus and has been prepared solely in connection with the proposed Divestment. Copies of certain corporatedocuments relating to certain matters discussed herein are/will be available from the Company’s registered office and from 34 Park Street, London, W1K 2JD and are/will be available for viewing on the Company’s website atwww.heritageoilplc.com.Important InformationThis presentation does not constitute an offer to sell, or the solicitation of an offer to buy, exchange, or transfer any securities of Heritage. The value of ordinary shares of Heritage and exchangeable shares of Heritage Oil Corporationexchangeable into ordinary shares of Heritage can go down as well as up and past performance cannot be relied on as a guide to future performance.. 1 1
  4. 4. Capital Markets Morning Section Presenter Page Introduction and Overview Paul Atherton 5 OML 30 – Transaction Details and Overview Paul Atherton 19 OML 30 – The Assets, Fields, Infrastructure Steve Kobak 26 OML 30 – Field Development Steve Kobak 43 OML 30 – Environmental and CSR Kola Karim 54 Nigeria Kola Karim 57 Production – Russia Steve Kobak 61 Exploration Brian Smith 64 Summary Paul Atherton 75 3
  5. 5. Biographies Paul Atherton – CFO, Director Mr. Atherton is a qualified accountant, having qualified with Deloitte & Touche, and holds a degree in geology from Imperial College London. He has a corporate finance background with specific experience in the international mining and resource sectors. He joined Heritage in 2000 and subsequently joined the Board of Directors in 2005. . Steve Kobak, VP Production Mr. Kobak, a qualified engineer, has 27 years of experience in oil and gas production operations, reservoir studies and asset development. The companies he has worked for include ESSO, Shell International and Khanty Mansiysk Oil Corporation in Western Siberia where he held senior management positions guiding technical and operations activities. He has extensive international experience working in Russia, the Far East, Middle East and Canada. Mr. Kobak joined Heritage in 2007. Brian Smith, VP Exploration Mr. Smith has 30 years experience in the oil industry. He initially worked as an exploration geologist for Exxon in the North Sea and Gulf of Mexico. Later he joined Enterprise Oil where he managed various exploration projects in the Far East and Eastern Europe/FSU. He joined Heritage as Vice President, Exploration in 1997. Kola Karim, Director Shoreline Natural Resources Mr. Karim is Group CEO and Managing Director of Shoreline Energy and Shoreline Power. Mr. Karim holds an MBA from the University of Leicester and degree in Business Management from City University; he is also an alumni member of the Harvard Business School for the Executive Management Programme and the Harvard Kennedy School for the Leadership and Public Policy programme. He was awarded Young Global Leader Award in 2008 by the World Economic Forum. 4
  7. 7. Transformational GrowthTSR Versus Peers Since TSX Listing, %10,000 2P Reserves Heritage Tullow Oil Premier Oil Soco International Afren Salamander Energy 1999: 2.5 million barrels9,000 2013: 412 million barrels8,000 7,000 Production 1999: 367 bopd6,000 2013: 11,583 bopd5,0004,000 Market Capitalisation 1999: US$13 million3,000 2013: US$848 million2,000 1,000 Cash raised from equity markets: US$370m 0 Cash raised through sale Jan 99 Jan 01 Jan 03 Jan 05 Jan 07 Jan 09 Jan 11 Jan 13 of assets: US$2bn Dividend of c.US$500m paid in 2010 Source: Factset and Datastream as of 25 January 2013 6
  8. 8. Ability to Deliver and Provide Substantial Growth •Acquisition of a world class asset providing a step change in production, reserves and cash Completion of OML 30 Acquisition flow •Creates a platform upon which to build within Nigeria •Attractive valuation secured for a development asset with a significant future capital expenditure requirement Completion of Miran Disposal •Proceeds used to partially fund entry into Nigeria and also to continue exploration and development of the existing portfolio •Strong balance sheet Financial Flexibility •Potential to develop and strengthen the portfolio through further acquisitions •Exceptional record of generating value and monetising assets Value Generation •Raised US$2bn in asset sales with the current management team •Look to acquire assets that are underdeveloped or overlooked Strategic Advantage •Early mover advantage •Discovered four of the five largest onshore discoveries in Sub-Saharan Africa (excluding Technical Skillset Nigeria) in the last ten years •Depth and breadth of industry experience •Ability to mitigate risk associated with political and security issues through local partners, Management of Risk on-the-ground experience and engagement with local communities •Balanced portfolio of exploration and production assets 7
  9. 9. Diversified Portfolio Across Core Areas Production Exploration Russia 95% Zapadno Malta Chumpasskoye  Produced c.617 bopd in Q3100% Area 2 2012.100% Area 7 Well planning ongoing. LibyaSahara Oil Services Pakistan 51% equity interest and control 54% Sanjawi Block of Sahara Oil Services which 48% Zamzama North Block will provide access to the  Initial interpretation of Libyan oil industry. Tanzania existing seismic has identified 29.9% Latham several prospects and leads. 100% Rukwa North Basin 100% Rukwa South Basin 100% Kyela  Work programmes on Rukwa and Kyela have commenced.  Rukwa legacy 2D seismic has Nigeria been processed and additional seismic is being acquired. OML 30  Kyela gravity survey has been • Major interest in OML 30 interpreted and seismic through Shoreline Natural acquisition has completed. Resources. Produced gross c.35,7oo bopd in November 2012. 8
  10. 10. Heritage Relative to Peer Group2P Reserves, mmboe Market Capitalisation, US$ million 500 5,000 16,966 412 400 380 4,000 296 3,133 300 3,000 2,458 185 2,009 200 2,000 130 100 75 848 773 62 1,000 399 0 02013E Production, kbpoed FV/2P Reserves, US$/boe 100 50 46.5 89 40 75 67 30 50 44 20 16.4 14.1 13.4 21 11.4 25 16 14 12 10 3.4 2.3 0 0Source: Factset as of 25 January 2013, company reports, and Woodmac for Soco and Salamander Energy 2013E production estimates 9
  11. 11. OML 30 – DRIVING GROWTH 10
  12. 12. Nigeria, OML 30  45% interest in OML 301 acquired by Shoreline Natural Resources (“Shoreline”)2  Onshore Nigeria, located less than 50 kilometres east of Warri  Lease covers 1,097 square kilometres with eight producing fields; Afiesere, Eriemu, Evwreni, Kokori, Oroni, Oweh, Olomoro-Oleh, Uzere West  850,000 bpd pipeline to export terminal  Gross production of c.35,700 bopd reported for November 2012 with the potential to significantly increase to c.100,000 bopd in the medium term and c.300,000 bopd in the long term, according to RPS evaluation¹ OML 30 is 55% owned by Nigerian Petroleum Development Corporation (“NPDC”)2 Shoreline equity split is 45% Heritage, 55% Shoreline Power Company 11
  13. 13. OML 30 - A Transformational Acquisition  Completed in November 2012, 45% interest in OML 30, located onshore Nigeria, acquired by Shoreline Acquisition of world  Gross production c.35,700 bopd reported for November 2012 class asset  Largest ever upstream asset transaction in sub-Saharan Africa on a 2P basis1 Step change in  Step change in net production to Heritage, increasing from 617 bopd in Q3 2012 to c.11,350 bopd year end exit rate production and reserves  2P crude reserves net to Heritage increase from 65 mmbbls to 412 mmbbls  Local partner Shoreline Power is an indigenous pan-African energy and infrastructure business with an existing Combining Nigerian relationships with network of strong and respected relationships within Nigeria technical expertise  Heritage has a strong technical team with relevant geographic experience  Proved reserves of 37.2 bn bbls2, the largest in sub-Saharan Africa, 2nd largest in Africa and 10th largest in the world Exposure to Nigeria  Largest African producer with 2.5 mmbbls per day, with well-established infrastructure from over 50 years of oil production Diversification in  Balancing exploration with production, within core geographic areas core areas  Oil focused producing lease1 Herold, based on publicly sourced data2 BP Statistical Review 2012 12
  14. 14. Acquisition Provides A Step Change in Production and ReservesNet Production, bopd Net Reserves, mmbbls12,000 45010,0008,000 3006,0004,000 1502,000 0 0 Heritage pre OML 30 Heritage post Heritage pre OML 30 Heritage post acquisition acquisition acquisition acquisition  Production:  2013 average 45,000 bopd gross from OML 30, net to Heritage 2013 production is expected to be 14,300 bopd  2014 average 70,000 bopd gross from OML 30, net to Heritage 2014 production is expected to be 22,000 bopd  Reserves  OML 30 gross 2P reserves of 1,114 million barrels  2P crude reserves net to Heritage increase from 65 mmbbls to 412 mmbbls 13
  15. 15. Positioning Shoreline within Nigeria’s Indigenous Oil Sector2P Reserves, mmbbls Latest Reported Production, bopd 600 18,000 500 16,000 14,000 400 12,000 10,000 300 8,000 200 6,000 4,000 100 2,000 0 0 Nigeria’s indigenous oil sector is being strengthened by asset divestments from IOCs over the past 3 years Shoreline’s acquisition of OML 30 positions it as one of the largest indigenous oil companies in Nigeria Establishes Shoreline with critical mass of reserves and production to be leading player in the Nigerian oil sector Creates reputable platform with execution experience for potential future transactions 14
  16. 16. Recent Divestments  OML 30 is one of a number of licences that have been divested in the Niger Delta recently  OML 30 has been Niger Delta referred to as the Western premier asset due to location, reserves, current production, Neconde availability of facilities and proved development capability 15
  17. 17. Attractive Acquisition Metrics US$ per 2P Reserves of Precedent Transactions1  Attractive acquisition cost of US$1.7/2P reserves versus average 10 of US$5.9 for precedent transactions  Significant discount compared to similar recent onshore 8 transactions in Nigeria Average of precedents  Long-life asset with 2P reserve life of 87 years at current 6 production of c. 35,000 bopd  OML 30 immediately cash generative upon completion 4  Comparable transactions based on onshore Nigeria assets sold 2 during last 3 years by IOCs:  Oando acquisition of OML 60-63 announced December 0 2012 (yet to be completed) OML 30 OML 60 - OML 40 OML 42 OML 26 OML 4, 38,  Eland acquisition of OML 40 announced August 2012 63 41  Neconde acquisition of OML 42 announced April 2011 FV/2P Comparison with Selected Peers, US$/boe  Afren/FHN acquisition of OML 26 announced October 46.5 2010 50  Maurel & Prom/Seplat acquisition of OMLs 4, 38 and 41 40 announced January 2010 OML 30 acquisition 30 multiple 20 16.4 14.1 13.4 11.4 10 3.4 2.3 1.7 0¹ Based on 2P reserves at announcement. No “2P case” published for OML 42, RPS “mid-case” used as proxyNote: FV calculated based on market capitalisation from Factset as of 25 January 2013 and net debt from latest company filing 16
  18. 18. OML 30 – The Opportunity Historical Drilling  Over 200 wells have been drilled on the licence since 1961 with Wells Drilled Annually most drilling completed prior to 1992 30 300 Cumulative Wells  All wells are producers as the reservoirs are underlain by a strong 25 250 aquifer Cumulative Wells Wells per Year 20 200  Sporadic drilling as the licence was not considered core and therefore over-looked and under developed 15 150  Production from the licence commenced in 1963 and peaked in 10 100 1971 at c. 280,000 bopd 5 50  Over the period 2006 to 2009 production was severely impacted by both security and funding issues 0 0  These issues are less relevant for Shoreline and will make it easier to bring production back on Historical Oil Production, ‘000 bopd  Production of c.35,700 bopd as at November 2012 300 250 200kBopd 150 100 50 0 17
  19. 19. OML 30 - Independent EvaluationOML 30 Summary of Reserves  Independent evaluation of OML 30 and Heritage’s existing assets Gross Heritage Group Remaining Reserves Net Entitlement  2P valuation range of US$2.2 to US$2.7 billion at 10% discount Reserves rate Gross of Net of Gross of Net of  RPS report does not factor in additional upside from gas reserves, Royalty Royalty Royalty Royalty remaining undeveloped reservoirs and behind pipe reserves in (mmstb) (mmstb) (mmstb) (mmstb) developed reservoirs where new wells are not expectedProved Reserves (1P) 538 430 168 134Proved & Probable 1,114 891 347 277Reserves (2P)Proved & Probable & 1,733 1,387 539 431Possible Reserves (3P)OML 30 Post-tax Valuation Net to Heritage Base Income Tax Alternative Income Scenario1 Tax Scenario2 ($million) ($million) Post–tax NPV (10%) Post–tax NPV (10%)Proved Reserves (1P) 1,189 1,410Proved & Probable 2,162 2,652Reserves (2P)Proved & Probable & 3,129 3,820Possible Reserves (3P)1 Assumes the income tax applicable under current Nigeria law2 Assumes the income tax under changes to Nigerian Law which Heritage believes might occur 18
  20. 20. Transaction Details and Structure 19
  21. 21. Combining Nigerian Relationships with Technical Expertise Acquisition StructureHeritage Oil  FinancialPlc strength  Technical and operational expertise  Experienced Buyer Vendors African Leading auction US$850m operator and investor (indigenous Nigerian Company) 45% of OML 30 30% 10% 5%Shoreline  LocalPower knowledge and expertise  Operations throughout Nigeria and West Africa NPDC (Operator)  Energy and infrastructure operating 55% 45% expertise  Network of contacts in the Nigerian oil and gas community OML 30 Oil mining lease in Nigeria 20
  22. 22. Capital StructureShoreline Shareholder Arrangement & Debt Funding  Shoreline Natural Resources is an indigenous company based on equity split; Shoreline Power holds 55%  Economic interest takes into account equity capital funded by each shareholder and profit share  Shoreline Power entitled to 2.5% profit share 45% equity interest 55% equity interest  Consideration for Shoreline Power Call Option is 30% of equity funding into Shoreline Natural Resources at time of exercise  Equity funding is through shareholder loans  Relationship between Heritage and Shoreline Power governed by shareholder agreement  Acquisition was funded through 18 month US$550 bridge loan facility of US$550 million into million bridge Shoreline Natural Resources from Standard facility Bank  Bridge facility has been syndicated to Nigerian banks and China Development Bank  Shoreline Natural Resources currently finalising 45% options to re-finance the bridge facility with a 5- year debt instrument OML 30 21
  23. 23. The Operating Framework Shoreline owns a 45% interest in OML 30, NPDC own 55% and is operator The two companies work under the terms of a Joint Operating Agreement which is typical within industry Additionally, NPDC have solely entered into an agreement with Atlantic Drilling, a Nigerian company, to provide financial and technical assistance for their 55% interest. Atlantic provides technical services, preparing drilling plans as an example, supplies any cash shortfalls and is paid from the NPDC 55% share of revenues according to the terms of their agreement Atlantic NPDC Shoreline Drilling SHELL OML 30 Operating Staff OML 30 22
  24. 24. The Operating Relationship  OML 30 is managed along the lines of most JOA agreements Shoreline  NPDC and Shoreline have established the OML 30 OPCOM to provide recommendations on programmes, budgets and asset management. OPCOM is composed of equal numbers from the two owners SUBCOM  OPCOM decides on items that will be accepted or require further study  Studies are carried out under the direction of SUBCOMs. Those studies include all aspects of managing OML 30  SUBCOM recommendations are in turn passed to TECOM for technical NPDC approval  When approved at OPCOM the issue is presented to NPDC and TECOM Shoreline for approval  Shoreline sells its 45% of production through a five year marketing contract with Shell and receives funds direct OPCOM The key to successful management and development of OML 30 is communication, respect and a shared vision 23
  25. 25. Shoreline is an Indigenous Nigerian CompanyShoreline Corporate Governance Shoreline is one of the leading indigenous companies producing  Shareholder agreement applies corporate governance standards in Nigeria and ensures management efficiency Combines Shoreline Power’s energy and infrastructure operating  Shareholder agreement covers matters requiring unanimous expertise and respected network of relationships within Nigeria approval with Heritage’s strong technical team with relevant geographic  Five directors; two appointed by Heritage expertise  Advisory board to include senior figures from local stakeholders Shoreline and Heritage are developing close relationships with local communities and other stakeholders  Strong Nigerian profileProfit-Sharing Agreement Operatorship Post-Transaction Shareholder Agreement provides for an economic interest that is  Operatorship is transferring to NPDC, a subsidiary of the state oil different to the equity interest company Nigerian National Petroleum Corporation (“NNPC”) Shoreline Power has exercised the option to acquire a 30%  Highest quality members of existing Shell Nigeria operating team participating economic interest, for which Heritage will receive will be transferred across over US$100 million  Shell is providing assistance during the transition period 24
  26. 26. Organogram of Shoreline Chief Executive Director and CFO Officer Lagos London Nigeria CEO Assistant Organisation Assets Technical Organisation Chief Financial Chief Operating Controller VP Production Officer Production Secretary Technologist Finance Technical Head, Human CommercialLondon Finance Manager Director Resources Director Production Engineer Organisation JV Joint venture Accountant Corporate Production Protocol Reservoir Engineer Operations Accountant Engineer Specialist Accountant Joint Venture Reservoir Facilities Engineer Accountant IT Specialist (PT) Accountant Engineer Joint Venture Pipeline Engineer Geologist Accountant Facilities Geophysicist Engineer Geologist Geophysicist 25
  27. 27. The Assets 26
  28. 28. Nigeria, OML 30  45% interest in OML 301 acquired by Shoreline  Onshore Nigeria, located less than 50 kilometres east of Warri, benefits from being on solid high ground  Lease covers 1,097 square kilometres with eight producing fields  In addition, there is one field not currently in production  850,000 bpd pipeline to export terminal  Infrastructure includes ullage to handle three times current production which is sufficient for near and medium term opportunities and the Trans Forcados Pipeline segment which will provide tariff income  Gross production of c.35,700 bopd reported for November 2012 with the potential to significantly increase to c.100,000 bopd in the medium term and c.300,000 bopd in the long term, according to the RPS evaluation  Contains nine flow stations with a combined capacity in excess of c.395,000 bpd  Associated gas facilities can handle c.42 mmscf/day collected from six flow stations¹ OML 30 is 55% owned by Nigerian Petroleum Development Corporation (“NPDC”) 27
  29. 29. Geology 28
  30. 30. The Niger Delta  OML 30 lies within the Niger Delta, located in the Gulf of Guinea, one of the most prolific oil and gas provinces in the world  From the Eocene to the present, the delta has prograded south- westward, forming depobelts that represent the most active portion of the delta at each stage of its development  These depobelts form one of the largest regressive deltas in the world covering approximately 75,000 square kilometres with a source rock thickness of up to 7,000 metres 29
  31. 31. The Niger Delta cont’d  OML 30 fields are deltaic shallow marine shelf sands (usually shore face sands) at intermediate depth level in growth fault structural setting  Traps are typically related to rollover structures or anticlines of simple fault complexity  Progradation in the face of significant wave reworking has created sheet-like layers of shoreface sand with excellent reservoir quality  The wave action has created reservoirs with porosities of 20-30%  Permeability is typically greater than 500 mD and up to 3,000 mD 30
  32. 32. Reservoir Structure and Traps  The structural configuration in the Niger Delta can generally be characterized as simple rollover structures  The structure is associated with landward dips that are associated with structure building faults located in the northernmost fault blocks of the basin  Structures tend to be bounded down dip by another structure- building fault  OML 30 reservoirs are typically anticlines structures. Some are bound to the north east by faults 31
  33. 33. Stacked Reservoirs  The progradation of the Delta coupled with the sea level changes controlled depositional patterns and caused facies changes that have resulted in stacked reservoirs  Sands with thickness of 10 to 40 metres were sandwiched between shales that created sealing caps above reservoirs  The OML 30 fields each contain up to 40 stacked reservoirs. The seismic section for the Afiesere field shown at left contains twenty one such layers, or stacked reservoirs. The chart illustrates the reserves associated with those reservoirs  An alphanumeric system , that is unique to that field, is used to label the reservoirs. The top reservoir in Afiesere is the J1000 while the deepest reservoir is the M8200  Each layer exhibits different reservoir and hydrocarbon characteristics  Reservoirs contain different types of hydrocarbons ranging from under-saturated oil to gas-condensate  OML 30 reservoirs are typically normally or slightly over-pressured  The reservoirs are underlain by substantial aquifers that provide nearly infinite pressure support 32
  34. 34. The Fields 33
  35. 35. Summary of Major Fields in OML 30 Olomoro- Uzere OML 30 Major Fields Afiesere Eriemu Evwreni Kokori Oroni Oweh Oleh West Total STOIIP 897 1,003 412 1426 1,592 395 412 647 6,784 (mmbbls) Production to date 189 76 52 383 383 40 40 122 1,285 (mmbbls) Remaining Technical 368 49 170 260 78 65 130 1,120 Resource (mmbbls)1 Current production 7 1 1 6 15 4 1 - 35 (kbopd) Discovered 1966 1961 1967 1960 1962 1965 1964 1963 - First 1968 1964 1969 1966 1963 1970 1966 1965 - Production Number of 41 20 14 40 40 8 11 16 190 wells¹ Based on RPS evaluation. Afiesere and Eriemu combined in RPS’s production forecast analysis 34
  36. 36. Infrastructure 35
  37. 37. Infrastructure Overview The licence benefits from all infrastructure being in place  The licence includes 190 production wells, most are dual string. Injection wells and water injection facilities are unnecessary due to the strong aquifers  Well production is collected at one of nine flow stations. The flow stations have the capacity to handle 395,000 bpd, three times current production levels and will handle several years of projected production growth  The facilities are robustly designed and constructed and benefit from following a standard design so equipment can be easily replaced  The facilities have been maintained by Shell and therefore benefit from their worldwide experience and standards Licence includes ownership of the Trans Forcados Pipeline that transports crude 95 kilometres to the Forcados Terminal 36
  38. 38. Field Flow Stations  Production for the wells is gathered at field specific flow stations  The flow stations separate liquid from gas through a simple two stage separation process  Liquids are then pumped via a trunk line collection system to a central manifold at Eriemu and onward through the Trans Forcados Pipeline  Gas is used as fuel for power generation, run the compressors and as gas lift gas. Any remaining gas is flared  Design of the flow stations follows a similar template, and vessels are similarly sized, making operations and maintenance straightforward  Capacity of the stations is listed at left. Total capacity is c. 395,000 bpd. Current throughput is c. 120,000 bpd so there is substantial existing capacity to accommodate future production. The expansion of the facilities is straightforward and has been documented in various FDP’s Capacity Flow Station bbl/d Afiesere 60,000 Eriemu 30,000 Evwreni 30,000 Kokori 90,000 Olomoro-Oleh 60,000 Oroni 30,000 Osioka 15,000 Oweh 30,000 Uzere West 60,000 37
  39. 39. Gas Lift Compressors  Gas lift is the single method of artificial lift within OML 30  Six of the eight fields have gas lift installed. The two remaining fields are planned to have gas lift installed in 2014-2015  Poor compressor performance and high downtime are the cause of inefficient lifting and significant shortfall in daily production  Improving the performance of the gas lift system is projected to increase production by 20% and is the key target in 2013 Gaslift Number of Capacity Compressor Station Units MMscf/d Afiesere 5 21.2 Eriemu gas from Afiesere Evwreni 0 Kokori 3 13.2 Olomoro-Oleh 7 40 Oroni 0 Oweh gas from Olomoro Uzere West 2 10 38
  40. 40. Ughelli Pumping Station  The Ughelli Pumping Station, (“UPS”) is the collection hub for OML 30 and several other operators’ production  The facility has storage for 960,000 bpd of liquid and pumps the liquid from the tanks down the Trans Forcados Pipeline to the Forcados Crude Terminal  Three Solar turbine powered pumps having a total capacity of 660,000 bpd perform the pumping  The currently is used to dewater crude for the Warri refinery. Crude is separated from water via gravity separation and pumped from the tank via a dedicated pipeline to the refinery The 960,000 bbl of storage also provides several days of storage in the event of a shipping disruption on the Trans Forcados Pipeline Future plans call for expansion of the water separation capacity by adding permanent subsurface water disposal facilities including conversion of a suspended well to an injector into the substantial aquifer and providing a water disposal line and injection pumping 39
  41. 41. Gas Export Gas export, surplus to internal requirements for gas lift and fuel, is available for export via the Nigerian Gas Company (“NGC”) facilities The NGC facilities include gas compressors and trunk lines for conserving gas. Total capacity is 42 MMscf/d Gas is collected from the six largest OML 30 fields (Kokori, Afiesere, Eriemu, Oweh, Olomor Oleh and Uzere West) and transported to the nearby Ughelli gas plant where it enters the Nigerian domestic distribution system At present, the system is non operational awaiting NGC to repair the gas gathering pipelines OML 30 has a “domestic supply obligation” of 40 MMscf/d. In the event domestic demand requires it, the licence is expected to supply gas to the domestic and power generation markets of up to 40 MMscf/d. As gas supply far outweighs domestic demand, it is unlikely this obligation will be called on. In the event the supply is required, OML 30 can quickly recomplete an existing well on a gas reservoir and meet this commitment 2.5 TCF of gas in the licence not included in the RPS report NGC Sales Capacity Compressor Station MMscf/d Afiesere 8.8 Eriemu 10.0 Kokori 8.0 Olomoro-Oleh 3.3 Oweh 5.5 Uzere West 6.6 40
  42. 42. Trans Forcados Pipeline  The TFP is owned by OML 30 (45% owned by Shoreline)  This satellite photo illustrates the route of the Trans Forcados Pipeline; stretching from the Eriemu manifold in the east, through the UPS, around the Rapele north of Warri and westwards through MF OML’s 34 and 42 to the Frocados UPS terminal, located within OML 45, where Eriemu the crude is dewatered Field MF  The TFP stretches some 95 km starting Forcados as a 16" pipeline at the Eriemu manifold River MF in OML 30 increasing to 24” on exit from the UPS and increasing to 28” at the Rapele manifold Forcados  Along the pipeline there are several Terminal intermediate tie-in manifolds  Pipeline is buried 41
  43. 43. Trans Forcados Pipeline  OML 30 owns and operates the TFP  Several other operators currently use the TFP to transport crude to Forcados for dewatering and export. Capacity of the line is 850k bpd. Current use is c. 315kbpd  These operators pay OML 30 a ‘Capacity tariff’ ranging from $0.11 to $0.87/bbl and a ‘Production charge’ of $0.17 to $0.44/bbl. The tariffs are based largely on the length of the line that is used  OML 30 does not pay a tariff  TFP projected tariff revenues total $57.4m. The 2012 actual Opex was $4.4m. Advice received from PWC is that the pipeline revenues will be taxed at a corporate income tax rate of 30% 42
  44. 44. Field Development 43
  45. 45. Current Production OML 30 Licence Production: 01-07-2010 to 30-11-2012 60  OML 30 production since 1 July 2010 to 30 November 2012 is UZRE OWEH ORNI OLOM illustrated. Production 50 averaged 35.7 kbopd during KOKR EVWR ERMU AFIE November 2012Oil Rate (000 bopd) 40  Production from Uzere West, averaging 2.5 Kbopd has been shut-in since December 2011 30 due to community issues in the adjacent town of Uzere 20 10 0 44
  46. 46. Realising Existing Potential and Future Upside  Increase production through: Short term  Improved gas lift by refurbishing existing system  Complete repairs to flow and gas lines and tie-in wells  Prevent downtime through improved community relations and share in profits to reduce vandalism  Invest in facilities to increase uptime  Modernise facility control equipment to increase efficiency Medium  Workover existing shut-in wells to improve completions and to install gas lift in wells without term artificial lift  Large stock of proved drilling locations determined from 3D seismic  Upside potential through focused management of the field and employing techniques such as multiple completions and horizontal drilling Long term  Future exploration of deeper targets identified on 3D seismic  Future gas prices may lead to developing gas reserves  Lease extension past 2019; expected to be renewed thereafter as legislation provides for extension 45
  47. 47. Production Profile OML 30 Projected Gross Production, bopd1 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0  Key developments to drive increase in production;  Gas lift  Uphole potential and flowline repairs  Workovers  Further drilling  Exploration potential  Upsides to the base case include development of the asset’s 2.5 Tcf of gas and deeper exploration potential¹ RPS estimates of OML 30 gross Proved plus Probable Reserves (2P) production profile 46
  48. 48. The Work Programme – Gas Lift  Gas lift is the key short term focus  Compressors are operating below design capacity and require refurbishment (pistons, valves, gaskets, etc)  Current compressor uptime c. 65%. Target to increase to 95%. Resulting production gains c.10,000 bopd. Downtime caused by engines tripping due to mechanical integrity issues and fuel gas supply pressure. Study currently underway by the compressor manufacturer  Subsurface gas lift operation is inefficient  Valves not set at correct depths and not working as designed. Results in inefficient lifting and waste of gas lift gas  Detailed data gathering and well by well review underway with Government. Target is to optimise lift on 32 strings with associated production gains target of c.8,100 bopd  Gas lift not installed to all wells  As water cut increases gas lift is required to maintain production. At 70% watercut wells will stop flowing. Gas lift system to be expanded in fields that currently have compressors. Target is to install gas lift to 19 wells in 2013 and 2014. Resulting production gains c.4,300 bopd  Gas lift systems to be installed at Oroni and Evwreni fields (these two fields currently have flowing wells only). Production gains associated with installing gaslift in Oroni and Evwreni total 3,600 bopd Gas Lift Optimisation and Expansion 25 Uzere West 20 Oweh Oroni Olomoro-Oleh 15 Wells Kokori Evwreni 10 Eriemu Afiesere 5 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 47
  49. 49. The Work Programme – Flowline Repairs  Some wells have damaged or vandalised flowlines that require repairs  Flow lines are often ‘hack-sawed’ by locals to bunker small amounts of fuel or as vandalism  Plan is to ensure every well string has a functioning flow line  Twenty three wells do not have flow lines. Well surveillance and historical information indicates these wells are productive on the current completion but also could be recompleted on shallower reservoirs  Target production increase associated with flowlines is 6,300 bopd Flowline Repairs 14 Uzere West 12 Oweh 10 Oroni Olomoro-Oleh 8 Wells Kokori Evwreni 6 Eriemu 4 Afiesere 2 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 48
  50. 50. The Work Programme – Workovers The licence includes 190 wells. Among those, 70 wells are currently temporarily suspended for various issues. Among the 120 that are available to be produced, half are operating sub-optimally  Workovers are planned on wells to optimize gas lift design. Valves have been installed at the wrong depth and in many cases valves are not working. If the work cannot be completed using wireline equipment, a workover will be completed  The reservoirs are comprised of slightly unconsolidated sands and have typically been completed with gravel packs. Some wells are shut- in requiring workovers due to high sand production and require replacement of the gravel packs or installation of other sand control measures  Advancing aquifers cause increasing water production. Several opportunities to increase production by completing water-shut-offs. As deeper reservoirs become depleted wells can be recompleted on shallower reservoirs  So far 41 workovers have been identified with target gains totaling 9,600 bopd Workovers 16 Uzere West 14 Oweh Oroni 12 Olomoro-Oleh 10 Kokori Wells 8 Evwreni Eriemu 6 Afiesere 4 2 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 49
  51. 51. The Work Programme – Drilling Proved Locations Of the current c.190 wells only 30 wells were drilled post the initial field development period that occurred between 1960 and 1980 The lack of continued development has resulted in an extensive catalogue of proved drilling locations, currently totaling c. 220 Potential well locations have been extensively studied and well documented in past FDP’s  Plan is to verify the technical work within the existing FDP and use these as guidelines for near term development The existing FDP’s call for extensive development using horizontal drilling technology to reduce gas and water coning and to maximise recovery factors. Horizontal drilling is being used extensively in the region Horizontal drilling is proven in the delta Infill drilling is scheduled to commence in 2014. Tendering for the first drill rig is moving in parallel with a rig for an adjacent licence Drilling 50 Uzere West 45 Oweh 40 Oroni 35 Olomoro-Oleh 30 Kokori Wells 25 Evwreni Eriemu 20 Afiesere 15 10 5 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 50
  52. 52. The Work Programme – Exploration of Deeper Targets In Place Volumes  To date the extensive seismic information base has identified many prospects and leads Prospect Oil Condensate Gas Total MMbbls MMbbls MMboe MMboe  Development of the shallower producing reservoirs willUzere SP 26 88 1,128 308 provide opportunities to drill deeper and explore structures that have not yet been penetratedOroni DP 12 75 720 210  As an example, the Omogon prospect, located southeast ofOweh DP 7 60 497 153 Kokori, is illustrated below:Omogon Bik B 44 18 449 137Eriemu N 11 30 433 114Oweh NW 25 1 406 96ODHE Lyede 3 7 492 95Ofum E 28 1 337 87Urhure 19 13 256 76Isoko W 22 9 218 68Oroni E 10 9 218 68Ekiugbo 4 14 193 51Ekiugbo N 1 4 50 13Olomoro N 4 1 38 11TOTAL 215 331 5,505 1,485 51
  53. 53. Gross CAPEX Projection OML 30 Gross 100% CAPEX (US$m)  CAPEX totals $3.5 billion (Gross 100%)$700 US$1.6 billion Net Shoreline  Includes drilling of 218 new, primarily$600 horizontal, wells$500  Cost of horizontal well US$15m  Drilling commences with first rig in 2014 and$400 then one new rig added every six months  Maximum of six rigs peaks at end of 2016$300  Drilling ramps down in 2020 and ends in$200 2025$100 $0 Facilities CAPEX investments, scheduled to be completed during 2013 to 2015 include;  compressor maintenance and expansion or refurbishment of the gas lift system - US$67m  installation of temporary and custody transfer metering - US$33m  modification to the Ughelli Pumping Station to provide water separation and additional facilities modernisation - US$65m  flowline repairs for existing wells - US$17m  workovers on existing wells to restore production - US$85m 52
  54. 54. Netback per Barrel  Shoreline’s per barrel netback is US$26.75 OML 30 Net Back  The calculation follows the current fiscal assumptions$130 $115.00/bbl  Royalty levied at a rate of 20% oil$120  Education Tax, levied as 2% * (revenue - royalty - Opex)$110 $23.00  NDDC levy, levied as 3% * (total Capex + total Opex)$100  Annual licence rental payable at the rate of MOD US$ 1.1 mm$90 $1.70 $7.00  Petroleum Investment Allowance, 5% of annual tangible Capex$80 $5.00  Income tax scenario$70  Oil Base Case, 65.75% for 5 years and 85% thereafter$60  Alternate case 65.75% for 5 years and 70% - 80% thereafter $51.35  Assumptions could change with new PIB regulations$50  Capex intangible/tangible split of approximately 30%/70% -$40 depreciation 20% in years 1 to 4 and 19% in fifth year$30  Forcados crude receives c.3% premium to Brent$20 $26.75 $10 $0 Royalty NDDC Levy Education Tax Opex Capex BARREL Petroleum Profits Tax Net Back 53
  55. 55. Environmental and CSR 54
  56. 56. CSR is a Key Component of Enhancing PerformanceHeritage Approach to CSR Six Key Areas:  Environment and Sustainability Engage and work with stakeholders towards a shared future and to be  We aim to make a positive viewed as a partner of choice Set policies contribution to the protection of the environment Committed to a programme of pro-  Health and Safety active engagement to create lasting legacies for local communities Devise and  A natural priority and core element maintain of our activities CSR policy framework is integrated in systems  Employees our business model, setting out our essential core values  Ability to create sustainable value is linked to our ability to recruit, Strong track record for health and safety Measure and monitor motivate and retain high calibre staff performance  Community and Human Rights Employment of local personnel  Relationships to be conducted Maximise local content of all contracts sensitively and with mutual respect Communicate and report to  Business Conduct stakeholders  Heritage is resolutely opposed to bribery and corruption in whatever forms they may take Apply stakeholder  Corporate Governance feedback  Compliant with law and relevant regulations 55
  57. 57. CSR in OML 30Heritage Approach in Nigeria Advisory Group Shoreline is structured as an indigenous company to incentivise  Group already established local support  Consists of senior leaders from local communities Profit share to support local communities and implement long- term sustainable development initiatives  Regular dialogue with local communities Over 50 communities in the lease area  Focusing on education and healthcare Internationally recognised environmental agency commissioned to review the lease No identified legacy issues for Shoreline OML 30 operational staff will be drawn from local communities Growth in production will result in growth in employment 56
  58. 58. Nigeria 57