Nigeria oil gas report19

2.3
2.5
2.1M Million Barrels Per day
14th World Producer Of Oil
NIGERIA Africa’s Largest Oil Producer
Major Oil Export Destinations
8%
Brazil
US
EU
Canada
India
12%
28%
33%
5%
1990 2006
17
37
Billion Barrels Of Ł
Crude Oil
Trillion Cubic Feet
2012 Potential
180
600
160M Million Inhabitants
Between 6 & 7% Of GDP Growth Rate6.6%
Part of The OIl Sector In Domestic Production15%
Unemployment Rate23.9%
Proven Oil & Gas Reserves
Global Oil Reserves
Global Gas Reserves
Oil Reserves Gas Reserves
Proven Oil & Gas Reserves Piracy & Pipeline Vandalism
2010 2011
45
64
2012
58
Piracy Incidents
Gulf of Guinea
Pipeline Vandalism
Btw 7 and 17% of daily
oil production is stolen17%
Of the stolen crude
is, allegedly,
shipped offshore90%
Cases of oil spill
in 2012198
FRONTIER MARKETS CAPITAL
FMC Industry Research Report
oo1 - June 2013

Table of Content
Oil & Gas in Nigeria
Overview Page 1

Proven Reserves And Current Production Rates Page 1
Regions Of Production Page 3
Major Players Page 5
Recent Licensing Rounds Page 6
Current Environment for Oil & Gas companies Page 7
Current Risks, Social, Security and Politics Page 11

The Underlying Causes Page 11
Boko Haram, Mend, Piracy Page 12
Transparency & Accountability Page 14

Current Opportunities Page 15
The Nigerian Local Content Act Page 15
Investments in Infrastructure Page 16
Infographic Page 17
A Blue Print For Natural Gas Page 18
Incentives To Change Page 19
The Petroleum Industry Bill Page 20
Incentives For Statu Quo Page 21
Investment Perspectives For The Coming Years Page 22
The Analyst Conclusion Page 23
Sources Page 24
The Author, The Editor Page 25
Frontier Markets Capital Page 26

Proven Reserves And Current Production Rates
Accordingly, the number of oil wells
drilled has also been on the decline since
2006. If necessary investments were
made however, oil reserves would easily
climb to 40 billion barrels, according to
industry analysts. With an average of 2.1
million barrels per day (mbpd), Nigeria’s
oil production rates in 2012 fluctuated
between 1.81 and 2.4mbpd due to recur-
rent oil theft (“bunkering”) and pipeline
sabotage as well as severe flooding in
production areas causing several cases
of force majeure in the fourth quarter of
2012. Even though these figures are far
below Nigeria’s 2005 all-time high of
2.63mbpd daily output, the country is
still Africa’s largest producer and ranks
at number 14 (2.9% of global production)
internationally.
Between 1990 and 2006 the country’s
proven oil reserves grew 117% from 17.1
billion to 37.2 billion barrels of crude oil
and to 180 trillion cubic feet (tcf) of proven
natural gas reserves. Accordingly, Nigeria
boasts by far the largest proven reserves
in sub-Saharan Africa and ranks num-
ber 10 (2.3% of world oil reserves) and 9
(2.5% of world gas reserves) respectively
in international comparison. The latter
figure is all the more remarkable given the
fact that so far no independent explora-
tion dedicated to gas has been conducted
in Nigeria. Since the current gas reserve
figure is therefore just a by-product to oil
exploration. There is tremendous poten-
tial for gas reserves to grow up to 600tcf,
2.3
2.5
if focused explorations were conducted.
However, since 2006 no growth has been
recorded in Nigeria’s proven oil and gas
reserve base, even though production has
continued. This trend can be attributed to
the fact that no significant investment has
been recorded in oil exploration in the last
seven years.
World Oil
reserves
World Gas
reserves
Frontier Markets Capital - info@frontiermarketscapital.com - New York, NY - June 2013 Page 1
If respective investments were made,
Nigeria could almost double its daily
output to an estimated 4mbpd by 2030.
However, if investments continue failing
to materialize, this will have a signifi-
cant impact on the country’s production
rates in 10-15 years time, and production
rates may fall by 40% already by 2020.
Overview
Billion Barrels Of Crude Oil Trillion Cubic Feet (tcf)
1990 2006
17
37
2012 Potential
180
600
Potential to 40 Billion Barrels Potential For Natural Gas Reserves
Up To 6oo tcf

With the current reserve figures, Ni-
geria has a reserve to production ratio
(RPR) of 42.1 years. Major export des-
tinations for Nigeria’s sweet crude oil in
2011 included the US (33%), the Euro-
pean Union (28%), India (12%), Brazil
(8%) and Canada (5%).
and fostering domestic consumption, in
particular through deliveries to gas-pow-
ered plants and the development of pet-
rochemical through-out the country.
Major destinations for LNG exports
in 2011 included the European Union
(59%), Mexico (9%), Turkey (6%), the
United States (5%) and Taiwan (5%).
With regard to natural gas production,
the country in 2011 produced 1tcf of
which 95% was used for exports as Liq-
uefied Natural Gas (LNG). With this fig-
ure, Nigeria ranked at position 19 (1.2%
of global production) in international
comparison, i.e. clearly behind its po-
tential as compared to its resource base.
Further, Nigeria in 2011 flared 14.6bcm
or around 17% of its annual production,
a figure placing it only second to Russia
according to World Bank figures. It is
however a major aim of the Federal Gov-
ernment (FG) to increase gas produc-
tion, by curbing the problem of flaring
42.1 years Reserve Production Ratio
8%
Brazil
US
EU
Canada
India
12%
28%
33%
5%

Regions of Production
Since 2003, when the first deepwater
field came on stream, offshore oil pro-
duction in the Bight of Benin, the Gulf of
Guinea, and the Bight of Bonny has seen
an upsurge and currently contributes
around 800,000bpd to Nigeria’s daily
output.
Exploration activities have accordingly
shifted to frontier and ultra-deep off-
shore acreages where the last signifi-
cant four major discoveries were made
during 2009-2011. Some activities have
also been conducted in the Chad basin,
located in the country’s troubled north-
east.
Anambra was declared an oil producing
state by President Jonathan on 30 Au-
gust 2012 when Orient Petroleum start-
ed exploring for oil, sparking immediate
reactions from neighboring Enugu and
Kogi States laying claim on the land.
AbiaImo
Adamawa
Taraba
Akwa
IbomRivers
Anambra
Bauchi
Plateau
Nasarawa
Abuja
Federal
Capital Territory
Kaduna
Niger
Kogi
Kwara
Bayelsa
Benue
Borno
YobeJigawa
Kano
Katsina
Zamfara
Sokoto
Kebbi
Cross
RiverDelta
Ebonyi
Edo
Ondo
Lagos
Ogun
Ekiti
Osun
Oyo
Enugu
Gombe
State of emergency
Boko Haram &
other armed groups
The issue is yet to be settled.
The Niger Delta comprises an
estimated 112,000 square kilo-
meters, inhabited by some 30
million people in over 3,000
long-settled communities.
Oil producing states receive extra revenue
from a 13% derivation fund on top of allo-
cations disbursed from the federal budget
to all 36 states.
Since 1958, most of the drilling for oil (and
gas, by extension) has been conducted in
nine states in the Niger Delta region (Akwa
Ibom, Cross River, Rivers, Bayelsa, Abia,
Imo, Ondo, Delta and Edo).
Niger Delta
30 Miillion inhabitants
112000sq km
800 barrell of oil per day

Major Players
International Oil Companies (IOCs) op-
erating in Nigeria through local sub-
sidiaries include Shell, ExxonMobil,
Chevron, Total, Eni, Statoil and un-
til recently Conoco-Phillips. Together,
these companies account for more than
90% of the country’s oil production.
Also, National Oil Companies (NOCs)
like Brazil’s Petrobras and China’s Sin-
opec (via its daughter Addax Petroleum)
are present, though their production
rates remain comparatively insignificant
for the time being. Petrobras recently
announced to sell its Nigerian stakes to
raise cash for investments in its home
market.
Anglo-Dutch Shell, through its subsidiar-
ies Shell Petroleum Development Com-
pany of Nigeria Ltd (SPDC), Shell Nigeria
Exploration and Production Company
Ltd (SNEPCo) and Shell Nigeria Gas Ltd
(SNG) is by far Nigeria’s largest oil
and gas company, currently producing
more than 50% of the country’s daily oil
(1.2MMbpd) and gas (1.7bcfpd) output.
Even though Shell has also ventured into
deepwater, most of its installations are
still located onshore or in shallow waters
and thus often fall prey to vandalism and
oil theft.
Anglo-Dutch Shell
Shell’s Market Domination
Nigeria’s Largest Oil & Gas company
1.2 MMbpd of Oil
1.7 bcfpd of Natural Gas
> 50% Nigeria’s Daily Oil & Gas Output

ExxonMobil is the second largest IOC
with an average daily output of ap-
proximately 700,000bpd of crude oil
and 408MMcfpd of gas respective-
ly, followed by Chevron (561,000bpd
/ 343MMcfpd), Total (179,000bpd /
534MMcfpd) and Eni (96,000bpd /
345MMcfpd, all figures as of 2011, ac-
cording to the U.S. Energy Information
Administration).
In comparison, figures from indepen-
dent indigenous companies like Oando
Plc (4,400bpd in 2012) are still lagging
far behind IOCs and their subsidiaries.
Of the 2.48 mbpd produced in 2012, the
entire production by indigenous compa-
nies totalled 276,000 bpd, accounting
for about 11 per cent of Nigeria’s pro-
duction.produced 102,797bpd.
Local oil companies led by the Nigeri-
an Petroleum Development Company
(NPDC), the exploration and production
arm of the NNPC produced 125,828 bpd
in 2012, Seplat Petroleum - 40,033 bpd,
Adenuga’s Conoil - 25,000 bpd, Pan
Ocean - 7,387 bpd, others are described
as independent marginals according to
an investigation by This Day.
700 mille bpd of crude oil
408MMcfpd of gas
2 ExxonMobil
343 MMcfpd of gas
3 Chevron
534 MMcfpd of gas
4 Total
345 MMcfpd of gas
4 Eni

Recent Licensing Rounds
The first and till then only open bid round for oil exploration blocks in Nigeria was con-
ducted in 2005, followed by a mini bid-round in 2006 and another major one in 2007.
“Before, licenses were awarded through discretionary grants by incumbent heads of
state.”
The key winners of the first bid round
in 2005 were Korean National Oil Co.,
BG, Petrobras, Centrica, Equator Ex-
ploration, and Conoil. Controversially,
some awards made during the bid round
to Asian oil companies secured rights of
first refusal over some of the prolific oil
blocks in exchange for commitment to
invest in Nigerian infrastructure proj-
ects. Only few IOCs participated, mainly
due to perceived security risks and heavy
local content stipulations.
Out of 77 blocks auctioned, only 30 were
awarded to Nigerian players, where-
as “Nigerian” companies were mostly
consortia made up of local and foreign
companies. However, bids were also ac-
cepted from local companies lacking the
financial muscle to pay the promised
bonuses, and some of the companies
did not have the capacity to conduct the
work programs without additional part-
ners.
In the 2007 bidding round, relatively un-
known companies won a majority of the 45
blocks put on offer. In total, 19 blocks were
awarded in the inland basins, continen-
tal shelf, onshore Niger Delta and the deep
offshore regions. There were no bids for the
11 blocks offered in the inland basins, while
only two out of the seven offered in the deep
offshore were awarded. Interestingly, none
of the foreign oil majors participated in this
third round from which primarily smaller
Nigerian and Asian companies profited.
The legality of some of the awards has how-
ever been questioned, prompting an investi-
gative panel set up in 2008 to review all three
bid rounds. This resulted in the revocation
of some of the licenses issued in 2007 on the
grounds that successful bidders had missed
the prequalification requirements.
In the 2006 mini-bid round, only com-
panies that gave commitments to build
infrastructure development projects and
power facilities were pre-qualified to par-
ticipate. IOCs demurred again, and only
11 companies participated in the auction-
ing of 18 oil blocks.
2007 Bidding Round
2006 Mini-Bid Round
2005 Bid
2005 - 77 blocks auctioned

No More Rounds
Current Environment For Oil & Gas companies
All are administered and executed on the
part of the government by the Nigeria
National Petroleum Corporation (NNPC)
and, with regard to gas, by the Nigerian
Gas Company Limited (NGC), a subsidi-
ary of NNPC.
According to the 1969 Petroleum Act, the
Federal Ministry of Petroleum Resources
grants three different types of licenses,
applying for both oil and gas mining:
Ever since 2009 there are speculations as
to when the Federal Government would
hold the next licensing round. According
to the Department of Petroleum Resourc-
es (DPR), there are 215 delineated oil
blocks yet to be allocated to oil companies.
The latest developments saw the Min-
istry of Petroleum Resources announc-
ing licensing rounds for both major and
marginal fields to take place during 2012,
which did however not materialize. Post-
poned for several times already, Minister
Diezani Alison-Madueke still promised to
conduct a marginal bid round during the
first quarter 2013. On 26 February 2013
however, a spokesperson of the ministry
announced that there would be no licens-
ing rounds before the long-awaited Petro-
leum Industry Bill (PIB) was passed by the
National Assembly.
“On 26 February 2013, a
spokesperson of the min-
istry announced that
there would be no li-
censing rounds before the
long-awaited Petroleum In-
dustry Bill (PIB) was passed
by the National Assembly.”
There are basically four types of commer-
cial arrangements between the Nigerian
Federal Government and private compa-
nies in the oil and gas upstream sector:
1- Joint Ventures (JVs),
2- Production Sharing Contracts (PSCs)
3- Service Contracts
4- Marginal Field Concessions (cf. table
next page).
Terms Of Exploration And Production Licenses

Oil Exploration Licenses (OELs)
Grant the non-exclusive right to carry out geological, geophysical, and geochemical exploration
for petroleum within the specific license area and are valid for one year, renewable onc
Oil Prospecting Licenses (OPLs)
Grant the exclusive right to carry out exploration operations and to own any resources won
in that process, for a maximum duration of five years
Oil Mining Lease (OMLs)
Are currently granted for 20 years to holders of OPLs,
but may be extended. An OML is usually half the size of the OPL from which it is created.

Type of Contract
Location
Characteristics
Financial Structure
Government Take
Production Sharing Contracts (PSCs)
• Typically offshore, deepwater (>200m)
• More expensive (~$100m per offshore well)
• More risky
• Complex technology
• NNPC is the holder of oil licenses
• IOCs or indigenous companies are engaged by NNPC as contractors
• Contractor carries all costs of exploration and production
• After cost recovery, production profits are shared between contractor and NNPC
• Longer investor payback period
• Profit split
• Royalties (0-8%)
• PPT at a rate of 50%
• No CIT on gas
Type of Contract
Location
Characteristics
Financial Structure
Government Take
Joint Ventures (JVs)
• Typically onshore, shallow waters (<200m)
• Less expensive (~$15m per onshore well)
• Less risky
• Conventional technology
• Less time to first production
• NNPC responsible for supplying its share of capital for production (55-60%)
• Shorter investor payback period
• NNPC equity share
• Royalties (20% onshore, 18.5% for up to 100m, 16.5% for up to 200m water depth)
• Petroleum Profit Tax (PPT) at a rate of 65.75% for the first five years and
85% thereafter (tax actually payable may however be modified by the terms
of a Memorandum of Understanding, MoU)
• Company Income Tax (CIT) on gas at a rate of 30% (after 3-5 years initial tax holiday

Type of Contract
Location
Characteristics
Financial Structure
Government Take
Service Contracts
• Onshore, offshore
• Contractor undertakes exploration, development and production on behalf
of the holder
• contractor has no title to oil
• Service contract paid by principal
• Companies Income Tax Act (CITA) regime on service fees at 30%
Type of Contract
Location
Characteristics
Financial Structure
Government Take
Marginal Field Concessions
• Onshore
• IOCs relinquish wells that are no longer commercially viable
• Wells assigned to indigenous oil companies for redevelopment
• Indigenous company carries all costs of exploration and production
• PPT at a rate of 65.75% / 85%

The Underlying Causes
Current Risks, Social, Security, Politics
An estimated 70% of Nigerians live in ab-
solute poverty, i.e. from less than $1.25
per day. High unemployment rates and
environmental degradation in the Niger
Delta lead to an overall lack of perspec-
tives especially among the young popu-
lation, which in turn easily falls prey to
radical ideologies and turns to violence to
make a living.
The underlying causes for the current
security risks in the oil and gas sector
emanate from various factors which can
however all be linked to the poor man-
agement of the country’s oil wealth and
the resulting social injustice. Whereas
Federal and State Governments make
huge profits through taxes and royalties,
this wealth does not trickle down to the
bulk of the population.
Poor Management
Country’s Oil Wealth
Social Injustice
High Unemployment Rates
Environmental Degradation
70% of Nigerians
Live In Absolute Poverty
less than $1.25 per day
Overall Lack Of Perspectives
Especially Among The Youth
Falls Prey To Radical Ideologies
Turns to violence to make a living

In 2009, an amnesty programme for
some 26,000 militants in the Niger Delta
was initiated. This ended an overt cam-
paign of violence and sabotage by such
groups as the Movement for the Eman-
cipation of the Niger Delta (MEND)
against the oil industry that at one stage
shut down nearly half of its production.
Nevertheless, the problem of bunkering
has increased till then.
Shell for example recorded 198 cases of
oil spill during 2012, against an average
of 175 spills per year between 2005 and
2009. According to Shell, more than 80%
of the incidents in 2012 were caused by
sabotage and theft.
Pipeline vandalism and oil theft are the
security risks number one for oil and gas
companies. Finance Minister Dr. Ngozi
Okonjo-Iweala estimated in April 2012
that up to 400,000 barrels of oil (equal-
ing 17% of Nigeria’s daily production) is
lost to “bunkering”, i.e. the siphoning off
crude oil from pipelines by thieves.
Estimates from NNPC or Shell put the
figure lower to 150,000 to 180,000 bar-
rels per day lost due to bunkering, which
would still amount to around 7% of dai-
ly production.. According to the Feder-
al Government, up to 90% of the stolen
crude is shipped offshore and sold ille-
gally on international oil spot markets by
criminal syndicates, with the help of cor-
rupt local politicians, police and military
officials.
Allegedly, just around 10% is refined lo-
cally by gangs operating in the creeks and
swamps of the delta. It is however diffi-
cult to verify this figures independently,
and the government has a clear interest
to put the blame on international net-
works rather than on domestic problems.
MEND
The Islamist sect Boko Haram continues
to attract much attention both in and out-
side Nigeria since its emergence in 2010.
However, it does not pose a threat to oil
and gas installations yet as its area of
operation is still restricted to the coun-
try’s North and Northeast. Unless major
exploration activities are actually being
conducted in the Lake Chad basin (see
above), for the time being oil and gas fa-
cilities will remain out of Boko Haram’s
reach.
Boko Haram
Piracy
Piracy has developed to a large scale phe-
nomenon in the Gulf of Guinea over the
last decade. Between 2003 and 2011, 427
out of 1434 reported pirate attacks in Af-
rican waters were conducted in the Gulf
of Guinea, the majority of them (55%) off
Nigerian shores. Following 45 incidents
in 2010 and 64 in 2011, piracy in the Gulf
of Guinea remained at a high level during
2012, with 58 incidents recorded. This
figure included 10 hijackings and 207
crew members taken hostage. Pirates
in the Gulf are particularly violent, with
guns reported in at least 37 of the attacks.
Nigeria in particular accounted for 27
incidents in 2012, with four vessels hi-
jacked, 13 vessels boarded, eight fired
upon and two attempted attacks.. Only 10
incidents were reported though in 2011,
including two hijackings. Unlike piracy
off the Somali coast, attacks in Nigerian

“Pirates in the Gulf are particularly violent, with guns
reported in at least 37 of the attacks.“
waters are not so much focused on kid-
nap-for-ransom, but rather on oil-laden
vessels to steal the petrol on board. The
some 8,000 strong Nigerian Navy is un-
derstaffed, ill-equipped and underfunded
to effectively counter these activities.
55% off Nigerian shores.
1434 reported pirate attacks
427 out of
Between 2003 and 2011
2010 2011
45
64
2012
58
Piracy Incidents
Gulf of Guinea
Pipeline Vandalism And Oil Theft
Between 7 and 17% of daily oil production
17%
Of the stolen crude is shipped offshore
90%
198 cases of oil spill during 2012
198

Transparency And Accountability
The need to set in place measures to im-
prove transparency and accountability
standards in the oil and gas industry is
evident not least due to the leaked results
of the Petroleum Revenue Special Task
Force chaired by Mallam Nuhu Ribadu,
which gave some insights into the scale of
mismanagement, fraud, and corruption
in the sector.
According to the leaked report, the state
has been short-changed at almost ev-
ery stage of accounting for oil revenues
between 2002 and 2011, the time under
scrutiny. Signature bonuses and royalties
amounting to billions of dollars have gone
unpaid. Discretionary decision-making in
awarding oil blocks and crude lifting con-
tracts have together caused huge losses.
Gas has also been sold, the report argues,
at cut price by Nigeria Liquefied Natural
Gas (NLNG), the joint venture owned by
NNPC as well as Shell, Eni and Total –
amounting to an estimated cumulative
deficit of approximately $29bn over the
10-year period. These findings are simi-
lar to those of a recent audit conducted by
the Nigerian Extractive Industries Trans-
parency Initiative (NEITI) for the years
2009-2011, showing that NNPC owed
$8.3bn from crude oil sales in the three-
year period.
The firm also owed $4.84bn in dividends
and loan repayments from NLNG export
business and a further $3.99bn in NLNG
funds from previous years going back to
1999, the audit said. The latest report
thus echoes by and large NEITI’s earlier
audit for the years 2006-2008.
The greatest risk in the political realm
stems from current developments in
the regulatory environment. The de-
lay in passing the Petroleum Industry
Bill (PIB) has created deep uncertainty
among investors about the legal and fis-
cal framework for upstream investments
in Nigeria.
Since 2010, investment of at least $28
billioninNigeria’soilsectorhasbeenlost
or deferred to other regions as a result of
non-passage of the PIB. Also, relations
between IOCs and NNPC have soured
in recent years as major oil companies
have complained frequently about de-
layed investment decisions and chronic
underfunding of its mandatory partner
in joint ventures and demanded a more
market-based approach to project parts
funded by the state-owned company.
“The greatest risk in the
political realm stems
from current develop-
ments in the regulatory
environment. “

The Nigerian Local Content Act
Current Opportunities
However, this was not enough to off-set
the lack of investments in deepwater ex-
ploration and production which is re-
sponsible for the midterm decline in Ni-
gerian oil and gas output. The major IOCs
continue to profit from long-term con-
cessions, guarantees and MoUs dating
back to the 1990s for the majority of their
on- and offshore investments, but have
refused to enter into substantial new ven-
tures since the mid-2000s.
Even though there have been no licensing
rounds since 2007 (see above), the recent
past has seen a number of divestments
and change in ownership structures of
existing investments. In 2012, this con-
cerned most notably Conoco-Philips’
withdrawal by selling all of its Nigerian
assets (stakes in OMLs 60, 61, 62 and 63;
offshore deepwater OMLs 131 and 214;
shares in Brass LNG) to Nigeria’s lead-
ing indigenous energy company Oando
for $1.79bn. Further, Total surprisingly
announced divestment of its 20% share
in the 180,000bpd deepwater Usan field
(OML 138) to Chinese owned Sinopec for
$2.4bn in December. The Usan field, dis-
covered in 2002, had only come on stream
in February 2012. Also, Shell’s subsidi-
ary SPDC sold its interests in OMLs 30,
34 and 40 to Heritage Oil, ND Western,
and a consortium made up of UK based
Eland Oil and Gas and Nigerian compa-
ny Starcrest respectively. In March 2013,
Petrobras announced to sell its Nigerian
stakes estimated worth $5bn to raise cash
for investments in its home market.
.Following the introduction of the Nige-
rian Local Content Act in April 2010, a
substantial share of contracts and project
awarded in the oil and gas industry is re-
served to Nigerian companies. Nigerian
independent operators also receive first
consideration in the award of oil blocks,
oil field licenses and oil lifting licenses.
Subject to the supervision of the Nigeri-
an Content Development and Monitoring
Board (NCDMB), the Act also specifies a
long list of services in Schedule 1 and at-
taches a “Minimum Nigerian Content”
setting out varying percentages of the an-
nual expenditure on the items listed which
have to be contracted to Nigerian compa-
nies.
Further, it sets out provisions concerning
the minimum percentage of Nigerian la-
bor and equipment used by industry oper-
ators that must be vested in their Nigerian
subsidiaries. Also, the Act mandates that
all risks must be insured with Nigerian
Insurance companies and only Nigerian
financial institutions be used to provide fi-
nancial services to industry operators, in-
cluding an obligation to keep on Nigerian
accounts at least 10% of revenue derived
from Nigerian oil and gas operations.
Following earlier licensing rounds and the
2010 Local Content Act, recent years have
seen increased production and growth in
marginal fields and shallow water rede-
velopments by indigenous firms and small
independent operators with their Nigeri-
an subsidiaries.

Plans have however been stalled on
several occasions by lack of funding,
security issues, tightening global LNG
markets, and the uncertainty surround-
ing the final outcome of the PIB. Two
regional pipeline projects complete the
picture regarding export opportunities:
Since 2010, the 675 kilometers long
West African Gas Pipeline supplies al-
ready up to 200MMcfpd to neighbor-
ing countries Benin, Togo and Ghana.
A planned extension would plug in Cote
d’Ivoire and increase deliveries up to an
estimated 450MMcfpd.
Finally, plans for a 4,200 km Trans-Sa-
haran gas pipeline to link production
fields in the Niger Delta to Algeria’s Beni
Saf export terminal are on the drawing
board for more than a decade, with the
stated goal to supply gas to Europe by
2016. However, the $12bn project has
been hampered by its sheer size, numer-
ous uncertainties as well as increased
terrorist activities along the planned
route.
With regard to natural gas, opportuni-
ties exist both with regard to LNG ex-
ports as well as to the developing do-
mestic market. Nigeria LNG (NLNG)
at Bonny Island (Rivers State), jointly
owned by NNPC, Shell, Total and Eni,
is currently the only LNG export facili-
ty in Nigeria. Operational since 1999, it
is after several upgrades now operating
6 trains with a production capacity of
1.1tcf/year, i.e. 8% of current world LNG
production. Nigeria has three ambitious
projects in the pipeline to add further
LNG export capacities.
These projects are in varying stages of
development, though all are still await-
ing Government’s Final Investment De-
cision (FID). Plans include adding a 7th
production train to the NLNG site at
Bonny Island (additional 0,25tcf/year),
the 4 trains Olokola LNG (OK-LNG)
plant (Ondo State, adding 0,88tcf/
year) and the 2 trains Brass LNG facili-
ty at Brass Island (Bayelsa State, adding
0,4tcf/year).
Investments In Infrastructure
Current Opportunities

2.1 Million Barrel Per day
Oil & Gas
NIGERIA
Largest proven reserves
in Sub Saharan Africa
14th World producer of Oil
Major Ranking
Africa’s Largest
Oil Producer
$450.5 Billion GDP Nominal
$2,700 GDP Per Capita
800 Thousand bpd come from the Niger Delta
28th World producer of Gas
23 Billion cubic meter Per Year
160 Million Population
3.0 million barrels per day
Production and expected production for Africa’s top oil producers
Estimated
Production
Forecast
Production
Capacity
2.0
1.5
1.0
0.5
0
2.5
Jan 2000 2010 2015
Nigeria
Libya
Algeria
Angola
Out of Africa
70%of Nigerians Live In Absolute Poverty
with less than $1.25 per day
$$
2.3
2.5
Global Oil Reserves
Global Gas Reserves
Proven Oil & Gas Reserves
Major Gas Export Destinations
8%
Turkey
US
EU
Mexico
Taiwan
5%
59%
6%
9%
Proven Natural Gas Reserves
1,581
894
284
-
500
1000
1500
2000
Russia Iran Qatar Turkmenistan
1046
Saudi
Arabia
US UAE Venezuela Nigeria Algeria
283 273 213 193 187 159
Trillion cubic feet (tcf)

To foster domestic use of natural gas
resources, the Federal Government in-
troduced the Nigeria Gas Master Plan
(NGMP) in February 2008. The aim is
to provide a holistic and comprehen-
sive framework for the development of
gas in Nigeria by implementing three
major initiatives, namely a gas infra-
structure blueprint, a gas pricing poli-
cy, and a gas supply obligation. The in-
frastructure blueprint thereby guides
and coordinates all major gas infra-
structure projects across the country.
It stipulates the immediate infrastruc-
ture required, in particular three domes-
tic central processing facilities for the ex-
traction of LPG and condensate and the
feed-in of dry gas into a network of trans-
mission pipelines. The gas pricing policy
seeks to create a framework for the devel-
opment of predictable wholesale prices
across several market segments. The gas
supply obligation finally serves to ensure
that for the next 20 years gas is actual-
ly supplied despite more lucrative LNG
sales, in order to kick-start the develop-
ment of a substantive domestic market.
Through these measures, government
intends to fuel economic growth by en-
suring that electricity needs are met
through additional capacity of new
gas-powered plants, in particular the
Nigeria Independent Power Projects
(NIPP). According to government pre-
dictions and the 20:2020 development
strategy, domestic demand will rise five-
fold up to 5bcf/day in 2013 as a conse-
quence of these measures.
With regards to the domestic market, the
huge potential for Liquefied Petroleum
Gas (LPG), consisting of propane and/or
butane, should also be stressed. LPG is
highly valued not only for its economic,
but also for various environmental char-
acteristics. The Nigerian LPG market is
however underdeveloped, with a yearly
per capita consumption of merely 0.5kg
against a 10kg/capita average consump-
tion in Africa. Therefore, the Federal
Government is currently developing a
National Strategic LPG policy in order to
foster the use of LPG as the fuel of choice
for cooking and heating appliances.
A Blueprint For Natural Gas

The need to bring the regulatory frame-
work of Nigeria’s oil and gas industry
up to speed with present day reality is
self-evident. The Petroleum Act, the
principal legislation for the industry, was
enacted in 1969, some 40 years ago. Ni-
geria’s oil industry thus needs a complete
overhaul to equip the country with state
of the art legislation that attracts new
investment by providing legal certain-
ty and attractive framework conditions,
enhances transparency and account-
ability, and boosts government revenues
through deregulation and unbundling
and the introduction of a progressive fis-
cal framework.
This is urgently needed as investments
into oil and gas exploration are lagging
behind demand for years already, where-
as global (US shale oil and gas boom) as
well as regional (Angola, Ghana, Liberia,
Sierra Leone, East Africa) competition
is rising. If respective investments were
made, Nigeria could increase its daily
output to 4mbpd. If the situation remains
unchanged however, output will slowly
but steadily decline, as Nigeria’s proven
oil reserves have not seen growth since
2006 while production has continued.
The need for change as perceived by
IOCs and foreign investors is especial-
ly evident with regard to deepwater ex-
ploration, allegedly Nigeria’s growth
sector, where only the Total-operat-
ed 180,000pbd Usan field (divested to
Sinopec later in the year) ramped up
offshore in 2012. More advantageous
conditions are also a decisive factor for
attracting substantive additional invest-
ments in the gas sector, where the cur-
rently rather uncompetitive gas pricing
scheme and the gas supply obligation
(in the absence of adequate infrastruc-
ture) stirred criticism by investors.
On the part of the Federal Government,
discontent with the deeply corrupt and
inefficient NNPC has led to idea to reor-
ganize that body completely and create a
national champion that resembles much
more hailed models like Brazil’s Petro-
bras or Malaysia’s Petronas. Also, feder-
al government is unsatisfied with its cur-
rent revenue share it receives through
licenses, taxes and royalties from the
industry. The same goes for state and lo-
cal governments, which are also eager to
enlarge their part of the cake, reflected
inter alia in the creation of a new Host
Community Fund.
Incentives To Change

Whether the PIB will actually be passed
in the current attempt is questionable.
Even though the bill has already passed
the 1st and 2nd readings in the House
of Representatives and the Senate, both
chambers are still to hold public hearings
and work out a final compromise docu-
ment, to be resubmitted to the President.
In any event, this needs to be done before
the 4th quarter of the year, when the Na-
tional Assembly will be preoccupied with
the annual budget again, and before the
2015 electoral campaigns kick in.
Therefore, given the multitude of stake-
holders involved, it has already been sug-
gested to split the bill into parts and pass
less controversial issues like taxation
separately, in order to give investors the
legal clarity so crucially needed.
The Petroleum Industry Bill (PIB), cur-
rently before the National Assembly,
therefore sets out numerous objectives.
The overall goals are to create a condu-
cive business environment for petro-
leum operations, to enhance exploration
and exploitation of petroleum resources,
to optimize domestic gas supplies, and
to establish a progressive fiscal frame-
work that encourages further investment
while optimising revenues accruing to
the Government.
To this end, the downstream petroleum
sector shall be liberalised and deregu-
lated, and commercially oriented and
profit driven oil and gas entities created.
Further, efficient and effective regulato-
ry agencies shall oversee both up- and
downstream sectors and adhere to trans-
parency and good governance standards
set out by the Nigerian Extractive Indus-
tries Transparency Initiative Act.
The Petroleum Industry Bill

Incentives for clinging to the status quo
lie with those institutions and individu-
als which still continue to profit from the
inefficiencies and grey areas provided
under the current regime. This concerns
most notably the Nigeria National Petro-
leum Corporation (NNPC), which would
be dismantled and completely reorga-
nized. Hence, NNPC staff fears being
laid off and losing lucrative discretionary
powers in project management and col-
lecting oil revenue.
In general, IOCs are strongly in favor of
the PIB, as long as the terms for taxes,
royalties and other charges are reason-
able and the favorable terms of existing
contracts remain untouched. For IOCs,
the major advantage of ending the state
of uncertainty surrounding the pending
PIB would be the added legal clarity and
certainty which is essential for long-term
investments.
Incentives For Statu Quo
IOCs are however criticizing details of
the proposed legislation apart from tax
aspects. This concerns for example the
new licensing system for it proposes
smaller licenses across the board and
shorter periods for deep water acre-
age only. Also, the work programme
attached to the licenses is regarded as
too ambitious. Finally, the maximum
duration period for production licenses
to a maximum of 30 years constitutes a
sharp drop of up to 10 years compared
to current periods.
This might be particularly detrimental
for deep water projects with lengthy
lead times. The status of Indigenous
Independent Producers (IIPs) remains
relatively untouched by the terms of
the PIB. Hence they complain that the
PIB does not grant access to additional
acreages for indigenous companies in
line with the objectives of the Nigerian
Content Act.
In the long run however, all players in
the Nigerian oil and gas industry are set
to lose without new legislation, as oil
and gas output will slowly but steadily
decline due to lack of significant new in-
vestments under the status quo.

Despite discoveries in recent years in
other West- and East African countries,
Nigeria will remain by far the country in
sub-Saharan Africa with the largest oil
and gas resources. This implies that in-
vestments made in the country are po-
tentially yielding higher returns in the
mid- to long-term. Also, numerous IOCs
have made substantial investments in
installations and other non-transfer-
able assets over the last decades, which
would be costly to give up. As pointed
out above, much will depend now on a
speedy passage of the PIB, followed by
a fresh round for exploration licenses.
This would certainly trigger an upsurge
in investments. In the meantime, there
are opportunities to invest in existing
assets as independent companies are in
need of capital in order to finance ex-
ploration and production activities for
marginal fields and shallow water re-
developments. This offers also valuable
opportunities to enter the market on a
small scale basis in order to gain valu-
able experience, establish networks and
prepare for a major entry once the PIB
is passed. Also, there is potential to buy
into existing contracts, as license own-
ers frequently look for opportunities to
divest their assets for various reasons,
as shown above.
Investment Perspectives For The Coming Years
With regard to gas, the still underde-
veloped domestic market might be
triggered by gas-to-power policies and
LNG exports be further expanded, as
described above. Also, the dormant
LPG market offers investment oppor-
tunities with potentially huge gains.
The associated risks for investment
concern on the political macro level
most notably the passage of the Petro-
leum Industry Bill as the single most
important piece of legislation concern-
ing the Nigerian oil and gas sector.
Continuous monitoring of the legisla-
tive process including contacts to key
individuals within the administration
offer the best insurance to avoid sur-
prise by new developments in this re-
gard. Concerning investment decisions
on the micro-level, thorough due dili-
gence checks for local partners should
be considered to mitigate against the
risk of picking the wrong business part-
ners. On the operational level, risks
concerning crude oil theft and pipeline
vandalism stand out, and appropriate
security measures to safeguard against
kidnapping of personnel should be en-
visaged. Insurance of vessels and cargo
can offer a backup against piracy at-
tacks.

In sum, Nigeria boasts the largest proven
oil and gas reserves in sub-Saharan Afri-
ca, despite the recent wave of discoveries
across the continent. If respective invest-
ments were made, especially in deepwater
exploration, the resource base would eas-
ily grow up to 40 billion barrels. The po-
tential for major additional gas findings
is particularly noteworthy, since so far
no targeted exploration has taken place.
The business environment remains how-
ever to be a challenging one. Particularly
regarding on-shore drilling sites, pipeline
vandalism, theft and kidnap-for-ransom
constitute serious security concerns.
The Analyst Conclusion
The usual business arrangements in-
clude joint ventures and production
sharing contracts, whereas the state-
owned NNPC is a mandatory partner in
any event. Due to local content legisla-
tion, partnering with indigenous firms
is advisable if not essential for foreign
investors. The terms of exploration and
production licenses are currently subject
to reform. Speedy passage of the Petro-
leum Industry Bill (PIB) would obvious-
ly be a game changer by introducing new
rules, unleashing an overdue licensing
round for oil blocks and providing legal
certainty for long-term investments. In
the meantime, there is investment po-
tential in smaller on-shore and shallow
water projects, but also major buy-ins
are possible.

• Africa Report
• African Arguments
• Al Jazeera Centre for Studies
• AllAfrica.com
• BP Statistical Survey
• Business Day
• Exploration & Production Magazine
• Global Gas Flaring Reduction (GGFR)
• International Chamber of Commerce
• International Energy Agency
• International Maritime Bureau
• KPMG, The Oil and Gas Industry in Nigeria
• Nigeria LNG Ltd.
• Nigeria Oil & Gas Intelligence
• Oando Energy Resources Inc.
• Oil Review Africa
• OPEC Monthly Oil Market Report
• Shell Nigeria
• The Nigerian Gas Master Plan. Investors Road Show 2008
• U.S. Energy Information Administration
• World Bank
• World LP Gas Association
Sources

MALTE LIEWERSCHEIDT has worked as a Carlo Schmid fellow at the EU Delegation to
Nigeria and ECOWAS, based in Abuja. His assignment at the delegation focused on poli-
cy analysis of the energy sector. Thereby he devoted particular emphasis to the two most
important developments in this area, namely the ongoing privatization process of Nige-
ria’s electricity sector and the Petroleum Industry Bill (PIB). In both instances, industry
expectations and the views of other important stakeholders constitute crucial parts of his
analysis.
His engagement at the EU Delegation built up on his educational background and pri-
or working experience. Malte holds a Master Degree in “EU International Relations and
Diplomacy Studies” from College of Europe in Bruges, Belgium, as well as a Magister
Degree in Political Science, Modern History and Business Economics from University
of Freiburg, Germany and Trinity College Dublin, Ireland. Further, He also took Hausa
lessons while in Abuja. Prior to his second master, he worked as project manager at the
Berlin-based Centre for International Peace Operations and as a foreign affairs analyst for
a member of the German Parliament. As an analyst, Malte prepared numerous briefings
and presentations for his deputy on political developments in countries such as Nigeria,
South Africa, Congo-Kinshasa, Somalia, and Sudan. Since he has been working on these
issues already for a couple of years, Malte is familiar with the relevant sources (including,
inter alia, the South African Institute for Security Studies, the Jamestown Foundation, or
Africa Confidential).
The Author
The Editor
Melvin Manchau is Founder and CEO of Frontier Markets Capital.
In 2010 he started his own venture, Frontier Markets Capital, the first information re-
search and advisory company entirely dedicated to the Frontier Markets.
Melvin was a Mergers & Acquisitions Associate at boutique investment bank, Marlin
& Associates and before that an Associate at Bentley Associates LP,a New York Invest-
ment Bank, in both companies his work focused on Mergers and Acquisitions, Debt re-
structuring, Corporate Fund raising, Venture Capital and Private Equity fund raising. In
2009 he co-founded Bello & Manchau, consulting the first country risk consulting firm
entirely dedicated to Africa.
Upon Arriving in New York Melvin worked as a consultant on Risk management for
Societe Generale, Calyon and Fortis.
Melvin worked in Paris for several prestigious financial firms, including Reuters, Lazard
Freres Gestion and Groupe Caisse des depots, the French Sovereign Wealth Fund where
he worked in the fund of funds division investing in venture capital, technology and
biotechnology funds.
He holds a BSC in Software Engineering and System Analysis from the Université René
Descartes (Paris V) and a Masters in Finance from the renowned Institut d’Etudes Poli-
tiques de Paris (Sciences Po) with a concentration in Corporate Finance and Strategy.

Frontier Markets Capital is a research boutique dedicated to the small emerging mar-
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2.1M Million Barrel Per day
14th World producer of Oil
NIGERIA Africa’s Largest Oil Producer
Major Gas Export Destinations
160M Million habitants
Piracy & Pipeline Vandalism
2010 2011
45
64
2012
58
Piracy Incidents
Gulf of Guinea
Pipeline Vandalism
Btw 7 and 17% of daily
oil production is stolen
17%
Of the stolen crude
is, allegedly,
shipped offshore
90%
Cases of oil spill
in 2012
198
FMC Industry Research Report
oo1 - June 2013
8%
Turkey
US
EU
Mexico
Taiwan
5%
59%
6%
9%
70%of Nigerians Live In Absolute Poverty
with less than $1.25 per day
$$
$2,700 GDP Per Capita
Proven Natural Gas Reserves
1,581
894
284
-
500
1000
1500
2000
Russia Iran Qatar Turkmenistan
1046
Saudi
Arabia
US UAE Venezuela Nigeria Algeria
28 2 21 19 18 159
Trillion cubic feet (tcf)
8
Brazil
US
EU
Canada
India
12%
28%
33%
5%

Nigeria oil gas report19

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