centre for petroleum information presentation 2

8/3/2019 Centre for Petroleum Information Presentation 2

1/25

22 October 2010

The role of independents in the Nigerian oil and gas industryChairman Egbert Imomoh


2/25

The role of independents in the Nigerian oil and gas industrySlide 2

www.afren.com

Notice

The content of this presentation has not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 (FSMA). Reliance on the

information contained in this presentation for the purposes of engaging in any investment activity may expose the investor to a significant risk of losing all of the property or

assets invested. Any person who is in any doubt about the investment to which this presentation relates should consult a person duly authorised for the purposes of FSMA who

specialises in the acquisition of shares and other securities.

The information in this presentation is subject to updating, revision and amendment. The information in this presentation, which includes certain information drawn from public

sources does not purport to be comprehensive and has not been independently verified. This presentation does not constitute or form part of any offer or invitation to sell, or

any solicitation of any offer to purchase or subscribe for or otherwise acquire, any securities in Afren plc (the "Company") in any jurisdiction or any other body corporation or an

invitation or an inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000, nor shall it or any part of it form the basis of or be

relied on in connection with any contract therefore. This presentation does not constitute an invitation to effect any transaction with the Company or to make use of any services

provided by the Company. No reliance may be placed for any purpose whatsoever on the information contained in this presentation or any assumptions made as to its

completeness. No representation or warranty, express or implied, is given by the Company, any of its subsidiaries or any of its advisers, officers, employees or agents, as to the

accuracy, reliability or completeness of the information or opinions contained in this presentation or in any revision of the presentation or of any other written or oral

information made or to be made available to any interested party or its advisers and, save in the case of fraud, no responsibility or liability is accepted (and all such liability is

hereby excluded for any such information or opinions). No liability is accepted by any of them for any such information or opinions (which should not be relied upon) and no

responsibility is accepted for any errors, misstatements in or omissions from this presentation or for any loss howsoever arising, directly or indirectly, from any use of this

presentation or its contents.

The information and opinions contained in this presentation are provided as at the date of this presentation and are subject to change without notice.

In the United Kingdom, this presentation is only being distributed to persons who are reasonably believed to be persons who fall within Articles 19 (1) and 19 (5) (investment

professionals) or 49 (2) (High net worth Companies etc.) of The Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (Financial Promotion Order) or to

other persons to whom this presentation may otherwise be lawfully distributed. Persons who do not fall within any of these definitions should return this presentation

immediately to the Company and in any event, must not act or rely upon the information contained in this presentation. By listening to this presentation, each person is deemed

to confirm, warrant and represent that they fall under one of the Articles set out above. The contents of this presentation must not be copied or distributed by recipients and its

contents are confidential.

No recipient of the information in this presentation should deal in or arrange any dealing in or otherwise base any behaviour (including any action or inaction) in relation to any

securities to which this document relates (including behaviour referred to in section 118(6) of the Financial Services and Markets Act 2000) which would or might constitute

market abuse (as defined in section 118 of the Financial Services and Markets Act 2000).

Any financial projection and other statements of anticipated future performance that are included in this presentation or oth erwise furnished are for illustrative purposes only

and are based on assumption by the Company's management that are subject to significant risks and uncertainties and may prove to be incomplete or inaccurate. Actual results

achieved may vary from the projections and the variations may be material. Variations in the assumptions underlying the projections may also significantly affect projected

results. This presentation has not been examined, reviewed or compiled by the Company's independent certified accountants. No representation or warranty of any kind is made

with respect to the accuracy or completeness of the financial projections or other forward-looking statements, any assumptions underling them, the future operations or the

amount of any future income or loss.

By attending / reading the presentation you agree to be bound by these provisions.


3/25


4/25


www.afren.com

Background Independents in Nigeria today


5/25


www.afren.com

1940 1950 1960 1970 1980 1990 2000 2010

1938

Shell DArcy granted

exploration licence

to prospect for oil

throughout Nigeria

1956First commercial

oil discovery

(Oloibiri field)

1961/1962Texaco, Gulf (Chevron),

Safrap (later Elf) and Agip

(ENI) start operations in

Nigeria

1971Nigeria becomes a

member of OPEC.

Nigerian concessions

evolve into jointventures (JVs)

between the IOCs

and the Government

1990

First open

licence rounds

begin

2010 onwards

Indigenous Bill signed

and PIB expected to

further promote

significant indigenous

participation

1955Mobil Oil Corporation starts

operations in Nigeria

1977

Government establishes

Nigerian National

Petroleum Corporation

(NNPC)

1990-1994

38 indigenous companiesgranted E&P licences

1993First Production

Sharing Contracts

signed

1993-1998

Furtherindigenous

licensing

rounds

2000-2009

Government encourages

competitive tenders

through the 2000, 2005,

2006 and 2007 licensing

rounds

First marginal oil field

awards to indigenous firms

1986

MoU signed between

IOCs and the

Government

1959

Government

introduces the

Petroleum Profit

Tax Act

1971

Nigerian NationalOil Company

(NNOC) formed

The evolution of Nigerias upstream industry


6/25


www.afren.com

The corporate landscape today

Indigenous independents well represented in

terms of license interests held

but under represented today in terms of

commercial reserves and production

Resource ownership and production dominated

by the five major IOCs

Reflective of stage Nigeria is at on maturity curve

The challenge is for the independent sector to

now grow its share of commercial reserves and

production

License Interests

(No. of blocks)

State owned

Indigenous E&P

Major IOC

International NOC

International E&P

International integrated

/large cap

15%

37%35%

5%

4% 4%

Distribution ofResource ownership(mmboe)

State owned

Major IOC

International NOC

Indigenous E&P

International E&P


/large cap

Working Interest

Total Production

State owned

Major IOC

International NOC

Indigenous E&P

International E&P


/large cap

42%

44%

10%

4%


7/25The role of independents in the Nigerian oil and gas industrySlide 7

www.afren.com

What Independent E&Ps can contribute to Nigeria

Independent E&Ps can be a key driver for continued economic and industrial growth in

maturing basins Nigeria can be likened to the GoM and North Sea 20 years ago

Innovative ideasand fresh approach

Lowermateriality thresholds

Focus and

Solutions for

overlooked /

fallow assets

Indigenous

capacity

building

Employment

Economiccontribution

(royalty & taxes)

Contribute to

energy supply

(domestic &

International)



www.afren.com

The challenges faced

Opportunity constraints

- Sporadic licensing activity

- Low liquidity in asset market

- Retention of assets by Majors

Access to capital

Exploration and appraisal drilling

activity at all time low Skills and expertise

- Skilled personnel taken by majors

- May be reluctant to leave for

smaller/start-up E&P

Sustainability- Many E&Ps over-dependent on a

single/small number of assets

- Diversification and portfolio effect

can help mitigate risk and manage

exposure

40

35

30

25

20

15

10

5

0

No. of blocks

90 92 94 96 98 00 02 04 06 08 10

Deepwater

Offshore

Onshore

0

50

100

150

200

250

Exploration

Appraisal

65 0969 73 77 81 85 89 93 97 01 05

Blocks Awarded by region

Drilling Activity by wellNo. of well completions

Source: Wood Mackenzie Upstream Service



www.afren.com

Afren an independent E&P case study



www.afren.com

Afren an established African independent E&P

Established operating track record

27 assets acquired in 9 African countries

Circa 20,000 boepd net WI production (all operated)

106 net mmboe material reserves and contingent resources base (independently certified at 30/06/10)

2,400 mmboe net un-risked prospective resources

30 wells drilled and operated by Afren by end 2010, with sustained multi well drilling campaign planned

throughout 2011- Drilled on time and within budget

- Zero incidents

- Zero environmental issues

9 assets in Nigeria accounting for more than 70% of Group reserves and production,

in partnership with 7 indigenous companies

Maiden Okoro greenfield development onstream June 2008

Demonstrable long term commitment to working and empowering local management

Nigerian production from existing portfolio expected to grow from circa 18,000 bopd to over 50,000 bopd in

the near term

First oil expected from Ebok in Q4 2010, with Phases 1 & 2 expected to deliver 35,000 bopd

Actively appraising and exploring Okwok and OML 115

High impact exploration potential at OPL 310



www.afren.com

100

0

80

40

31/12/07 31/12/08 31/12/09

20

60

120

mmboe

Accessing international capital markets

Reserves

Production

100% Ebok appraisal

success rate

Prospective upside

of 2,400 mmboe

Ebok onstream Q4 2010

>70% of Group reserves

and production from

Nigeria

Sustained growth

Total capital raised to date

0

200

400

600

800

1000

1200

1400

1600

1800

Mar 05Jul 05

Dec 05Jul 06

Mar 07Mar 07

Jul 07Aug 07

Apr 08Sep 08

Oct 08Apr 09

Nov 09Mar 10

US$mm

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

H2 2010* H1 2011 H2 2011

Outlook boepd (average net WI production)

OkoroCI-11 & NGLsEbok

Afren an established African independent E&P



www.afren.com

Building a significant Nigerian portfolio through indigenous partnerships

OPL 310OPL 907/917

OML 26

OML 115

Ofa

Okoro

OkwokEbok



www.afren.com

Okoro Setu project - an established track record

Partnered with indigenous company Amni

- Afren acts as Technical Services Provider

Located on OML 112 offshore south east Nigeria

- Okoro field discovered in 1974

Green field development project

- Successfully operated 7 development and

1 appraisal well

First oil achieved in just two years from entry Production continues at ca. 18,000 bopd gross

- Continues to outperform pre start up expectations

- Moving towards upper end of recovery estimates

Exports via Ima terminal

- average parcel size increased to 812,000 bbls

in 2010 (from 169,000 bbls)- excellent operational efficiency maintained

with process uptime of 99.6%

Infill drilling targets identified

- Expected to restore production to >21,000 bopd0

4,000

8,000

12,000

16,000

20,000

24,000

28,000

32,000

36,000

40,000

OilRa

te,STB/D

0 1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10

,000

11

,000

12

,000

13

,000

14

,000

15

,000

16

,000

17

,000

18

,000

19

,000

20

,000

21

,000

22

,000

23

,000

24

,000

25

,000

26

,000

27

,000

28

,000

29

,000

30

,000

31

,000

Cumulative Oil Production, MSTB

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Watercut,fraction;GOR,Mscf/STB

Q4 2009 reservoir model

Q3 2008 reservoir model

0

4,000

8,000

12,000

16,000

20,000

24,000

28,000

32,000

36,000

40,000

0 1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

19,000

20,000

21,000

22,000

23,000

24,000

25,000

26,000

27,000

28,000

29,000

30,000

31,000

Cumulative Oil Production, MSTB

OilRate,STB/D

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Watercut,fraction;GOR,Mscf/STB

FOPR

Observed Daily Rate STB/D

FWCTObserved WCT %

Actual oil production

Actual water cut



www.afren.com

CompleteSource: Afren

Q1 07 Q1 08 Q2 08 Q3 08 Q4 08

RBL facility / certified reserves

FDP approval

FPSO secured

Development drilling (7 wells)

Production

Long lead items

Q2 07 Q3 07 Q4 07Q1 06 Q2 06 Q3 06 Q4 06

Agreement signed with partner AMNI

Appraisal drilling

Rig secured for development drilling

Okoro Setu project a fast track development


15/25The role of independents in the Nigerian oil and gas industry

Slide 15

www.afren.com

Partnered with indigenous company Oriental Energy

Resources- Afren acts as Technical Services Provider

Ebok & Okwok fields located on OML 67 offshore

South East Nigeria

- Ebok discovered 1968; Okwok discovered 1967

Appraisal campaign more than quadrupled gross 2P

reserves to >100 mmbbls

- Successful partnership at Ebok created follow on

opportunities at Okwok and OML 115

First Oil expected from Ebok in Q4 2010

- 35,000 bopd from Phases 1 & 2

Okwok appraisal well in progress

Potential for significant joint development synergies

between Ebok and Okwok

Ebok and Okwok fields both extend into OML 115,

exploration drilling planned on OML 115

- Ufon exploration well to spud Q4 2010 targeting 60

mmbbls prospect

Ebok/Okwok/OML 115 creating a new Nigerian production hub



Slide 16

www.afren.com

Slide 16

www.afren.com

Ebok/Okwok/OML 115 creating a new Nigerian production hub

135 feet of Water50km Offshore

Ebok WestWellheadPlatform

Ebok CentralWellheadPlatform

FSOMoored within70m of CWHP

8 Production line

6 Water injection

ESP Power & control cable

4 Test linePower &

control cable8 Produced water

8 Produced line

4 Gas line



Slide 17

www.afren.com

17

www.afren.com

Ebok/Okwok/OML 115 - unlocking substantial resource potential

0

50

100

150

200

250

300

350

400

Ebok 2P Okwok 2P* Okwok AFR techcase 2P

Total area 2P Ebok Upside Okwok Upside** Total UnriskedReserves &Resources

Gross mmbbls

* Pre acquisition gross 2P reserves estimate, Okwok reserves not yet independently reviewed** Assumes one prospect only in Qua Iboe

OML 115

10220

50 172

128

52

558206

450

500

550

600



Slide 18

www.afren.com

Building indigenous capacity First Hydrocarbon Nigeria

Established in response to Nigerian governments policy of increasing indigenous

participation in the upstream sector

Vision to become a champion in the indigenous sector through acquiring

and developing discovered but undeveloped fields

Majority Nigerian owned objective to broaden Nigerian

ownership (Initial Public Offering on NSE)

Major step forward in establishing a secondary market in

Nigerias E&P sector

Afren will provide FHN with technical, financial and

management support as Technical Services Provider

as with other existing indigenous

Nigerian partnerships



Slide 19

www.afren.com

FHN acquisition of OML 26

Acquisition by FHN of a 45% interest in OML 26

Two producing, three undeveloped fields and significant exploration upside

Maximum investment of US$ 187.5 million acquisition cost and equity share of phased development

Large scale reserves and resource base

Independently certified gross 2P reserves and contingent resources of 184 mmbbls

Undeveloped gross recoverable resources of 144 mmboe

Prospective resources of 615 mmboe gross

Current production with major planned redevelopment

Currently producing 5,000 bopd (gross)

Phased work programme defined for Ogini and Isoko fields to increase production to 40,000 bopd over five

years

FHN to operate the assets with Afren acting as Technical Services Provider

Leveraging Afrens established development and operating track record

Terms agreed with BNP for a loan to fund 88% of entire acquisition cost

US$130 million credit facility agreed at LIBOR +5.5%

Six year term



Slide 20

www.afren.com

OML 26 Ogini and Isoko fields phased development plan

Phase 1 Phase 2 Phase 3

Drill 6 producers + 1

water disposal well

Refurbish existing production

facilities 30,000 bopd liquids

handling capacity

16,000 bopd production

uplift expected Conduct detailed G&G Study

Analyse existing and

new production data

Net capex: c.US$ 70m

Net cash flow: c.US$ 30m

Expand production capacity

Drill 15 additional producers

40,000 bopd expected

production rate



Further expand facilities

Drill 18 infill-wells

50,000 bopd expected

production rate



0

10

20

30

40

50

Phase 1

Yrs 1-3

Phase 2

Yrs 4-6

Phase 3

Yr 7

Impact on gross boepd

0

10

20

30

40

50

Phase 1Yrs 1-3

Phase 2Yrs 4-6

Phase 3Yr 7


0

10

20

30

40

50

Phase 1Yrs 1-3

Phase 2Yrs 4-6

Phase 3Yr 7


Yrs 1-3


21/25


www.afren.com

Slide 21

www.afren.com

The independent sector poised forgrowth


22/25

The role of independents in the Nigerian oil and gas industry

A platform for sustainable growth

The Government

Continued promotion of the indigenous and

independent sectors

Stable regulatory and fiscal platform to

promote sustainable investment

Regular and defined licensing

processes new acreage,

relinquished acreage,undeveloped/fallow fields

Support and promote

development of

capital markets

The Independent E&Ps

Commitment to achieving and maintaining

international industry best practices

vital for creditworthiness and viability as

transaction counterparty

Attract, develop and grow the

best local oil and gas talent

(technical, financial, managerial)

Innovate to provide solutions

the value add of independent

E&Ps

Sustainablesector growth

The incumbent Major IOCs

Proactive approach to portfolio management use it or lose it

Opportunity to capitalise on strong demand for upstream assets that do not

fall within forseeable development plans


23/25


www.afren.com

The Opportunity Set

Development of an indigenous E&P

industry capacity building

Re-activation opportunities at assets

currently shut in or producing well below

capacity / potential

A clear strategy and solution for such

assets is crucial to realising optimal

development of Nigerias hydrocarbon

resources an indigenous E&P solution is

required

Structural reform of the upstream industry

1000

1500

2000

2500

3000

3500

4000

500

0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

2006 Unrest begins

Liquids Production (000p/d)

Nigeria

shut-in

production

Source: Wood Mackenzie

Onshore

Shelf

Deepwater with FID

Deepwater without FID

WM View in 2005

Source: IHS Energy data

20

30

40

50

60

10

0

No of Fields

Unknown

Reserve Size (mmboe)

Original Reserve Size Distribution

OilGas

Proved

unde

veloped

fields

0-1 1-5 5-10 10-25 25-50 50-100 100-250

250-500

500-1000

1000-2500

2500-5000 >5000

The undeveloped fallow fields

Large number of discovered but

undeveloped fields are attractive appraisal

and development opportunities

Could significantly boost Nigerias output if

developed

Mostly held currently by Major IOCs

Potential upside highlighted through Okoro

and Ebok


24/25


www.afren.com

Slide 24

www.afren.com

Conclusions


25/25

Slide 25Slide 25

Conclusions

Independent E&Ps have an increasingly important role to play in ensuring optimal

development of resources- Evidenced by positive impact independent E&Ps have had in maturing basins globally

Nigeria has a burgeoning indigenous E&P scene

- FHN acquisition of OML 26 from SPDC acts as a catalyst for the emerging

secondary asset market

Certain challenges must be overcome- Licensing and E&A drilling activity levels must increase

Nigeria remains a world class opportunity set

- Undeveloped/fallow fields

- Maturing portfolios of Major IOCs

- Good remaining exploration potential

Independent E&Ps should drive the next

phase of growth for Nigeria

centre for petroleum information presentation 2

Documents