Evaluating Critical Issues

For

Nigeria’s Strategic Roadmap Input

Nigeria Bitumen Reserve Development Bitumen Concession Development Outlook

Strategic Opportunities & Market Prospects for BitumenBitumen Pre-PIB Fiscal Regime Comparative Analysis

Volume 15-17| Mar 2015

Usman Suleman MBA (Oil & Gas ); B.Eng (Civil)

Proverbs 4:7_Wisdom is the Principal Thing

The Ondo State Bitumen Concession Development initiative will be premised on the huge available deposit of

Bitumen in the State. The estimated probable reserves of bitumen and heavy oil within the state over a 4.5km

and 55km area is about 42billion barrels.

The bitumen belt in Ondo State has been delineated into six prospective blocks with an average of 600km2

each as depicted in the figure below. This huge prospective reserves has opened up opportunities to explore

and produce both bitumen and SCO for both the Domestic and selected African Countries.

The Bitumen Concession development , will help Nigeria to diversify its Crude Oil Supply Source to the existing

Kaduna Refinery by developing the reserves to produce a mixture of synthetic light Crude Oil and Heavy Crude

Oil to meet KRPC’s Specification.

This will help to increase Nigeria’s Revenue base by substituting the imports of Heavy Crude from Venezuela and

Saudi Arabia for KRPC. The Concession Development will be developed in phases over a period and with the

ultimate objective of producing 100.000 barrels of commingled production output for Bitumen and synthetic

crude oil.

The Ondo State Bitumen Concession close proximity to the Escravos Terminal could allow for a SCO evacuation

pipeline of circa.110km to be constructed or the option of evacuating same through SPMs offshore Ondo.

Nigeria Strategic Roadmap for Change| Vol_15: Mar 2015

Bitumen Concession Development Outlook

Source: NNPC Statistical Report (1997-2013)Nigeria Ministry of Mines and Steel ReportAuthors Analysis

SAGD Facility

HTL Facility

From preliminary market analysis, the projected 2020 consumption for West and Central African

Countries as determined by the World Bank Report is a bout circa.9000 barrels per day of Bitumen;

with Nigeria having 61% of the reported projections.

The current strategic opportunities are premised on the projected 2020 Consumption demand for

West and West Central African Countries while taken cognizance of the current in-country production

capacity. This Market Entry Strategy will target a percentage of the available market in Nigeria and

the West/Central African Countries ; which is approximately 5000 barrels per day of Bitumen.

The surplus projected production balance of 95,000 barrels per day will be converted to SCO for

possible evacuation to Kaduna Refinery through the existing Escravos Terminal.

The projected tar sand recoverable reserve over a 20 year period required is about 730 mmbbls ,

thus the expected minimum reserves from the available concession in Ondo State should exceed the

required recoverable reserves.

Nigeria Strategic Roadmap for Change| Vol_16: Mar 2015

Strategic Opportunities & Market Prospects for Bitumen

Source: World Bank Refinery ReportAuthors Analysis

Product TypeAvailable Market Volume (barrels per day)

Targeted % of Available Market

Projected Market Share(barrels per day)

West/Central Africa Projected 2020 Market

Volume Bitumen 3,434 45% 1,545

Nigeria Projected 2020 Market Volume

Bitumen 5,345 65% 3,474

5,019

1,545 bpd of

Bitumen(W/C

Africa)

3,474 bpd of

Bitumen(Nigeria)

95,000 bpd of SCO

(KRPC Nigeria)

To evaluate the current provisions of the “Pre-PIB Fiscal Regime” and its favorability and attractiveness to

guarantee returns in investments, a comparative analysis of the Bitumen Concession Development as compared

to the more conventional Hydrocarbon Extractive Industry was conducted.

This evaluation was necessary as the huge capital outlay required to exploit and produce a barrel of Synthetic

Crude Oil (SCO) and Bitumen as compared to the conventional hydrocarbon of similar recoverable reserves may

post unfavorable financial and economic indices that might serve as a deterrent to investors.

The result of the comparative analysis as depicted in the Chart below, indicates that the existing fiscal regime

provisions are favorable, however there may be need for Government to provide some level of “Viability

Enhancing Funding” to boost the Internal rate of return , Payback period and the Net Back to cushion the high

capital expenditure (i.e. about 4 times the cost of developing a conventional crude oil concession of similar

recoverable reserves)

To further explore the investment attractive index of the Bitumen Sector, the proposed PIB fiscal regime

provisions will have to be assed at a later date.

Nigeria Strategic Roadmap for Change| Vol_17: Mar 2015

Bitumen Pre-PIB Fiscal Regime Comparative Analysis

Source: OML_4_38 and 41 Competent Persons ReportAuthors Analysis

13.11

3.97

12.63

2.91

12.70

1.19

1.07

49.01

97.00

186,568,475.00

13.60%

$1,981,689,056

8.61

7.01%

3.68

1.10

10.92

20.00

41.95

1.28

0.45

20.23

100.00

186,020,000.00

24.08%

$1,003,829,549

6.86

7.01%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Capex

Capex Equity & Debt Financing Interest

Opex (Including G&A)

Royalties

PPT

Education Tax

NDDC

Net-Back (Depreciation Inclusive)

Bitumen/Synthetic Crude Oil Projected Average Selling…

Projected Actual Production from 2P Recoverable Reserves…

Internal rate of return (IRR):%

NPV10

Pay Out Period (PBP plus Construction Period):years

70%Debt:30% Equity Capital Structure @ WACC

Nigeria Bitumen Concession DevelopmentFiscal Regime Comparative Analysis

(SCO Vs Conventional Crude Oil)

Ondo Bitumen Block Concession Development using Integrated SAGD & HTL Facilities

Hypothetical Convential Crude Oil Development within a Typical Swamp:land Interface Location