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BID PROPOSAL FOR THE CONSTRUCTION OF
THE SOUTH-CENTRAL PIPELINE LINKING THE
GAS FIELDS OF LARDISTAN TO ROTLANDA.
SUBMITTED BY
ORONERO PIPELINES (OroNero)
A subsidiary of Oro Nero Corporation
U2005/3070211-220
APRIL 2009
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Contents
COMPANY PROFILE ................................ ................................ ................................ ............................ 3
BIDDER - ORO NERO CORPORATION ................................ ................................ ................................ .. 3
EXPERIENCE ................................ ................................ ................................ ................................ ... 4
BALANCE SHEET ................................ ................................ ................ Error! Bookmark not defined.
TECHNICAL DESCRIPTION. ................................ ................................ ................................ .............. 5
PHYSICAL CHARACTERISTICS ................................ ................................ ................................ .......... 5
EFFICIENCY LEVEL ................................ ................................ ................................ .......................... 6
ROUTE DESCRIPTION AND LOCATION................................ ................................ ............................. 6
TECHNOLOGY ................................ ................................ ................................ ................................ 7
CONSTRUCTION PLAN ................................ ................................ ................................ ........................ 9
SCHEDULE ................................ ................................ ................................ ................................ .... 10
MILESTONES ................................ ................................ ................................ ................................ 11
BACKGROUND AND REFERENCES FOR SUBCONTRACTORS ................ Error! Bookmark not defined.
CONTRACT SUMMARIES FOR SUBCONTRACTED ACTIVITIES................................ ......................... 12
ENVIRONMENTAL IMPACT ASSESSMENT................................ ................................ ...................... 12
OPERATIONS, MAINTENANCE AND QUALITY ASSURANCE PROCEDURE................................ ............ 14
ECONOMIC ANALYSIS ................................ ................................ ................................ ...................... 16
ESTIMATED COSTS ................................ ................................ ................................ ....................... 17
CONSTRUCTION ................................ ................................ ............ Error! Bookmark not defined.
GAS SUPPLY AND DEMAND ................................ ................................ ................................ ...... 18
FINANCE ................................ ................................ ................................ ................................ .. 18
OPERATIONS ................................ ................................ ................. Error! Bookmark not defined.
ESTIMATED REVENUES ................................ ................................ ................................ ................. 18
RATES ................................ ................................ ................................ ................................ .......... 18
SUMMARIES OF PRO FORMA CONTRACTS WITH SUPPLIERS, SERVICE PROVIDERS AND CUSTOMERS
................................ ................................ ................................ ................................ .................... 19
NO:1 ................................ ................................ ................................ ................................ ................ 19
GAS TRANSPORTATION CONTRACT ................................ ................................ ................................ .. 19
BETWEEN ................................ ................................ ................................ ................................ ........ 19
LARDISTAN GAS COMPANY ................................ ................................ ................................ .............. 19
AND ................................ ................................ ................................ ................................ ................. 19
ORO NERO PIPELINES LIMITED ................................ ................................ ................................ ......... 19
DATED: 10TH FEBRUARY, 2008. ................................ ................................ ................................ ....... 19
ARTICLE 1 SCOPE OF CONTRACT................................ ................................ ................................ .... 20
ARTICLE 2 RATE SCHEDULES AND GENERAL TERMS AND CONDITIONS ................................ .......... 20
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ARTICLE 3 TERM ................................ ................................ ................................ ............................ 20
ARTICLE 4 CORRESPONDENCES ................................ ................................ ................................ ..... 21
ARTICLE 5 BANKRUPTCY OF LARDISTAN GAS COMPANY ................................ ................................ 21
ARTICLE 6 LAW OF CONTRACT ................................ ................................ ................................ ...... 21
SUPPLY ARRANGEMENTS ................................ ................................ ................................ ................. 22
GAS SUPPLY SOURCES ................................ ................................ ................................ .................. 22
UPSTREAM TRANSPORTATION AND STORAGE ARRANGEMENTS................................ .................. 22
BACKGROUND DESCRIPTION, REFERENCES AND CREDIT RATINGS ON ALL POTENTIAL SUPPLIERS/
SERVICE PROVIDERS ................................ ................................ ................................ ..................... 23
FINANCIAL ARRANGEMENTS ................................ ................................ ................................ ............ 24
SUMMARY OF COMMITMENT LETTERS ................................ ............. Error! Bookmark not defined.
PROOF OF FINANCIERS CREDIT-WORTHINESS ................................ .. Error! Bookmark not defined.
CORPORATE AUTHORIZATIONS ................................ ......................... Error! Bookmark not defined.
RISK MANAGEMENT ................................ ................................ ................................ ........................ 24
CONSTRUCTION RISK ................................ ................................ ................................ ................... 24
PRICE RISK ................................ ................................ ................................ ................................ ... 24
OPERATIONS RISK ................................ ................................ ................................ ........................ 24
POLITICAL RISK................................ ................................ ................................ ............................. 24
REGULATORY RISK ................................ ................................ ................................ ....................... 25
LEGAL RISK ................................ ................................ ................................ ................................ ... 25
ENVIRONMENTAL RISK................................ ................................ ................................ ................. 26
LEGAL & REGULATORY ................................ ................................ ................................ ..................... 26
APPLICABLE LAWS AND REGULATIONS ................................ ................................ ......................... 26
PERMITS REQUIRED WITH ESTIMATED TIMELINE ................................ ................................ ......... 26
SUMMARY OF COMPLIANCE PLANS ................................ ................................ ............................. 27
SUMMARY OF CONTRACTUAL AGREEMENTS ................................ ................................ ............... 27
SMART DEVELOPMENT ................................ ................................ ................................ .................... 27
PROJECTIONS OF ANTICIPATED ECONOMIC, ENVIRONMENTAL AND SOCIAL IMPACT................... 28
LOCAL CONTENT & HUMAN RESOURCE DEVELOPMENT ................................ ........................... 28
HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION ................................ ............................. 28
ANALYSIS OF PROJECTS ANTICIPATED CONTRIBUTION ................................ ................................ 29
PROGRESS REPORTING SCHEDULE ................................ ................................ ............................... 29
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BIDDER - ORO NERO CORPORATION
COMPANYPROFILE
Oro Nero Pipelines is a subsidiary of the popular Integrated Energy Conglomerate, Oro Nero
Corporation (Oro Nero). Oro Nero Pipelines was incorporated 15 years ago under the laws and
statutes ofA
ngoria to enable it focus on its core business which is getting Oil and Natural gas fromthe producers to the end users.
Figure 1 Structure for Oro Nero Corporation
The Parent company holds 75% of the stock in Oro Nero Pipelines and Oro Nero Corporation
is also listed in various stock exchanges worldwide including the New York Stock Exchange (NYSE)
under the symbol, ORO. The remaining 25% equity is publicly held. Oro Nero Pipelines is listed
under the symbol, ORP.
Oro Nero Pipelines has consistently given positive Returns on Investments to shareholders
for the past 12 years, with earnings showing a cumulative average year on year growth of 21.3%
over the period.
Oro Nero Pipelines formerly existed as Angorian Pipe Co., a moribund state enterprise which
was sold during the privatization program of theAngorian Government in 1993. Oro Nerocorporation successfully bid for and purchased 75% equity in the company and completely
revamped it, turning it into what it is today.
The Board of Oro Nero comprises ten members; four (4) of whom (inclusive of the Chairman
of the Board) are Non-Executive Directors, while six (6) are Executive Directors. The Directors are
listed in the Directors report. The Companys Board is made up of a crop of seasoned professionals
who have excelled in their various professions including oil and gas and law andpossess the
requisite integrity, skills and experience to bring independent judgment to bear on Board
deliberations.
In line with best practice, the Company in June 2008 appointed Mr. VictorAlete and Mr.
Rapt Ejike as Independent Directors based on theAngorian criteria on the appointment of
independent Directors and the core values enshrined in the Companys Code of CorporateGovernance. Both Directors do not have any significant shareholding interest or any specialbusiness
relationship with the Company.
The Executive Directors of the company along with their Ranks are as follows:
1 Mr. Peter A. Banigo CEO, Oro Nero Corporation
2 Mr Amadi Ambrose MD, Oro Nero Pipelines
ORO NEROCORPORATION
ORO NEROPIPELINES
ORO NEROMARKETING
ORO NEROEXPLORATION
ORO NERO
PETROCHEMICALSORO NERO
REFINERY
ORO NERO
POWER SUPPLY
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3 Ms Akrasi Esther Exective Director, Quality Control
4 Mr Victor Alete Non- Executive Director
5 Mr Awara Iwah Executive Director, Finance
6 Mr Alozie Chigozirim Executive Director, Risk Management
7 Mr Omoni Ejike Rapt Non-Executive Director
8 Ms Favour Amadi Executive Director
9 Mr Amore Femi Deputy Managing Director, ORP
10 Mr Chinedu Executive Director
EXPERIENCE
Oro Nero pipelines Inc, a division of the Oro Nero Corporation has been into the business of
construction, maintenance and operation of oil and gas pipelines for over 15 years. Oro NeroPipelines is committed to linking all oil and gas pipelines to their markets for effective exploitation.
Our International certificates and permits, as well as a substantial body of project-specific
technical analysis place Oro Nero in the best position to develop the South-Central Gas Pipeline.
In addition, our expertise and project management skills, as well as multi-jurisdictional
regulatory experience provide unparalleled access to major markets worldwide and ensure the
timely construction of a technologically sophisticated and environmentally sound transportation
system, and mitigate the risk of delays.
The company, which has the vision of being the number one reference when quality
pipelines are mentioned, has satisfactorily completed so many projects spanning the globe which are
mentioned below:
1.) 1994-1997. The 600 mile, 48, Angorian South North pipeline. This cost a total of $750million
2.) 1995-1997. The 365 km, 48, 56 pipeline linking Calabar and Ajaokuta, both in Nigeria.3.) 1997-1999 The 800 mile, 42, Oil pipeline linking WestAfrican Gas Markets to Nigerian
Suppiles. This cost $1.3bilion.
4.) 1999-2001. The 1,442 mile, 52" Alaska Gas Pipeline in the Mackenzie valley.This was constructed at the cost of $2.8billion within schedule
5.) 2000-2001 The 375 mile, 32" south-west gas pipeline linking the gas fields in Nigeria's NigerDelta to Lagos. $500million
6.) 2000-2003 The 2615 mile 42" linking Libya to the UK. This cost 5$5 billion7.) 2002-2005. The 4000 mile, variable Diameter, North American Gas Supply Network. This
Cost a total of $12 billion.
8.) 2003-2006, The2600 mile, 28 Ukraine Georgia Supply System. This cost $3.2 billion.9.) 2005-2007, The 1200 mile, 36 mixed product line linking Russia to the FSU. $1.8 billion10.)2006-2008 The 1592 mile, 42 pipeline linking South Africa to Angola. $2billion
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11.)2007-? The 1635 mile, 35 Iran China oil line. Estimated at $2.6 billionAs can be seen above the company has vast experience in pipeline construction and works
within schedule, regardless of the terrain encountered.
TECHNICALDESCRIPTION.
Oro Nero has prepared a natural gas pipeline development plan to facilitate the
commercialization of the Lardistan south basin natural gas reserves.
Oro Nero proposes to construct a 960-mile natural gas pipeline from Lardistan to major
cities in Rotlanda. For planning and design purposes, Oro Nero is analyzing a 36-inch diameter (NPS
36), high-pressure (2,500 psia) pipeline that has an initial design capacity of 750 MMcfd and can be
expanded very efficiently to approximately 800 MMcfd by adding incremental compressor units.
The pipeline when constructed would have the following major technical features:
y Tubes of high grade (X80) corrosion resistant steel with inner and outer smooth polymercoating produced during the manufacturing process
y Cathodic protection of the linear part of the offshore section (with anodes placed duringconstruction and operational during service life)
y Tunnelling would be employed for construction in mountain ridgesy Concrete coating of the pipes would be carried out at coastal sectionsy Compressor stations
PHYSICAL CHARACTERISTICSTotal Pipeline length: 960 MILES
Length on land: 768 MILESLength in Water: 192 MILES
Type: Longitudinal SAW
Initial Throughput: 750 MMCF
Expansion Potential to: 800MMCF
Operating Pressure: 2500psia
Initial Compressor Stations: TWO (2)
Heater Stations: ONE (1)
Meter Stations: TWO (2)
Pipe Steel Grade: X80 (GRADE 550) CARBON STEEL
Pipeline Diameter: 36
Pipe Wall Thickness: 1.45
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EFFICIENCYLEVEL
The South Central pipeline would operate at an efficiency level of 99.9%with all measures
taken to minimise and eliminate downtime.
ROUTEDESCRIPTIONANDLOCATION
Figure 2 Pipeline Route Location and Description.
The pipeline will receive pipeline quality gas1
at Lardistans South Basins where it will
proceed southward along the described ROW till it gets to the river where it will cross
before it gets to Rotlan City.
Oro Neros proposed pipeline route is the certificated ANGTSroute that has been
sanctioned by both the Lardistani Senate and Rotlan Parliament.
There would be camps for workers (temporary) built along the ROW and also,two
compressor stations and a Gas Treatment Plant would also be constructed.
The pipeline route consists of Hilly Terrain, Highways, Mountains, a River,
Ecologically Sensitive Forests and Built Up areas which can all increase cost of
construction.
1Pipeline quality gas is obtained by removing most of the heavy hydrocarbons, moisture, CO2 and otherimpurities from the natural gas stream.
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TECHNOLOGY
For so many years now, Oro Nero has led and participated in numerous technical
and economic studies and proposals for pipeline projectsworldwide. In the process, Oro
Nero has analyzed, in considerable detail, large-diameter pipeline design and construction.
Armed with almost half a century of experience operatinglarge-diameter, high-
pressure natural gas pipelines, compressor stations andmeasurement stations in regions
where winter temperatures can drop below -40F, Oro Nero has the expertise to develop
the Lardistan pipeline.
Oro Nero has continuously improved upon its cold climate expertise byincorporating
learning into the operating procedures of existing facilities and into thedesign criteria for
new projects. Oro Neros active research program has focused onmaterial, strain-based
design and structural reliability; fracture behaviour and control; frost heave and thaw
settlement in permafrost and discontinuous permafrost areas;trenching techniques;
horizontal drilling methods; buoyancy control and advancedsoftware development.
The application of many of these technological advancements has increased
efficiencies, safety and environmental protection while decreasing costs. A sample of
technological advancementswhich we would employ:
High-strength pipe materials
X80 (Grade 550) Oro Nero first installed X80 pipe on its system in 1994. Since that
time, Oro Nero has installed approximately 3000 miles of large-diameter X80, including
projects dealing with discontinuous permafrost in Northwestern Alaska. The use of X80
continues to lower pipeline material and construction costs by reducing pipeline weight and
reducing construction impacts on the right-of-way.
Fracture control plans Such plans are now an integral element of anyregulatory
application in support of new projects. Oro Nero has developed fracture control plans for
pipelines. Oro Nero engineers have applied and upgraded their knowledge and experience
to control the propagation of longitudinal fractures, and to understand the gas
decompression behaviour that is a key aspect of this phenomenon. These approaches have
been validated through some full-scale fracture tests.
Frost heave and thaw settlement Frost heave and thaw settlement are uniquewinter
pipeline design challenges. Numerous transitions to and from permafrostand the related
frost heave and thaw settlement can induce excessive stress andstrain on the pipe.
Lardistans discontinuous permafrost, especially in the mountainous regions, Oro
Nero the experience it needs to design pipelines for Lardistan.
Strain-based design This concept specifies the pipe material characteristics
required to meet expected strain loads. Oro Nero is a leader in the development and
application of strain-based design methodologies. We have anin-depth understanding of
material and structural behavior, an extensiveoperations database, and advanced analytical
models to support design innovations
Mechanized welding Mechanized welding will be essential for mainline welding of
any pipeline project. Automated and higher productivitywelding, with minimumintervention by the welder, will be a distinct advantage in harsh conditions and short
construction seasons. Oro Nero and BP Exploration are developing a new, fully automated
pipeline welding system. Advanced mechanized welding has been accompanied by the
introduction of mechanized ultrasonic inspection. Oro Nero has led the industry in the
application of this technology. Advanced welding design, processes and inspection ensure
the structural integrity of the field weld.
Advanced monitoring, control and communication systems Oro Nero operates
one of the largest and most sophisticated gas pipeline systems in theworld. We use leading-
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edge software to operate our SCADA system, employing avariety of telecom options to
communicate with our remote sites, which allows usto choose the right telecom solution
based on site requirements and cost. Our systems are highly available (99.9 percent), fully
redundant with a remote hot standby contingency site. By applying new technology,Oro
Nero has gone from 14 control centres with a supervisory gas control centre down to a
single gas control centre.
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S/N ITEM REMARKS
PRELIMINARIES
1 Economic Analysis of
demand and Supply for the
Natural Gas
1 Month
2 Pipeline Route Selection 1 Month
3 Pipeline Design 2 Months Determination of pipe and
components and technical
specifications
4 Environmental Impact
Assessment
1 Month
5 Public Consultation 1 Month
6 Land Acquisition &
Requisition
3 Months 10m wide along ROW,
acquisition, 15m wide on one
side, requisition(for working
period).
For scraper station and Valve
station separate block lands
of required size have to be
acquisition
7 Obtaining of permits 2 Months Easement rights,
Environmental permits
7 Compensation 1 Month
Preparation ofAccess
Roads, Camps, Movement
of equipment to staging
sites
3 Months
CONSTRUCTION STAGE
1 Survey and Staking 1 Month
2 Front End Grading ! Month
3 ROW Topsoil stripping 1 week
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4 Pipe Hauling & Stringing 1 Month
5 Field Bending of Pipe 2 Weeks
6 Line Up & Initial Welding 3 Weeks
7 NDT of welding joints 3 Weeks Dye Penetrant, Radiographic,
etc
7 Trenching 2 Months Use of Wheel ditcher &
Backhoe
8 Holiday Testing
8 Inspection and Repair of
Coating
3 Weeks
9 Lowering of Pipe into Trench 2 Months
10 Laying of riverbed portion 6 Weeks The S-lay Method would be used and a
robotic trenching machine
Installation of valves and other
fittings
1 Month
11 Padding, Backfill& Rough Grade 6 Weeks
POST-CONSTRUCTION STAGE
1 Testing 3 months
hydrostatic testing 2 weeks Pressure at 1.5 times design pressure, Give
notification to residents.
Drying of Pipeline 2 weeks Use dry air to push foam pigs to collect
water
Purging 2 weeks Removal ofAir
2 Final Tie-In 1 month
3 Top-soil Replacement 3 months
4 Final Cleanup & Full Restoration 5 months
Commissioning 1 week First Gas transmitted
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SCHEDULE
Several crews known as "spreads" will build the pipeline in sections. The plan
assumes that the pipeline will be separated into five construction sections for each
year of construction. The spreads will construct sections ranging in length from 150
to 200 miles.
The peak field workforce is estimated to be between 6,500 and 7,000 people
for the pipelines construction.
A sample of the engineering, field data and technical information compiled to
date for the Lardi portion of the South Central Pipeline includes the following: Field Test Programs
Frost heave Fairbanks frost heave test site Chilled pipe test sites Differential heave test sections Heat pipe test site Soil uplift resistance program Surface disturbance test sites Full scale pipe burst and bend tests
Field Data Gathering Programs
- Geotechnical field program- Bore hole drilling programs for pipeline centreline, mineral material sites, and
compressor station and other sites
- Mapping programs- Geophysical studies, including soil resistivity, slope stabilization
reconnaissance, fault studies, pipeline centreline studies, and seismic
refraction
- Laboratory testing programs
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- Geotechnical databases- River and stream surveys, including stream entry studies and disturbance of
stream and wetland crossings
Technical Information
- Technical reports based on integration of data and engineering- Designcriteria manuals for all components of the pipeline, compressor and meter
stations, operations control centre and supervisory control systems, andtelecommunications, for example:
o Frost Heave Design Criteria and Methodologyo Geotechnical/GeothermalAnalysiso River, Stream, and Wetlands Crossings
Technical and environmental plans, pursuant to Stipulation 1.6.1 of the Federal
Grant of Right-of-Way
Pipeline alignment sheets, as revised
Mineral Material Acquisition Plan
Authorization to Proceed (ATP) Application Plan
Notice to Proceed (NTP)A
pplication Planning
CONTRACTSUMMARIES FORSUBCONTRACTEDACTIVITIES
Rotlanda Steel Coy: Supply of X80 Carbon Grade steel Pipes and fittings
Environment Watch International: Environmental Impact Assessment (EIA)
Julius Berger International- Access roads, surveys, trenching
WeldNet International- Welding, Coating and Bending
Magnifico Inspection Coy: Inspection & Testing
Lardi Earthworks: Supply of Gravel, etc
Lardi Gardens: Restoration & Clean Up
ENVIRONMENTALIMPACTASSESSMENT
The Environmental Impact Assessment (EIA) for the South Central Gas project
would be carried out by an Independent third party agency, the Environmental
Watch International (EWI).
The EIA which would be provided on request, contains information on
y The reason for the choice of the pipeline route chosen compared withalternatives,
y Risk analysis for gas leakage, which would show the consequences of any gasleakages both on land and water to humans, wildlife and property.
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OPERATIONS, MAINTENANCEAND QUALITYASSURANCEPROCEDURE
The South Central gas pipeline, due to the nature of material it carries, Natural
Gas, would be maintained in the strictest manner and to the highest of quality
standards. The pipeline would run for 24 hours, 365 days every year.
The pipeline would, like all our previous projects, be fitted with the
SCADA (Supervisory Control & data acquisition system) which any leakage or
vandalism problems can be handled immediately minimising impact on theenvironment.
The pipeline, in addition to automated checks by the devices stationed
along its length, would also be manually inspected physically by staff from the quality
control unit of the company once every three months and all leaks detected would
be fixed within 24 hours.
The quality control unit is adequately funded for this purpose. Prompt
response to all defects found is necessary to prevent loss of sales, customer
inconvenience and service disruption.
Major repairs may be carried out once in a while on the pipeline due to
internal defects, leaks or in order to install large connections. Traditionally,considerable amounts of Gas are lost during pipeline repair which is why our
company, to reduce/ eliminate the occurrence of these, uses the most modern
methods in maintenance such as Hot Taps and Composite Wraps while Pipeline
pump downs are carried out for major repairs to recover vented gas.
All trenches dug in the course of maintenance and repair are
immediately covered up and restored after the curing time for all repair has elapsed.
Oro Nero conducts its business so that it meets or exceeds all applicable laws
and regulations and minimizes risk to our employees, the public and the
environment. It is these principles that guide Oro Nero during all phases of project
development, including engineering design, field studies, construction, operation andmaintenance, and eventually decommissioning.
Oro Nero is committed to maintaining its position as an industry leader in
health, safety and environmental (HS&E) practices, to maintaining a safe and healthy
workplace and to protecting environmental quality. We believe excellence in HS&E
practices is vital to the well-being of all people everywhere and essential to all
aspects of our global business.
It is Oro Neros intention to design, construct and operate the pipeline to meet or
exceed all applicable safety standards, building on half a century of experience in
cold weather pipeline design and construction.
The following factors would be addressed in the design of the pipeline material,
strain-based design and reliability-based design;
Fracture behaviour and fracture control;
Frost heave and thaw settlement in permafrost areas; and
Advanced design software development.
Construction and environmental focus areas would include:
Trenching techniques in permafrost areas;
Horizontal directional drilling techniques in permafrost areas; and
Buoyancy control in permafrost areas.
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Ultimately, the goal of the project is to provide safe and reliable delivery of
natural gas to customers without adverse effect on employees, contractors, the
public, or the environment. Managing the integrity of a gas pipeline system is the key
to accomplishing this goal. Operational excellence is achieved by implementing a
comprehensive system of integrity management that includes, among others, the
following items:
Operating procedures Oro Neros operation and maintenance activities aregoverned by over 650 individual procedures that promote safety, environmental
protection and efficiency in the operation of the pipeline. These procedures are
known as Oro Nero Operating Procedures (OOPs). OOPs are developed and revised
in conjunction with our pipeline and plant maintenance plans, safety and
environmental protection programs, and in response to legislated requirements in all
applicable regulatory jurisdictions in which we operate. OOPs are maintained
electronically and are accessible at all locations across the organization. Electronic
links with our state-of-the-art computerized maintenance management system
allows for efficient access to the OOPs for field technicians at the same time as they
are reviewing and issuing maintenance work orders.Results and findings from the execution of maintenance tasks are captured
and trigger reviews and updates to the TOPs, thus facilitating continuous
improvement. Finally, a change-management program ensures that legislative
amendments that may impact the OOPs are communicated, analyzed and
incorporated into the OOPs when appropriate, and that staff receive timely
notifications when OOPs are revised.
Advanced monitoring, control and communication systems Oro Nero operates
one of the largest and most sophisticated gas pipeline systems in the world. We use
leading-edge software to operate our SCADA system, employing a variety of telecom
options to communicate with our remote sites, which allows us to choose the right
telecom solution based on site requirements and cost. By applying new technology,
Oro Nero has gone from 14 control centres with a supervisory gas control centre
down to a single gas control centre. Pipeline integrity and maintenance Oro Nero
uses an industry-leading integrity management program to ensure pipeline integrity
and the safety of employees and people who live near the pipeline system. The
program uses advanced inspection and mitigation technologies applied within a
comprehensive risk-based methodology. Risk assessment is used to identify potential
integrity threats for initiation of inspection or mitigation activities. Results from the
inspections for known or suspected integrity threats are then fed back into an
information database to plan future programs. Our integrity management programs
have led to a reduction in costs such that, on a volume-distance basis, our operationscosts are less than half the industry average.
Compression operation and maintenance Oro Nero is the lowest-cost operator of
gas compression facilities worldwide. Our compression maintenance costs (capital
and expense) are approximately one-third of average industry costs. We continue to
look for improvements that will lower costs and improve the efficiency of our
compressor fleet.
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Geographic information systems Oro Nero leads Angorias gas transmission
industry in the integration of facility and environmental data to achieve operational
efficiencies and support sophisticated maintenance planning.
In fact, Oro Nero received the 2001 Excellence Award from the Geospatial
Information Technology Association; Oro Nero was recognized for exceptional design
and application of GIS technology, the first in the industry to receive such an award.
HS&E Management System Oro Neros integrated HS&E Management systemcaptures, organizes, and documents the companys commitment and expectations
for effectively managing HS&E responsibilities and risks. There are two major aspects
of the system: the framework and the continuous improvement cycle. It is modelled
after ISO 14001, an international standard for environmental management systems.
Our approach is risk-based, the same as our pipeline integrity program. By
considering the likelihood, frequency and consequence of events, we are able to
place our first priorities on those areas which show the greatest exposure. Our
record in safety is among the best in our industry. Oro Nero Pipelines, in all its years
of doing business, has never had any serious incident reported on any of its pipelines.
This is as a result of the company sticking to quality standards set by variousregulatory and professional bodies such as the ASTME (Angorian Society of
Mechanical Engineers), World Materials Foundation (WMF),
ECONOMIC ANALYSIS
The South Central Gas pipeline project would be a very financially viable
project as there is a wide market for the Goods in question and also, there is a global
trend of a shift towards the use of clean fuels for industrial and domestic use as a
result of the climate change phenomenon.
Our company, over the years, with our vast experience, has developed an
economical, cost effective means of constructing and managing gas pipelines and this
project, would be the recipient of years of expertise in pipeline management.
Our company conducted an economic evaluation of the project, which is
attached with this proposal. From the evaluation, it can be seen that with the
available pipeline parameters and the lowest possible tarrif rate of $1.30, the project
yields a Net Present Value (NPV) of approximately $991 and an IRR of 13%. This
shows a very profitable venture even with leap year revenues ignored andcontingencies included.
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ESTIMATEDCOSTS
The South Central Gas pipeline project is estimated to cost a total of
$1,700,000,000 (One Billion, seven Hundred Million Dollars only) of which 25% would
be spent in the first year, 50% in the second year and 25% in the third year.
This figure includes the value of the financing which would be obtained in
respect of the pipeline.
The construction phase of the pipeline project would take the shortest time and the
largest chunk of the budget in our projections (50%).
Extension in the time estimated for construction would unnecessarily inflate
the cost of the pipeline which is why our company employs the segmenting method
where work goes on simultaneously at different points. From experience, this has
been seen to reduce time, and hence cost factors by a factor of as much as 5.
The break down for the construction cost of the pipeline is as follows (prices in$MM).
Cost in $MM Percentage of Total
Material Costs 273 16%
Labour 1025 60%
Miscellaneous 342 20%
ROW and Damages 69 4%
TOTAL 1709 100%
The pipeline would be constructed at an average cost of $1.3MM per mile
onshore and $2.5MM/mile offshore for its total length of 960 miles and with 80% of
its length onshore.
Operating costs have been estimated to stabilize at a maximum of
$26,000,000(Twenty Six Million Dollars) annually, with fixed cost per year at
$16,000,000 and a variable operating cost per MMMcf of $0.02.
In calculating the costs for the pipeline, an O & M contingency of 20% was
added to the calculated value yearly to make up for contingencies in O&M costs that
may be associated with lack of skilled labour, poor infrastructure, bureaucratic
changes and the like that commonly delay projects and increase costs.
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GASSUPPLYANDDEMAND
The financial projections for the South Central pipeline, have all been made,
based on assumptions that a fixed amount of gas at a fixed tariff rate would pass
through the pipeline on a daily basis, uninterrupted, for 30 years, for this reason, we
have to ensure that the pipeline always has enough gas for supply to end users and
also, that there are users that need the amount of gas available for use immediately
(since gas cannot be stored for long periods).
Oro Nero pipelines has entered into long term gas shipping contracts with
existing upstream gas production companies for about 600 MMcfd of gas deliverable
by 2012 and also, other contracts have been signed with companies which won in
the just concluded Lardistani Licensing round for the unexplored basins in the
southern area of Lardistan which would be deliverable in 2014 hence completing the
supply requirements of 750 MMcfd.
FINANCE
The South Central Pipeline would be financed by a consortium of investor-
lenders who would provide a total of 25% or $406,559,999 of the project sum at an
interest rate of 12% to be amortized over 10 years. The financiers include
Internacionale Credit Suisse, HSBC,FCMB.
The pipeline would also be insured by the International insurance group AIG in
order to mitigate against losses and to pay workmen compensation.
ESTIMATEDREVENUES
Revenues for the pipeline in question would be obtained from tariffs on the amount of
Natural gas which passes through the Gas pipeline. Currently, the tariffs are estimated at $1.3 per
Mcf of Gas based on the average estimated throughput of 700MMcfd of gas, the yearly revenues are
estimated as follows:
700 000MMcf * $1.3 * 365 days = $332,150,000
This is a low estimate since the pipeline is estimated to stabilize production at 750 MMcf per
day and also, leap-year revenues have been ignored to allow for any unforeseen breaks in
production. This is the gross revenue from the pipeline before various costs would be taken into
consideration.
RATESThe tariff rates for the South Central gas pipeline are estimated at about $1.3 per Mcf of
Gas. This tariff is acceptable by both the Lardistani & Rotlan Governments and is the base on which
the financial estimates for the project have been based. The breakdown of the tariff is as follows:
US$/Mcf %
Operating cost 0.10 7.69
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Maintenance Reserve 0.10 7.69
Miscellaneous 1.10 84.61
TOTAL 1.30 100
SUMMARIES OF PRO FORMA CONTRACTS WITH SUPPLIERS,SERVICE
PROVIDERSAND CUSTOMERS
NO:1
GASTRANSPORTATION CONTRACT
BETWEEN
LARDISTAN GAS COMPANY
AND
ORO NERO PIPELINESLIMITED
DATED: 10TH FEBRUARY, 2009.
This contract is made as of the 10th day of February, 2008 by and between the ORO
NERO PIPELINES LIMITED and LARDISTAN GAS COMPANY, a Lardistani company, pursuant
to the following recitals and representations: Whereas, Oro Nero Pipelines Limited hasreceived and accepted a certificate of public convenience and necessity issued by the
Federal Energy Regulatory Commission, authorizing Oro Nero Pipelines Limited to manage,
construct and operate a pipeline gas transmission. Whereas Oro Nero Pipelines Limited has
entered into gas transportation agreement with the Lardistan Gas Company herein called
Gas supplier(s), for the transportation of up to 120MMcf of natural gas per day; whereas
Oro Nero Pipelines Limited and Lardistan Gas Company now desire to establish the terms
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and conditions under which Lardistan Gas Company render services to Oro Nero Pipelines
Limited by entering into this Gas transportation contract.
Now therefore, in consideration of the mutual convenants and agreement herein
assumed, Oro Nero Pipelines Limited and the Lardistan Gas Company agree as follows:
ARTICLE 1 SCOPE OF CONTRACT
1. On the commencement date and each day thereafter, Lardistan Gas Company shallcause the input quality for each receipt point hereunder, not to exceed the
maximum input. Quantity for each receipt point, to be delivered to Oro Nero
Pipelines Limited at the receipt point(s).
2. On the commencement date, Lardistan Gas Company shall make the equivalentquantity corresponding to the input quantity, not to exceed themaximum
equivalent quantity for each delivery on behalf of Oro Nero Pipelines Limited on a
firm basis.
3. Lardistan Gas Company shall be solely responsible for securing faithful performanceby gas supplier(s) in all matters which may affect Oro Nero Pipelines Limiteds
performance hereunder, and Limited shall not be liable hereunder to Lardistan Gas
Company as a result of the failure of Gas supplier(s) to so perform
ARTICLE 2 RATESCHEDULESAND GENERALTERMSAND
CONDITIONS
This contract and all terms and provisions contained herein are subject to the provisions of
Rate Schedule FTS and the general terms and conditions of Oro Nero Pipelines LimitedsFERC gas tariff and as such, may be revised and superseded from time to time, which Rate
Schedule FTS and general terms and conditions are by this reference made a part thereof.
ARTICLE 3 TERM
1. This contract shall be effective as of the date first therein above written; providedhowever, that Lardistan Gas Company shall be under no obligation to receive or
deliver any quantities of natural gas and Oro Nero Pipelines Limited shall be under
no obligation for any payment(s) hereunder prior to the commencement date.
2. This contract shall be enforced and shall continue to be effective until a date which isat least one month from the commencement date, pursuant to any effective
provisions for termination of this contract by Lardistan Gas Company as stated in
Rate Schedule FTS or the general terms and conditions for transportation service,
provided however that if the FERC authorizes Lardistan Gas Company to abandon
service to Oro Nero Pipelines Limited on an earlier date. This contract shall terminate
as of such earlier date.
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ARTICLE 4 CORRESPONDENCES
All correspondences to Oro Nero Pipelines Limited shall be addressed to:
The Manager
Power Operations
Oro Nero Pipelines Limited
P. O. Box 860
ANGORIA, AN 62157.
Correspondences to Lardistan Gas Company shall be addressed to:
The Manager
Gas Transportation Operations
Lardistan Gas Company
P. O. Box 1460
Republic of Lardistan.
Either party may change its address under this article by a written notice to the other party.
ARTICLE 5 BANKRUPTCY OF LARDISTAN GAS COMPANY
Subject to the requirements of section 7 of the National Gas Act, Lardistan shall not
be required to render or continue to render sales on behalf of any Oro Nero Pipelines
Limited that has applied for bankruptcy under the bankruptcy code or on behalf of any
lardistan gas company which, at Oro Nero Pipelines Limiteds request , fails within a fifteen
(15) day period to desmonstrate and maintain credit worthiness, provided however, that
Lardistan Gas Company shall render or continue to render transportation service for any
such Oro Nero Pipelines Limited which prepays for such service or which, upon fifteen (15)
day notice by Oro Nero Pipelines Limited, furnishes good and sufficient security bond or
other good and sufficient security as Lardistan Gas Company in its reasonable discretion
deems acceptable of a continuing nature and in an amount equal to the costof performing
the transportation service request for a two month (2) period.
ARTICLE 6 LAW OF CONTRACT
The interpretation and performance of this contract shall be in accordance with and
controlled by the laws of LARDISTAN and applicable federal law and regulation IN WITNESS
THEREOF, the parties here to have caused this contract to be duly executed in several
counterparts by their proper officers duly authorized, as of the date first herein above
written.
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ATTEST: ORO NERO PIPELINES LIMITED
-------------------------------------------------------------------
By Mr Ambrose .O. Amadi (PERSONNEL DIRECTOR )
ATTEST: LARDISTAN GAS COMPANY
-------------------------------------------------
By Ms Akrasi Esther (DIRECTOR GENERAL )
SUPPLYARRANGEMENTS
GASSUPPLYSOURCES
Oro Nero has reviewed publicly-available reserve estimates and has determined that
there is sufficient supply within the region to support this project proposal. These reserve
estimates, show that proven natural gas reserves on state lands in Lardistan total
approximately 29.7 Tcf, the vast majority of which is located in the south of Lardistan whichare yet to be exploited fully.
With estimated production of 700MMcf/day this reserves would last an estimated
116 years. However, the life of the project would no doubt be extended because this
reserve figure does not include reserves on other Lardistan South Slopes. With respect to
undiscovered fields, the Minerals Management Service indicated in a January 2001 study,
that undiscovered, technically recoverable, conventional natural gas resources in Lardistan
could be as high as 100 Tcf of gas.
UPSTREAM TRANSPORTATIONANDSTORAGEARRANGEMENTS
The natural gas obtained from the suppliers would come from different sources to the South
Central Gas Line. This would bring up a transportation problem for the project. Oro Nero pipelineswould undertake to invest in
1. A Gas Gathering pipeline Network to collect the gas from sources of production to link to themain trunk line for onward delivery to Rotlanda.
2. A central gas treatment plant to remove impurities and refine the gas to pipeline quality gasbefore it gets to the trunk line.
Sometimes, gas might need to be stored for a variety of purposes such as
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y Balancing the flow in the pipeline system to maintain operational integrity to ensurepipe pressures are kept within design parameters.
y Maintain volume delivered and withdrawn from the pipeline systemy Levelling production in times of fluctuating demand such as winter, summer
demand.
y Insuring against unforeseen accidentsTherefore, the company would also build an Underground facility to protect against these
situations and would also utilize line-packing in storage of the gas.
BACKGROUNDDESCRIPTION,REFERENCESAND CREDITRATINGS ONALL
POTENTIALSUPPLIERS/SERVICEPROVIDERS
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FINANCIALARRANGEMENTS
Oro Nero pipelines has concluded arrangements with several banks to provide the loansum
of approximately $400MM as soon as the proposal has been approved Letters from these banks are
all attached. The Loan would be repaid over a ten year period beginning from when production
starts, hence, payments can easily be made from earnings from the pipeline
Figure 3 Financiers and their contributions
The partner banks and their contributions are shown in the chart.
RISK MANAGEMENT
CONSTRUCTION RISK
During construction of the pipeline, some issues might come up such as natural disasters,delay in supply of materials, system failure due to substandard material, and so on. The company
observes the highest codes of quality in existence and also has already put in contingency plans in
place for any of the imaginable scenarios.
PRICERISK
In the day to day operation of the pipeline, there is interaction of demand and supply forces
which can lead to volatility in prices of Natural Gas. This Risk has been taken care of as contracts for
transportation of the Gas have been signed with both parties agreeing to a tariff rate for 30 years.
OPERATIONSRISK
Problems such as shortfalls in through put and so on, which might be experienced during therunning phase of the gas pipeline have all been taken care of. The pipelines are all linked to an
underground storage system for emergency and other purposes and also, Natural gas loss during
maintenance procedures is highly minimized through the advanced techniques we employ in
maintenance of our pipelines.
POLITICALRISK
Lardistan: The current political party in power, the hope for people party is made up of a
younger generation of politicians whose priorities have been to clean up corruption and open up the
33%
20%
21%
26%
Loan
HSBC
FCMB
BA
GTB
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economy. Since 1989, there have been four freely contested democratic elections with no
disruptions.
There have not been any serious internal conflicts for religious, ethnic or political reasons since the
1987 coup and any which have occurred have been non-violent.
There does not seem to be solid evidence of militarys intent to take control of government and it is
believed that this would continue to be the case in the nearest future.
Rotlanda: Rotlanda has a well-functioning multiparty democracy. The political system is one of the
most stable in the region with over 50 years of democracy since its independence fromAngoria.
2004 is presidential election year in Rotlanda and due to the increase in unemployment and
percentage of population living below poverty level, there ahas been a mild upsurge of crime and
social unrest in the country.
Opposition parties, indigenous groups and international NGO's oppose this pipeline for a variety of
reasons ranging from un-sustainability, potential adverse environmental impacts and violation of the
property rights of indigenous groups Risk Mitigation
Rotlanda: The completion of the pipeline to Rotlanda would be the beginning of a new era in
industrialisation as industries would be attracted to set up in the country with availability of a cheap
and steady gas supply, environmentally, the company has an enviable record of constructing in line
with environmental best practices so we would ensure that there is minimum environmental impact
on the proposed pipeline route.
For the Indigenous groups, since they claim the lands as ancestral, the company would give them
access to areas and also assign them the responsibility of protecting the parts of the pipeline whichcrosses their area. Projects which are also of utmost importance to each community would be
awarded for each in the vicinity of the pipeline.
For the political parties, it is believed that the ruling NRP would keep power in the upcoming
elections and if not, the opposition parties would see the viability of the proposed project as it
would create jobs, increase the countrys GDP hence reviving the failing economy of Rotlanda
REGULATORYRISK
There is a risk of regulatory bodies from either country changing rules and regulations on
pipeline operation and also a risk of price caps being fixed on tariffs which may hurt revenue
projections on the pipeline. This risk, though minimal, has to be taken as one of the risks of businessand in the worst case scenario, the pipeline, being as hugely profitable as it is now, would still
recover costs of construction and operation and would also yield some returnsto investors.
LEGALRISK
There
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ENVIRONMENTALRISK
The South Central pipeline would pass through areas recognized as havens for rare species
and would also run a risk of harming its immediate environment in the event of gas venting and so
on, the company Oro Nero pipelines, from the date of construction to de-commissioning, works
closely with environmental consultants to ensure that the existence of the pipeline has minimum
impact on the flora and fauna of its immediate environment. In the construction phase, before
construction, samples and photographs are taken of plants which exists on the ROW and when thepipes have been buried, an attempt is made to replant everything as they where to avoid natural
imbalance.
LEGAL & REGULATORY
APPLICABLELAWSANDREGULATIONS
1. Investors, Lardistan citizens, legal entities (consortium) which are engaged in theconstruction of natural gas turbine plant will and are using their own borrowed or
attracted fund. There will be adequate protection of foreign and Lardi investment
participation in the oil/gas resources of Lardistan and the protection of legal
interests of persons engaged in oil and gas operations in Lardistan.
2. The terms and conditions for tenders or auctions shall be defined by the agency andregistered at the Ministry of Justice of Lardistan one month prior to the
announcement of auction.
3.
Comprehensive Environmental Response, compensation and liabilityA
ct. Theenvironment must be protected and compensation paid where applicable.
4. Clean Air Act: This Act is designed to protect and enhance the nations air resourcesso as to promote the public health, welfare, and productive capacity of the populace.
5. Article1.22 under general provisions of the Petroleum Industry Reform Law of Lardistan,Force Majeure Acts of God, strikes, sabotages and other industrial disturbance, civil
unrest, war, blockade,earthquakes, avalanches, epidemics, flood and similar events, which
are out of reasonable control of Parties andwhich are impossible to eliminate by Parties.
Force Major does not include deterioration of Investors financialcondition provided that it
is not connected to the above listed events. In such cases advantages under ForceMajorconditions does not apply to the amount payable by Parties underAgreement.
PERMITSREQUIRED WITH ESTIMATEDTIMELINEThe regulations most generally applied for the construction of pipelines arethe ANSI
codes B31.4 and B31.8. These both refer to API 1104 for specificwelding requirements.Another well known code is BS 8010 which refers to BS 4515 for welding aspects
There is also likely to be a range of local requirements covering land purchase, rightsof way, easements, conservation, etc.
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Certificates / Permits
Permits held by ORO NERO include the following:
FERC Conditional Certificate of Public Convenience and Necessity
(1 FERC 61,248 (1977)), issued: December 16, 2007
Clean Water Act Section 404 Wetland Permits
- Rotlanda River Permit (File No. Rotlan River 120), originally issued: January 4, 2004(effective date)
Two Clean Water Act Section 401 Certifications (issued in conjunction with the
Section 404 Wetland Permits)
SUMMARY OF COMPLIANCEPLANS
Oro Nero Pipelines Limited shall be committed to contracts terms and conditions
within the duration of the contract. In line with Oro Nero Pipelines LTDS compliance
plans, a periodic review of terms and agreement shall be displayed for examination and
execution.
SUMMARY OF CONTRACTUALAGREEMENTS
y We shall construct a pipeline for the transportation of Natural gas andoperate it for a period of 30 years
y We shall develop a pipeline system capable of delivering a steady throughputof 750 MMcf/ day expandable to 800 MMcf per day
y We shall ensure at least 25% engineering procurement to be of Lardi origin.
SMARTDEVELOPMENTOro Nero pipelines, from years of operating various pipeline systems scattered around the
globe has come to realise that there is no feasible long term development without the input,
Participation and support of the stake holders or community. The company is globally admired as a
development partner, touching lives and making improvements to conditions on ground in any part
of the world where we operate.
Oro Nero is guided by the vision of being the energy company most admired for her
partnership and performance. In the pursuit of this vision, the company has been pivotal in
promoting the ideas and programmes that foster sustainable development in facets of her
operational terrains. We do this through a corporate responsibility programme targeted at
improving the quality of life by contributing to schemes that stimulate socio-economic
growth. In the same vein, Lardistan stands to benefit considerably from the project in two
broad-based areas. These are the provision of basic infrastructure and business and human
capital development.
INFRASTRUCTURE PROGRAMMES.y Upgrading of existing infrastructure.
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y Road construction.y Provision of portable water.y Provision of health care delivery system(buildings and equiping of
medical doctors and nurses quaters as well as a number of cottage
clinics) that will address critical medical issues.
y Communities, most of whom have completed land claims will benefitfrom increased property and resource revenue.
BUSINESS AND HUMAN CAPITAL DEVELOPMENT.y Youth empowerment through training( carpentry, heavy equipment
operators, labourer occupational groups ), trades, transportion and
other areas where skills are in abundance.
y Making the community a stakeholder in the operations of the sectorby minimization of community related disruption of operations.
y Encouragment of indigenous contractors.y Provision or micro credit.y Employment of skilled and unskilled labour.y Award of scholarships (primary, secondary and tertiary ).
PROJECTIONS OFANTICIPATEDECONOMIC,ENVIRONMENTALANDSOCIAL
IMPACT
LOCAL CONTENT& HUMAN RESOURCEDEVELOPMENT
In cognisance of the local content laws of Lardistan which stipulate that 25% of materials
used in construction of the pipeline must be of Lardi origin, Our Company has decided to go the
extra mile by ensuring that 30% of the workforce & materials initially increasing to 75% by the end of
the life of the pipeline are all of Lardi & Rotlan origin.
This increase would be as a result of our intensive human resource optimization and
technology transfer program which we carry out in all communities were we operate. The
scholarships we award are given to bright students who, on undertaking to work with us, are sent on
an intensive program at any station in our vast network to learn the basics and also advanced
techniques which we employ in managing projects..
HEALTH,SAFETYANDENVIRONMENTALPROTECTION
Oro Nero has a very strict record of compliance to HSE requirements and regulations at
every operating location. The company recognizes that protecting its workers is a very simple yet
effective way of increasing productivity. We ensure that all workers and visitors, once on site, put on
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their complete personal protective equipment (PPE) and also, our workers are sent on trainings,
seminars and workshops on HSE in order to increase compliance.
ANALYSIS OF PROJECTSANTICIPATED CONTRIBUTION
The South Central pipeline project would be of immense benefit to both nations and alsoall
communities along its ROW. The pipeline would touch various aspects such as:
1. Increase in the GDP of both countries: The existence of the pipeline would result in animmense increase in the GDP of both countries, Lardistan would benefit as the nation would
have a further means of monetizing its gas resources hence an additional revenue stream,
also, and the country would benefit from taxes paid by the company. In Rotlanda, the
availability of a cheap source of fuel for power, industries and businesses would reduce the
cost of production, increasing the level of productivity & hence, increasing the GDP of the
country.
2. Employment: The South Central pipeline would greatly reduce the unemployment level ofboth countries with our plan to train & employ 70% of staff locally in the long term. The
pipeline estimates to directly employ 6000 -7000 people in the construction phase & provide
indirect employment to over 50, 000 people in the construction phase alone. This would
have a positive impact on the unemployment rate in both countries.
3. Infrastructural development:As part of the companys social responsibility program, thecompany would build and maintain projects which are of utmost importance to communities
along its right of way. These can be schools, water projects, primary health-centres and so
on.
PROGRESSREPORTING SCHEDULE