NIGERIAN CONTENT IMPLEMENTATION Roadmap for Industrialization by

1. NIGERIAN CONTENT IMPLEMENTATION Roadmap for Industrialization by Engr. E.C. Nwapa (FNSE), Executive Secretary, NCDMB November 2012

2. HISTORIC TREND OF NIGERIAN OIL & GAS SECTOR

3. NATIONAL REVENUE PROFILEOver Dependence on Oil • A Threat to Oil will threaten National Survival • Oil & Gas Industry is repositioning to Promote Utilization of Local goods & Services • Building capacity on the back of mega Projects and Operations • Other Linkage sectors need to be mobilized

4. PETROLEUM ECONOMICS VS NATIONAL DEVELOPMENT NATIONAL DEVELOPMENT ECONOMICS PETROLEUM ECONOMICS BALANCE • How many jobs? • In country Value creation • Legacy, spinoffs, infrastructure? • Sustainability, Safety, Environment • Dollar per barrel? • Profit for shareholders? • How fast to first oil? • Government take, taxes, royalties?

5. In-Country Value - Focussed Two Strategic Development Options Revenue - Focussed 1 Operators seek cheapest fastest route to first oil. Govt uses Taxes & Royalties for Development Little attention to value addition from operations Promotes import of Goods & Services 2 Operators consider long term value Govt takes lower revenue for higher ICV Greater attention to life cycle support for ops Promotes development & use of local capacity

6. Over 65% of industry spend domiciled 30yrs 10yrs Over 95% of industry spend Abroad Changing the Pre – NOGICD Act Footprint Bringing Nigerian Jobs Back $14b $78b $20b $20b $9b $39b $7b $39b $107b $214b Pre-Nigerian Content Implementation Buying rather than selling. Exporting Nigerian Jobs Estimated capital flight $380 billion Estimated lost job opportunities 2 million 2006- 2020 Nigerian Content Implementation Bringing Nigerian Jobs Back Hub for oil and gas services Estimated $191 billion could be retained 300,000 new direct job opportunities -(Engineering, Sciences, Technicians etc) Defining the Roadmap for Change Technical Services Fabrication Engineering Procurement Research & Development

7. OEM Reps & SMEs Valves &' Pumps Spares & components Switchgear & control panels Chemicals & fluids Machinery & equipment Human Capital - skilled workforce In country training and certifying bodies Pupilage programs in local companies Industrialists Pipemills& Machine shops Fabyards & workshops Ship/dockyards Logistics bases Facilities Manufacturing Asset ownership Local service coys Drilling Rigs Marine Vessels Drilling Tools What makes a great oil producing Nation? A robust supply chain

8. Drilling Value out of the O & G Chain We need to maximize value from these activities

9. 5 3 2 1 • Promote establishment of support industries that will sustain oil and gas industry operations • Enhance multiplier effect of oil and gas investments in economy • Develop local capacity in key areas such as manufacturing fabrication, engineering etc • Promote indigenous ownership of assets and utilization of indigenous assets in oil and gas operations • Develop indigenous skills pool across oil and gas value chain • Provides mandatory training requirements on the back of projects • Creates JQS to manage and track available skills • Develop pool of competitive supply chain rooted in oil bearing communities • Create customized training and sustainable employment opportunities • structured awareness and enlightment campaigns 4 Thrust of the NOGIC Act 2010 Nigerian Content aspiration derived from the thrust of the NOGIC Act are focused on ensuring that companies benefitting from our natural resources also contribute to economic development of Nigeria . Maximize utilization of Nigerian made goods Maximize utilization of Nigerian human resources Link the oil and gas industry with other sectors of the Economy Focus on community participation in the supply chain • Institutionalize inter-agency collaboration on local content development • Integrate NCDMB into planning and contracting process to ensure Nigerian Content COUNTS • Dedicated NCDF for capacity building Foster institutional collaboration

10. Snapshot of reserves: • Oil-36.22 billion barrels (2.92% of world reserves) • Gas- 178 TCF • (2.98% of the world reserves) • 6 Majors • Addax, Chevron, Eni-Agip, Exxon Mobil, Shell and Total • Control 98% of reserves and production assets • Indigenous companies • Over 30 operators (Afren, Oando, Seplat etc) • Over 30 independents and local operators ( Summit, Conoil etc) • Own 2% of reserves • Combined daily production capacity of 80,000 bpd • With aggressive equity participation indigenous players will increase market share • NPDC making significant progress , hitting the 100 barrels per day equivalent mark. • Full Field Development by indigenous companies being promoted IOCs CONTROL OVER 90% PRODUCTION NOC/INDIGENOUS BUILDING FOR MID-TERM GROWTH OF PRODUCTION SHARE TO 20% Distribution of Oil and Gas Assets. Foreign Vs Indigenous DPR: Oil blocks in Nigeria NDPR

11. New developments in Nigeria for Energy Utilization • GAS DEVELOPMENT • Nigeria Gas Master Plan • Domestic Supply Obligations • New IPPs • BrassLNG, NLNG Train 7, OKLNG • REFINING • Greenfield refinery projects – 3 new refineries + 1 Petrochemicals Plant • UPSTREAM • Deep offshore – EGINA, ERHA North, OPL245, Bonga SW, BONGA NW

12. Investment policy • Contracts approval • Bid rounds • NCDF • Capacity development • NC regulation • Interministerial Interface • Legislation on Local content • Legislation on favourable fiscal regime • Nigerian content scope on projects (NCCC) • Capacity development • 1% remittance to NCDF • Nigerian Content Consultative Forum (NCCF) • Capacity development • Nigerian Content Equipment Certificate (NCEC) • 1% remittance to NCDF • Foreign Direct Investment • Benchmark models (learning from others) NCDMB act as facilitator, bringing together a broad array of stakeholders Stakeholder Collaboration Implementation Model Government Oil companies Service providers International partners

13. Dry dock/shipyard Manufacturing/ Assy Rig/vessel owner Human Capital Dev Steel mills Facility / upgrades R&D Manufacturing/assembly Nigerian Content Road Map Various Initiatives in:i) R&Dii) Human Capital Developmentiii) Steel Pipemills and associated industriesiv) Manufacturing and Component Assemblyv) Marine Vessel and Rig Ownershipvi) New facilities and Upgrade of existing infrastructurevii) Dry Docks and Shipyards A MULTI LANE HIGHWAY TOWARDS INDUSTRIALISATION

14. Nigerian Content Measurement Real NC Partial NC Based on proportion of value of contracts awarded to Nigerian Companies Based on proportion of contract sums spent on Nigerian made goods NC VALUE (70% - 85%) NC VALUE (12% - 18%) • There is marked increase in contract award to Nigerian companies • Spend proportion in Nigeria has peaked • Without manufacturing, no further NC Growth – steel products major input in manufacturing • No employment growth • We need power to “power” Local Content

15. Current Performance levels 100 80 60 40 20 0 • NCDMB as facilitator of growth • Sub-optimal utilization of locally made goods by industry • case for strong linkage between manufacturing and oil and gas industry 90% 50% 7% Engineering Fabrication Manufacturing

16. Nigerian Content Roadmap developed to manage challenges , deepen capacity and maximise utilisation of Nigerian goods and services Implementation challenges • Strict compliance without disrupting industry activities – Capacity Gaps • Handling increased cost + schedule • Transparent effective model for NCDF Management • Ensuring Quality of delivery • Absence of manufacturing capability and confidence to use local goods- • Extending implementation to Downstream • Growing new organization to meet wide responsibility • Funding the Boards operations from appropriation • Policy inconsistencies - require legislative streamlining • Exposure to frequent litigation

17. Impact of Implementation Programs • UTILIZATION OF LOCAL FACILITIES AND ASSETS - • Indigenous Companies acquiring and deploying rigs • Major rig operators have complied – Seawolf, Oando, Transocean, Pidwal • Existing fabrication yards upgrading to accommodate increased workloads – Nigerdock, Saipem, Aveon . • New yards being developed – Samsung , HHI, Daewoo • Existing pipe mill over 50% capacity utilization. • Indigenous marine vessel replacing hitherto foreign

18. Impact of Implementation Programs Before 2010 – Only $200k of over $2Bn spend domiciled Now – 50% of about $3.5Bn spend domiciled

19. Impact of Implementation Programs Nigerian Made Security Vessel Nigerian Owned DP2 Vessel Naming of MV Osayame

20. LINKAGE INDUSTRIES (Manufactrg) >2 million jobs • INTERVENTIONS: • (NOGETTS) Project Based Training and Attachment - • Over 8,000 candidates captured on JQS Platform • Over 1,500 attached to O & G Projects • Sponsoring geosciences Training for 1,000 Nigerians • Sponsoring environmental remediation training for 3,000 Nigerians • Institutional Development - • Established OGTAN • Establish Engineering Academy with PPP • NIW Welding Technology Complex (NIW/NCDMB/Shell) • Establish Subsea Academy • Expatriate Quota Management - • EQ allocation supported by robust succession planning • Monitor utilization of EQ slots SERVICE PROVIDERS (Services, equipmt) <1 million jobs OPERATOR (Opportunities and finance) ~25,000 jobs STRATEGIC INTERVENTIONS Training & Employment PUBLIC SECTOR (Regulator) ~30,000 jobs Social Employment Compared to rising prices of oil, the capacity of operating companies to employ nationals has been on the decline since 2008 Productive Employment Environmental remediation training sponsored by the Board to create a pool of Nigerians with adequate environmental management skills ,to address reoccurring environmental degradation

21. AKER SUBSEA ACAD PTI MAN ORON SCHLUM TECH CENTRE INDUSTRY GOVERNMENT CPSK IPS, SITP IADC PETROFAC + OGTAN Oil and Gas Training Centre of Excellence Model NIW+ OTHER OGTAN COYS

22. Nigerian Content Employment Initiative (NCEmI)

23. Key elements of ORAS Strategy: • Using a Nigerian Operating Company for Contracting • Putting equipment and technology in the Company • Phased increase in indigenous equity to meet Acts requirement of 50% • Assisting with long term funding and equity Financing ORAS – Offshore Rig Acquisition and Utilization

24. TYPICAL PROJECT SPINOFFS Equipment Manufacturing Capability Topside Integration capability EPC PROJECT Training & Certifying Academy Heavy Industry Fabrication Yard

25. Consolidate existing Mill • 3 new Pipe mills • Start Production by 2015 • Cost of $150m each • Generate 15000 Jobs • 3000 training opportunities Legacy Programs. EGINA/GAS MP/ BONGASW/ERHA NORTH/BRASS LNG • NLNG, BLNG focus • LNG carrier size Dockyard • Complete by 2015 • Cost of $250m • Generate 55000 Jobs • 20 000 training opportunities • Erha North/ Egina • Umbilical facility & Tree assy • Start Production by 2015 • Cost of $250m each • Generate 5000 Jobs • 2000 training opportunities Subsea Equipment Manufacturing Complex FPSO Topside Integration Facility Pipe Mills Dock Yards • TUPNI committed to EGINA topside integration • Integration Facility set by 2014 • Cost of $150m to $200m • Generate 30000 jobs • Training opportunities

26. STRATEGIC INTERVENTIONS Nigerian Content Equipment Certificate (NCEC) • Guidelines issued to the industry makes NCECs a requirement in tenders • Over 300 applications being processed • Attributes of certificates issued to date: • Establishment of equipment assembly plants • Manufacture of equipment parts for repairs/maintenance • Manufacture of equipment components • Investment commitment of over $600m • IOCs are taking initiatives to support OEM presence in Nigeria - Shell • Investors supported by Government general and specific incentives

27. Categorization of oil and gas service companies • Industry data base for skills verification. • Verification of available in-country capacity • Effective information exchange across stakeholders • Compliance Monitoring • Test data uploaded • Launch Q2 2012 NOGIC JQS • Expatriate Quota Utilization and Succession data • Marine Vessels data • Contract Processing data • Equipment Ownership • Nigerian Content Compliance Certificate Data • Skill Base Tracking • Training and Employment data • Nigerian Content Plans and reports repository STRATEGIC INTERVENTIONS Nigeria Oil & Gas Industry Content Joint Qualification System

28. 30% Direct Intervention Lte 70% Guarantee Ltd NCDF 1% Upstream contract sums Fund Managers (BGL/UBA global) Other Participating Commercial Banks Industry Advisory Committee Nigerian Content Development Fund Model(Clause 104 of the Act) Letter on NCDF implementation Direct Capacity Development intervention by the Board Provide Guarantees for low interest lending Equity Participation to stimulate Investments in Critical facilities Industry Advisory committee & SPV to strengthen Governance Skills Development & Job Creation interventions Fund will not be depleted

29. COMPLIANCE MONITORING & ENFORCEMENT STRATEGY ( COMES) THIRD PARTY INSPECTION TASK FORCE Nigerian Content Governance on Monitoring ….COMES Section 68 – Prescribes fine or cancellation of the project for non compliance Compliance monitoring activities of the Board has brought about : Reversal of contracts hitherto awarded in contravention of the NOGICD Act EPC contractors and operators taking extra effort to build local capacity for their critical input needs 35

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