Oil & Gas in East & Southern Africa - Opportunities & Challenges for Investment

1. Oil & Gas in East & Southern Africa - Opportunities & Challenges for Investment John Smelcer, Head of Oil & Gas November 2013

2. OIL & GAS SECTOR GROUP

3. INTRODUCTION

4. Introduction • Region known for mining becoming a petroleum region, led by recent large-scale gas discoveries • Those recent large-scale gas discoveries have the potential to be a game changer for individual jurisdictions and wider region • Next 18 months to 3 years will be critical to determining the exact scope of the impact

5. RECENT DISCOVERIES

6. Recent game-changing upstream discoveries • Region known for mining becoming a petroleum region, led by recent large-scale petroleum discoveries • Those recent large-scale discoveries have the potential to be a game changer for individual jurisdictions and wider region, particularly in the context of the mining sector experiencing increasing head winds • Mozambique • Rovuma Area 1, operated by Anadarko, current estimated recoverable gas reserves 50 tcf • Rovuma Area 4, operated by ENI, current estimated recoverable gas reserves 45 tcf • Mozambique basin, operated by Sasol, possible resources of 10-15 tcf • Many estimate recoverable reserves to approach 200-250 tcf in Mozambique • Tanzania • Area operated by BG (also part owned by Ophir), current estimated recoverable gas reserves 11 tcf • Area operated by Statoil (also part owned by ExxonMobil), current estimated recoverable gas reserves 10-13 tcf • Many estimate recoverable reserves to approach 45-60 tcf in Tanzania • Botswana • Large reserves of coal bed methane (CBM) gas have been discovered in Botswana • The Botswana Department of Geological Survey reports that 196 tcf of "gas in place" is present in the central Kalahari Karoo Basin in Botswana • South Africa • Karoo Shale Gas: Estimated resources of 485 tcf, which would make it the fifth largest shale gas field in the world • Active offshore block activity given proximity to other large-scale gas finds in the region • Oil • South Sudan • Recent Kenyan, Ugandan, Ethiopian, DRC discoveries (plus additional West African discoveries) • Namibia offshore, Lake Malawi potential, South Africa offshore?

7. New African Opportunities for Oil & Gas Investment East & Southern Africa South Sudan Proven Oil Reserves of 3.75 billion barrels. • Uganda • Estimated oil reserves of 3.5 billion barrels – refinery development plans also in place. Kenya Onshore oil discoveries estimated at 10 billion barrels – recent Tullow Oil announcement of commercial exploitable reserves. Democratic Republic of the Congo (DRC) Lake Albert development Tanzania Tanzania reports discoveries of an estimated 35 tcf of gas, enough to make Tanzania a major player in LNG exports behind Mozambique. Many estimate recoverable reserves to approach 45-60 tcf in Tanzania. Namibia Anticipated new large-scale offshore oil & gas discoveries. Further development of the upstream portion of the Kudu Gas Field. Botswana Large reserves of coalbed methane (CBM) gas have been discovered in Botswana – Botswana Department of Geological Survey estimates that 196 tcf of “gas in place”. Mozambique Mozambique is likely to become the world’s third largest exporter of LNG, behind Qatar and Australia with likely total gas reserves of approx. 235 tcf and plans by ENI and Anadarko to develop a US$50 billion LNG project in the country in the near term. South Africa It is estimated that the shale gas of the southern karoo area could hold a reserve of 485 TCF, which would make it the fifth largest shale gas field in the world. Also possible large-scale offshore discoveries.

8. PUTTING The Recent DISCOVERIES IN CONTEXT

9. putting the recent discoveries into context • Pande & Temane total reserves = 3 tcf / Recent Rovuma finds = 150 tcf (probably 250 tcf ultimately) • 40% of discoverable gas from last year (2012) occurred in Mozambique (source: Wood MacKenzie) • Eni and Anadarko have agreed to build the world’s second largest LNG plant with expected investment of US$50 billion; Mozambique’s GDP in 2011 – US$12.8 billion • Mozambique is likely to become the world’s third largest exporter of LNG, behind Qatar and Australia • Statoil and BG have announced plans to eventually develop an approximately US$14 billion LNG plant in Tanzania • The estimated shale gas reserves in the Southern Karoo area are at 485 tcf, which would make it the fifth largest shale gas field in the world • Qatari gas reserves = 990 tcf / Recent regional finds = 800-990 tcf Qatar Growth Story (source: Silk Road Finance)

10. Possible core Economic Driver for South Africa The estimated shale gas reserves in the Southern Karoo area are at 485 tcf, which would make it the fifth largest shale gas field in the world, behind China, USA, Argentina and Mexico USA shale gas transformation • Scale of find: USA – 840 tcf potential / South Africa – 485 tcf potential • In 2000 shale gas provided only 1% of U.S. natural gas production; by 2010 it was over 20% and the U.S. government's Energy Information Administration predicts that by 2035, 46% of the United States' natural gas supply will come from shale gas • Net energy importer to net energy exporter • Insulation from world gas and downstream petroleum product pricing shocks • Significant gas price decrease fostering huge growth in gas-supplied industries with large-scale multiplier effect (June FT headline – "Steelmakers reap benefits from US shale gas revolution") • Transition from coal-fired thermal power to gas-fired thermal power (much cheaper option given fall is gas pricing)

11. route to market: monetising the resources

12. route to market: monetising the resources Downstream options • LNG • Gas-fired power • Fertilisers • Gas-to-liquids • Methanol / other Petrochem • Natural gas for distribution Economics are different in different contexts, though LNG tends to present the highest pure economic return under current market conditions In Mozambique and Tanzania, operators are pushing for large-scale LNG projects, but query whether government will require that a portion of the discovered gas be utilised for other downstream (and onshore) activities In Botswana and South Africa, other down-stream options may be more attractive given the difficult route to market for LNG and other pressing priorities such as power and liquid fuel requirements

13. Opportunities & challenges for investment

14. Opportunities for investment • Continuing and increasing world-wide demand for gas, particularly LNG • Large and increasing regional demand for gas and gas-supplied downstream products • Power • Liquid fuels • Fertilisers • Demand for other petro-chemicals and for natural gas for direct distribution to increase • Very attractive economics for recent upstream discoveries • Promise of abundant gas supply in region • Robust and sophisticated local capital • Large-scale recent discoveries will attract offshore investors and lenders that have never invested in the region before - Export Credit Agencies, international banks, etc • Upstream gas finds can be anchor supply and anchor tenants for downstream projects and associated development projects

15. Challenges for investment • World-wide glut of recent gas discoveries • Availability of long-term SPAs for LNG sales at Asian market pricing increasingly coming into question – consensus forming that the window is closing and will likely be closed by end of the decade • Scale of investment required for mega projects unprecedented in the region: • Largest project financings in Africa to date: US$800 million Mozal / US$2.6 billion Egyptian Refinery Company • Mozambique LNG: US$50 billion • Execution of large-scale projects incredibly challenging even in the best environments • Regulatory challenges • Infrastructure challenges – required associated infrastructure often poor to nonexistent • Skills shortages worldwide and in region

16. Impact on sub-Saharan Africa's Energy Mix • Are we moving towards a gas and renewables Southern African future? • Attractive combination – good base-load mix with renewables • USA example of transition from coal-fired to gas-fired thermal power generation, mixing with renewables • 70% Gas / 30% Renewables long-term future energy mix a real possibility given recent upstream gas finds (including Karoo Shale Gas) • Price of gas regionally should come down significantly • Upstream gas finds will drive midstream infrastructure • Gas much more efficient and much cleaner to burn than coal • Unconventional gas developments lend themselves to gas-fired power being part of their route to market Template of the South African renewables program can and is being used for a thermal-fired procurement program for gas

17. Conclusion – Oil & gas as Game Changer • Game changer for: • Revenue for governments in region and also South Africa • Investment in the region by private sector • Energy mix of region and regional economies • Potential to unlock power constraints • Potential to assist with meaningful infrastructure development / transport corridors

18. about Webber Wentzel

19. about webberwentzel • A leading law firm in Africa. • Webber Wentzel continues to be recognised by peers and international research organisations • Ranked by Chambers Global2013 in Band 1 across 11 practice areas including: • Energy & Natural Resources • Projects & Energy • M&A • Awarded Legal Advisor of the Year at the Africa investor (Ai) Infrastructure Investment Awards 2013 • Our clients include many of South Africa’s Top 100 companies and many leading global companies • In December 2012, Webber Wentzel entered into a collaborative alliance with global law firm, Linklaters LLP

20. about our oil & gas sector group • Webber Wentzel is developing one of the strongest oil and gas teams in Eastern and Southern Africa. Our lawyers have significant experience in the development and financing of oil and gas projects in Africa and other parts of the world. This experience includes executing numerous farm-ins and farm-outs and acquisitions both onshore and offshore across the region, recent conventional upstream oil & gas financings, unconventional gas project developments in Botswana and South Africa and assisting with the development and financing of downstream petroleum supplied industries, including refineries, gas-fired power, fertilisers, bio-fuels and gas-to-liquids. • From a regulatory perspective we have advised a number of oil & gas producers on the AIPN model agreements, the Extractive Industries Transparency Initiative, the international investment law implications of legislation and model agreements and in relation to the laws and regulations applicable to the industry across the region. • Our Oil & Gas Sector Group regularly represents sponsors, governments and lenders (including commercial banks, export credit agencies, underwriters and development finance institutions) in all aspects of the concession arrangements, project development and the financing of such projects. • We provide creative, flexible, market-leading and cost-effective solutions across the petroleum value chain for our clients and the projects in which they are involved. • Our recent alliance with Linklaters provides clients access to Linklaters’ extensive global experience in oil and gas transactions and an understanding of comparative best practices from different regions of the world. Our network of best friend law firms and our association with the Africa Legal Network provides clients with on-the-ground expertise in getting projects done in Sub Saharan Africa.

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22. working across africa The correct balance of sector/transaction expertise, legal understanding and linguistic ability enables us to assist our Clients wherever they do business. LINKLATERS • The alliance provides our clients with an advantage in Africa through the firms’: • combined experience, • know-how, and • international and on-the-ground resources. • Webber Wentzel’s clients have seamless access to Linklaters' global network ALN • Webber Wentzel is associated with ALN. • ALN is an independent alliance of leading law firms in Africa. BEST FRIENDS • Regularly partner with local law firms outside the ALN group

23. key Contacts • Sean Testa, Business Development & Strategy Manager • +27 11 530 5736 • +27 76 716 1157 • John Smelcer, Head of Oil & Gas • +27 11 530 5026 • +27 79 186 0411 • john.smelcer@webberwentzel.com • sean.testa@webberwentzel.com

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