Presentation to theto the

Federal Executive Council by

Hart GroupHart Group

Format of presentation

OverviewPh i l diPhysical auditFinancial auditProcess a ditProcess auditRemediation

May 2009 2NEITI 2005 highlights

917 million barrels producedCentral Bank of Nigeria received (net) from the oil and gas sector:

US$ 28 billi dUS$ 28 billion; and778 million Naira

Significant process weaknesses, leading to loss of revenue

May 2009NEITI 2005 highlights 3

May 2009NEITI 2005 highlights 4

Percentage of Gas Flaredg

50 00%

60.00%

30 00%

40.00%

50.00%

10.00%

20.00%

30.00%

0.00%

56 91% 52 12% 51 13% 53 91% 44 99% 38 20% 36 51%

1999 2000 2001 2002 2003 2004 2005

May 2009NEITI 2005 highlights 5

56.91% 52.12% 51.13% 53.91% 44.99% 38.20% 36.51%

highlightshighlights

May 2009NEITI 2005 highlights 7

UPSTREAMReconcilation of production, terminal balances and exportsS d DPR iSource data: DPR, operators, equity owners, terminal operatorsReconciliation to financial audit dataReconciliation to financial audit data

DOWNSTREAMReport on PPMC product importationReport on PPMC product importationReconciliation of PPMC product movements

May 2009NEITI 2005 highlights 8

Bonny Terminal Operator: SPDC

Source Production (P1 02)Source Production (P1.02)Gross production Field De-Watering Liquids Passed

CNL (excl Belema N 18,711,441 -4,501,059 14,210,382NPDR (Ogbelle) 129,562EPNL 24,999,304 -14,403,854 10,595,450

Total 3rd Party 24,935,394

gain/(loss) 517,356 from 3rd party to SPDC

Gross production Field De-Watering Liquid passed on reconciliation

3rd Party Production Data. Injections into SPDC infrastructure

Source of data

Gross production Field De Watering Liquid passed on reconciliationSPDC (inc Belema N 236,750,400 0 236,750,400SPDC (NPDR) 148,046 148,046 18,484SPDC (CNL Inda) 5,025,578 5,025,578SPDC (CNL Robert 9,684,040 9,684,040 499,236SPDC (EPNL) 10,595,086 10,595,086 -364

262,203,150 517,356

gain/(loss) 0 DPR Fiscalised CrudeCNL 15,102,314

SPDC Production data, including 3rd party additions

Reconciliation between production data and Terminal Balance

DPR allocation of fiscalised crude to producers

SPDC Terminal Balance NPDR 141,014 11,452SPDC Gross Receipts 262,203,150 EPNL 10,587,628 -7,822SPDC De-water -81,513,667 SPDC 155,771,021SPDC Dry Crude 180,689,483 181,601,977 912,494SPDC Total Liftings -179,653,010 -179,653SPDC Stock Change 1,038,473SPDC gain/(loss) 2,000

Liftings (per Terminal Operator) bbl bbl (000s) CNL JV EPNL JV TotalSPDC NNPC 81,674,579 81,675 9,273 6,307 97,255SPDC SPDC 46,383,711 46,384 46,384SPDC EPNL 15,684,074 15,684 4,692 20,376SPDC NAOC 8,974,960 8,975 8,975(CNL) (CNL) 6,614 6,614SPDC CNL JV 15,886,895 15,887 -15,887 0SPDC EPNL JV 10,998,791 10,999 -10,999 0SPDC NPDR 50 000 50 50

Reconciliation of 3rd Parties

Liftings from terminal as reported by Terminal Operator

JVs put product INTO terminal, but individual partners lift product. Some reconcilations are complex where partners belong to more than one JV.SPDC NPDR 50,000 50 50

SPDC Total 3rd party 26,935,686179,653 0 0 179,653

gain/(loss) 36

Liftings (per Lifter F2.02.12) DPR Reconciliation gain/(loss)COMD NNPC (Export) 43,973,437 43,973COMD NNPC (Dom Export) 21,779,297 21,779 NNPC (export) 65,753 0COMD NNPC (PHRC) 31 537 386 31 537 NNPC (refinery) 31 500 -38

Difference between liftings reported by terminal operator and lifters

JV.

May 2009NEITI 2005 highlights 9

COMD NNPC (PHRC) 31,537,386 31,537 NNPC (refinery) 31,500 -38SPDC SPDC 46,384 SPDC 46,384 0EPNL EPNL 20,375,640 20,376 EPNL 20,376 0NAOC NAOC 8,975 NAOC 8,975 0CNL CNL 6,614,103 6,614 CNL 6,614 0NPDR NPDR 50 NPDR 50 0

179,689 179,651 -38

Liftings from terminal as reported by Lifting Companies

Inland (onshore) production estimates not declared by companiesNo data on losses prior to terminal receiptOperational issue: when to dewater? Complex agreements impact on d t i ti f il titl tdetermination of company oil entitlementUnclear ownership of terminal stocksDPR production figures unreliableDPR production figures unreliable

May 2009 10NEITI 2005 highlights

Satellite

Maidugu

System 2B

Mosimi Ibadan

Gombe

Ilorin

Ore

Atlas Cove

MARINE

System 2D

JosKano Gusau

Warri Suleje Minna

Benin

WPRC

System 2A

KadunaPH

System 2EKRPC

Aba

Enugu Makurdi Yola

PHRC

0

System 2E

May 2009NEITI 2005 highlights 11

Calabar

Measuring processes require overhaulData inherently suspect: PPMC supplied successive versions of data, with changes unexplainedunexplainedLosses unexplained US$ 239 million.

May 2009 12NEITI 2005 highlights

tonnes PMS DPK AGO

Opening Stock 712,120 370,330 265,005

Product Imports 5,384,587 517,292 -

Refinery Production 1,738,090 1,298,390 2,122,586

Product Sales -7,010,563 -1,803,175 -2,179,728

(L )/G i 287 297 150 610 13 818 (Losses)/Gains -287,297 -150,610 13,818

Closing Stock 536,937 232,228 221,681

 

May 2009NEITI 2005 highlights 13

highlightshighlights

US$ 000 NGN millionsSale of oil and gas (in US$)net of allocation to Joint Venture cash calls 12,313,852 -

Sale of crude to NNPC (Naira element) - 772 227Sale of crude to NNPC (Naira element) - 772,227 Other income 6,685

Taxation and other sector-specific flows from companies (CBN figure) 15,169,845 -Company Income Tax 55,595 -N t f ifi fl f i 375 764Non sector-spefcific flows from companies 375,764 -Dividend from Nigeria LNG, interest and loan repayments - -Total flow to the Federation 27,915,056 778,912

US$ 000 Naira MFINANCIAL FLOWS TO STATES 23,620 35,638,851

May 2009 15NEITI 2005 highlights

R d b i R d b CBN DiffReported by companies Reported by CBN Difference

US$ 000 US$ 000 US$ 000Petroleum Profits Tax 10,638,047 10,396,176 241,871 Reserves Additional Bonus - 65,292 (65,292) Royalty 4,357,491 4,679,468 (321,977) Gas Flare Penalty 18,605 28,909 (10,304)

sub-total 15,014,143 15,169,845 (155,702) Signature Bonus 90,025 - 90,025

Total 15,104,168 15,169,845 (65,677) analysis:IOC-owned companies 14,526,960 14,584,442 (57,482) Other companies 577,208 585,403 (8,195)

May 2009 16NEITI 2005 highlights

Nature of difference Amount (US$ 000)

Companies affected

Adjustment payment relating to 1999, omitted by company from its template -7350 Addax Chevron templates did not include payments made by TOPCON or COCNL whereas CBN recognised all payments

-6517 Chevron CBN recognised all payments. TOPCON items included by Chevron but omitted by CBN 5825 Chevron CBN recorded a higher receipt than the company made -98753 NAOC Company included Reserves Additional Bonus, not reported by CBN 57942 NAOC CBN recorded a receipt where the company made no payment -2397 Panocean p p y p yCBN recorded a higher receipt (net) than the company made -21741 Phillips CBN recorded a higher receipt (net) than the company made -2000 Continental CBN on its templates attributed payments to the wrong company -4255 Conoil Company payment could not be located on CBN template 61200 Phillips Company payment could not be located on CBN template 2421 Conoil Company payment could not be located on CBN template 20725 Continental Company payment could not be located on CBN template 3326 Panocean Company payment could not be located on CBN template 150 Brass

Exploration Exploration CBN misclassified a PPT payment as Royalty 233071 Elf CBN misclassified withholding tax as PPT -6 SPDC Company did not submit templates, nor did CBN report any receipt. Although there is no difference, this cannot be construed as reconciled.

Cavendish, Express p

CBN commission accounting 229 Chevron Rounding differences on templates 1 Total net difference 241871

May 2009 17NEITI 2005 highlights

Reported by companies

Reported by NDDC Difference

US$ 000 US$ 000 US$ 000$ $ $

Payments in US$ 119,992 134,931 14,939

N'000 N'000 N'000 N'000 N'000 N'000

Payments in Naira 8,160,882 8,355,938 195,056

May 2009 18NEITI 2005 highlights

highlightshighlights

Liabilities incorrectly self-assessed by companies:

R lt i t i i ($ 243 illi )Royalty: incorrect pricing ($ 243 million)PPT: incorrect pricing ($ 310 million)Gas Flare Penalty (legal interpretation disputed)Gas Flare Penalty (legal interpretation disputed) affects tax liabilitiesPSC liabilities for tax and royalty Carry elements

May 2009 20NEITI 2005 highlights

Chevron and Mobil cannot link US$ costs used for PPT back to their Naira audited financial statements

Shell and Mobil claim tax allowances on capital construction in progress (s 15 of PPTAcapital construction in progress (s.15 of PPTAdoes not support this)

May 2009 21NEITI 2005 highlights

Investment Tax Allowance Non-Associated Gas (S.11(2)(d)) Gas Flare Penalty deduction

These are issues of legal interpretation that require resolutionrequire resolution

May 2009 22NEITI 2005 highlights

highlightshighlights

Licensing in the Joint Development Zone

Downstream metering

Upstream metering

Marketing government equity crude

May 2009 24NEITI 2005 highlights

Preventing recurrencePreventing recurrence and

Enhancing Revenues

Timing of 99-04 recommendations did not allow impact on 2005

NNPC d i h d i hNNPC expressed a wish to proceed with downstream mass balance remediation

The need for co-operation between government entities regarding PPT has nowgovernment entities regarding PPT has now been recognised

May 2009 26NEITI 2005 highlights

Capacity building to deal with the oil and gas companies on an equal basis

Cl ifi i f l i l i d iClarification of legislation and practice required

Audit found PPT self-assessments were too low – should be assessed by FIRSlow should be assessed by FIRS

May 2009 27NEITI 2005 highlights

Licensing Register upgrade requiredMeasurement in-field lacking Downstream metering unreliableOversight of regular hydrocarbon mass balance (HCMB)R l l l i b l ifi dRoyalty calculations to be clarified Signature bonus collection system needed(S bj OGIC ) l i f(Subject to OGIC report) regulation of gas to be clarified

May 2009 28NEITI 2005 highlights

Role to be enhanced / strengthenedSystem interface with CBN, DPR, NNPCPredictive management of sector revenues

i drequired

May 2009 29NEITI 2005 highlights

Crude oil accounting to be automatedGas income managementDownstream product management ineffectualPetrol subsidy issue to be resolvedPSC & Carry arrangements documentation and reconciliation enhanced systemsand reconciliation – enhanced systems required

May 2009 30NEITI 2005 highlights