▇
▇▇▇▇▇▇▇ ▇▇.▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ EXPLORATION UNLIMITED
NPPC/ANEU
MEMORANDUM OF UNDERSTANDING
OPLS90 AND 225
FEBRUARY 1994
[Ashland logo goes here]
▇
▇▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇ INCENTIVES FOR ENCOURAGING INVESTMENTS IN EXPLORATION
AND DEVELOPMENT ACTIVITIES AND ENHANCING CRUDE OIL EXPORTS
THIS MEMORANDUM OF UNDERSTANDING made this 24th day of May, 1994, BETWEEN THE
FEDERAL MILITARY GOVERNMENT OF THE FEDERAL REPUBLIC OF NIGERIA ("Government")
represented by the Honourable Minister of Petroleum And Mineral Resources; and
Ashland Nigeria Exploration, Ultd., a company incorporated under the laws of
Nigeria whose registered office is at ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇., ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ("Company"), establishes the understanding of each of the above
named parties in respect of the incentives for encouraging investments in
exploration and development activities and enhancing crude oil exports.
NOW THEREFORE, the parties hereby agree as follows:
1.1 The fiscal regime currently applicable to the oil industry is
modified to ensure that the industry realizes not less than
the profit margin established pursuant to Clauses 2.4, 2.5
and 2.6 herein.
1.2 The terms and conditions set forth in Clauses 2 to 5 of this
Memorandum of Understanding ("this Memorandum") shall form
part of the new fiscal regime.
1.3 The operations covered by this Memorandum are those conducted
between Nigerian National Petroleum Corporation ("NNPC") and
Company under that certain Production Sharing Contract dated
March 25, 1992 ("PSC") and the computation of the incentives
hereunder shall be applied to the Petroleum Operations under
the PSC.
2. Incentives
2.1 Prior to the introduction of the incentives described in this
Memorandum, the fiscal regime existing at 31st December 1985,
provided for computations of Royalty on Posted Price and
Petroleum Profit Tax ("PPT") on the higher of actual proceeds
(Section 9) or Posted Prices (Section 17A), of the Petroleum
Profits Tax ▇▇▇ ▇▇▇▇ and its amendments ("PPT Act").
2.2 Except as otherwise specified in Clause 2.6, it is intended
by the incentives described in this Memorandum to accord a
minimum Guaranteed Notional Margin of $2.30/bbl, after
payment of the PPT and Royalty as provided under the PSC.
However, this minimum Guaranteed Notional Margin shall be
premised on the fact that the technical cost of operations
under the PSC does not exceed the Notional Fiscal Technical
Cost which, at present, is $2.50/bbl.
2.3 It is further intended that when in any one calendar year
actual expenditures on Capital Investment Costs relating to
the PSC defined as T2 in Appendix 1 is equal to or exceeds
$1.50/bbl on average then the minimum Guaranteed Notional
Margin specified in Clause 2.2 shall be increased to
$2.50/bbl. Furthermore in this circumstance, the Notional
Fiscal Technical Cost shall be increased to $3.50/bbl.
3
2.4 For the purpose of this Memorandum, Government Take (Royalty
and PPT) relating to the PSC for any fiscal accounting year
shall be the lower of Government Take according to the
31/12/1985 Royalty and PPT regulations calculated by
substitution of OSP for Posted Price and the Revised
Government Take ("RGT") calculated per the offset pricing
formula below:
RGT = OP-(TR x TC)-OT
Where:
RGT = Revised Government Take
OP = Offset Price = B x RP
RP = Realisable Price Calculated in accordance
with Clauses 2.12, 2.13, and 2.14 hereof to
determine/mirror the crude oil market
values of Nigerian export grades.
B = K [(1-▇▇▇) x TR + ▇▇▇]
K = Factor of 1.0042 when the Guaranteed
Notional Margin is $2.30/bbl.
= Factor of 0.9869 when the Guaranteed
Notional Margin is $2.50/bbl.
▇▇▇ = Royalty Rate
TR = Applicable Tax Rate
TC = Deductions under Sections 10, 14 and 15
(excluding Royalty) of the PPT Act.
OT = Offsets under Section 17 of the PPT Act.
2.5 For Realisable Prices below $23/bbl, the K-Factor specified
under Clause 2.4 shall be substituted by the undernoted
self-adjusting mechanism for the determination of the
K-Factor which shall be applied to restore the desired
Guaranteed Notional Margin:
M+0.15FC
K = 1.1364(1 - --------)
RP
Where:
M = Guaranteed Notional Margin
FC = Notional Fiscal Technical Cost
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Therefore when M is $2.30/bbl:
$2.30 + 0.15 [$2.50]
K = 1.1364(1 - --------------------)
RP
and, when M is $2.50/bbl:
$2.50 + 0.15 [$3.50]
K = 1.1364(1 - --------------------)
RP
2.6 The following mechanism shall be applied for establishing the
Guaranteed Notional Margin for RPs less than $12.50/bbl:
FC
M = (1 - -- )(RP(1) a(1)+RP(2) a(2)+RP(3) a(3))
RP
Where:
M = Guaranteed Notional Margin (presently
$2.30/bbl subject to Clause 2.3)
RP = Realisable Price
FC = Notional Fiscal Technical Cost (presently
$2.50/bbl subject to Clause 2.3)
a = Percentage share of field profit.
For:
Realisable Price Ashland Share Applicable
in the Range to Price Range
------------ --------------
(FC = $2.50) (FC = $3.50)
------------ ------------
0 Less than RP(1) Less than or equal to $5/bbl a(1) = 0.30 = 0.365
$5/bbl Less than RP(2) Less than or equal to $10/bbl a(2) = 0.22 = 0.263
$10/bbl Less than RP(3) Less than or equal to $12.50/bbl a(3) = 0.11 = 0.131
For worked examples refer to Appendices 2(a) and 2(b)
2.7 The K-Factors specified under Clauses 2.4 and 2.5 shall
remain in force until amended by the Honourable Minister of
Petroleum and Mineral Resources. It is intended that such
amendment shall only be necessary when RPs exceeds $30/bbl
for at least 45 days continuously. If the RP returns below
$30/bbl the K-Factors will return automatically to the levels
specified in Clauses 2.4 and 2.5 as appropriate.
2.8 To the extent that in any one calendar year the actual
technical cost of operations exceeds $3.50/bbl on average and
such excess arises due to Capital Investment Costs
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(T(2)as defined below) equalling or exceeding $1.50/bbl, a tax
offset shall be applied against PPT liability for that year
relating to the PSC. This offset shall be:
10% x (LIBOR + 1%) x (0.80 x T(2))
Where
LIBOR = The average Financial Times
London Inter Bank Fixing Offer Rate
for 3 month US Dollars as quoted in
the London Financial Times on 1
January, 1 April, 1 July and 1
October or the next succeeding
quotation day.
T(2) = Deductions under Sections 10, 14
and 15 (excluding Royalty and
Production Operating Expenses) of
the PPT Act.
2.9 To the extent that in any one year the additions to oil and
condensate Ultimate Recovery ("UR") exceed the production for
that year, then the Company shall be entitled to a "Reserves
Addition Bonus" in the form of an offset against PPT
liability for that year relating to the PSC. For the purpose
of estimating the "Reserves Addition Bonus", UR shall be the
sum of proven and probable crude oil and condensate ultimate
recovery. UR shall be determined in a manner acceptable to
the Department of Petroleum Resources and such UR shall be as
confirmed by The Honourable Minister of Petroleum Resources.
The Reserves Addition Bonus shall be calculated for each year
in tranches determined by reference to the
addition/production ratio ("R"):
([UR at end year]-[UR at start of year])
R = ----------------------------------------
Annual Production
For:
Incremental Addition/ Bonus Rate Per
R in the Range Production Ratio Incremental Barrel
-------------- ---------------- ------------------
1.0 Less than R Less than or equal to 1.25 Ra(1) = R - 1.00 X(1) = $0.10/bbl
1.25 Less than R Less than or equal to 1.50 Ra(1) = 0.25 and X(2) = $0.25/bbl
Ra(2) = R - 1.25
1.50 Less than R Less than or equal to 1.75 Ra(1) = Ra(2) = 0.25 X(3) = $0.40/bbl
and Ra(3) = R - 1.50
R greater than 1.75 Ra1 = Ra(2) = Ra(3) = 0.25 X(4) = $0.50/bbl
and R(4) = R - 1.75
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For purposes of calculating Reserves Addition Bonus herein,
the formula below shall apply:
Bonus = [Ra(l)X(1)+Ra(2)X(2)+Ra(3)X(3)+Ra(4)X(4)] P
Where:
P = Annual Production
X = Bonus rates for various values of R
UR = Ultimate Recovery which is defined as the
total volume of crude oil and condensate
recovered and to be recovered over the life
time of the field
For worked examples see Appendix 3.
In the event that in any one calendar year there is a
downward revision to the UR, to the extent that the downward
revision represents an adjustment to UR on "Reserves
Additions Bonus" applicable to the PSC in previous years,
Government shall have the right to require a recalculation of
the "Reserves Additions Bonus" in respect of those years. Any
additional PPT liability arising from the recomputation of
the "Reserves Additions Bonus" and the related tax offsets
shall be adjusted under terms of the PSC.
Notwithstanding the foregoing provisions to the contrary, the
Reserves Addition Bonus to be offset against PPT in respect
of reserves found prior to the first year of production shall
be the lesser of the annual average amount expended on Work
Programmes (as that term is defined under the PSC) prior to
such first year or the amount determined in accordance with
the following:
Reserve Addition Rate
Reserves Found Prior Applied to the
to First Year of Production Respective Tranche
(Million Barrels) ($/BBL)
--------------------------- ---------------------
Less than 40 nil
40 - 60 $0.25
60 - 90 $0.30
Greater than 90 $0.50
2.10 RGT will be calculated in Naira each month (under the terms
outlined in this Memorandum) and compared for the same volume
of exports with Government Take for the same month under the
terms of the present (31/12/85) Royalty and PPT provisions.
Identical rates of exchange will be used to convert U.S.
Dollar prices to
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Naira in both Government Take and RGT calculations. The
amount by which RGT is less than Government Take each month
will be accumulated and at the end of the fiscal accounting
year will be applied as the annual tax credit to be offset
against PPT due for that fiscal accounting period.
2.11 For the purpose of the RGT formula, the terms and conditions
of Appendix A (attached to and forming part of this
Memorandum) including yield percentages of the three crude
streams (Bonny Light, Forcados, Bonny Medium), weighted for
each of the primary market areas as defined in Clause 2.12,
shall be mutually agreed for a 6 month period determined 3
months in advance. Thus the terms and conditions of Appendix
A applicable to the respective market for the period 1st
October through 31st March, will be determined on or before
the preceding 1st July, and for the period 1st April through
30th September, on or before the preceding 1st January. If
there is no mutual agreement, the terms and conditions of
Appendix A applicable to the preceding year and for the same
6 month period will prevail.
2.12 Appendix A shows the basis for determining the RP f.o.b.
Nigeria. The c.i.f. value for each of the crude streams shall
be calculated monthly by utilising the agreed product yield
and the average of mid-range product prices quoted each
quotation day for the period 1st to 20th day of the month of
lifting in ▇▇▇▇▇'▇ Oilgram Price Report published by
▇▇▇▇▇▇-▇▇▇▇ Inc. ("▇▇▇▇▇'▇") for each of the following
markets viz: cargoes c.i.f. North-West Europe basis ARA,
cargoes c.i.f. Mediterranean basis Genoa/▇▇▇▇▇▇ (or if not
quoted cargoes f.o.b. basis Italy) and U.S. Gulf Coast
waterborne. In the USGC, L.P.G. will be priced at ▇▇▇▇▇'▇
quotation for Mont Belvieu Gas Liquids. Specific adjustments
for freight, ocean loss, insurance, and processing cost
applicable to each primary market shall be deducted in the
calculation of the Net Back Value ("NBV") Portion of the RP.
The final NBV Portion of the RP shall be determined by
comparing the NBV so calculated with the average of the
appropriate crude oil quotations as published in ▇▇▇▇▇'▇
effective for each quotation day for the period 1st to 20th
(inclusive) of the same month. The NBV shall be limited to a
range of plus or minus 40 (forty) US cents per US barrel
around the prices of BQ, Forcados Blend and Bonny Medium
through the following mechanism, where:
A: Initial NBV
B: Average Crude Oil Price (Bonny Light = ▇▇▇▇▇'▇ BQ;
Forcados = ▇▇▇▇▇'▇ Forcados; and Bonny Medium =
▇▇▇▇▇'▇ BQ - $1.20/bbl)
The Final NBV is equal to F2 as follows:
Fl: The greater of (B-40(cent)/bbl) and A
F2: The lesser of (B+40(cent)/bbl) and F1
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2.13 The Final NBV resulting from Clause 2.12 will be averaged
with crude oil price quotations to determine RP for each
crude stream as follows. Such RP for any month shall be
deemed as the RP for that month's liftings.
Bonny Light: The Final NBV for any month, calculated on the
basis of Appendix A, plus the average of mid range quotations
for BQ crude oil in ▇▇▇▇▇'▇ for each quotation day for the
period 1st to 20th of the same month less $0.25/bbl, the
whole divided by two.
Bonny Medium: The Final NBV for any month, calculated on the
basis of Appendix A, plus the average of mid-range quotations
for BQ crude oil in ▇▇▇▇▇'▇ for each quotation day for the
period 1st to 20th of the same month less $1.45/bbl the whole
divided by two.
Forcados: The Final NBV for any month, calculated on the
basis of Appendix A, plus the average of mid-range quotations
for Forcados crude oil in ▇▇▇▇▇'▇ for each quotation day for
the period 1st to 20th of the same month less $0.25/bbl, the
whole divided by two.
2.14 The valuation basis for determining the RP for any new Crude
Oil stream produced from the Contract Area of the PSC shall
be established by mutual agreement of the Parties. It is the
intent of the Parties that such RP's shall reflect the true
market value of the Crude Oil obtainable through arms-length
transactions with independent third parties and that neither
Party should gain or lose on the pricing thereof relative to
its value in the market place. Such valuation basis shall be
established as follows:
(a) When a new segregated Crude Oil stream is produced,
a trial marketing period shall be designated which
shall extend for the first six (6) month period
during which such new stream is lifted or for the
period of time required for the first ten (10)
liftings whichever is longer. During the trial
marketing period the Parties shall:
(i) Collect samples of the new Crude Oil upon
which assays shall be performed;
(ii) Determine the approximate quality of the
new Crude Oil by estimating the yield
values from refinery modelling;
(iii) Share in the marketing such that each Party
markets approximately an equal amount of
the new Crude Oil;
(iv) Exchange information regarding the
marketing of the new Crude Oil including
documents which verify the sales price and
terms of each lifting;
-7-
9
(v) Apply the actual f.o.b. sales price to
determine the NRP for each lifting; and
(vi) Arrange for payment by the purchaser of the
proceeds in accordance with Clause 9.5 of
the PSC.
(b) As soon as practical but in no event no later than
60 days later the end of the trial marketing period,
the Parties shall meet to review the assay, yield,
and actual sales data. Each Party may present a
proposal for the valuation of the new Crude Oil and
the Parties shall establish a mutually agreeable
valuation basis which implements the intent
expressed above. Upon the conclusion of the trial
marketing period, the Parties shall be entitled to
lift their allocation of Available Crude Oil
pursuant to the PSC. Until such time as the Parties
agree on a valuation method, the parties shall
continue to apply the actual f.o.b. sales price to
determine the RP for such liftings.
(c) When a new Crude Oil stream is produced from the
Contract Area and is commingled with an existing
Crude Oil produced in Nigeria which has an
established RP basis then such basis shall be
applied to the extent practical for determining the
RP of the new Crude Oil. The Parties shall meet and
mutually agree on any appropriate modifications to
such established valuation basis which may be
required to reflect any change in the market value
of the Crude Oils as a result of commingling.
(d) If in the opinion of either Party an agree RP
valuation fails to reflect the market value of a
Crude Oil produced in the Contract Area, then such
Party may propose to the other Party modifications
to the RP method. The Parties shall then meet within
thirty (30) days of such proposal and mutually agree
on any modifications to the NRP method necessary to
reflect the intent of the Parties as expressed in
10.1 of the PSC.
3. Conditions
In consideration for the granting of incentives, Company undertakes to
carry out the work programme attached hereto as Appendix B which is
identical to the minimum Work Programme provided under the PSC and
shall be governed under the terms thereof.
3.1 If Company does not substantially comply with the provision
of Appendix B for a relevant phase as specified in the work
programme, a notice thereof shall be served by NNPC on the
Company. If within three (3) months of the date of service
the Company fails to remedy the conditions which created the
notice the incentives described herein shall cease to apply
and the Conditions of Clause 2.1 shall be reinstated from
that date. The notice shall be communicated to the Federal
Inland Revenue Department at the end of the notice period.
After that date reinstatement of OSP for Posted Price, the
offset pricing formula and other terms and conditions of this
Memorandum shall apply only when such non-compliance shall
have been
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remedied. No notice shall be served by NNPC on the Company in
the case of force majeure or when there is a mutual agreement
by NNPC and Company or when a work programme is reduced by
mutual agreement.
4. Agreement of Government Agencies
Government confirms that the terms of this Memorandum have been agreed
by the appropriate Government Ministries in Nigeria including the
Ministry of Finance, the Federal Inland Revenue Department, and the
Central Bank of Nigeria. In consequence, Government guarantees that no
penalties, fines or other imposts including costs of litigation and/or
defence of the fiscal and foreign exchange arrangements included in
this Memorandum shall be imposed upon the operations related to the
PSC by reason of compliance with this Memorandum.
5. Force Majeure
No failure or omission to carry out or to observe any of the terms,
provisions or conditions of this Memorandum shall, except as is herein
expressly provided to the contrary, give rise to any claim by one
party hereto against the others or be deemed to be a breach of this
Memorandum, if such failure or omission arises from any cause
reasonably beyond the control of either party. Such cause may be but
is not limited to, acts of God, breakdown of vessels or of machinery
and equipment, civil unrest, strikes, lock-outs or labour disputes,
war, battle and commotion, or action of any relevant de facto
government. The rights of all parties shall be adjusted and to the
extent of their performance up to the time of the relevant event as is
reasonable in normal commercial practice and practicable in the
particular circumstances. As soon as practicable after the supervening
circumstances, the obligations under this Memorandum shall be resumed
by all parties as if there had been no interruption. Any party
claiming to be affected by such event shall give immediate notice in
writing of such claims to the other parties giving full particulars
thereof and furthermore shall give immediate notice in writing of the
cessation of any such event.
6. Effective Date
This Memorandum shall become effective from the 25th day of March
1992. Ashland may terminate this Memorandum having given one year's
prior notice to NNPC to withdraw.
7. Appendices
Appendices 1, 2(a & b), 3, A (including Attachment la), and B attached
hereto form part of this Memorandum.
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AS WITNESS the hands of the duly authorised representatives of the Parties the
day and year first above written.
SIGNED for and on behalf of
THE FEDERAL MILITARY GOVERNMENT
OF THE FEDERAL REPUBLIC OF NIGERIA
By: /s/ Chief D.O. Etiebet
-----------------------------
Name: CHIEF D.O. ETIEBET
Designation: HONOURABLE MINISTER OF PETROLEUM AND MINERAL RESOURCES
IN the presence of :
Name: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------------------------------------------
Signature: /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------------------------------------
Designation: DG(P)
-------------------------------------------------------------------
Address: Ministry of Petroleum and Mineral Resources
-----------------------------------------------------------------------
-------------------------------------------------------------------------------
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SIGNED for and on behalf of ASHLAND NIGERIA EXPLORATION, ULTD.
By: /s/ ▇.▇. ▇▇▇▇▇▇▇▇
----------------------------------------------------------------------------
Name: ▇.▇. ▇▇▇▇▇▇▇▇
--------------------------------------------------------------------------
Designation: Managing Director
IN the presence of :
Name: E.E.A. Skinn
--------------------------------------------------------------------------
Signature: /s/ E.E.A. Skinn
---------------------------------------------------------------------
Designation: Head, Joint Venture
-------------------------------------------------------------------
Address: Ashland Oil (Nig) Company ULTD
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▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇/▇, ▇▇▇▇▇
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APPENDIX 1
PROCEDURE ON THE CALCULATION OF TECHNICAL COST PER BARREL WITH
REFERENCE TO THE MEMORANDUM OF UNDERSTANDING ON
INCENTIVES BETWEEN THE FEDERAL MILITARY GOVERNMENT
OF THE FEDERAL REPUBLIC OF NIGERIA
AND COMPANY - CLAUSE 2.3
The following expenses and costs reported by Company for the purposes of cost
recovery pursuant to the PSC during the period January/December of the year of
lifting shall be included in calculating the actual production cost per barrel
for the purpose of this Memorandum of Understanding.
(a) Production Operating Expenses: T(1)
(i) Direct Production Expenses as per items 400 and 401 of Report
No. 002 of Account Reporting Manual.
(ii) Portion of Administrative and General Expenses allocated to
Production - refer item 402 of Report No. 002 of Accounts
Reporting Manual.
(iii) Custom Duties and Gross Rentals allocated to Production -
refer items 4043 and 4045 of Report No. 002 of the Accounts
Reporting Manual.
(iv) Extra Ordinary/Prior Year Expenses/Incomes - refer item 405
of Report No. 002 Accounts Reporting Manual.
(b) Capital Investment Costs which qualify for expensing for PPT
calculation and chargeable to Production Costs: T(2)
(i) Exploration Drilling Costs.
(ii) Appraisal Drilling Cost (lst and 2nd ▇▇▇▇▇).
(iii) Intangible Drilling and Development Costs.
(iv) Capital Allowances - shall be restricted to the capital
allowances applicable direct to production and a share of the
capital allowances on overhead assets allocated to
production. Such Capital Allowance should be reconciled with
the Allowances claimed for the year under Section 15 of the
PPTA.
(c) It is expected that the Production Operating Expenses and Capital
Investment Costs above will be reconciled by Company with Report Nos.
002 and 001 of the Accounts Reporting Manual respectively.
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(d) The recommended basis for allocation of Expenses and Costs in a(ii),
a(iii) and a(iv) above to production shall be:
P
---------
E + P + X
Where:
P = The additions to the Capital costs during
the year and the Operating expenses for the
year reported by Ashland for the purposes
of cost recovery pursuant to the PSC which
are directly related to the production
function.
E = The addition to the Capital costs during
the year and the Operating expenses for the
year reported by Ashland for the purposes
of cost recovery pursuant to the PSC which
are directly related to the exploration
function.
X = Any other expenditures other than
Production and Exploration functions which
are reported by Ashland for the purposes of
cost recovery pursuant to the PSC.
(e) Production Cost Per Barrel = (a)(i) to (iv) + (b)(i) to ( iv )
---------------------------------
Annual Production (Barrels)
(f) The advice on cost per barrel forwarded to NNPC should be supported
with a working paper.
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APPENDIX 2 (a)
WORKED EXAMPLES FOR ESTABLISHING THE GUARANTEED
NOTIONAL MARGIN FOR R.P. LESS THAN $12.5/BBL - CLAUSE 2.6
WHERE FC = $2.50/BBL
1.) If RP = $4
RP(1) = $4
a(1) = 0.30
and FC = $2.5
Margin M = (1 - 2.5) x (4 x 0.30)
---
4
= 0.375 x 1.2
M = $0.45
=======================
2.) If RP = $9
RP(1) = $5
a(1) = 0.30
RP(2) = $4
a(2) = 0.22
M = (1 - 2.5) x (5 x 0.30 + 4 x 0.22)
---
9
= 0.722 x 2.38
M = $1.719
========================
3.) If RP = $11
RP(1) = $5
a(1) = 0.30
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RP(2) = $5
a(2) = 0.22
RP(3) = $1
a(3) = 0.11
and M = (1 - 2.5) x (5 x 0.30+5 x 0.22+1 x 0.11)
----
11
= 0.7727 x 2.71
M = $2.094
========================
4.) If RP = $12.50
a(1) = 0.30
RP(1) = $5
a(2) = 0.22
RP(2) = $5
a(3) = 0.11
RP(3) = $2.50
and M = (1 - 2.5) x (5 x 0.30+5 x 0.22+2.5 x 0.11)
-----
12.50
= 0.80 x 2.875
M = $2.30
=======================
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APPENDIX 2(B)
WORKED EXAMPLES FOR ESTABLISHING THE GUARANTEED
NOTIONAL MARGIN FOR R.P. LESS THAN $12.5/BBL - CLAUSE 2.6
WHERE FC = $3.50/BBL
1.) If RP = $4
RP(l) = $4
a(l) = 0.365
and FC = $3.5
Margin M = (1 - 3.5) x (4 x 0.365)
---
4
= 0.125 x 1.46
M = $0.1825
=========================
2.) If RP = $9
RP(1) = $5
a(1) = 0.365
RP(2) = $4
a(2) = 0.263
M = (1 - 3.5) x (5 x 0.365 + 4 x 0.263)
---
9
= 0.611 x 2.877
M = $1.758
========================
3.) If RP = $11
RP(l) = $5
a(l) = 0.365
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RP(2) = $5
a(2) = 0.263
RP(3) = $1
a(3) = 0.131
and M = (1-3.5) x (5 x 0.365+5 x 0.263+1 x 0.131)
----
11
= 0.6818 x 3.271
M = $2.23
=======================
4.) If RP = $12.50
a(l) = 0.365
RP(l) = $5
a(2) = 0.263
RP(2) = $5
a(3) = 0.131
RP(3) = $2.50
and M = (1-3.50) x (5 x 0.365+5 x 0.263+2.5 x 0.131)
----
12
= 0.72 x 3.4675
M = $2.50
==================
-17-
19
APPENDIX 3
WORKED EXAMPLES ON COMPUTATION OF RESERVES
ADDITION BONUS
1.) Take UR End Year = 640 million barrels
UR Begin Year = 400 million barrels
Annual Production = 200 million barrels
R = 640 - 400
---------------
200
= 1.2
Ra(1) = 0.2
X(1) = $0.10/bbl
.' . Bonus = ][Ra(1) X(1)] P
= [(0.2) (0.10)] x 200
= US$4.0 million
==============
2.) Take UR End Year = 700 million barrels
UR Begin Year = 400 million barrels
Annual Production = 200 million barrels
R = 700 - 400
---------------
200
= 1.5
Ra1 = 0.25
Ra2 = 0.25
X1 = $0.10/bbl
X2 = $0.25/bbl
. ' . Bonus = [(Ra(1)X(1)) + (Ra(2)X(2))] P
-18-
20
= [(0.25)(0.10)+(0.25)(0.25)] x 200
= US$17.5 million
3.) Take UR End Year = 740 million barrels
UR Begin Year = 400 million barrels
Annual Production = 200 million barrels
R = 740 - 400
---------------
200
= 1.7
Ra(1) = 0.25
Ra(2) = 0.25
Ra(3) = 0.20
X(1) = $0.10/bbl
X(2) = $0.25/bbl
X3 = $0.40/bbl
. ' . Bonus = [Ra(1)X(1) + Ra(2)X(2) + Ra(3)X(3)] P
= [(.25)(.10)+(.25)(.25)+(.20)(.40)]x200
= US$33.5 million
4.) Take UR End Year = 900 million barrels
UR Begin Year = 400 million barrels
Annual Production = 200 million barrels
R = 900 - 400
---------------
200
= 2.5
Ra(1) = 0.25
-19-
21
Ra(2) = 0.25
Ra(3) = 0.25
Ra(4) = 0.75
X(1) = $0.10/bbl
X(2) = $0.25/bbl
X(3) = $0.40/bbl
X(4) = $0.50/bbl
. ' . Bonus = [Ra(1) X(1)+ Ra(2) X(2)+ Ra(3) X(3) + Ra(4) X(4)] P
= [(.25)(.10) + (.25) (.25) + (.25) (.40)
+ (.75) (.50)] x 200
= US$112.5 million
================
-20-
22
APPENDIX A
CALCULATION OF REALISABLE PRICE
The market weighted FOB Nigeria Net Back Value ("NBV") for the purpose
of calculating Realisable Price under this Memorandum shall be calculated from
the data given below and in accordance with the worked example shown in
Attachment 1 to this Appendix A.
1. Delivery Each export grade of crude oil will be deemed delivered to:
U.S. Gulf Coast (USGC) 60 per cent
North West Europe (NWE) 20 per cent
Mediterranean (MED) 20 per cent
2. Grades The export grades of crude oil are:
Bonny Light of standard export gravity 37 degrees API
Forcados Blend of standard export gravity 31 degrees "
Bonny Medium of standard export gravity 26 degrees "
Qua Iboe Light of standard export gravity 37 degrees "
Escravos Light of standard export gravity 36 degrees "
Brass Blend of standard export gravity 43 degrees "
▇▇▇▇▇▇▇▇▇▇ Light of standard export gravity 36 degrees "
Commingled Antan of standard export gravity 32 degrees "
3. Conversion Factors
Bonny Light 7.5060 barrels per metric tonne
Forcados Blend 7.2390 " " " "
Bonny Medium 7.0160 " " " "
Qua Iboe Light 7.5060 " " " "
Escravos Light 7.4625 " " " "
Brass Blend 7.7741 " " " "
▇▇▇▇▇▇▇▇▇▇ Light 7.2396 " " " "
Commingled Antan 7.2844 " " " "
-21-
23
4. Yields The following refinery yields will be applied to each
geographical area unless amended under the terms of Clause
2.12 of this Memorandum
U.S. Gulf Coast (expressed as Volume %)
(Same yields apply Summer and Winter)
BONNY LIGHT FORCADOS BLEND BONNY MEDIUM
----------- -------------- ------------
% Vol. % Vol. % Vol.
LPG Propane 2.30 2.40 2.50
LPG Normal 2.30 2.40 2.50
Butane
Gasoline Regular 17.80 16.42 14.25
Gasoline 17.80 16.43 14.25
Unleaded
Naphtha 12.30 8.30 5.20
Jet Kero 12.80 10.50 8.50
No. 2 Oil 22.40 29.55 36.70
Max 1% S Fuel 12.30 14.00 16.10
Oil
Refy Fuel Loss -- -- --
TOTAL 100.00 100.00 100.00
NORTH WEST EUROPE (NWE) AND MEDITERRANEAN (MED)
(Expressed as Weight %)
Summer Winter
% wt. % wt.
------ ------
BONNY LIGHT
Gasoline
Premium 24.50 20.00
Regular 8.60 8.50
Jet Kerosene 10.00 8.50
Gasoil 23.10 34.50
Fuel Oil 1% 28.80 23.50
Refy Fuel/Loss 5.00 5.00
TOTAL 100.00 100.00
-22-
24
FORCADOS BLEND
Gasoline
Premium 19.00 15.40
Regular 7.50 5.80
Jet Kerosene 8.80 8.80
Gasoil 29.00 36.30
Fuel Oil 1% 30.70 28.70
Refy Fuel/Loss 5.00 5.00
TOTAL 100.00 100.00
BONNY MEDIUM
Gasoline
Premium 8.70 7.00
Regular 3.60 3.00
Jet Kerosene 8.00 6.00
Gasoil 27.60 30.50
Fuel Oil 1% 47.50 48.90
Refy Fuel/Loss 4.60 4.60
TOTAL 100.00 100.00
Summer yields are to be used for the calculation of all prices for the
months of April, May, June, July, August and September.
The Winter yields will apply for the months of October, November,
December, January, February and March.
5. Processing Fees
U.S. Gulf - $1.90 per barrel
NWE - $1.40 " "
MED - $1.30 " "
6. Valuation of Refined Products:
Reference to ▇▇▇▇▇'▇ quotations outlined in Attachment 1a to Appendix
A will be made to value the refinery yields in accordance with Clause
2.12 of this Memorandum. In each case the average of the mid-range
product prices for each quotation day for the period 1st to 20th
(inclusive) of the month in question will be used.
-23-
25
7. Freight
US Gulf Coast - LR 2 for Bonny Light and Forcados,
one port loading and one port
discharge.
- LR 1 for Bonny Medium one port
loading and one port discharge.
NWE and MED - 25% VLCC plus 75% LR 2 for Bonny
Light and Forcados, one port
loading and one port discharge.
- LR 1 for Bonny Medium, one port
loading and one port discharge.
Freight rates for the various ship sizes will be based on monthly
assessments obtained from the London Tanker Brokers Panel.
8. Insurance and Outturn Loss
The following will be allowable deductions in the calculation of the
realisable price.
Insurance $0.03 per barrel
Outturn Loss $0.05 per barrel
9. Method used in Calculating NBV
See Attachment 1 to this Appendix.
10. Price Differentials Between Bonny Light Final Realisable Price and
Other Nigerian Light Crude Oil Grades
Bonny Light will be used as the reference crude for all other Nigerian
crude oils except Forcados and Bonny Medium. Forcados crude is
separately quoted in ▇▇▇▇▇'▇ while Bonny Medium will be taken as BBQ
less $1.20 per barrel. The differential between Bonny Light and other
Nigerian Light grades shall be as follows:
0 Less than $20/bbl Less than
Price Range RP Less than or equal to $20/bbl RP Less than or equal to $25/bbl $25/bbl Less than RP
-------------------------------- -------------------------------- --------------------
Brass - - -
Qua Iboe 5 cents 7.5 cents 10 cents
Escravos 10 cents 12.5 cents 15 cents
▇▇▇▇▇▇▇▇▇▇ 5 cents 7.5 cents ▇▇ ▇▇▇▇▇
-▇▇-
▇▇
▇▇. Formula for Realisable Price
Bonny Light (BL) = BBQ - $0.25/bbl + NBV
---------------------
2
Forcados Blend (FB) = FB - $0.25/bbl + NBV
--------------------
2
Bonny Medium (BM) = BBQ - $1.45/bbl + NBV
---------------------
2
with NBV limited to a $0.40 per barrel tunnel around BBQ, Forcados and
Bonny Medium.
-25-
27
APPENDIX A - ATTACHMENT 1A
QUOTATIONS USED IN REALISABLE PRICE CALCULATIONS
Market Product Quotation Source
------ ------- --------- ------
USGC LPG Propane Propane Gas Liquids - Mont Belvieu
LPG Normal Butane Normal Butane Gas Liquids - Mont Belvieu
Gasoline Regular Unl. 87 US Gulf Coast - Waterborne
Gasoline Unleaded Unl. 87 US Gulf Coast - Waterborne
Naphtha Naphtha US Gulf Coast - Waterborne
Jet Kero. Jet Kerosene US Gulf Coast - Waterborne
No. 2 Oil ▇▇. ▇ ▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇▇▇▇▇▇▇
Max. 1.0%S Fuel Oil ▇▇. ▇ ▇.▇%▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇▇▇▇▇▇▇
▇▇▇ Gasoline Premium Prem. 0.15% Cargoes CIF NWE Basis ARA
Gasoline Regular Reg Unlx0.925 Cargoes CIF NWE Basis ARA
Jet Kerosene Jet Kerosene Cargoes CIF NWE Basis ARA
Gasoil Gasoil 0.2 x 0.85 + Gasoil 0.3 x 0.15 Cargoes CIF NWE Basis ARA
Fuel Oil 1.0% 1% Fuel Oil Cargoes CIF NWE Basis ARA
MED Gasoline Premium Prem 0.25% until 31/5/91 Cargoes CIF Med Basis Genoa/▇▇▇▇▇▇
Prem 0.15% x 0.98 after 31/5/91 Cargoes CIF Med Basis Genoa/▇▇▇▇▇▇
Gasoline Regular Prem 0.25% x 0.921 until 31/5/91 Cargoes CIF Med Basis Genoa/▇▇▇▇▇▇
Prem 0.15% x 0.903 after 31/5/91 Cargoes CIF Med Basis Genoa/▇▇▇▇▇▇
Jet Kerosene Jet Kerosene Cargoes CIF Med Basis Genoa/▇▇▇▇▇▇
Gasoil Gasoil Cargoes CIF Med Basis Genoa/▇▇▇▇▇▇
Fuel Oil 1.0% 1% Fuel Oil Cargoes CIF Med Basis Genoa/▇▇▇▇▇▇
For Mediterranean, when cargoes CIF are not quoted, use FOB quotation.
-26-
28
APPENDIX A - ATTACHMENT 1
WORKED EXAMPLE OF NETBACK CALCULATION TO DETERMINE
REALISABLE PRICE FOR BONNY LIGHT CRUDE
Note:
All figures calculated are rounded to 4 decimal places, that is rounding down
if the 5th decimal place is 4 or less, otherwise rounding up.
Realisable Prices are based on the standard export gravities as per Paragraph 2
of this Appendix. The final calculated Realisable Prices will be adjusted to
take account of API variations as follows:
For each 0.1 deg. API difference above or below the reference gravity,
an adjustment of $0.003 per barrel will be added to or subtracted from
the calculated Realisable Price.
Section 1 - Calculation of NBV per Market
(A) U.S. Gulf Coast (USGC)
Yields
Cents/Gallon $/bbl % Vol. $/bbl
------------ ----- ------ -----
LPG Propane 29.8846 x .42 = 12.5515 x 2.30 = 0.2887
LPG Normal Butane 43.0962 x .42 = 18.1004 x 2.30 = 0.4163
Gasoline Regular 60.1827 x .42 = 25.2767 x 17.80 = 4.4993
Gasoline Unleaded 60.1827 x .42 = 25.8876 x 17.80 = 4.4993
Naphtha 60.8173 x .42 = 25.5433 x 12.30 = 3.1418
Jet Kerosene 66.7019 x .42 = 28.0148 x 12.80 = 3.5859
No. 2 H.O. 66.4135 x .42 = 27.8937 x 22.40 = 6.2482
Max 1.0% S F.O. ($/bbl) = 11.5962 x 12.30 = 1.4263
-------
Gross Product Worth (GPW) 24.1058
Conversion Factor 7.506
From the above, following deductions to apply:
Processing Fee 1.9000
Freight Flat Rate LR 2 Conversion
($/MT) (WS Points) Factor
--------- ----------- ----------
10.62 x 125.8% / 7.506 = 1.7799
Outturn Loss 0.0500
Insurance 0.0300
(a) Netback - USGC ($/bbl) 20.3459
-27-
29
(B) North West Europe (NWE)
Yields
$/MT % wt. $/MT
---- ------ ----
Gasoline Premium = 242.6923 x 20.00 = 48.5385
Gasoline Regular = 210.3664 x 8.50 = 17.8811
Jet Kerosene = 308.6538 x 8.50 = 26.2356
Gasoil = 287.6346 x 34.50 = 99.2339
Fuel Oil 1% = 93.0000 x 23.50 = 21.8550
Refinery Fuel and Loss = 5.00 = -
--------
Gross Product Worth (GPW) - ($/MT) = 213.7441
Conversion Factor 7.506
Gross Product Worth (GPW) - ($/bbl) = 28.4764
From the above, following deductions to apply:
Processing Fee 1.4000
Freight Flat Rate Vessel Class Conversion
($/MT) (WS points) Factor
--------- ------------ ----------
LR2 - 75% 8.79 x 130.4%/ 7.506 = 1.1453
VLCC - 25% 8.79 x 90.0%/ 7.506 = 0.2635
Outturn Loss 0.0500
Insurance 0.0300
(b) netback - NWE ($/bbl) 25.5876
(C) Mediterranean (MED)
Yields
$/MT % wt. $/MT
---- ------ ----
Gasoline Premium = 238.0000 x 20.00 = 47.6000
Gasoline Regular = 219.1980 x 8.50 = 18.6318
Jet Kerosene = 307.5385 x 8.50 = 26.1408
Gasoil = 294.3846 x 34.50 = 101.5627
Fuel Oil 1 = 98.3077 x 23.50 = 23.1023
Refinery Fuel and Loss = 5.00 = -
--------
Gross Product Worth (GPW) - ($/MT) = 217.0376
Conversion Factor 7.506
Gross Product Worth (GPW) - ($/bbl) = 28.9152
From the above, following deductions to apply:
-28-
ASH_MEM.WPD
30
Processing Fee 1.3000
Freight Flat Rate Vessel Class Conversion
($/MT) (WS points) Factor
--------- ------------ ----------
LR2 - 75% 8.16 x 131.0%/ 7.506 = 1.0681
VLCC - 25% 8.16 x 85.0%/ 7.506 = 0.2310
Outturn Loss 0.0500
Insurance 0.0300
(c) Netback - MED ($/bbl) 26.2361
Section 2 - Calculation of NBV
Market Weighting Netback Contribution
------ --------- ------- ------------
(a) USGC 60% x 20.3459 = 12.2075
(b) NWE 20% x 25.5876 = 5.1175
(c) MED 20% x 26.2361 = 5.2472
--------
(d) Initial NBV ($/bbl) = 22.5722
Section 3 - Calculation of Final NBV
A. Initial NBV 22.5722
B. BBQ Average 20.8712
F1. Greater of (B-$.40) and A 22.5722
F2. Lesser of (B+$.40) and F1 21.2712
(e) Final NBV ($/bbl) 21.2712
NOTE:
NBV shall be adjusted only if its value is greater/lower than BBQ by
more than 40 cents per barrel.
Section 4 - Calculation of Realisable Price
Crude Element BBQ 20.8712
Less $.25/bbl differential 0.2500
--------
(i) 20.6212
Product Element Final NBV (ii) 21.2712
Average of (i) and (ii) 20.9462
Realisable Price for Bonny Light ($/bbl) = 20.9462
-29-
31
APPENDIX B
WORK PROGRAMME AND EXPENDITURES PROVIDED
UNDER THAT CERTAIN PRODUCTION SHARING CONTRACT (PSC)
DATED MARCH 25, 1992
CLAUSE 6
WORK PROGRAMME AND EXPENDITURES
6.1 Company shall within six (6) months after the Effective Date, unless
mutually extended by the Parties, commence seismic investigations in
the Contract Area and thereafter shall commence drilling operations in
accordance with sound international petroleum practices. Geologic
conditions warranting, drilling operations will be commenced not later
than eighteen (18) months after the Effective Date unless mutually
extended by the Parties.
6.2 Company shall conduct Petroleum Operations during the first five (5)
years following the Effective Date in accordance with the minimum Work
Programme provided in this Clause 6.2 which shall be conducted in two
phases as follows:
(a) For the first phase, during the initial three (3) year period
following the Effective Date, the minimum Work Programme
shall consist of 2,000 km of 2-D seismic, 200 sq km of 3-D
seismic and the drilling of three (3) ▇▇▇▇▇; provided
however, that Company shall have no obligation to expend more
than twenty million U.S. Dollars ($20,000,000) for Petroleum
Operations during such period with respect to this first
phase even if the said minimum Work Programme has not been
accomplished. The minimum Work Programme hereunder and the
cost therefor shall include such work, if any, incurred by
the Company prior to the Effective Date pursuant to Clause 15
of the Letter of Understanding between NNPC and an Affiliate
of Company dated 16th August, 1991.
(b) For the second phase, during the subsequent two (2) year
period the minimum Work Programme shall consist of three (3)
additional ▇▇▇▇▇; provided however, that Company shall have
no obligation to expend more than ten million U.S. Dollars
($10,000,000) for Petroleum Operations during such two (2)
year period with respect to this second phase even if the
said minimum Work Programme has not been accomplished.
If at any time within the initial three (3) year period (the first
phase above) Company should terminate this Contract pursuant to Clause
4 prior to fulfilling the minimum Work Programme outlined in Clause o
6.2(a) then Company shall pay to NNPC the difference between twenty
million U.S. Dollars ($20,000,000) and the actual amount expended.
Should Company terminate this Contract pursuant to Clause 4 within the
subsequent two (2) year period (the second phase above) prior to
fulfilling the minimum Work Programme outlined in Clause 6.2(b) then
Company shall pay to NNPC the difference between ten million U.S.
Dollars ($10,000,000) and the actual amount expended. Provided
however, should the actual
-30-
32
amount expended with respect to the first phase exceed twenty million
U.S. Dollars ($20,000,000), such excess shall be applied against the
expenditure for the second phase, such that Company shall have no
obligation to expend in the aggregate more than thirty million U.S.
Dollars ($30,000,000) for Petroleum Operations during the first five
(5) year period from the Effective Date.
6.3 Within two (2) months after the Effective Date and thereafter at least
three (3) months prior to the beginning of each Year, Company shall
prepare and submit for review and approval by the Management
Committee, pursuant to Clause 7, a Work Programme and Budget for the
Contract Area setting forth the Petroleum Operations which Company
proposes to carry out during the ensuing Year, or in the case of the
first Work Programme and Budget, during the remainder of the current
Year. The Management Committee shall review and approve such Work
Programme and Budget in accordance with Clause 7.4.
-31-
