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Shell In Nigeria & SPDC JV Overview

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Ian Craig (EVP Sub-Saharan Africa) and Mutiu Sunmonu (Managing Director SPDC) presented at a field visit Shell organised for Socially Responsible Investors in Port Harcourt, Nigeria.

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Shell In Nigeria & SPDC JV Overview

  1. 1. ROYAL DUTCH SHELL PLCSHELL IN NIGERIAPORT HARCOURT, NIGERIAOCTOBER 10, 2012Copyright of Royal Dutch Shell plc 10 October 2012 1
  3. 3. CAUTIONARY NOTESpill volumes, both due to operational and crude theft/sabotage activities, are estimates made during the regulated Joint investigation visits.The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this presentation “Shell”, “Shell group” and “RoyalDutch Shell” are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words “we”, “us”and “our” are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served byidentifying the particular company or companies. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this presentation refer to companies in whichRoyal Dutch Shell either directly or indirectly has control, by having either a majority of the voting rights or the right to exercise a controlling influence. The companiesin which Shell has significant influence but not control are referred to as “associated companies” or “associates” and companies in which Shell has joint control arereferred to as “jointly controlled entities”. In this presentation, associates and jointly controlled entities are also referred to as “equity-accounted investments”. The term“Shell interest” is used for convenience to indicate the direct and/or indirect (for example, through our 23% shareholding in Woodside Petroleum Ltd.) ownershipinterest held by Shell in a venture, partnership or company, after exclusion of all third-party interest.This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements otherthan statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that arebased on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance orevents to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning thepotential exposure of Royal Dutch Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections andassumptions. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’,‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ and similar terms and phrases. Thereare a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in theforward-looking statements included in this presentation, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand forShell’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmentaland physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of suchtransactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developmentsincluding potential litigation and regulatory measures as a result of climate changes; (k) economic and financial market conditions in various countries and regions; (l)political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval ofprojects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward-looking statements contained in this presentation areexpressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-lookingstatements. Additional factors that may affect future results are contained in Royal Dutch Shell’s 20-F for the year ended 31 December, 2011 (available atwww.shell.com/investor and www.sec.gov ). These factors also should be considered by the reader. Each forward-looking statement speaks only as of the date of thispresentation, 10 October 2012. Neither Royal Dutch Shell nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-lookingstatement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferredfrom the forward-looking statements contained in this presentation. There can be no assurance that dividend payments will match or exceed those set out in thispresentation in the future, or that they will be made at all.We use certain terms in this presentation, such as resources, that the United States Securities and Exchange Commission (SEC) guidelines strictly prohibit us fromincluding in filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC websitewww.sec.gov. You can also obtain these forms from the SEC by calling 1-800-SEC-0330.Copyright of Royal Dutch Shell plc 10 October 2012 3
  4. 4. NIGERIA ~167 million people 20% of population live in the Niger Delta NIGERIA Federal Republic OPEC estimates oil reserves of ~35 billion barrels and ~185 tcf gas reserves* THE Produces ~2.5 million barrels of oil NIGER DELTA per day 400 km MAJOR OIL AND GAS PROVINCE SHELL PRESENCE SINCE 1950s*Definition not consistent with SEC proved reservesCopyright of Royal Dutch Shell plc 10 October 2012 4
  5. 5. ECONOMIC GROWTH NIGERIA +3% p.a +9% p.a BRAZIL +2% p.a +4% p.a NIGERIA: ONE OF FASTEST GROWING MALAYSIA +4% p.a +5% p.a ECONOMIES GDP per capita ~ $1600- 2600 (South Africa $8700 in WORLD 2011) ECONOMY +4% p.a +3% p.a Oil & gas revenue account for 80% of government revenues, ~30% of GDP and SUB-SAHARAN 95% of export revenues AFRICA +3% p.a +5% p.a Annual inflation 12-14% 1996-1999 2000-2010 High unemployment: >20%Source: IMF real terms growth, WWM Global InsightsCopyright of Royal Dutch Shell plc 10 October 2012 5
  6. 6. NIGERIA ECONOMYTOP BUSINESS COMPLAINTS ECONOMIC COST OF POWER OUTAGES Electricity Nigeria Finance (access) Malawi Uganda Finance (cost) Kenya Tax rates South Africa Macro econ Tanzania Corruption Madagascar Transportation Benin Cabo Verde Crime Senegal Tax administration Cameroon Access to land Burkina Faso 0 20 40 60 80 100 0 1 2 3 4 % of respondents % of GDPSource: WB Investment Climate Assessment 2011 Source: derived from Eberhard and others 2009Copyright of Royal Dutch Shell plc 10 October 2012 6
  7. 7. SAFETYPERSONAL SAFETY INDICATORS WORKPLACE FATALITIESper million man hours # 1.0 12 10 8 0.5 6 Iriama (7 fatalities) 4 2 0.0 0 2008 2009 2010 2011 2012 (end 2008 2009 2010 2011 2012 Aug) Shell in Nigeria TRCF (total recordable case frequency) Motor vehicle incident Drowning Worksite hazard SecurityKIDNAPPINGS# 2 fatalities in 2012 to date100 armed attack on an environmental survey 50 Kidnapping remains a real threat for staff and families 0 2008 2009 2010 2011 2012 (end August) Staff Contractors Family All data on a Shell operated basisCopyright of Royal Dutch Shell plc 10 October 2012 7
  8. 8. SHELL FOOTPRINT IN NIGERIA OFFSHORE AND ONSHORE Divested In Process 40 OML ERHA/BOSI 4/38/41 Long history of operations in 42 34 30 26 country: >50 years GBARAN UBIE SPDC JV – Onshore/Shallow water BONGA AFAM POWER STATION OGONILAND NIGERIA LNG production SNEPCO – Deepwater production OPL245 NLNG – LNG JVPRODUCTION (SHELL SHARE 2011)kboe per day mtpa capacity300250200 5150100 50 0 0 SPDC SNEPCO NLNG (RHS)Copyright of Royal Dutch Shell plc 10 October 2012 8
  9. 9. SHELL BUSINESSES IN NIGERIA EXPLORATION & PRODUCTION LIQUEFIED NATURAL GAS Onshore/shallow offshore People: ~1,000 People: 3,500 (30,000 LNG production capacity: contractors) 22 mtpa, Trains 1-6 Potential production: ~1 MM boe/d ~1,000 wells, ~8000 km pipelinesSPDC JV NLNG(55% NNPC, 30% SPDC Ltd, 10% Total, 5% Eni) (49% NNPC, 25.6% Shell, 15% Total, 10.4% Eni) EXPLORATION & PRODUCTION DOMESTIC GAS DISTRIBUTION Deepwater People: ~40 People: ~600 Location: Niger Delta Bonga & Erha production Downstream gas supply Operated production capacity: 225,000 boe/dSNEPCo SNG(100% Shell) (100% Shell) Copyright of Royal Dutch Shell plc 10 October 2012 9
  10. 10. SNEPCO: DEEPWATER OML 118 - Bonga, Shell 55% Discovered 1995, on-stream 2005 FPSO capacity: 200 kbbl/d & 150 MMscf/d SNEPCO operated OML 133 – Erha/Bosi, Shell 44%, non-operated Onstream : 2006 FPSO Capacity: 190 kbbl/d Bonga FPSO ( Shell 55%) Bonga NW development (OML 118), Shell 55% 45 kboe/d expansion Tie back to Bonga; on-stream 2014/2015 OPL 245 – Zabazaba, Shell 50%, non operated Existing discoveries with development potential Further exploration potential SHELL PRODUCTION 106 KBOE/D (2011) PSC CONTRACTS; 100% IOC Erha FPSO (Shell 44%) GROWTH POTENTIALCopyright of Royal Dutch Shell plc 10 October 2012 10
  11. 11. NLNG: LNG EXPORT Shell 25.6%, NNPC 49%, Total 15%, ENI 10.4% 6 LNG trains, 22 mtpa capacity (plus 5 mtpa of NGLs) Train 1 and 2 on-stream 1999 Train 6 on-stream 2007 Expansion potential NLNG T1 & 2 Construction (Shell 25.6%) GROWTH TO 6 TRAINS SINCE 1999 INCORPORATED JV; SELF- NLNG T6 construction FINANCINGCopyright of Royal Dutch Shell plc 10 October 2012 11
  12. 12. SPDC JV OVERVIEWMUTIU SUNMONUMANAGING DIRECTOR SPDCCopyright of Royal Dutch Shell plc 10 October 2012 12
  13. 13. SPDC JV: ONSHORE/SHALLOW WATER JV Unincorporated JV structure Shell 30%, NNPC 55%, Total 10%, ENI 5% Joint Operating Agreement defines rights & obligations of operator (SPDC Ltd) and non-operating partners Bonny Terminal Decisions by unanimous vote of partners All partners fund in proportion to their share Sea Eagle platformCopyright of Royal Dutch Shell plc 10 October 2012 13
  14. 14. SPDC JV: GBARAN UBIE & AFAM VI GBARAN UBIE World class gas project; on-stream 2010 Delivered in height of the security problems 1 bcf/d & 70 kbbl/d liquids capacity $1 billion in local content 95% of construction workforce was Nigerian 4 GMOUs in the area covering 44 local communities 200,000 people benefiting from electrification Gbaran Ubie Integrated gas project projects. AFAM VI CCGT gas fired power plant First Power 2008, construction began 2005 650 MW capacity 14%-20% of the power contribution to the national grid Gas provided by SPDC Okoloma facility (240 mmscf/d capacity) Afam VI power plantSPDC = 30% Shell, 55% NNPC, 10% Total, 5% Agip; all data on 100% basisCopyright of Royal Dutch Shell plc 10 October 2012 14
  15. 15. SPDC JV: FOOTPRINT MANAGEMENT Largest and most diverse of the IOC footprints Deg N SPDC JV SPDC •Deg N Exxon Mobil •Mobil onshore 6.5 non-producing •6.5 •non-producing producing •producing 5.5 WARRI •5.5 •WARRI Recent divestments help SPDC to manage its PHC footprint •PHC 4.5 •4.5 3.5 •3.5 ~2,200 km oil pipelines 4 5 6 Deg E 7 8 9 •4 •5 •6 •Deg E•7 •8 •9 Deg N Agip (ENI) Agip Deg N Chevron Chevron ~850 km gas pipelines 6.5 6.5 non-producing non-producing producing producing 5.5 WARRI 5.5 WARRI ~4,600 km of flow lines PHC PHC 4.5 4.5 3.5 3.5 4 5 6 Deg E 7 8 9 4 5 6 Deg E 7 8 9Copyright of Royal Dutch Shell plc 10 October 2012 15
  16. 16. SPDC JV – MAJOR CHALLENGESONGOING CHALLENGES CRUDE THEFT AND ILLEGAL REFINING FLARE REDUCTION - PROGRESS BEING MADE Large and small scale theft Illegal refining of stolen crude Flare site in the Niger DeltaCopyright of Royal Dutch Shell plc 10 October 2012 16
  17. 17. CRUDE THEFT CAUSES Estimates of 150,000 bbl/d and upwards $ 6.1 bln revenue loss (2011 prices) Stolen crude exported Imports & subsidy 445,000 bbl/d refining capacity; underutilized in practice Imports of oil products + $ 8 bln subsidies (2011) Fuel queue during January 2012 national strike Stolen crude refined for local and regional market Crude Theft, Okololunch, Sept 2012Copyright of Royal Dutch Shell plc 10 October 2012 17
  18. 18. SPDC: LARGE SCALE CRUDE THEFTkbbl per day150 Niger Delta wide theft estimate of 150,000 bbl/d or ~55,000,000 bbl/year 2011 Spills due to sabotage on SPDC rights of way or from SPDC facilities75 11,806 bbl Measured as stolen from SPDC trunk lines: 2011 Operational Spills ~40,000 bbl/d or ~15,000,000 bbl/year 3,595 bbl 0 72% recovery during cleanup in 2011Copyright of Royal Dutch Shell plc 10 October 2012 18
  19. 19. NIGERIA: SPDC JVENVIRONMENT: SPILLS PIPELINE REPLACEMENToil spills, thousand tonnes # 20015 Nembe Creek trunk line: complete 2010 150 97 km; $1.1 billion10 Trans Niger Pipeline loop project 100 Around Ogoniland; major area of crude theft Pending approval by government partner 5 50 0 0 2006 2007 2008 2009 2010 2011 Sabotage volume of spills: Operational Operational number of spills (RHS): Sabotage2011 SPILL AND REMEDIATION PERFORMANCE 30% drop in operational spill volume 351 sites remediated (272 in 2010) Reduction in remediation backlog from 400 end 2010 to 274 sites end 2011SPDC = 30% Shell, 55% NNPC, 10% Total, 5% Agip; all data on 100% basis Nembe Creek trunk line replacementCopyright of Royal Dutch Shell plc 10 October 2012 19
  20. 20. SPDC: PROGRESS ON FLARINGPERFORMANCE ASSESSING NEW INVESTMENT FOR GASboe gas flared per barrel produced (2010 data) UTILIZATION Onshore Offshore Forcados Yokri & Southern Swamp AGG/Dom gas0.1 Completion in 2014/2015; ~ $4 billion investment Gas gathering, facility upgrades and new oil production After completion, SPDC flaring intensity is expected to be below the current worldwide industry average0.0 Nigeria SPDC JV Nigeria SNEPCO industry industryENVIRONMENT: FLARINGmtpa CO2e flaring SPDC JV production kboe/d 100015 80010 600 400 5 200 0 0 2005 2006 2007 2008 2009 2010 2011 Gas Flared ProductionSPDC = 30% Shell, 55% NNPC, 10% Total, 5% Agip; all data on 100% basis Forcados Yokri - South bankCopyright of Royal Dutch Shell plc 10 October 2012 20
  22. 22. SHELL IN NIGERIA Shell’s portfolio & track record Funding; security; PIB; organisational capability 2012 Progress: 2 FIDs of onshore associated gas projects Deepwater appraisal planningCopyright of Royal Dutch Shell plc 10 October 2012 22
  23. 23. NIGERIA FIELD TRIPQUESTIONS & ANSWERSCopyright of Royal Dutch Shell plc 10 October 2012 23