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EXHIBIT 10.7
[Ashland logo goes here]
ASHLAND OIL (NIGERIA) COMPANY
MEMORANDUM OF UNDERSTANDING
ON OPLS 98 AND 118
BETWEEN
THE FEDERAL MILITARY GOVERNMENT OF THE FEDERAL
REPUBLIC OF NIGERIA
AND
ASHLAND OIL (NIGERIA) COMPANY
LAGOS
2
MEMORANDUM OF UNDERSTANDING
ON INCENTIVES FOR ENCOURAGING INVESTMENTS IN EXPLORATION AND
DEVELOPMENT ACTIVITIES AND ENHANCING CRUDE OIL EXPORTS
THIS MEMORANDUM OF UNDERSTANDING is made the 10th day of August, 1993, BETWEEN
THE FEDERAL MILITARY GOVERNMENT OF THE FEDERAL REPUBLIC OF NIGERIA
("Government"), represented by the Honourable Secretary of Petroleum Resources
and Ashland Oil (Nigeria) Company, a company incorporated under the laws of
Nigeria whose registered office is at 00 Xxxxxx Xxxxxxx Xxxx Xx., Xxxxxxxx
Island, Lagos ("Ashland").
WHEREAS:
(i) Government and Ashland entered into a MEMORANDUM OF
UNDERSTANDING ON INCENTIVES FOR ENHANCING CRUDE OIL EXPORTS
AND ENCOURAGING INVESTMENTS IN EXPLORATION AND DEVELOPMENT
ACTIVITIES (the "Memorandum of Understanding")
effective 1st January, 1986.
(ii) Some matters in the Memorandum of Understanding were more
particularly detailed in the Side Letter dated 17th of
January, 1986, which also formed part of the Memorandum of
Understanding.
(iii) Government and Ashland reviewed the Memorandum of
Understanding and the Side Letter and agreed to a "First
Amendment" effective 1st October, 1986.
(iv) Government and Ashland further reviewed the Memorandum of
Understanding and the Side Letter and agreed to a "Second
Amendment" effective 1st July, 1987.
(v) Some Xxxxx'x product price quotations used in determining
Price were updated in letters (dated 19th October 1988 and
27th July 1990) from the Nigerian National Petroleum
Corporation ("NNPC").
(vi) Government and Ashland have further reviewed the Memorandum of
Understanding and the aforementioned Side Letters and
amendments and have mutually agreed to consolidate them into
this Memorandum.
(vii) Ashland is conducting Petroleum Operations under the
Production Sharing Contract between NNPC and Ashland dated
12th June 1973, as amended to date ("PSC").
(viii) Ashland has thoroughly explored all of the acreage within the
area (OPLs 98 and 118) covered by the PSC and has fully
developed all commercial oil fields discovered as a result
thereof.
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NOW THEREFORE, the parties hereby agree as follows:
1.1 The said Memorandum of Understanding dated 17th January, 1986
together with the Side Letter and the amendments referred to
in the above recitals hereto are hereby terminated and are
replaced and superseded in their entirety by this Memorandum
of Understanding ("this Memorandum").
1.2 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.
1.3 The terms and conditions set forth in Clauses 2 to 5 of this
Memorandum shall form part of the new fiscal regime.
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 the 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 Xxx 0000 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 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
Ashland's actual expenditure on Capital Investment Costs
defined as T(2) in Appendix 1 is equal to or exceeds $1.50/bbl
on average than 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.
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 Official Selling Price ("OSP") for Posted
Price and the Revised Government Take ("RGT") calculated per
the offset pricing formula below:
RGT = OP-(TR x TC)-OT
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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-Xxx) x TR + Xxx]
K = Factor of 1.0042 when the minimum Guaranteed
Notional Margin is $2.30/bbl. Factor of
0.9869 when the minimum Guaranteed Notional
Margin is $2.50/bbl.
Xxx = 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-Factors 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
Therefore when M is $2.30/bbl:
$2.30+0.15[$2.50]
K = 1.1364 (1 - -----------------)
RP
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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 Realisable Prices 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 = Ashland's 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 Appendix 2.
2.7 The K-Factors specified under Clauses 2.4 and 2.5 shall remain
in force until amended by the Minister of Petroleum Resources.
It is intended that such amendment shall only be necessary
when Realisable Price exceeds $30/bbl for at least 45 days
continuously. If the Realisable Price 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 The Parties agree that, since Ashland has thoroughly explored
all of the said areas covered by the PSC and has fully
developed all oil fields which are commercial under the terms
of the PSC, further investment in such areas for exploration
and/or
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development is not viable for Ashland and, therefore, the
incentives known as the Capital Investment Cost Tax Offset and
the Reserves Addition Bonus, which were provided to the oil
industry under the Memorandum of Understanding agreements
signed in 1991 shall not be applicable to Ashland under this
Memorandum; provided however, that if circumstances change
(such as the PSC is extended beyond 12 June 1993) and Ashland
undertakes further investment, as approved by NNPC, under the
PSC, then this Memorandum shall be amended to provide that the
aforementioned incentives stated in this Clause 2.8 shall be
extended to Ashland, and in addition, the values of M =
$2.50/bbl and FC = $3.50/bbl shall apply to Ashland when T2 is
equal to or greater than $1.50/bbl.
2.9 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 (T(2) as
defined below) equalling or exceeding $1.50/bbl, Ashland shall
be entitled to a tax offset against its PPT liability for that
year. 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.
2.10 To the extent that in any one year the additions to oil and
condensate Ultimate Recovery ("UR") exceed the production for
that year, then Ashland shall be entitled to a "Reserves
Addition Bonus" in the form of an offset against its PPT
liability for the year. 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
Honourable Minister of Petroleum Resources. The "Reserves
Addition Bonus" shall be calculated for each year in tranches
determined by reference to the addition/production ration
("R"):
R = ([UR at end year]-[UR at start of year])
----------------------------------------
Annual Production
For:
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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 Ra(1) = Ra(2) = Ra(3) = 0.25 X(4) = $0.50/bbl
and R(4) = R - 1.75
For purposes of calculating Reserves Addition Bonus herein, the formula below
shall apply:
Bonus = [Ra(1) 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 total oil and condensate Ultimate Recovery, to
the extent that the downward revision represents an adjustment
to Ultimate Recovery on which Ashland had received "Reserves
Additions Bonus" in previous years, Government shall have the
right to require Ashland to recalculate the "Reserves Additions
Bonus" in respect of those years. Ashland shall immediately
pay to Government any additional PPT liability arising from the
recomputation of the "Reserves Additions Bonus" and the related
tax offsets.
2.11 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 regulations.
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.
2.12 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 2.13, 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.
2.13 Appendix A shows the basis for determining the Realisable Price
f.o.b. Nigeria ("RP"). 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 Xxxxx'x Oilgram Price Report published by
XxXxxx-Xxxx Inc. ("Xxxxx'x") for each of the following markets
viz: cargoes c.i.f. North-West Europe basis ARA, cargoes
c.i.f. Mediterranean basis Genoa/Xxxxxx (or if not quoted
cargoes f.o.b. basis Italy) and US Gulf Coast waterborne. In
the USGC, L.P.G. will be priced at Xxxxx'x 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 Xxxxx'x 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 BBQ, Forcados Blend
and Bonny Medium through the following mechanism, where:
A: Initial NBV
B: Average Crude Oil Price (Bonny Light = Xxxxx'x BBQ;
Forcados = Xxxxx'x Forcados; and Bonny Medium = Xxxxx'x
BBQ - $1.20/bbl)
The final NBV is equal to F2 as follows:
F1: The greater of (B-40c./bbl) and A
F2: The lesser of (B+40c./bbl) and F1
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2.14 The Final NBV resulting from Clause 2.13 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 BBQ crude oil in Xxxxx'x 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 BBQ crude oil in Xxxxx'x 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 Xxxxx'x for each quotation day for the
period 1st to 20th of the same month less $0.25/bbl, the whole
divided by two.
3. Conditions
In consideration of the incentives granted herein by the Government,
Ashland undertakes to market all NNPC's Lifting Allocations (as defined
in the PSC) subject to NNPC's right to revoke such authority as provided
under Clause 5 of the PSC.
4. Non-Performance
4.1 Where, however, Ashland is unable to lift all or part of
NNCPC's Lifting Allocation as defined and provided under the
PSC, Ashland agrees to pay to NNPC 2% of the average RP (for
the quarter of default) for each barrel not lifted. This
payment will be made in U.S. dollars or as may be directed by
the Government and shall not be considered as Operating Cost or
be taken into account in respect of year-end adjustment of cost
or treated as a cost allowance for the calculation of PPT.
4.2 In the event of force majeure, as defined in Clause 6, the
provision of Clause 4.1 shall not apply. If any restriction is
placed on the importation of crude oil including tariff
barriers or other relevant restrictions on trade which to the
knowledge of both parties affect Ashland's ability to dispose
of Nigerian Crude Oil, the parties agree to meet to discuss an
equitable solution.
5. 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
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guarantees to Ashland 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
Ashland by reason of compliance with this Memorandum.
6. 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 other 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, any
act, event, happening, or occurrence due to natural causes, 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 both 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
both parties as if there had been no interruption. Either party
claiming to be affected by such event shall give immediate notice in
writing of such claims to the other party giving full particulars
thereof and furthermore shall give immediate notice in writing of the
cessation of any such event.
7. Effective Date
This Memorandum shall become effective from the 1st day of January 1991.
Ashland may terminate this Memorandum having given one year's prior
notice to NNPC to withdraw.
8. Appendices
Appendices 1, 2(a & b), 3 and A (including Attachment 1) attached hereto
form part of this Memorandum.
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AS WITNESS the hands of the duly authorized representatives of the Parties the
day and year first above written.
THE FEDERAL MILITARY GOVERNMENT
OF THE FEDERAL REPUBLIC OF NIGERIA
By: /S/ Chief P.C. Asiodu
-------------------------------------------------------------------------
Name: CHIEF P.C. ASIODU
-----------------------------------------------------------------------
Designation: HONOURABLE SECRETARY OF PETROLEUM & MINERAL RESOURCES
----------------------------------------------------------------
IN the presence of:-
Name: Dr. G.A. Soyoye
-----------------------------------------------------------------------
Signature: /S/ Dr. G.A. Soyoye
------------------------------------------------------------------
Designation: Special Advisor
----------------------------------------------------------------
Address:
--------------------------------------------------------------------
--------------------------------------------------------------------
SIGNED for and on behalf of
ASHLAND OIL (NIGERIA) COMPANY
By: Xxxxxxx X. Xxxxxxx
-------------------------------------------------------------------------
Name: /S/ Xxxxxxx X. Xxxxxxx
-----------------------------------------------------------------------
Designation: Managing Director
----------------------------------------------------------------
IN the presence of:-
Name: Xxx. Xxxxxxx X. Atake
-----------------------------------------------------------------------
Signature: /S/ Xxxxxxx X. Atake
------------------------------------------------------------------
Designation: Senior Liaison Officer
----------------------------------------------------------------
Address: Ashland Oil (Nigeria) Company Unlimited,
--------------------------------------------------------------------
00 Xxxxxx Xxxxxxx, Xxxx Xxxxxx, Xxxxxxxx Xxxxxx, Xxxxx
--------------------------------------------------------------------
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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 MILIARY 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 (1st and 2nd Xxxxx).
(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 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 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.
(a) (i) to (iv) + (b) (i) to (iv)
(e) Production Cost Per Barrel = ------------------------------------
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
RP(1) = $5
a(1) = 0.30
RP(2) = $5
a(2) = 0.22
RP(3) = $2.50
a(3) = 0.11
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 $12.50/BBL - CLAUSE 2.6
WHERE FC = $3.50/BBL
1.) If RP = $4
RP(1) = $4
a(1) = 0.365
and FC = $3.5
Margin M = (1 - 3.50) 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 - 3.50) x (5 x 0.365 + 4 x 0.263)
----
9
= 0.611 x 2.877
M = $1.758
=======================
3.) If RP = $11
RP(1) = $5
a(1) = 0.365
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RP(2) = $5
a(2) = 0.263
RP(3) = $1
a(3) = 0.131
and M = (1-3.50) 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
RP(1) = $5
a(1) = 0.365
RP(2) = $5
a(2) = 0.263
RP(3) = $2.50
a(3) = 0.131
and M = (1-3.50)x(5 x 0.365 + 5 x 0.263 + 2.5 x 0.131)
----
12.50
= 0.72 x 3.4675
M = $2.50
=======================
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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
Ra(1) = 0.25
Ra(2) = 0.25
X(1) = $0.10/bbl
X(2) = $0.25/bbl
. ' . Bonus = [(Ra(1) X(1)) + (Ra(2) X(2))]P
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= [(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
X(3) = $0.40/bbl
. ' . Bonus = [Ra(1) X(1) + Ra(2) X(2) +
Ra(3) X(3)] P
= [ (.25) (.10)+(.25) (.25)+
(.20) (.40)] x 200
= 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
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Ra(1) = 0.25
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
-19-
21
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 "
Xxxxxxxxxx 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 " " " "
Xxxxxxxxxx Light 7.2396 " " " "
Commingled Antan 7.2844 " " " "
-20-
22
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 Butane 2.30 2.40 2.50
Gasoline Regular 17.80 16.42 14.25
Gasoline Unleaded 17.80 16.43 14.25
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 Oil 12.30 14.00 16.10
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
-21-
23
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 Xxxxx'x 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.
-22-
24
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 Xxxxx'x 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 RP $20/bbl less than RP
less than or equal less than or equal
Price Range to $20/bbl 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
Xxxxxxxxxx 5 cents 7.5 cents 00 xxxxx
-00-
00
00. 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.
-24-
26
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 Xx. 0 Xxx XX Xxxx Xxxxx - Xxxxxxxxxx
Max. 1.0%S Fuel Oil Xx. 0 0.0%X XX Xxxx Xxxxx - Xxxxxxxxxx
XXX 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/Xxxxxx
Prem 0.15% x 0.98 after 31/5/91 Cargoes CIF Med Basis Genoa/Xxxxxx
Gasoline Regular Prem 0.25% x 0.921 until 31/5/91 Cargoes CIF Med Basis Genoa/Xxxxxx
Prem 0.15% x 0.903 after 31/5/91 Cargoes CIF Med Basis Genoa/Xxxxxx
Jet Kerosene Jet Kerosene Cargoes CIF Med Basis Genoa/Xxxxxx
Gasoil Gasoil Cargoes CIF Med Basis Genoa/Xxxxxx
Fuel Oil 1.0% 1% Fuel Oil Cargoes CIF Med Basis Genoa/Xxxxxx
For Mediterranean, when cargoes CIF are not quoted, use FOB
quotation.
-25-
27
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
-26-
28
(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) - ($/bbl) = 28.9152
From the above, following deductions to apply:
-27-
29
Processing Fee 1.3000
Freight Flat Rate Vessel Class Conversion
($/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
-------
26.2361
(c) Netback - MED ($/bbl)
Section 2 - Calculation of NBV
Market Weighting Netback Contribution
------ --------- ------- ------------
(a) USGC 60% x 20.3459 = 12.2075
(b) NWE 20% x 25.5876 = 5.1175
(c) MED 20% x 26.2361 = 5.2472
--------
(d) Initial NBV ($/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
-28-
