Heritage Oil Plc. Capital Markets Day, 30 January 2013

Transcription

1 Heritage Oil Plc Capital Markets Day, 30 January 2013 January 2013

2 Disclaimer Important Notice Certain information in this presentation is based on management estimates. Such estimates have been made in good faith and represent the genuine belief of applicable members of management. Those management members believe that such estimates are founded on reasonable grounds. However, by their nature, estimates may not be correct or complete. Accordingly, no representation or warranty (express or implied) is given that such estimates are correct or complete. No representation or warranty (express or implied) is given that such estimates are so founded. Neither the Company nor J.P. Morgan Cazenove or Standard Bank undertake any obligation to correct or complete any estimate whether as a result of being aware of information (new or otherwise), future events or otherwise. Overseas shareholders This presentation has been prepared for the purposes of complying with English law and the Listing Rules of the FSA and information disclosed may not be the same as that which would have been prepared in accordance with the laws of jurisdictions outside England. Persons who are not resident in the United Kingdom may be affected by the laws of jurisdictions other than the United Kingdom. Such persons should inform themselves about and observe any applicable requirements of such jurisdictions. Any failure by such persons to comply with any applicable restrictions may constitute a violation of the securities laws of any such jurisdiction. To the fullest extent permitted by applicable law, the companies involved in the proposed Divestment, J.P. Morgan Cazenove and Standard Bank disclaim any responsibility or liability for the violation of such restrictions by any person. Copies of this presentation are not being, and must not be, mailed or otherwise forwarded, distributed or sent in, into or from any jurisdiction where to do so would constitute a breach of securities laws in that jurisdiction. Persons receiving this presentation (including custodians, nominees and trustees) should observe these restrictions and should not send or distribute this presentation in, into or from any such jurisdictions. CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION: This presentation includes statements that are, or may be deemed to be, forward-looking statements. These forward-looking statements include, but are not limited to, statements with regard to the outcome of the exercise of the Shoreline Option, proposed Divestment, Loan, future production and grades, projections for sales growth, estimated revenues, reserves and resources, targets for cost savings, the construction cost of new projects, the timing and outcome of exploration projects and drilling programmes, projected capital expenditures, the timing of new projects, future cash flow and debt levels, the outlook for the prices of hydrocarbons, the integration of acquisitions, the outlook for economic recovery and trends in the trading environment, statements about strategies, cost synergies, revenue benefits or integration costs and production capacity and future production levels and timing, and may be (but are not necessarily) identified by the use of words such as believes, estimates, plans, projects, anticipates, expects, intends, may, aims, plans, predicts, continues, assumes, positioned, will, or should and other similar expressions that are predictions of or indicate future events and future trends or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts and include statements regarding the Company s intentions, beliefs or current expectations. An investor should not place undue reliance on forward-looking statements because, by their nature, they involve known and unknown risks, uncertainties and other factors and relate to events and depend on circumstances that may or may not occur in the future that are in many cases beyond the control of the Company. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements. In particular, there is no assurance that the conditions precedent to completion of the proposed Divestment will be satisfied or waived and the Company may not realise the anticipated benefits, operational and other synergies and/or cost savings from the proposed Divestment or the Loan repayment. Any forward-looking statements in this presentation reflect the Company s view with respect to future events as at the date of this presentation and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company s operations, results of operations, growth strategy and liquidity. None of the Company, J.P. Morgan Cazenove or Standard Bank undertake any obligation publicly to release the results of any revisions or up-dates to any forward-looking statements in this presentation that may occur due to any change in its expectations or to reflect events or circumstances after the date of this presentation. Subject to certain exceptions, neither this presentation nor any copy of it may be taken or transmitted into the United States, its territories or possessions or distributed, directly or indirectly, in or into the United States, its territories or possessions. Neither this presentation nor any copy of it may be taken or transmitted into any other jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction or to any securities analyst or other person in any of those jurisdictions. Any failure to comply with this restriction may constitute a violation of United States or other applicable securities law. The distribution of this presentation in other jurisdictions may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. This presentation does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States. The securities referred to herein have not been and will not be registered under the US Securities Act of 1933 (the Securities Act ), and may not be offered or sold in the United States absent an exemption from, or in a transaction not subject to the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer of any securities of Heritage in the United States. The securities referred to herein have not been and will not be registered under the applicable securities laws of any other restricted jurisdiction and, subject to certain exceptions, may not be offered or sold within any jurisdiction where to do so would constitute a violation of the relevant laws or to any national, resident or citizen of such jurisdiction. This presentation constitutes an advertisement within the meaning of the Prospectus Rules of the FSA and is not a prospectus and has been prepared solely in connection with the proposed Divestment. Copies of certain corporate documents relating to certain matters discussed herein are/will be available from the Company s registered office and from 34 Park Street, London, W1K 2JD and are/will be available for viewing on the Company s website at Important Information This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, exchange, or transfer any securities of Heritage. The value of ordinary shares of Heritage and exchangeable shares of Heritage Oil Corporation exchangeable into ordinary shares of Heritage can go down as well as up and past performance cannot be relied on as a guide to future performance.. 1 1

3 PRESENTATION OVERVIEW 2

4 Capital Markets Morning Section Presenter Page Introduction and Overview Paul Atherton 5 OML 30 Transaction Details and Overview Paul Atherton 19 OML 30 The Assets, Fields, Infrastructure Steve Kobak 26 OML 30 Field Development Steve Kobak 43 OML 30 Environmental and CSR Kola Karim 54 Nigeria Kola Karim 57 Production Russia Steve Kobak 61 Exploration Brian Smith 64 Summary Paul Atherton 75 3

5 Biographies Paul Atherton CFO, Director Mr. Atherton is a qualified accountant, having qualified with Deloitte & Touche, and holds a degree in geology from Imperial College London. He has a corporate finance background with specific experience in the international mining and resource sectors. He joined Heritage in 2000 and subsequently joined the Board of Directors in Steve Kobak, VP Production Mr. Kobak, a qualified engineer, has 27 years of experience in oil and gas production operations, reservoir studies and asset development. The companies he has worked for include ESSO, Shell International and Khanty Mansiysk Oil Corporation in Western Siberia where he held senior management positions guiding technical and operations activities. He has extensive international experience working in Russia, the Far East, Middle East and Canada. Mr. Kobak joined Heritage in Brian Smith, VP Exploration Mr. Smith has 30 years experience in the oil industry. He initially worked as an exploration geologist for Exxon in the North Sea and Gulf of Mexico. Later he joined Enterprise Oil where he managed various exploration projects in the Far East and Eastern Europe/FSU. He joined Heritage as Vice President, Exploration in Kola Karim, Director Shoreline Natural Resources Mr. Karim is Group CEO and Managing Director of Shoreline Energy and Shoreline Power. Mr. Karim holds an MBA from the University of Leicester and degree in Business Management from City University; he is also an alumni member of the Harvard Business School for the Executive Management Programme and the Harvard Kennedy School for the Leadership and Public Policy programme. He was awarded Young Global Leader Award in 2008 by the World Economic Forum. 4

6 HERITAGE OVERVIEW 5

7 Transformational Growth TSR Versus Peers Since TSX Listing, % 10,000 9,000 8,000 Heritage Tullow Oil Premier Oil Soco International Afren Salamander Energy 2P Reserves 1999: 2.5 million barrels 2013: 412 million barrels 7,000 6,000 Production 1999: 367 bopd 2013: 11,583 bopd 5,000 4,000 3,000 Market Capitalisation 1999: US$13 million 2013: US$848 million 2,000 1,000 0 Jan 99 Jan 01 Jan 03 Jan 05 Jan 07 Jan 09 Jan 11 Jan 13 Cash raised from equity markets: US$370m Cash raised through sale of assets: US$2bn Dividend of c.us$500m paid in 2010 Source: Factset and Datastream as of 25 January

8 Ability to Deliver and Provide Substantial Growth Completion of OML 30 Acquisition Acquisition of a world class asset providing a step change in production, reserves and cash flow Creates a platform upon which to build within Nigeria Completion of Miran Disposal Attractive valuation secured for a development asset with a significant future capital expenditure requirement Proceeds used to partially fund entry into Nigeria and also to continue exploration and development of the existing portfolio Financial Flexibility Strong balance sheet Potential to develop and strengthen the portfolio through further acquisitions Value Generation Exceptional record of generating value and monetising assets Raised US$2bn in asset sales with the current management team Strategic Advantage Look to acquire assets that are underdeveloped or overlooked Early mover advantage Technical Skillset Discovered four of the five largest onshore discoveries in Sub-Saharan Africa (excluding Nigeria) in the last ten years Depth and breadth of industry experience Management of Risk Ability to mitigate risk associated with political and security issues through local partners, on-the-ground experience and engagement with local communities Balanced portfolio of exploration and production assets 7

9 Diversified Portfolio Across Core Areas Production Exploration Malta 100% Area 2 100% Area 7 Well planning ongoing. Russia 95% Zapadno Chumpasskoye Produced c.617 bopd in Q Libya Sahara Oil Services 51% equity interest and control of Sahara Oil Services which will provide access to the Libyan oil industry. Nigeria OML 30 Major interest in OML 30 through Shoreline Natural Resources. Produced gross c.35,7oo bopd in November Tanzania 29.9% Latham 100% Rukwa North Basin 100% Rukwa South Basin 100% Kyela Work programmes on Rukwa and Kyela have commenced. Rukwa legacy 2D seismic has been processed and additional seismic is being acquired. Kyela gravity survey has been interpreted and seismic acquisition has completed. Pakistan 54% Sanjawi Block 48% Zamzama North Block Initial interpretation of existing seismic has identified several prospects and leads. 8

10 Heritage Relative to Peer Group 2P Reserves, mmboe Market Capitalisation, US$ million ,000 4,000 3,000 2,000 16,966 3,133 2,458 2, , E Production, kbpoed FV/2P Reserves, US$/boe Source: Factset as of 25 January 2013, company reports, and Woodmac for Soco and Salamander Energy 2013E production estimates 9

11 OML 30 DRIVING GROWTH 10

12 Nigeria, OML 30 45% interest in OML 30 1 acquired by Shoreline Natural Resources ( Shoreline ) 2 Onshore Nigeria, located less than 50 kilometres east of Warri Lease covers 1,097 square kilometres with eight producing fields; Afiesere, Eriemu, Evwreni, Kokori, Oroni, Oweh, Olomoro-Oleh, Uzere West 850,000 bpd pipeline to export terminal Gross production of c.35,700 bopd reported for November 2012 with the potential to significantly increase to c.100,000 bopd in the medium term and c.300,000 bopd in the long term, according to RPS evaluation ¹ OML 30 is 55% owned by Nigerian Petroleum Development Corporation ( NPDC ) 2 Shoreline equity split is 45% Heritage, 55% Shoreline Power Company 11

13 OML 30 - A Transformational Acquisition Acquisition of world class asset Completed in November 2012, 45% interest in OML 30, located onshore Nigeria, acquired by Shoreline Gross production c.35,700 bopd reported for November 2012 Largest ever upstream asset transaction in sub-saharan Africa on a 2P basis 1 Step change in production and reserves Step change in net production to Heritage, increasing from 617 bopd in Q to c.11,350 bopd year end exit rate 2P crude reserves net to Heritage increase from 65 mmbbls to 412 mmbbls Combining Nigerian relationships with technical expertise Exposure to Nigeria Diversification in core areas Local partner Shoreline Power is an indigenous pan-african energy and infrastructure business with an existing network of strong and respected relationships within Nigeria Heritage has a strong technical team with relevant geographic experience Proved reserves of 37.2 bn bbls 2, the largest in sub-saharan Africa, 2 nd largest in Africa and 10 th largest in the world Largest African producer with 2.5 mmbbls per day, with well-established infrastructure from over 50 years of oil production Balancing exploration with production, within core geographic areas Oil focused producing lease 1 Herold, based on publicly sourced data 2 BP Statistical Review

14 Acquisition Provides A Step Change in Production and Reserves Net Production, bopd 12,000 Net Reserves, mmbbls ,000 8, ,000 4, ,000 0 Heritage pre acquisition OML 30 Heritage post acquisition 0 Heritage pre acquisition OML 30 Heritage post acquisition Production: 2013 average 45,000 bopd gross from OML 30, net to Heritage 2013 production is expected to be 14,300 bopd 2014 average 70,000 bopd gross from OML 30, net to Heritage 2014 production is expected to be 22,000 bopd Reserves OML 30 gross 2P reserves of 1,114 million barrels 2P crude reserves net to Heritage increase from 65 mmbbls to 412 mmbbls 13

15 Positioning Shoreline within Nigeria s Indigenous Oil Sector 2P Reserves, mmbbls Latest Reported Production, bopd 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Nigeria s indigenous oil sector is being strengthened by asset divestments from IOCs over the past 3 years Shoreline s acquisition of OML 30 positions it as one of the largest indigenous oil companies in Nigeria Establishes Shoreline with critical mass of reserves and production to be leading player in the Nigerian oil sector Creates reputable platform with execution experience for potential future transactions 14

16 Recent Divestments OML 30 is one of a number of licences that have been divested in the Niger Delta recently OML 30 has been referred to as the premier asset due to location, reserves, current production, availability of facilities and proved development capability 15

17 Attractive Acquisition Metrics US$ per 2P Reserves of Precedent Transactions FV/2P Comparison with Selected Peers, US$/boe OML 30 OML Average of precedents OML 40 OML 42 OML 26 OML 4, 38, OML 30 acquisition multiple Attractive acquisition cost of US$1.7/2P reserves versus average of US$5.9 for precedent transactions Significant discount compared to similar recent onshore transactions in Nigeria Long-life asset with 2P reserve life of 87 years at current production of c. 35,000 bopd OML 30 immediately cash generative upon completion Comparable transactions based on onshore Nigeria assets sold during last 3 years by IOCs: Oando acquisition of OML announced December 2012 (yet to be completed) Eland acquisition of OML 40 announced August 2012 Neconde acquisition of OML 42 announced April 2011 Afren/FHN acquisition of OML 26 announced October 2010 Maurel & Prom/Seplat acquisition of OMLs 4, 38 and 41 announced January 2010 ¹ Based on 2P reserves at announcement. No 2P case published for OML 42, RPS mid-case used as proxy Note: FV calculated based on market capitalisation from Factset as of 25 January 2013 and net debt from latest company filing 16

18 kbopd Wells per Year Cumulative Wells OML 30 The Opportunity Historical Drilling 30 Wells Drilled Annually Cumulative Wells Over 200 wells have been drilled on the licence since 1961 with most drilling completed prior to 1992 All wells are producers as the reservoirs are underlain by a strong aquifer Historical Oil Production, 000 bopd Sporadic drilling as the licence was not considered core and therefore over-looked and under developed Production from the licence commenced in 1963 and peaked in 1971 at c. 280,000 bopd Over the period 2006 to 2009 production was severely impacted by both security and funding issues These issues are less relevant for Shoreline and will make it easier to bring production back on Production of c.35,700 bopd as at November

19 OML 30 - Independent Evaluation OML 30 Summary of Reserves Gross Remaining Reserves Gross of Royalty Net of Royalty Heritage Group Net Entitlement Reserves Gross of Royalty Net of Royalty (mmstb) (mmstb) (mmstb) (mmstb) Proved Reserves (1P) Independent evaluation of OML 30 and Heritage s existing assets 2P valuation range of US$2.2 to US$2.7 billion at 10% discount rate RPS report does not factor in additional upside from gas reserves, remaining undeveloped reservoirs and behind pipe reserves in developed reservoirs where new wells are not expected Proved & Probable Reserves (2P) Proved & Probable & Possible Reserves (3P) 1, ,733 1, OML 30 Post-tax Valuation Net to Heritage Base Income Tax Scenario 1 ($million) Alternative Income Tax Scenario 2 ($million) Post tax NPV (10%) Post tax NPV (10%) Proved Reserves (1P) 1,189 1,410 Proved & Probable Reserves (2P) Proved & Probable & Possible Reserves (3P) 2,162 2,652 3,129 3,820 1 Assumes the income tax applicable under current Nigeria law 2 Assumes the income tax under changes to Nigerian Law which Heritage believes might occur 18

20 Transaction Details and Structure 19

21 Combining Nigerian Relationships with Technical Expertise Acquisition Structure Heritage Oil Plc Financial strength Technical and operational expertise Experienced African operator and investor Buyer US$850m Leading auction Vendors Shoreline Power Local knowledge and expertise (indigenous Nigerian Company) 45% of OML 30 30% 10% 5% Operations throughout Nigeria and West Africa NPDC (Operator) Energy and infrastructure operating expertise 55% 45% Network of contacts in the Nigerian oil and gas community OML 30 Oil mining lease in Nigeria 20

22 Capital Structure Shoreline Shareholder Arrangement & Debt Funding 45% equity interest US$550 million bridge facility 45% OML 30 55% equity interest Shoreline Natural Resources is an indigenous company based on equity split; Shoreline Power holds 55% Economic interest takes into account equity capital funded by each shareholder and profit share Shoreline Power entitled to 2.5% profit share Consideration for Shoreline Power Call Option is 30% of equity funding into Shoreline Natural Resources at time of exercise Equity funding is through shareholder loans Relationship between Heritage and Shoreline Power governed by shareholder agreement Acquisition was funded through 18 month bridge loan facility of US$550 million into Shoreline Natural Resources from Standard Bank Bridge facility has been syndicated to Nigerian banks and China Development Bank Shoreline Natural Resources currently finalising options to re-finance the bridge facility with a 5- year debt instrument 21

23 The Operating Framework Shoreline owns a 45% interest in OML 30, NPDC own 55% and is operator The two companies work under the terms of a Joint Operating Agreement which is typical within industry Additionally, NPDC have solely entered into an agreement with Atlantic Energy, a Nigerian company, to provide financial and technical assistance for their 55% interest. Atlantic Energy provides technical services, preparing drilling plans as an example, supplies any cash shortfalls and is paid from the NPDC 55% share of revenues according to the terms of their agreement Atlantic Energy NPDC Shoreline SHELL OML 30 Operating Staff OML 30 22

24 The Operating Relationship SUBCOM TECOM OPCOM Shoreline NPDC OML 30 is managed along the lines of most JOA agreements NPDC and Shoreline have established the OML 30 OPCOM to provide recommendations on programmes, budgets and asset management. OPCOM is composed of equal numbers from the two owners OPCOM decides on items that will be accepted or require further study Studies are carried out under the direction of SUBCOMs. Those studies include all aspects of managing OML 30 SUBCOM recommendations are in turn passed to TECOM for technical approval When approved at OPCOM the issue is presented to NPDC and Shoreline for approval Shoreline sells its 45% of production through a five year marketing contract with Shell and receives funds direct The key to successful management and development of OML 30 is communication, respect and a shared vision 23

25 Shoreline is an Indigenous Nigerian Company Shoreline Shoreline is one of the leading indigenous companies producing in Nigeria Combines Shoreline Power s energy and infrastructure operating expertise and respected network of relationships within Nigeria with Heritage s strong technical team with relevant geographic expertise Shoreline and Heritage are developing close relationships with local communities and other stakeholders Corporate Governance Shareholder agreement applies corporate governance standards and ensures management efficiency Shareholder agreement covers matters requiring unanimous approval Five directors; two appointed by Heritage Advisory board to include senior figures from local stakeholders Strong Nigerian profile Profit-Sharing Agreement Shareholder Agreement provides for an economic interest that is different to the equity interest Shoreline Power has exercised the option to acquire a 30% participating economic interest, for which Heritage will receive over US$100 million Operatorship Post-Transaction Operatorship is transferring to NPDC, a subsidiary of the state oil company Nigerian National Petroleum Corporation ( NNPC ) Highest quality members of existing Shell Nigeria operating team will be transferred across Shell is providing assistance during the transition period 24

26 Organogram of Shoreline Director and CFO Chief Executive Officer Chief Financial Controller CEO Assistant Chief Operating Officer Lagos Organisation VP Production London Nigeria Assets Technical Organisation Secretary Production Technologist London Finance Organisation Finance Manager Technical Director Head, Human Resources Commercial Director Production Engineer JV Accountant Corporate Accountant Joint venture Operations Accountant Production Engineer Protocol Specialist Reservoir Engineer Accountant Joint Venture Accountant Reservoir Engineer IT Specialist (PT) Facilities Engineer Joint Venture Accountant Pipeline Engineer Geologist Facilities Engineer Geophysicist Geologist Geophysicist 25

27 The Assets 26

28 Nigeria, OML 30 45% interest in OML 30 1 acquired by Shoreline Onshore Nigeria, located less than 50 kilometres east of Warri, benefits from being on solid high ground Lease covers 1,097 square kilometres with eight producing fields In addition, there is one field not currently in production 850,000 bpd pipeline to export terminal Infrastructure includes ullage to handle three times current production which is sufficient for near and medium term opportunities and the Trans Forcados Pipeline segment which will provide tariff income Gross production of c.35,700 bopd reported for November 2012 with the potential to significantly increase to c.100,000 bopd in the medium term and c.300,000 bopd in the long term, according to the RPS evaluation Contains nine flow stations with a combined capacity in excess of c.395,000 bpd Associated gas facilities can handle c.42 mmscf/day collected from six flow stations ¹ OML 30 is 55% owned by Nigerian Petroleum Development Corporation ( NPDC ) 27

29 Geology 28

30 The Niger Delta OML 30 lies within the Niger Delta, located in the Gulf of Guinea, one of the most prolific oil and gas provinces in the world From the Eocene to the present, the delta has prograded southwestward, forming depobelts that represent the most active portion of the delta at each stage of its development These depobelts form one of the largest regressive deltas in the world covering approximately 75,000 square kilometres with a source rock thickness of up to 7,000 metres 29

31 The Niger Delta cont d OML 30 fields are deltaic shallow marine shelf sands (usually shore face sands) at intermediate depth level in growth fault structural setting Traps are typically related to rollover structures or anticlines of simple fault complexity Progradation in the face of significant wave reworking has created sheet-like layers of shoreface sand with excellent reservoir quality The wave action has created reservoirs with porosities of 20-30% Permeability is typically greater than 500 md and up to 3,000 md 30

32 Reservoir Structure and Traps The structural configuration in the Niger Delta can generally be characterized as simple rollover structures The structure is associated with landward dips that are associated with structure building faults located in the northernmost fault blocks of the basin Structures tend to be bounded down dip by another structurebuilding fault OML 30 reservoirs are typically anticlines structures. Some are bound to the north east by faults 31

33 Stacked Reservoirs The progradation of the Delta coupled with the sea level changes controlled depositional patterns and caused facies changes that have resulted in stacked reservoirs Sands with thickness of 10 to 40 metres were sandwiched between shales that created sealing caps above reservoirs The OML 30 fields each contain up to 40 stacked reservoirs. The seismic section for the Afiesere field shown at left contains twenty one such layers, or stacked reservoirs. The chart illustrates the reserves associated with those reservoirs An alphanumeric system, that is unique to that field, is used to label the reservoirs. The top reservoir in Afiesere is the J1000 while the deepest reservoir is the M8200 Each layer exhibits different reservoir and hydrocarbon characteristics Reservoirs contain different types of hydrocarbons ranging from under-saturated oil to gas-condensate OML 30 reservoirs are typically normally or slightly over-pressured The reservoirs are underlain by substantial aquifers that provide nearly infinite pressure support 32

34 The Fields 33

35 Summary of Major Fields in OML 30 Major Fields Afiesere Eriemu Evwreni Kokori Olomoro- Oleh Oroni Oweh Uzere West OML 30 Total STOIIP (mmbbls) 897 1, , ,784 Production to date (mmbbls) ,285 Remaining Technical Resource ,120 (mmbbls) 1 Current production (kbopd) Discovered First Production Number of wells ¹ Based on RPS evaluation. Afiesere and Eriemu combined in RPS s production forecast analysis 34

36 Infrastructure 35

37 Infrastructure Overview The licence benefits from all infrastructure being in place The licence includes 190 production wells, most are dual string. Injection wells and water injection facilities are unnecessary due to the strong aquifers Well production is collected at one of nine flow stations. The flow stations have the capacity to handle 395,000 bpd, three times current production levels and will handle several years of projected production growth The facilities are robustly designed and constructed and benefit from following a standard design so equipment can be easily replaced The facilities have been maintained by Shell and therefore benefit from their worldwide experience and standards Licence includes ownership of the Trans Forcados Pipeline that transports crude 95 kilometres to the Forcados Terminal 36

38 Field Flow Stations Production for the wells is gathered at field specific flow stations The flow stations separate liquid from gas through a simple two stage separation process Liquids are then pumped via a trunk line collection system to a central manifold at Eriemu and onward through the Trans Forcados Pipeline Gas is used as fuel for power generation, run the compressors and as gas lift gas. Any remaining gas is flared Design of the flow stations follows a similar template, and vessels are similarly sized, making operations and maintenance straightforward Capacity of the stations is listed at left. Total capacity is c. 395,000 bpd. Current throughput is c. 120,000 bpd so there is substantial existing capacity to accommodate future production. The expansion of the facilities is straightforward and has been documented in various FDP s Capacity Flow Station bbl/d Afiesere 60,000 Eriemu 30,000 Evwreni 30,000 Kokori 90,000 Olomoro-Oleh 60,000 Oroni 30,000 Osioka 15,000 Oweh 30,000 Uzere West 60,000 37

39 Gas Lift Compressors Gas lift is the single method of artificial lift within OML 30 Six of the eight fields have gas lift installed. The two remaining fields are planned to have gas lift installed in Poor compressor performance and high downtime are the cause of inefficient lifting and significant shortfall in daily production Improving the performance of the gas lift system is projected to increase production by 20% and is the key target in 2013 Gaslift Number of Capacity Compressor Station Units MMscf/d Afiesere Eriemu gas from Afiesere Evwreni 0 Kokori Olomoro-Oleh 7 40 Oroni 0 Oweh gas from Olomoro Uzere West

40 Ughelli Pumping Station The Ughelli Pumping Station, ( UPS ) is the collection hub for OML 30 and several other operators production The facility has storage for 960,000 bpd of liquid and pumps the liquid from the tanks down the Trans Forcados Pipeline to the Forcados Crude Terminal Three Solar turbine powered pumps having a total capacity of 660,000 bpd perform the pumping The current facility is used to dewater crude for the Warri refinery. Crude is separated from water via gravity separation and pumped from the tank via a dedicated pipeline to the refinery The 960,000 bbl of storage also provides several days of storage in the event of a shipping disruption on the Trans Forcados Pipeline Future plans call for expansion of the water separation capacity by adding permanent subsurface water disposal facilities including conversion of a suspended well to an injector into the substantial aquifer and providing a water disposal line and injection pumping 39

41 Gas Export Gas export, surplus to internal requirements for gas lift and fuel, is available for export via the Nigerian Gas Company ( NGC ) facilities The NGC facilities include gas compressors and trunk lines for conserving gas. Total capacity is 42 MMscf/d Gas is collected from the six largest OML 30 fields (Kokori, Afiesere, Eriemu, Oweh, Olomor Oleh and Uzere West) and transported to the nearby Ughelli gas plant where it enters the Nigerian domestic distribution system At present, the system is non operational awaiting NGC to repair the gas gathering pipelines OML 30 has a domestic supply obligation of 40 MMscf/d. In the event domestic demand requires it, the licence is expected to supply gas to the domestic and power generation markets of up to 40 MMscf/d. As gas supply far outweighs domestic demand, it is unlikely this obligation will be called on. In the event the supply is required, OML 30 can quickly recomplete an existing well on a gas reservoir and meet this commitment 2.5 TCF of gas in the licence not included in the RPS report NGC Sales Capacity Compressor Station MMscf/d Afiesere 8.8 Eriemu 10.0 Kokori 8.0 Olomoro-Oleh 3.3 Oweh 5.5 Uzere West

42 Trans Forcados Pipeline The TFP is owned by OML 30 (45% owned by Shoreline) Forcados River MF Rapele MF UPS Eriemu Field MF This satellite photo illustrates the route of the Trans Forcados Pipeline; stretching from the Eriemu manifold in the east, through the UPS, around the north of Warri and westwards through OML s 34 and 42 to the Frocados terminal, located within OML 45, where the crude is dewatered The TFP stretches some 95 km starting as a 16" pipeline at the Eriemu manifold in OML 30 increasing to 24 on exit from the UPS and increasing to 28 at the Rapele manifold Forcados Terminal Along the pipeline there are several intermediate tie-in manifolds Pipeline is buried 41

43 Trans Forcados Pipeline OML 30 owns and operates the TFP Several other operators currently use the TFP to transport crude to Forcados for dewatering and export. Capacity of the line is 850k bpd. Current use is c. 315kbpd These operators pay OML 30 a Capacity tariff ranging from $0.11 to $0.87/bbl and a Production charge of $0.17 to $0.44/bbl. The tariffs are based largely on the length of the line that is used OML 30 does not pay a tariff TFP projected tariff revenues total $57.4m. The 2012 actual Opex was $4.4m. Advice received from PWC is that the pipeline revenues will be taxed at a corporate income tax rate of 30% 42

44 Field Development 43

45 Oil Rate ('000 bopd) Current Production OML 30 Licence Production: to UZRE OWEH ORNI OLOM KOKR EVWR ERMU AFIE OML 30 production since 1 July 2010 to 30 November 2012 is illustrated. Production averaged 35.7 kbopd during November 2012 Production from Uzere West, averaging 2.5 Kbopd has been shut-in since December 2011 due to community issues in the adjacent town of Uzere

46 Realising Existing Potential and Future Upside Short term Increase production through: Improved gas lift by refurbishing existing system Complete repairs to flow and gas lines and tie-in wells Prevent downtime through improved community relations and share in profits to reduce vandalism Invest in facilities to increase uptime Modernise facility control equipment to increase efficiency Medium term Workover existing shut-in wells to improve completions and to install gas lift in wells without artificial lift Large stock of proved drilling locations determined from 3D seismic Long term Upside potential through focused management of the field and employing techniques such as multiple completions and horizontal drilling Future exploration of deeper targets identified on 3D seismic Future gas prices may lead to developing gas reserves Lease extension past 2019; expected to be renewed thereafter as legislation provides for extension 45

47 Production Profile OML 30 Projected Gross Production, bopd 1 350, , , , , ,000 50,000 0 Key developments to drive increase in production; Gas lift Uphole potential and flowline repairs Workovers Further drilling Exploration potential Upsides to the base case include development of the asset s 2.5 Tcf of gas and deeper exploration potential ¹ RPS estimates of OML 30 gross Proved plus Probable Reserves (2P) production profile 46

48 Wells The Work Programme Gas Lift Gas lift is the key short term focus Compressors are operating below design capacity and require refurbishment (pistons, valves, gaskets, etc) Current compressor uptime c. 65%. Target to increase to 95%. Resulting production gains c.10,000 bopd. Downtime caused by engines tripping due to mechanical integrity issues and fuel gas supply pressure. Study currently underway by the compressor manufacturer Subsurface gas lift operation is inefficient Valves not set at correct depths and not working as designed. Results in inefficient lifting and waste of gas lift gas Detailed data gathering and well by well review underway with Government. Target is to optimise lift on 32 strings with associated production gains target of c.8,100 bopd Gas lift not installed to all wells As water cut increases gas lift is required to maintain production. At 70% watercut wells will stop flowing. Gas lift system to be expanded in fields that currently have compressors. Target is to install gas lift to 19 wells in 2013 and Resulting production gains c.4,300 bopd Gas lift systems to be installed at Oroni and Evwreni fields (these two fields currently have flowing wells only). Production gains associated with installing gaslift in Oroni and Evwreni total 3,600 bopd Gas Lift Optimisation and Expansion Uzere West Oweh Oroni Olomoro-Oleh Kokori Evwreni Eriemu Afiesere

49 Wells The Work Programme Flowline Repairs Some wells have damaged or vandalised flowlines that require repairs Flow lines are often hack-sawed by locals to bunker small amounts of fuel or as vandalism Plan is to ensure every well string has a functioning flow line Twenty three wells do not have flow lines. Well surveillance and historical information indicates these wells are productive on the current completion but also could be recompleted on shallower reservoirs Target production increase associated with flowlines is 6,300 bopd Flowline Repairs Uzere West Oweh Oroni Olomoro-Oleh Kokori Evwreni Eriemu Afiesere

50 Wells The Work Programme Workovers The licence includes 190 wells. Among those, 70 wells are currently temporarily suspended for various issues. Among the 120 that are available to be produced, half are operating sub-optimally Workovers are planned on wells to optimize gas lift design. Valves have been installed at the wrong depth and in many cases valves are not working. If the work cannot be completed using wireline equipment, a workover will be completed The reservoirs are comprised of slightly unconsolidated sands and have typically been completed with gravel packs. Some wells are shutin requiring workovers due to high sand production and require replacement of the gravel packs or installation of other sand control measures Advancing aquifers cause increasing water production. Several opportunities to increase production by completing water-shut-offs. As deeper reservoirs become depleted wells can be recompleted on shallower reservoirs So far 41 workovers have been identified with target gains totaling 9,600 bopd Workovers Uzere West Oweh Oroni Olomoro-Oleh Kokori Evwreni Eriemu Afiesere

51 Wells The Work Programme Drilling Proved Locations Of the current c.190 wells only 30 wells were drilled post the initial field development period that occurred between 1960 and 1980 The lack of continued development has resulted in an extensive catalogue of proved drilling locations, currently totaling c. 220 Potential well locations have been extensively studied and well documented in past FDP s Plan is to verify the technical work within the existing FDP and use these as guidelines for near term development The existing FDP s call for extensive development using horizontal drilling technology to reduce gas and water coning and to maximise recovery factors. Horizontal drilling is being used extensively in the region Horizontal drilling is proven in the delta Infill drilling is scheduled to commence in Tendering for the first drill rig is moving in parallel with a rig for an adjacent licence Drilling Uzere West Oweh Oroni Olomoro-Oleh Kokori Evwreni Eriemu Afiesere

52 The Work Programme Exploration of Deeper Targets Prospect Oil MMbbls Condensate MMbbls In Place Volumes Gas MMboe Total MMboe Uzere SP , Oroni DP Oweh DP Omogon Bik B To date the extensive seismic information base has identified many prospects and leads Development of the shallower producing reservoirs will provide opportunities to drill deeper and explore structures that have not yet been penetrated As an example, the Omogon prospect, located southeast of Kokori, is illustrated below: Eriemu N Oweh NW ODHE Lyede Ofum E Urhure Isoko W Oroni E Ekiugbo Ekiugbo N Olomoro N TOTAL ,505 1,485 51

53 Gross CAPEX Projection $700 $600 $500 $400 $300 $200 OML 30 Gross 100% CAPEX (US$m) CAPEX totals $3.5 billion (Gross 100%) US$1.6 billion Net Shoreline Includes drilling of 218 new, primarily horizontal, wells Cost of horizontal well US$15m Drilling commences with first rig in 2014 and then one new rig added every six months Maximum of six rigs peaks at end of 2016 Drilling ramps down in 2020 and ends in 2025 $100 $0 Facilities CAPEX investments, scheduled to be completed during 2013 to 2015 include; compressor maintenance and expansion or refurbishment of the gas lift system - US$67m installation of temporary and custody transfer metering - US$33m modification to the Ughelli Pumping Station to provide water separation and additional facilities modernisation - US$65m flowline repairs for existing wells - US$17m workovers on existing wells to restore production - US$85m 52

54 Netback per Barrel $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 OML 30 Net Back $115.00/bbl $23.00 $1.70 $7.00 $5.00 $51.35 $26.75 Shoreline s per barrel netback is US$26.75 The calculation follows the current fiscal assumptions Royalty levied at a rate of 20% oil Education Tax, levied as 2% * (revenue - royalty - Opex) NDDC levy, levied as 3% * (total Capex + total Opex) Annual licence rental payable at the rate of MOD US$ 1.1 mm Petroleum Investment Allowance, 5% of annual tangible Capex Income tax scenario Oil Base Case, 65.75% for 5 years and 85% thereafter Alternate case 65.75% for 5 years and 70% - 80% thereafter Assumptions could change with new PIB regulations Capex intangible/tangible split of approximately 30%/70% - depreciation 20% in years 1 to 4 and 19% in fifth year Forcados crude receives c.3% premium to Brent $0 Royalty Education Tax Capex BARREL Net Back NDDC Levy Opex Petroleum Profits Tax 53

55 Environmental and CSR 54

56 CSR is a Key Component of Enhancing Performance Heritage Approach to CSR Engage and work with stakeholders towards a shared future and to be viewed as a partner of choice Committed to a programme of proactive engagement to create lasting legacies for local communities CSR policy framework is integrated in our business model, setting out our essential core values Strong track record for health and safety Employment of local personnel Maximise local content of all contracts Devise and maintain systems Communicate and report to stakeholders Set policies Measure and monitor performance Apply stakeholder feedback Six Key Areas: Environment and Sustainability We aim to make a positive contribution to the protection of the environment Health and Safety A natural priority and core element of our activities Employees Ability to create sustainable value is linked to our ability to recruit, motivate and retain high calibre staff Community and Human Rights Relationships to be conducted sensitively and with mutual respect Business Conduct Heritage is resolutely opposed to bribery and corruption in whatever forms they may take Corporate Governance Compliant with law and relevant regulations 55

57 CSR in OML 30 Heritage Approach in Nigeria Shoreline is structured as an indigenous company to incentivise local support Profit share to support local communities and implement longterm sustainable development initiatives Over 50 communities in the lease area Advisory Group Group already established Consists of senior leaders from local communities Regular dialogue with local communities Focusing on education and healthcare Internationally recognised environmental agency commissioned to review the lease No identified legacy issues for Shoreline OML 30 operational staff will be drawn from local communities Growth in production will result in growth in employment 56

58 Nigeria 57

59 Exposure to Nigeria Provides Opportunities for Future Growth Proved Oil Reserves, bn bbls Currently experiencing the longest period of democratic rule in its history with reforms positively impacting the economy Availability of highly skilled workers Growing economy Second largest economy in Africa in GDP terms as at 2010 Predicted to be one of the largest growing emerging economies with growth expected in the energy sector IMF forecasts a gradual lowering and stabilising of Nigerian inflation Large reserves First discovery made in Nigeria in 1956 and production commenced two years later Proved reserves of 37.2 bn bbls 1, the largest in sub- Saharan Africa, the 2nd largest in Africa after Libya and the 10th largest in the world Largest African producer with 2.5 mmbbls/day Ability to exploit attractive reserves close to infrastructure ¹ BP Statistical Review

60 Further Indigenisation of the Oil Industry Large number of discovered but undeveloped fields with significant upside potential Resource ownership and production has been dominated by the five major IOCs Resource Ownership in Nigeria, mmboe 5% 3% 1% 1% Major IOCs are divesting existing leases/fields which are neglected Expect indigenous independent companies to increase representation in terms of commercial reserves and production Expected fiscal stability for indigenous companies within the proposed new Petroleum Industry Bill 47% The acquisition and partnership with Shoreline Power enhances Heritage s profile in the country and creates a platform for further growth opportunities in this prolific hydrocarbon region 43% Major IOC State owned International NOC Indigenous International E&P International Integrated/large cap 59

61 Petroleum Industry Bill Represents the largest overhaul of the government petroleum system in the last four decades Bill has been debated since 2008 and is set to be the overriding guide for oil and gas business in Nigeria Establishes the legal and regulatory framework, institutions and regulatory authorities for the Nigerian petroleum industry Stipulates guidelines for operations in the upstream, midstream and downstream sectors Combines 16 different Nigerian petroleum laws in one document, helping to provide transparency Currently being discussed by Parliament however final promulgation unknown Potential Impact on Shoreline Expect indigenous companies to be the main beneficiaries Improve tax and royalty terms for indigenous companies Likely to result in divestment programmes for IOCs continuing It proposes: A commercially run National Oil Company (NOC) and National Gas Company (NGC) Tougher upstream licensing rules and work commitments, with more recycling of acreage Oil and gas profits taxed as one Nigerian Content Plan 60

62 PRODUCTION - RUSSIA 61

63 Russia 95% equity interest in Zapadno Chumpasskoye Licence 1 Licence located in Western Siberia (region accounts for >60% of Russia s oil production) Production in Q averaged 617 bopd, a 9% increase over the first half of the year RPS certified 65 mmboe and $336 million NPV10 Work in 2009/10 included installation of artificial lift and commencement of water injection FDP approved by the Central Committee on Resource Development (TSKR) at end of December 2009 Infrastructure development includes tie-in to Transneft export pipeline Successful completion of a horizontal well in August 2011 The horizontal well is the first such well drilled in the immediate area and presents a more effective and efficient method to develop the field Based on the excellent horizontal drilling results, further horizontal wells are planned ¹ Acquired 95% ownership stake in Russian company ChumpassNefteDobycha Limited, 100% owner of the licence 62

64 Zapadno Chumpasskoye Based on positive results from the horizontal well, a revised field development plan was submitted for Zapadno Chumpasskoye, replacing vertical producers to horizontal wells. The drilling grid, utilising horizontal wells is illustrated below The change in well type result is a 50% reduction in number of production wells required to develop the field and a corresponding reduction in drilling capex of over US$200m The development proposal was accepted by regulatory authorities end December

65 EXPLORATION 64

66 Heritage s Successful Track Record Heritage Net 2P Resource (MMboe) vs Time Exploration Drilling Success Uganda sale Kurdistan sale Oil 60% Gas and Condensate 30% Dry 10% Uganda 8 Wells Kurdistan 2 Wells Russia Uganda Kurdistan Nigeria Year-by-year proven success Increased resource and reserve base over time Proven success in divestment and monetising of resource base funding growth 90% exploration success rate as operator Additional 10 appraisal and production wells successfully drilled in Uganda, Kurdistan and Russia 65

67 Tanzania 66

68 Tanzania The offshore Latham block is on trend with the recent major deep-water gas discoveries in Tanzania waters. Clear gas indicators are present within the block. Acquisition of 3D seismic offshore completed and data being processed with a view to establishing a potential drilling location Awarded Rukwa PSA in November 2011 and Kyela PSA in January 2012 Operations have commenced and the initial work programme comprises; Rukwa - 2,300 kilometres of legacy 2D seismic data reprocessed. Acquisition has begun of an additional 650 kilometres of 2D seismic data to infill this legacy data Kyela - full tensor gravity survey acquired, which has now been interpreted. Completed acquisition of 100 kilometres of 2D seismic data intended to further delineate features of interest identified in the gravity data Latham 1 5,056 sq km 29.9%, operator Rukwa North 10,175 sq km 100%, operator Rukwa South 8,745 sq km 100%, operator Kyela 1,934 sq km 100%, operator Heritage considers these blocks as sharing geological similarities with the Albert Basin of Uganda where the Company had considerable exploration success 1 Petrodel 70.1% 67

69 Tanzania - Rukwa 2,300km of legacy 2D seismic Modelled source kitchen Legacy data lead Targeted 2D seismic campaign commenced. Particular focus on NE margin to delineate kingfisher analogues (completion Q1 2013) Legacy data potential kitchen 650km of Targeted 2D Seismic Infill 68

70 Tanzania - Kyela Reconnaissance 2D seismic Local Kitchen High Resolution Gravity Data Gravity-defined lead Over 4000m of section identified Leads identified on gravity highs Gravity -defined kitchen Potential source kitchen identified 100km reconnaissance seismic acquisition completed 69

71 Libya 70

72 Libya Strategically Well Placed Heritage established a base in Benghazi in April 2011 Extremely well placed to benefit in the future development of the oil industry in Libya Heritage Oil acquired a 51% equity interest and control of Sahara Oil Services Holdings Limited ( Sahara Oil ), an established oil field service provider Sahara Oil owns the entire share capital of Sahara Oil Services Limited ( Sahara ) Sahara has the necessary long term permits and licences to provide onshore and offshore oil field services in Libya as well as the rights to own and operate oil and gas licences Through this acquisition Heritage is exploring ways to gain access to key producing fields and other licence opportunities in Libya 71

73 Malta 72

74 Malta Heritage Oil 100% working interest and operator Two areas; c.18,000 sq km Structures identified on Areas 2 & 7 could be analogous to the giant Bouri Field where IHS estimate reserves of 630 mmbbl and in excess of 8 TCF of gas Number of producing fields offshore Libya and Tunisia Oil and gas shows close to Area 7 Water depths of metres 1,023 kilometres of legacy 2D seismic reprocessed 1,400 kilometres of 2D seismic acquired processed and interpreted High-impact exploration well planned which will target approximately 500 mmboe. Well planning ongoing 73

75 Malta Fault cutting near to surface Seabed reef methanophilic bacteria Possible gas chimney Regional MFS (Souar Fm) acting as seal? Upper Caravaggio Continued progradation through the Oligo- Miocene section Lower Caravaggio Nummulite/Reef mound Talus slope 74

76 SUMMARY AND OUTLOOK 75

77 Summary Entry into Nigeria Acquisition of a world class asset Provides a step change in production, reserves and cash flow Combines Shoreline Power s local knowledge and relationships with Heritage s technical expertise Exit from Kurdistan Attractive exit valuation secured for a development asset with a significant future capital expenditure requirement, political risk and no pipeline to market Proceeds used to partially fund acquisition of OML 30 and continue exploration and development of existing portfolio Corporate Outlook Strong balance sheet Potential for developing and strengthening the portfolio further through acquisitions Operational Outlook Catalysts Increase in production from OML 30 Initial exploration ongoing in Tanzania Well planning ongoing in Malta Material increase in production, cash flow and revenues generating more regular newsflow 76

78 APPENDICES 77

79 Appendices Heritage Oil Plc Board Shoreline Board Contact Details 78

80 Heritage Oil Plc Board Anthony Buckingham CEO, Director Active oil sector businessman since 1970s; founded Heritage in 1992 Former advisor to Premier Oil (introduced them to Pakistan) Sonangol and Ranger Oil; architect behind Sonangol E&P Paul Atherton CFO, Director Chartered accountant, degree in geology, corporate finance background Joined Heritage in 2000 Michael Hibberd Chairman, Non-Executive Director Extensive background in international energy, planning & capital markets. Former Director of Scotia McLeod On the board of a number of public and private companies Joined Heritage in 2006 General Sir Michael Wilkes Non-Executive Director, Senior Independent Director Retired from the British Army as the most senior administrative officer Chairman and non-executive director of a number of public and private companies Joined Heritage in March

81 Heritage Oil Plc Board (cont d) Gregory Turnbull Non-Executive Director Regional Managing Partner of McCarthy Tétrault LLP Extensive knowledge of corporate governance issues and has acted for many boards of directors Joined Heritage in 1996 John McLeod Non-Executive Director Professional engineer with over 36 years of varied resources extraction experience Joined Heritage in 1996 Carmen Rodriguez Non-Executive Director Recently held the position of Chairperson and CEO ( ) of Sociedad Estatal Espanola P4R, S.A., a Spanish owned consultancy firm specialising in foreign trade, investment and co-operation Joined Heritage in March 2012 Colonel Mark Erwin (Retd.) Non-Executive Director Mr. Erwin served in the United States Army for over 25 years culminating his career as the Chief of Staff of the United States Army Special Operations Command Joined Heritage in May

82 Shoreline Board Dr Ladi Bada CEO Dr. Bada has been working in the Nigerian oil and gas sector for the last 14 years with 10 of those years in directorial roles He is presently a director in Linetrale Oil and a consultant to Oriental Energy Paul Atherton CFO Chartered accountant, degree in geology, corporate finance background Joined Heritage in 2000 Kola Karim Chairman Group CEO and Managing Director of Shoreline Energy and Shoreline Power Mr Karim holds an MBA from the University of Leicester and degree in Business Management from City University; he is also an alumni member of the Harvard Business School for the Executive Management Programme and the Harvard Kennedy School for the Leadership and Public Policy programme. He was awarded Young Global Leader Award in Tunde Karim Mr. Karim also serves on the board of Shoreline Energy, April Travels Ltd, Nigerian Ropes Plc, Fortis Construction Co. Ltd Shoreline Electrical Systems Ltd, L.D Alberto Company Ltd and Askar Paints Ltd Mr. Karim is a member of the Institute of Directors Nigeria and holds a degree in Biochemical Engineering from University College of Wales, U.K 81

83 Shoreline Board Philip Blows Mr. Blows is a chartered accountant and has been an adviser to Heritage for 20 years Holds a degree in Business Law 82