NIGERIA AND ITS OIL AND GAS INDUSTRY
Nigeria is Africa’s most populous country and largest oil producer. It ranks among the top ten countries in the world in terms of oil reserves, with proved crude oil reserves reported by OPEC to be 36.2 billion barrels (Source: BP Statistical Review of World Energy, June 2007). The Nigerian government has expressed its desire to increase the country’s proved oil reserves to 40 billion barrels by 2010 and is encouraging the continued development and exploration of the country’s oil resources to do so.

Nigeria’s natural gas reserves are estimated to be 184 Tcf in 2006 (Source: BP Statistical Review of World Energy, June 2007).

Many oil exploration and production activities in Nigeria are carried out under either joint ventures, PSCs, or marginal field initiatives. All of HON’s current assets are held in marginal fields. The Nigerian marginal fields comprise a number of ring-fenced fields located on concessions already awarded to joint ventures between international oil companies and NNPC (‘‘Joint Venture Parties’’). The marginal field criteria is a discovery recognised by the Nigerian Department of Petroleum Resources, having remained unproduced or undeveloped for a period of over 10 years. The Nigerian marginal fields are assigned to indigenous Nigerian oil companies who conclude farm-in agreements with the Joint Venture Parties and can, in turn, farm-out to other operators. The Nigerian marginal fields are subject to royalties and taxes payable to various parties including government agencies.

The Niger Delta Basin is Africa’s largest and most prolific oil producing basin. It is also one of the world’s largest delta systems of tertiary age and covers an area greater than 75,000 km².

The Group currently holds a working interest in the onshore assets Oza and Atala. Pursuant to the Petroleum Amendment Act (number 23) of 1996 (the ‘‘Petroleum Act’’) both fields have been declared marginal fields and Millenium Oil and Gas Company Limited and Bayelsa Oil Company Limited (both indigenous oil companies) have been allocated respectively the Oza and Atala fields as part of the Federal Nigerian Government’s marginal field allocation. HON has entered into farm-in agreements with both parties in respect of development of these fields.