Public Disclosure Authorized

Public Disclosure Authorized Rwanda Exploration Capacity Building Project

Public Disclosure Authorized

October 2009 Public Disclosure Authorized

Business Development | Strategic Evaluations | Regional Basin Studies Rwanda Petroleum Exploration Capacity Building

CONTENTS

0. Summary ...... 4 1. Introduction ...... 5 1.1 Mission Brief ...... 5 1.2 Summary Agenda ...... 6 2. Rwandan Oil & Gas Potential ...... 7 2.1 Regional Activity ...... 8 2.1.1 Uganda Discoveries ...... 9 2.1.2 Vangold Resources Ltd ...... 10 2.2 Regional ...... 11 2.2.1 East Africa Rift System ...... 11 2.2.2 Lake Kivu Rift ...... 13 2.2.3 General Geology of Rwanda ...... 14 2.3 Recent Data Acquisition ...... 14 2.3.1 Grav/Mag Program ...... 14 2.3.2 Existing Seismic Data ...... 16 2.3.3 Current Interpretation ...... 17 3. Petroleum Sector Situation ...... 18 3.1 Petroleum Policy ...... 19 3.1.1 Cross-Ministerial/Departmental Coordination ...... 20 3.1.2 National Data Ownership & Repository ...... 20 3.2 Petroleum Law ...... 21 3.2.1 Fiscal Regime ...... 21 3.2.2 Petroleum Sharing Contract ...... 22 3.2.3 “Streamlined Petroleum Agreement” ...... 23 4. Rwandan Petroleum Capacity ...... 23 4.1 Local Availability ...... 23 4.2 Introduction to Petroleum Exploration Seminar ...... 24 4.3 Capacity Building Training Program ...... 24 5. Current Activities ...... 25 5.1 Vangold Resources Ltd Work Program to date ...... 25 5.2 Proposed Vangold Resources Ltd Work Program ...... 26 5.3 Vangold Resources Ltd Capacity Assessment ...... 27 5.4 Proposed Negotiation Strategy...... 28 5.5 Proposed Contractual Framework ...... 29 6. Recommendations ...... 29 6.1 Ongoing Support Program to develop Policy and Law ...... 29 6.2 Training ...... 29 6.3 Ongoing Negotiation Support ...... 30 6.4 National Data Archival ...... 30 6.5 “Petroleum Working Group” ...... 30 6.6 International Promotion of Petroleum Province ...... 30 6.7 Ongoing Vangold Engagement ...... 31 7. Conclusions ...... 31 Attachement 1: Seminar Materials ...... 33 Attachement 2: Training Curiculum ...... 34

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ACRONYMS

2D Two dimensional Seismic Data 3D Three dimensional Seismic Data BBL Barrel B/D Barrel per day EIA Environment Impact Assessment ESWG Energy Sector Working Group GoR Government of Rwanda Grav Gravity data HOA Heads of Agreement K Kilo (thousands) Km Kilometers Km 2 Square Kilometers IOC International Oil Companies Mag Magnetic data MCF Thousand Cubic Feet () MMCF Million Cubic Feet (Natural Gas) MININFRA Ministry of Infrastructure MINECOFIN Ministry of Finance and Economic Planning OGMR Office de la Geologie et des Mines du Rwanda OOIP Original Oil in Place PSA Production Sharing Agreement PSC Production Sharing Contract PWG Petroleum Working Group RDB Rwanda Development Board REMA Rwanda Environmental Management Authority SPA Streamlined Petroleum Agreement Tcf Trillion Cubic Feet of natural gas TOR Terms of Reference VAN Vangold Resources Ltd WB World Bank

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0. SUMMARY

The petroleum sector is not very well developed at the present time in Rwanda. The only petroleum related activity at this time in Rwanda is the extraction of dissolved methane from the waters of Lake Kivu.

The mission of the World Bank was to:

1. Practically evaluate the needs for capacity building within the MININFRA and develop a syllabus to enable the development of a group to deal with the burgeoning petroleum sector. 2. Provide support to the staff at the MININFRA to deal with the needs of developing a Petroleum Policy and a Petroleum Law in short order. 3. Supply advice and perspective to the MININFRA staff to prepare for upcoming negotiations with Vangold Resources Ltd of Vancouver, Canada.

The current geological knowledge of the petroleum prospectivity is extremely limited. Work performed to date indicates the potential for one or two sedimentary depo-centers in the northern Lake Kivu area. These depo-centers (or sub-basins) are largely interpretive but the work program, interpretation and modeling performed by Vangold Resources Ltd further corroborate their likely presence.

The need for modern 2D seismic data to definitively confirm the presence of prospective basins for petroleum accumulations is critical and should be pursued as soon as possible. The use of foreign investor capital in light of the high risk associated with this emerging, unusual and exceptional frontier basin is strongly recommended as the likely Chance of Success of such basins is in the range of 10% globally.

The Government of Rwanda should also strive to rapidly establish a globally competitive petroleum Policy with its associated, law, fiscal system and regulations as well as the required form agreements required to conclude mutually beneficial contracts

It must be remembered that oil exploration is a high risk and long time frame activity that rarely delivers short term benefits. Every attempt should be made to manage both public and institutional/governmental expectations. Furthermore using the Ugandan Lake Albert experience as a direct analogue to Lake Kivu should be resisted.

Finally it is imperative that a targeted capacity building program be instituted to prepare a dedicated team of negotiators working within MININFRA and associated departments to develop and manage the petroleum sector within Rwanda including a Petroleum Policy, Law, Form Contract and regulations. Furthermore it is important that the negotiations with Vangold Resources Ltd be prepared for adequately using a dedicated team of international consultants to accelerate the process.

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1. INTRODUCTION

This report is the result of a Short Term Consulting contract with the World Bank Group and FJG energy ADVISORS concluded on September 1 st 2009. This report is a result of a Mission to Rwanda September 12 th – 25 th , 2009. It is not intended as an in depth analysis of the capacity needs for the petroleum sector in Rwanda, as this was completed in March 2009 by Bridge Consult AS 1, but rather as an evaluation of the “practical and operational” perspectives in developing a local focused on exploration. Further advice in dealing with potential interested companies was also offered in the context of an overarching Petroleum Policy. 1.1 Mission Brief The main objectives of the assignment were to:

a) Enhance the familiarity on the part of key government officials with the main technical and economic concepts of the petroleum exploration and production industry.

b) Develop understanding within Government of Rwanda of the potential impacts (positive and negative) of an active petroleum exploration and production industry in a developing country.

c) Familiarize government officials with the fundamental policy issues they will face as petroleum exploration and development activities unfold in Rwanda with an emphasis on those up-front policy decisions needed at the earliest phases of activity.

d) Prepare key officials to take a front line role in policy formulation and negotiation with private investors.

Deliverables under the assignment were to provide:

1. Prepare and give a Capacity Building Seminar on the Petroleum Industry’s Exploration technical aspects to the Rwandan Government with Seminar materials (i.e. slides, presentations).

2. A final report highlighting results/observations from the seminar, areas for potential further capacity building. The report should assess the readiness of key government officials to a) move into more advanced training modules, b) formulate policy and c) negotiate with private investors.

1 “Capacity Needs Assessment for the Petroleum Sector in Rwanda”, Bridge Consult AS, March 2009

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1.2 Summary Agenda The mission to Rwanda was coordinated by D.S. Santley of the WB to assess the specific practical Capacity needs the Rwandan Government, specifically MININFRA might require and how they could be implemented. Furthermore specific meetings were conducted to review the current state of progress of negotiations with Vangold and how MINIFRA might deal with them in upcoming negotiations.

The meetings were as follows:

1. Preparatory meeting between Mr. D. Santley, WB and Mr. François Gauthier, FJG energy ADVISORS – 2009.09.14. 2. Introductory meeting and site visit WB Country office – 2009.09.14. 3. Preliminary overview meeting at MININFRA with Yussuf UWAMAHORO, Eva PAUL, Doris MWIRIGI and Teta BAKUNDE – 2009.09.14. 4. Energy Sector Working Group Meeting – 2009.09.15. 5. Meeting with Doris MWIRIGI, Legal Consultant MININFRA - 2009.09.15. 6. Meeting with ICF at MININFRA with Yussuf UWAMAHORO, Clement ABAVANA, Aimable KABANDA, Doris MWIRIGI and Eva PAUL – 2009.09.15. 7. Meeting with D. Santley to review findings and modify Presentation – 2009.09.15 8. Meeting with Doris MWIRIGI at MININFRA to review Contract options – 2009.09.16. 9. Meeting with Teta BAKUNDE at MININFRA to review existing database – 2009.09.16. 10. Meeting at OGMR with Michael to review general geological data in Rwanda – 2009.09.16. 11. Training session and presentation for MININFRA, MINECOFIN, RDB & OGMR – 2009.09.17. 12. Meeting with Eva PAUL at MININFRA regarding program and ecology – 2009.09.18. 13. Meeting with HE Minister Dr. Albert BUTARE to review and present mission briefing note – 2009.09.18 14. Meeting with Dr Rose MUKANKOMEJE at REMA on environmental policy – 2009.09.18. 15. Meeting with Kampeta SAYINZOGA at MINECOFIN to review presentation – 2009.09.18. 16. Review of mission with D. SANTLEY & E. FERNSTRÖM WB – 2009.09.19. 17. Review and scoping of probable seismic program in regards to upcoming negotiations – 2009.09.23 18. Meetings at MININFRA with Eva PAUL, Doris MWIRIGI and Teta BAKUNDE regarding upcoming negotiations – 2009.09.24

A few other informal conversations were held with a number of people in Kigali at meals or at social gatherings and at the World Bank office in Kigali.

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2. RWANDAN OIL & GAS POTENTIAL

Rwanda at the present time has no oil or gas discoveries. The only hydrocarbon production in the country is related to the Methane gas dissolved in the waters of Lake Kivu. This natural gas resource is not well understood at this time but a pilot project has produced approximately 50 MMcf/d of natural gas to feed the Bralirwa Brewery since the early 1960s. The Rwandan Government currently has under study several gas extraction plants to generate electric power to feed the national grid.

The recognized volcanic character of the Lake Kivu region introduces an increase with depth of the lake temperature. The deep warm water is more soluble to minerals than the cool water above it, and the weight of the minerals dissolved makes the water at the bottom denser than at the top (in spite of its high temperature) 2. The current understanding of the “gas rich layer” is based on the density gradients of the lake. A draft report of the Expert Working Group on Lake Kivu Gas Extraction 3 states: “In between the different relatively homogenous zones of the lake in which the water parameters do not change significantly with depth, there are transitional layers where parameters such as conductivity, density and gas concentrations change rather rapidly with depth.

Figure 1: Vertical profiles in Lake Kivu of temperature (T): electrical conductivity (C); methane (CH 4), carbon dioxide (CO 2) and 3 Nitrogen (N 2) concentrations; and in-situ densities ( ρ)

2 Capacity Needs Assessment for the Petroleum Sector in Rwanda”, Bridge Consult AS, March 2009, 3 Management Prescriptions for the Development of Lake Kivu Gas Resources, Draft Version 12c, 25 June 2008.

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These “density gradients” impart vertical stability to the lake and provide resistance to the upward flux by turbulent diffusion of dissolved gases, nutrients and salts. The steepness of the main density gradient at 260 m depth is the most important reason behind the present stability of the lake. Because of this gradient, dissolved gases (and nutrients and salts) largely remain trapped in the deeper lake thus building up an exploitable deposit. The different gradients may be named for their span from top to bottom (e.g. 60 m depth to 120 m depth) or by the depth of the centre of the gradient (e.g. -85 m).”

This unusual resource is certainly a strong indicator of the relative potential of the Lake Kivu area as an emerging frontier petroleum province. The dissolved gas resource mentioned is possibly a result of biogenic (natural breakdown of organic matter) processes aided by the abnormally elevated geothermal gradients and fumaroles activities (volcanic degassing) resulting from its volcanic setting. It seems unlikely that such a large resource of dissolved gas (possibly over 1.1 Tcf) not be at least a combined result of biogenic and thermogenic (the conversion, through the increase of pressure and temperature via burial, of organic matter in to kerogen and subsequently into gas and oil) processes.

At this time very little is known specifically about the Rwandan subsurface oil and gas potential 4. A few petroleum exploration activities have taken place historically and in relation to the Vangold Exploration Ltd exploration areas. 2.1 Regional Activity The East African rift system has become the focus of more and more exploration activities in the last five years. This is partly due to the success that IOCs have had in the region as well as the steep increase of the in the last three years, thus changing the basic economic conditions of these little explored areas. Although the Sudan and Eritrea have seen exploration activity for quite some time (early 1990s), there has been a renewed interest in the rift system namely in Kenya and Uganda. These sediments have been explored mostly in the Western Rift Valley of the East African Rift system specifically in the Lake Albert region of western Uganda. The Kenyan portion of the main East African Rift system, which Figure 2: Landsat elevation, East African Rift system with fault, craton outlines, stress directions and seismicity.

4 Throughout this report any reference to oil, gas, hydrocarbon or petroleum will be specifically focused on subsurface resource rather than dissolved methane in Lake Kivu.

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runs from the Red Sea to offshore Mozambique, is also seeing more exploration but is still in the early phases.

2.1.1 Uganda Discoveries Uganda has been the focus of several oil and gas discoveries in the last few years. The setting has been focused on Western Uganda in the Lake Albert region of the Western branch of the East African Rift. This area is referred to as the Albertine Graben (or Lake Albert Graben).

A number of independent oil and gas companies have been active exploring the Albertine Graben in the last several years. These companies include Tullow, Heritage, Dominion and a few others. To date 27 wells have been drilled in the Lake Albert rift basin yielding a reported 26 oil wells. Proposals for development and production plans are being evaluated by the partners and the Ugandan Government. The reported discoveries are reported to exceed the 1 billion barrels oil mark, OOIP. These discoveries have been predominantly drilled on the lakeshore and a few wells have been drilled directionally from shore to beneath the lake. Although little information is published the discoveries seem to be a Figure 3: Oil & Gas discoveries, Lake Albert Region, result of late Uganda (from Plc). transpressional structuring along faults, causing the

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sediments to fold into “flower structures” which extend to the surface. Figure 4, taken from Abeinomugisha and Kasande, 2008 5, shows a 2D seismic line across the Nzizi,

Figure 4: Albert Graben 2D seismic line showing "flower structures" and oil bearing anticlines. Mputa and Waraga discoveries (note that the Nzizi discovery hadn’t been made at the time of this profile and thus only shows a planed well.). This also shows the late event structuring evidenced here by the folds extending to the surface. The presence of hydrocarbon in these late structures indicates an active petroleum system with present day migration, also corroborated by the many “live” oil seeps found along the length of the lakeshore.

2.1.2 Vangold Resources Ltd Vangold Resources Ltd. is an international diversified resource company headquartered in Vancouver, Canada. They are involved in several projects including oil and gas in Alberta, Armenia, Kenya, and Rwanda, and minerals in Brazil, North America, Papua New Guinea, and Uganda. Shares are listed on the Toronto Venture Stock Exchange under the symbol VAN and on the Frankfurt Stock Exchange under the symbol VAQ. Vangold has been active for several years in pursuing a possible extension of Uganda’s Lake Albert rift valley towards Rwanda in the Lake Kivu region. They have undertaken to date mostly regional “high level” work programs to attempt to confirm the presence of sedimentary rift basins in the volcanically modified Lake Kivu basin.

5 Dozith Abeinomugisha and Robert Kasande.; “Tectonic Control on Hydrocarbon Accumulation in the Intra-Continental Albertine Graben of the East African Rift System*”; *Adapted from oral presentation at AAPG International Conference and Exhibition, Cape Town, South Africa, October 26-29, 2008.

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In October 2007, the Government of Rwanda (GoR) and Vangold signed a Technical Evaluation Agreement (TEA) under which Vangold agreed to conduct a study of the East Kivu Graben Basin Area (an area of 1631 km 2) to evaluate the hydrocarbon potential and identify those areas of greatest prospective interest. In return for its agreement to undertake the study, Vangold received a Right of First Option to negotiate a production sharing contract for a part of the study area.. Vangold refers to the study area as White Elephant. They postulate that the White Elephant area of the Kivu Graben is part of the great East African Rift System and is approximately 90 kilometers wide and 200 kilometers long. The Graben straddles both Rwanda and the Democratic Republic of the Congo which can be interpreted as the Southern extension of the Albertine Graben in Uganda where major oil discoveries have been made by Tullow Oil and Heritage Oil. They interpret the fault/linear interpretation of landsat imagery in earlier studies as indicating a strong correlation of identified slicks (oil seeps in the lake) with faults. Further interpretive correlation by VAN of the only two seismic sections available with some of the unassigned shows indicates, according to their public releases, that most of the "seep" features appear to be close to where the basin section overlaps onto the mainland or the shores of Idjwe Island.

2.2 Regional Geology

2.2.1 East Africa Rift System

The East African Rift System is as an elongate basin bounded by opposed steeply dipping normal faults. Geologists have attached a name to the new plate-to-be; the Nubian Plate makes up most of Africa to the west, while the smaller plate that is pulling away towards the east has been named the Somalian Plate. These two plates are moving away from each other and also away from the Arabian plate to the north. The point where these three plates meet in the Afar region of Ethiopia forms what is called a triple-junction. However, all the rifting in East Africa is not confined to the Horn of Africa; there is a lot of rifting activity further south as well, extending into Kenya and Tanzania and Great Lakes region of Africa including Uganda Figure 5: Map showing the East African Rift and Rwanda. System and the Western Branch.

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The rift opened up in the Tertiary period, approximately 65 million years ago. The same tectonic forces that formed the rift valley and which threaten to eventually split East Africa from the rest of the continent have caused the northeast drifting of the Arabian plate, the opening of the Red Sea to the Figure 6: Textbook horst and graben formation, Indian Ocean, and the Kenyan rift. volcanic uplifting of Africa's highest peaks including its highest, Kilimanjaro in Tanzania. Seismically the rift valley is very much alive. Lava flows and volcanic eruptions occur about once a decade in the Virunga Mountains north of Lake Kivu along the western stretch of the rift valley. A volcanic eruption in the Virunga area in eastern Zaire, bordering Rwanda and Uganda, dammed a portion of the valley formerly drained by a tributary of the Nile River, forming Lake Kivu as a result.

The rift's eastern arm can be traced from the Gulf of Aqaba separating Arabia from the Sinai Peninsula, down along the Red Sea which divides Africa from Arabia. The East African rift's grabens stretch through the extensive highlands of central Ethiopia which range up to 15,000 ft (4,500 m) and then along the Awash River. Proceeding south, the rift valley is dotted by a series of small lakes from Lake Azai to Lake Abaya and then into Kenya by way of Lake Turkana. Slicing through Kenya, the rift's grabens are studded by another series of small lakes from Lake Baringo to Lake Magadi. The valley's trough or basin is disguised by layers of volcanic ash and other sediments as it threads through Tanzania via Lake Natron. However, the rift can be clearly discerned again in the elongated shape of Lake Malawi and the Shire River Valley, where it finally terminates along the lower Zambezi River and the Indian Ocean near Beira in Mozambique.

The rift valley also has a western arm which begins north of Lake Albert along the Zaire-Uganda border and continues to Lake Edward. It then curves south along Zaire's eastern borders forming that country's boundaries with Burundi as it passes through Lake Kivu and Tanzania by way of Lake Tanganyika.

Figure 7: East African rift system.

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The rift's western arm then extends toward Lake Nysasa (Lake Malawi). The shallow but vast Lake Victoria sits in a trough between the rift's two arms on the central bulge.

The eastern arm of the rift valley is much more volcanically and seismically active than the western branch. There are more volcanic eruptions in the crust of the eastern arm with intrusions of magma in the middle and lower crustal depths. Geologists consider the geological forces driving the eastern arm to be those associated with the origin of the entire rift valley and deem the eastern arm to be the older of the two.

The Albertine Graben is a part of the western younger rift basin and the opening of this basin created accommodation space for the sediments eroding from the margins (bordering highlands) to be deposited into the newly created sedimentary basin. Furthermore the restricted nature (still exhibited today by the abundance of lakes within the rift boundaries) allowed the formation of organic rich lacustrine (lake derived) source rocks. It is the maturation of these source rocks followed by the expulsion of movable hydrocarbons (initially gas then oil ultimately followed by gas) upon burial that generated the oil and gas fields discovered in Uganda to-date. Thus the predominant sediment types found in the rift basins are successions of coarse sandstones (reservoirs) and shales (cap seal as well as source) that are structured by the continuing tectonic activity and create the accumulations.

2.2.2 Lake Kivu Rift In March 1971, the Woods Hole Oceanographic Institution was engaged in a multidisciplinary study of Lake Kivu. This expedition was part of a long-range program concerned with the structural and hydrographical settings of the East African Rift Lakes and their relationships to the Red Sea and the Gulf of Aden Rifts and is still the most thorough exploration of Lake Kivu to date.

Figure 8: Geological structure of Lake Kivu showing earthquakes (circles), faults, Granite plug and volcanics (from Degens et al 1971).

The program started in May 1963 with a geophysical study on Lake Malawi, the Red Sea and Gulf of Aden area provided detailed geological information on the "northern" extension of the East African Rift and of Lake Tanganyika to the south which allowed scientists to define a model on the evolution of a rift which starts with (i) bulging of the earth's crust, (ii) block-faulting, (iii) volcanism and hydrothermal activity, and which has its final stage in (iv) sea floor spreading. In the case of Lake Tanganyika, only the second stage of this evolution series has been reached, i.e. block- faulting. In contrast, the Red Sea and the Gulf of Aden had already evolved to active sea floor spreading, almost 25 million years ago.

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Somewhere along the line between Lake Tanganyika and the Gulf of Aden is certainly the "missing link" of this evolution series. Lake Kivu, almost 100 miles to the north of Lake Tanganyika is situated at the highest point of the Rift Valley and is surrounded by active volcanoes and geothermal springs. It is therefore a likely location for a rift basin which was probably the central portion of the Lake Albert – Lake Tanganyika rift trend. The damming of Lake Kivu was likely a result of a recent volcanic event as is evidenced by lava flows reaching the lake shore as recently as 1944.6

2.2.3 General Geology of Rwanda The general geology of Rwanda is predominantly Pre-Cambrian meta-sediments interspersed with granitic plutons and intrusions. Other than the regolith that covers the country and acts as a very fertile agricultural medium there are no Paleozoic, Mesozoic or Tertiary sediments to speak of except potentially in the Lake Kivu area. The recent volcanism to the west of the country further complicates the geological picture and seems to have been the event creating the damming of Lake Kivu itself, as mentioned above.

The majority of the known natural resource potential of Rwanda lies in mining economic, precious and semiprecious minerals (as can be evidenced by the “thousands of artisanal mines exploited by the local population” 7).

Extensive data on the mining and general geology of Rwanda can be found at the OGMR in Kigali. It will therefore not be discussed here for the purposes of brevity. 2.3 Recent Data Acquisition

2.3.1 Grav/Mag Program In October 2007, the Government of Rwanda and Vangold Resources Ltd. signed an agreement whereupon Vangold agreed to conduct a detailed and comprehensive study of the East Kivu Graben Basin Area, with an area of 1631 km 2. The objective of the 1409 km 2 survey was to identify those areas of greatest prospective interest for sedimentary basin development. The term of the agreement was 18 months. Figure 9: Vangold Resources' 2008 aero- gravity and magnetic survey, Lake Kivu Rwanda (from Vangold).

6 Degens, Egon T.; Deuser, Werner G.; von Herzen, Richard P.; Wong, How-Kin; Wooding, Frank B.; Jannasch, Holger W.; Kanwisher, John W.; Lake Kivu expedition : geophysics, hydrography, sedimentology (preliminary report); Woods Hole Oceanographic Institute, 1971

7 OGMR, personal communication - 2009.09.16

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Although the details of the original program design were not made available for this review the overall plan and special layout was appropriate for the area to be covered as can be seen on Figure 9. This design was focused on the delineation of the basin geometry and establishment of the thickness of the East Kivu Graben basin fill. The modelling of the acquisition parameters was performed by Vangold’s South African contractor NRG (not made available to Mission). Vangold Resources acquired approximately 70% of the proposed program due to the uncertain situation in the border regions with DRC, the original aero-gravity and magnetic survey planned for in that area was thus abandoned.

The high Rift shoulders in the Eastern part of Lake Kivu also posed challenges for the survey in regards to the ultimate spatial resolution. Furthermore the narrow extent of the Rwanda part of the Lake made the flight lines very short which lead to north-south orientation for the tie lines and NE-SW traverse lines, also not being optimum for spatial resolution. Vangold has suggested additional data might be acquired using a boat survey. Given the limitations stated above the program was ultimately successful in better defining some the of sedimentary depo-center features uncovered by the Woods Hole survey of 1971.

In summary Vangold concluded the following:

 Lake Kivu Gravity and Magnetic Survey was adequately completed to permit significant interpretation;  NRG completed survey and archived bouger gravity and total field results for modeling and interpretation;  PGW modeled and interpreted part of the survey that reveals a 3 km basin illuminated by extrapolation of gridded bouguer gravity of the 24% Figure 10: Maps of Bouger Gravity and Reduced to planned block 2 coverage of Pole Magnetic Anomalies (from Vangold). East Kivu Graben.

This most recent program was merged with the 1981 grav/mag regional program by CIDA/Geological Survey of Canada which was mostly focused on the landmass of Rwanda.

Even though the dataset resulting from this program was not made available to the Mission the resulting maps of Free Air and Bouger Gravity as well as Total and Reduced to Pole (RTP) Magnetic anomalies were examined. The Bouger Gravity and RTP Magnetic anomaly maps can be seen in Figure 10 where the following can be seen:

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• Bugarama (southern) graben after correction is not detected on the gravity data due to its shallow depth (50m alluvium ) and special dimensions; • Bugarama graben also cannot be interpreted via the magnetic data likely because of volcanic cover or magnetic basement; • The East Kivu-Graben is most prominent on gravity data (northern blue area) indicating the possibility of sediments; • The magnetics data also indicates the interpretation of Transform faults sites and possibly traps.

The conclusions outlined above are a reasonable interpretation based on the combined data set and the previous information available on the Lake Kivu graben. Based on this latest interpretive compilation it can be stated that:

1. The northern end of Lake Kivu exhibits the greatest potential for sedimentary basin development; 2. Two potential 10km by 10km basin can be partially interpreted in Lake Kivu with potentially up to 3.6km of sediments. 3. The Vangold grav/mag program has further contributed to the interpretation of the potential of northern Lake Kivu. 4. The risk profile of the prospectively of petroleum accumulations in Lake Kivu has unfortunately not been altered substantially and as such should still be considered an unconfirmed frontier petroleum province. 5. Confirmation of these interpreted depo-centers should be pursued with 2D seismic data as soon as possible to definitively confirm the interpretation dating to the original 1971 WHOI survey (see section 2.3.2).

In summary the recent Vangold grav/mag program has aided in the interpretation of the prospectively of the Lake Kivu Graben. The confirmation of possibly one or two depo- centers to be pursued further with seismic data is an important addition to the overall understanding of the Kivu rift.

2.3.2 Existing Seismic Data Very little seismic data has been acquired in Lake Kivu to date. The 1971 WHOI survey did however acquire several profiles across the northern portion of the lake. These early reflection seismic cannot be exploited in the same manner as modern day data but they do indicate two important phenomena:

Figure 11: Seismic interpretation and profile across northern Lake Kivu showing sedimentary basins and "gas chimney" (from Degens et al 1971)

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• Presence of sedimentary sequences in several sub-basins; • Potential gas (or hydrothermal) chimneys indicating generation.

Several other early 1970’s vintage profiles are present but with limited interpretive value. Importantly, they all indicate the presence of sediments in varying thickness.

It is clear that the critical information required, as outlined in section 2.3.2, to determine the ultimate potential of the Lake Kivu graben is to acquire an appropriate amount of regional modern high-fold seismic data. Such a program should be the focus of any additional work program in the area.

2.3.3 Current Interpretation The current state of interpretive knowledge in the Lake Kivu area is still in the frontier realm. Definitive knowledge of the presence of sedimentary basins with potential reservoirs and source rocks is still not attained. General structural styles of possible traps are also unknown at this time.

Notwithstanding the relative preliminary level of knowledge of this potential basinal area all the work to date (especially the 1963 Woods Hole Oceanographic Institute survey) is encouraging.

The following findings are compelling, if somewhat circumstantial:

1. Indication of sedimentary pile in existing seismic data in Lake Kivu; 2. On trend location of Lake Kivu with the Albertine Graben of Uganda containing numerous oil and gas discoveries; 3. On trend location of Lake Kivu with Lake Tanganyika containing demonstrated oil seeps and sedimentary pile; 4. Presence of heavy fraction long chain hydrocarbons in the lake water which cannot be attributed to biogenic gas generation and comparable to crude oil samples; 5. Definition of two potential sedimentary basins through the grav/mag work performed by Vangold in Lake Kivu.

The presence of Lake Kivu is interpreted to be a relatively recent event. In their 1971 report Degen et al state “…the youthfulness of the lake is attested to by the sediment distribution pattern. There are extensive areas over which the basement beneath the lake is exposed. The Northern Basin, presumably three to four times as old as any other basin elsewhere in the lake and therefore the most thickly sedimented, has an average sediment thickness of about 300 m. The rate of deposition, dated by radiocarbon method, is 25 tm/103 yr~ If one assumes a mean sedimentation rate of 25 cm/103 yr, this would imply an age of 1.2 million years. One should, however, bear in mind that surface sediments on which this rate has been determined, contain about 90% water. Since more deeply buried sediments have generally less interstitial water (10 to 50%), the real age of the lake might be considerably higher. In view of the fact that the greatest thickness of sediments observed in the Northern Basin exceeds 500 m a Pliocene age of

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the Northern Basin is likely.” Thus Lake Kivu’s similarity to both its northern and southern on trend neighbors is a reasonable interpretation.

A factor to remember, however, is that Lake Kivu area is the highest point of the Western Branch of the East African Rift System and thus might be part of a continental bulge and not has been hospitable to sedimentation.

The most recent interpretation and modeling of the available data by Vangold and its consultants indicates the possibility of two depo-centers of approximately 10km by 10 km each and sediment depths of between 2km and 3.6 km. This confirms the possible presence of two basinal areas which might have petroleum potential.

It must be reminded that even though there are circumstantial and interpreted indications of oil seeps (as reported by Vangold) in Lake Kivu none have been rigorously corroborated or confirmed.

The current state of interpretive knowledge leads to the conclusion that though the potential for subsurface petroleum accumulations is real it should be considered as very risky (in light of the uncertainty) and that these types of basins and petroleum Figure 12: Modelled depth to provinces in the world yield an average basement map showing exploration Chance of Success in the order of two possible depocenters 10%. These odds should be considered the in blue, Lake Kivu (from upper limit given the geological and economic Vangold). risk.

3. PETROLEUM SECTOR SITUATION

The Rwanda petroleum sector is currently in its infancy. Dissolved methane gas extraction in Lake Kivu for energy generation (electrical) is the only specific matters related to hydrocarbons the Rwandan government and its agencies have been specifically required to manage. The currently operating Energy Sector Working Group (ESWG), regrouping all of the participants and elements of the national energy sector is a very useful tool to manage and coordinate the varied efforts within the national arena.

The need to develop a National Petroleum Policy as an overarching document and to write and get governmental approval for the subsequent Petroleum Law is very important and should be done as soon as possible.

In the future, if petroleum exploration activities advance, the creation of a Petroleum Working Group (PWG), as a subset of the ESWG, would be useful in focusing the limited

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resources available nationally to the task at hand in the short time available to establish a Policy, legal, fiscal and contractual framework for petroleum activities in Rwanda.

3.1 Petroleum Policy The establishment of an appropriate petroleum policy is a critical step in the development of the Rwandan petroleum resource. This document will act as a guide to both the government and its agencies in managing the caring out of exploration and production activities in the national territory and the potential investors in evaluating the economic, fiscal and regulatory regime that they will have to follow in their investments in the country.

A National Energy Policy and a National Energy Strategy was issued in November 2008. These documents will be an effective guideline in establishing the Petroleum Policy documents.

A July 2009 draft version of the Rwanda Upstream Petroleum Policy 8 was reviewed during the mission and it is a very good starting document that will encapsulate the guiding principles regulating upstream exploration and production of oil and gas in Rwanda.

The principle tenets of transparency, equitable and fair treatment of all stakeholders and the integration of a sound environmental protection policy are well outlined in the document reviewed. Further discussion of broad principles to encourage the participation of IOC’s in the exploration for oil and gas in Rwanda and the non- participation of the Rwandan public sector in the investment for exploration or production are also very appropriate for the current perceived risk profile of potential opportunities (i.e. very high risk at this time).

Two notable omissions in the draft reviewed were:

1. The fundamental concept of ownership of the resources by the Rwandan people and thus all information derived in any oil and gas contract or agreement as a result of work programs and interpretations belong to the people of Rwanda; 2. The principle of the sharing benefits by the local stakeholders through a program of Social Investment in the country as a part of and commensurate with all contracts or agreements concluded.

These additions should be considered for addition to the Petroleum Policy.

It is also recommended that a recognized international oil and gas law firm or legal expert should be retained to review the policy and make appropriate additions in order to ensure the harmonization of the policy and the subsequent law, fiscal policy and regulations.

8 The Upstream Petroleum Policy of the Republic of Rwanda; July 2009 DRAFT; MININFRA

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3.1.1 Cross-Ministerial/Departmental Coordination The concept of cross-ministerial (or departmental) coordination is very important in order to enact an efficient and responsive policy and regulations. This approach has already been included in the July 2009 draft of the Petroleum Policy.

Special attention should be paid to coordination with the appropriate departments within the REMA, MINECOFIN, MINECON and any other agency which might be required to participate in the management of the policy and its associated regulations.

The inclusion of representatives of these varied groups in the proposed PWG in order to keep a coordinated and performing task force should be evaluated. It is important to note that the TOR of such a group be very clear and well understood by all.

Finally a “one stop shop” group or office would be very beneficial to any potential investor so that all policies, form contracts, regulations, information or public data might be obtained through a single point of contact. This would both expedite the evaluation and negotiations processes because of coordinated and current knowledge of the sector as well as freeing other agencies from multiple information and meeting requests.

3.1.2 National Data Ownership & Repository As outlined above in bullet point 2 of section 3.1 the concept of ownership and of husbandry of any data, information or interpretation derived from petroleum activities within the national territory should be enshrined in the Rwanda Upstream Petroleum Policy and Petroleum Law and regulations. An integral part of any contractual obligation of any potential IOC contractors should be to deliver to the appropriate (competent) authority any information acquired or gathered through its work program (Data).

This Data should be obtained in as follows:

• Raw un-interpreted data that can be then stored and re-processed or interpreted at a later date by either the government or any other entity or company which would be authorized by the competent authority; • Processed versions of the same data ready for interpretation or exploitation; • Appropriate reports and syntheses describing the processes used to obtain the data and effect its interpretation; • Full size maps, cross-sections, seismic sections, well logs or analyses reports and syntheses from both the contracting IOC and its subcontractors; • Drilling cuttings of exploration and development wells as well as any rock cores that might be collected. Where the contractor wishes to keep a portion of this information for analysis or further interpretation the “large part” of any cuttings or slabed core should be retained by the state; • Any oil, gas or water samples should be kept by the state after an appropriate amount has been retained by the contractor for analysis. Copies of the analysis should also be obtained; • All information should be submitted in two paper copies (where appropriate) and two digital copies.

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This information should be archived permanently in a temperature and climate controlled facility with a structure responsible for its cataloging and maintenance as part of the national information registry. A digital bibliography and record of information should be kept and made available to potential interested parties. These parties, should they be interested, should be permitted to have copies made (at their costs) of any data they may deem appropriate to further their interest in the exploration in Rwanda.

Although some countries charge a fee (data sale) to disseminate the national geo- information it is not recommended for Rwanda. The reason is that very little information is available and relatively light interest in the national territory in regards to exploration for petroleum and this financial impediment would hinder potential interest.

The other copy of this information (except the rock and sample data) should be kept by the oil and gas unit to further its knowledge and information of the activities of its contractors and permitting them to use them to interest other potential parties.

This concept that one copy should be kept securely as the “original” for future generations as the result (often only result) of moneys spent on data acquisition by several parties yielding an accumulating body of information and thus knowledge through time cannot be overly underscored.

Coordination with the OGMR might be fruitful in this endeavor 3.2 Petroleum Law A petroleum law should be enacted as soon as is practically possible. The drafting of such a petroleum law should employ the services of experienced and recognized international experts to ensure that all the appropriate requirements are included.

This act will be the basis for regulations and the conduct of petroleum sector activities for years to come and as such is a critically important piece of legislation. In light of the ongoing negotiations with Vangold it is critically important that required capacity and resources be dedicated to accomplish its drafting and ultimately passing through parliament.

3.2.1 Fiscal Regime The fiscal regime appropriate for an emerging petroleum province and country like Rwanda should be attractive to foreign investors in light of the inherent high geological risk. Furthermore it should encourage the exploration for and development of marginal fields. Finally it should be simple to understand and implement.

Many fiscal regimes are used internationally but the current industry best practice is a combination of the following five elements:

a. Modest royalties; b. Progressive taxes for rent capture; c. Harmony with existing income tax laws; d. Simplicity of administration; e. Competitiveness with other global regimes, considering risk.

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Any fiscal regime built on these five elements will allow the flexibility to deal with the unexpected outcomes that a frontier basin setting will yield based on its inherent uncertainty and risk and act as a draw to potential investors. It is also simple in its understanding and thus application thus minimizing any possible varied interpretation or disagreements.

3.2.2 Petroleum Sharing Contract The need for a Petroleum Sharing Contract (or Agreement) is well understood. It is thus imperative that a form contract be drafted in the shortest possible time frame. One should be aware, however, that the elements of the PSC will need to be based on the principles of the Petroleum Policy and, of course its associated Petroleum Law.

The PSC will be the fundamental document that will link the IOC with the GoR and will govern their relationship in time. The exploration periods envisaged in the PSC should also be carefully evaluated. Customarily there are two to three periods of activity with increasing commitment (financially and work program).

These periods can be as follow:

• an initial exploration period of two years - where data is analyzed and an initial seismic acquisition work program is performed; • A second period of three years - where depending on the risk an exploration well is drilled and possibly some more seismic is acquired; • A third exploration period of two years – this would be predicated on the commitment to drill an exploration well should it not have been done in the second period or drop the block. Alternatively if a well was drilled it would be used to perform delineation work to get the block to commerciality.

Customarily the exploration period ends after these initial three years and to carry on the IOC must commit to a development program (through a declaration of commerciality and a subsequent development plan) to exploit the field or fields discovered. The production period then is calculated from the declaration of commerciality for a period of 20 or 25 years depending on the difficulty in bringing on production.

Based on the preliminary draft of July 2009 of the petroleum Policy the PSC will likely be approved by the cabinet and thus will likely have the “weight of law”. As such the drafting should be done very carefully and in conjunction with all the appropriate agencies that will have to work through its contractual prescriptions.

It is thus recommended that the PSC be drafted with the aid of internationally recognized legal experts in petroleum and contract law with the eye on the associated petroleum regulations (environmental, conservation, health and safety etc). As such it is unlikely that a PSC be drafted in short order to meet the demands of the impending Vangold requirements for a contract.

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3.2.3 “Streamlined Petroleum Agreement” Normally it is very risky to use a streamlined or “short form” agreement in the absence of a PSC. The predominant reason is that the agreement will be a binding document governing the relationship between the two parties. Without a full and complete Petroleum Law and its associated PSC and regulations details in the work program requirement and associated contractual obligations might not be fully detailed thus leading to misunderstandings.

In light of the current situation with Vangold and their wish to pass onto a binding agreement to proceed with further work program it is recommended to use a “short form agreement” to formalize the contractual relationship with Vangold.

This “Streamline Petroleum Agreement” (SPA) could be an intermediary document envisaging the conclusion of a PSC within a certain amount of time. It would be superseded by the PSC and would run concurrent with any periods envisaged in the PSC (rather than in addition to).

Care should be made to include all important provision within this temporary agreement and as such professionally recognized legal help should also be sought.

The benefit of this type of agreement is that it could be concluded between Vangold and the Ministry without the requirement of a full cabinet review but rather an information item within the cabinet thus making its time frame much swifter.

4. RWANDAN PETROLEUM CAPACITY

4.1 Local Availability The availability of experience personnel in Petroleum disciplines (Geoscience, , Petroleum law, Petroleum Economics etc.) in Rwanda is unlikely due to the heretofore lack of any petroleum sector activities and thus interest.

The Oil and Gas unit of MININFRA has been staffed with very qualified staff but the requirements of the multi-tasking and project reality dictates that only a limited amount of their time can be spent uniquely on petroleum projects.

In light of the high risk nature of the potential exploration program proposed by Vangold (appropriately) it is recommended that a young team of three staff be recruited and made to work alongside the current Oil and Gas unit. This would permit a permanent project team focused on oil and gas activities. These recruits should fill the following posts:

• Petroleum Technical Specialist (PTS) – should be a geoscientist of engineer who could be trained in petroleum related activities; • Petroleum Economics Specialist (PES) – should be an economist experienced in modeling.

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• Legal Petroleum Specialist (LPS) – Should be a lawyer trained in contract law.

These three local personnel could work in conjunction with the current staff of the Oil and Gas Unit as well as any of the international consultants who would support the activity. The training offered would raise their knowledge base and should the petroleum activities not expand into an ongoing sector they could be redeployed into the Energy group. 4.2 Introduction to Petroleum Exploration Seminar

A full day training seminar was held for GoR. This capacity building seminar focused on a technical introduction of Petroleum Exploration and its associated activities and practices as well as well as Petroleum Sector Governance and fiscal regimes comparisons.

A table of the attendees is presented below:

Yussuf Uwamahoro MININFRA [email protected] Doris Mwirigi MININFRA [email protected] Teta Bahunde MININFRA [email protected] Clement Abavana MININFRA [email protected] Aimable Kabanda MININFRA [email protected] Peace Kaliisa RDB [email protected] Evode Imena OGMR [email protected] Theoneste Uhorakeye MININFRA [email protected] Francoise Mukakalisa MININFRA [email protected] Erik Fernstrom Worldbank [email protected] Timothy Rwagashayija OGMR Eva Paul MININFRA [email protected] Alice Rwema MININFRA [email protected] Pascal Ruganintwali MINECOFIN [email protected]

The presentations are attached as attachment to this report.

4.3 Capacity Building Training Program A capacity building training program should be instituted immediately. This program would be offered to all of the participants of the Oil and Gas Unit of the MININFRA who are charged with dealing with the petroleum sector but also should be offered to all the participants of the Petroleum Working Group from other ministries and departments.

The goal of this program is not to train oil and gas professionals in geology, geophysics, petroleum engineering, petroleum law and negotiations or petroleum economics but rather to introduce to the concepts and activities these professionals deal and work with in order to prepare the PWG in dealing with IOCs.

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The preferred program would be to hold the training session in Kigali or for travel efficiency. The cost value ratio becomes attractive after five participants to hold such training in house. One caveat is that commonly in “in house” training programs are not followed closely (missed classes because of urgent projects in the department or phone calls etc.) and thus the location of the program should be evaluated very carefully.

Training sessions should be conducted one week every two months. This would enable a curriculum of approximately eight courses to be accomplished within 18 months whilst not over taxing the work load of the participants.

In time, after the first eight capacity building training program, a more specialized curriculum could be developed on a two week yearly frequency.

The initial capacity building curriculum should be as follows for all the participants:

1. Introduction to the Petroleum Industry; 2. Introduction to ; 3. Introduction to Geophysical Technology; 4. Introduction to Geophysical Interpretation; 5. Introduction to Reservoir Engineering; 6. Petroleum Economics; 7. Petroleum Contract Terms and Management; 8. Risk and Risk evaluation.

The appropriate training organizations and specific courses are attached as an attachment.

5. CURRENT ACTIVITIES

5.1 Vangold Resources Ltd Work Program to date

VAN’s theory that Rwanda’s Lake Kivu region could constitute an extension of the discovery of oil in southwestern Uganda by Heritage Oil and Tullow Oil, led them to sanction a consultant’s technical review of the region. Results of the consultant’s report stated that the existence of long chain hydrocarbons in the Lake Kivu waters which indicates the possible presence of active oil generation and accumulation in East Kivu Graben (as it was reported in Degens et al 1971). Their results of the Lake Kivu Study indicated 57 slicks in the area, which were categorized as 2 pollution, 53 unassigned and 2 priority unassigned slicks.

VAN then completed an aerial survey of the area for the measurement of the earth's gravity and magnetic fields over Lake Kivu and South West of Rwanda. A total of 2,088 line km were flown against 3,100 km planned, linearly achieving 70% coverage of the East Kivu Graben. The apparent lack of completion of the planned survey is primarily due to inability to secure fly-over permission from the Democratic Republic of Congo, despite the best efforts from the Rwandan side and Vangold.

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Despite this difficulty, the contractor, South African based New Resolution Geophysics ("NRG"), was able to complete 100% of the southern survey covering Block 2 and 100% of Block 4 over Lake Kivu. Additionally NRG was able to achieve important coverage of the east-west flight lines over Block 1, and the southern and northern regions of the East Kivu Graben. The flight line coverage in Block 1 traverses across the dip geometry of the East Kivu Graben in the Northern area and Southern areas that mitigates border areas not covered.

Vangold's consultant, PGW, has embarked on interpretation and modeling of the data received from the aerial survey. In-house processing and interpretation by Vangolds' geotechnical team is also currently in progress. Both work programs have been merged and integrated with the 1981 aeromagnetic survey data (acquired by the Geological Survey of Canada), and previously conducted ground gravity surveys. The result is the depth and area model of the sedimentary basin in East Kivu Graben as shown in Figure 11. This is planned to be integrated with geology, ASAR study and geochemical data recently gathered from Rubona gas geochemical gas study for the final evaluation of the hydrocarbon prospectively of Lake Kivu.

The work program that Vangold resources has accomplished to date has been very appropriate given the extreme uncertainties in defining the risk within this relatively small, and highly unusual, potential frontier basin.

The next phase of exploration work program Vangold should perform is a fairly extensive 2D seismic program to refine the basin architecture and confirm the presence of adequately deep depocenters with prospective structures to test.

To date VAN has accomplished the confirmation of the following:

1. Two potential 10km by 10km sub-basins with up to 3.5 km of sediments; 2. Several gas and oil slicks and seeps with heavy fraction hydrocarbons; 3. The likelihood of thermogenic gas and possibly oil based on the chromatographic analyses; 4. Probably a different basin architecture than the Albertine Graben.

These positive technical indicators continue to support an ongoing effort to define the exploration potential of the Lake Kivu area. The GoR should continue its stated practice of utilizing risk capital from private investors to develop these projects.

5.2 Proposed Vangold Resources Ltd Work Program VAN has recently communicated to GoR its preliminary proposed work program to secure the Lake Kivu block for a further time period to lead them to a PSC. This preliminary work program consists of the following:

• 200 line km of 2D seismic marine data; • 200 line km of grav/mag data to complete the previous program.

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This phased approach is understandable but given the time spent on this project it is recommended that the work program required of VAN be somewhat more consistent.

Given the fact that the greatest portion of the costs associated with a lake borne marine seismic program in this remote area is contained in the mobilization and de-mobilization of the equipment to site a more substantial acquisition program will not be proportionally much more expensive to acquire.

Using scoping numbers obtained from internationally recognized geophysical acquisition consultants a shallow water to light marine portable seismic crew would approximately cost the following:

• Mobilization to site: $300K • Acquisition rate: 50km/d • Daily cost for crew: $25K/d • De-mobilization from site: $100K • Processing of data: $100K (based on 500km)

A few extra costs would be incurred in local manpower and food but in comparison to these major items they would be insignificant in the program cost.

It is recommended that a minimum of 400km of 2D seismic data be required from VAN.

As cost comparison between the proposed 200km and the recommended 400km programs can be found below:

200 km program 400 km program Mobilization $300K $300K Acquisition $100K $200K De -mobilizat ion $100K $100K Processing $50K $80K Total $550K $680K

Given the negligible difference in seismic data acquisition costs (approximately $130K) it is strongly recommended that VAN be induced to increase their commitment by at least 200 line km. 5.3 Vangold Resources Ltd Capacity Assessment Vangold Resources Ltd is a microcap small petroleum and minerals exploration company based in Vancouver, Canada. Given the importance of an adequate and thorough exploration of the Rwandan potential for petroleum in the Lake Kivu area, an examination of the technical and financial capacity of the sole company pursuing exploration rights is warranted.

VAN is generally viewed as a “promotional” microcap mining company active internationally. The pursuit of petroleum exploration is a relatively recent activity for

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VAN. Based on VAN’s most recent un-audited financial statements 9 for the three months ending June 30 th 2009 its cash position as of that date is $2.1MM. By comparison its liabilities were of $535K. For the three months ending at the end of June 2009 VAN declared a loss of $761K on revenues of $3.3K. As of October 13 th 2009 VAN’s market capitalization was $17.99MM on 85.6 million shares outstanding or a price per share of approximately $0.20.

In light of this rather thinly capitalized situation all precautions should be taken that can be reasonably accomplished.

Finally the staff of VAN is relatively limited and most of the geo-technical and petroleum engineering knowhow is derived from consultants and service providers. On that basis appropriate supervision and adherence to regulations and accepted industry practice should be insisted upon.

In summary VAN should be viewed as a willing and enthusiastic participant but with limited technical and financial resources. If exploration were to move to the drilling phase, it is virtually certain VAN would seek partners or sell down their interest. 5.4 Proposed Negotiation Strategy In light of VAN’s limited capacity and the early stage in petroleum exploration activities in Rwanda, a negotiation strategy with realistic expectations should be followed.

As mentioned above VAN should be induced to increase their work program commitment to secure a Lake Kivu block. Given the relatively modest commitments on the 1631 km 2 initial block where VAN has spent less than $1MM (or approximately $610/km 2) it is recommended that the GoR seek an increased work program of a minimum of 400 line km of 2D seismic data with associated vessel borne gravity and magnetic as well as possible geochemical sampling of the lake bottom. If VAN is reluctant to undertake this more substantial work program it is recommended that the GoR split the initial block into two and offer the northern portion to VAN for a commitment of as close to 400 line km of 2D seismic as can be negotiated with the equivalent in vessel borne grav/mag. Additional lake gasses sampling could also be made but would have little impact on the ultimate work program.

This work program should be defined in a “Streamlined Petroleum Agreement” (SPA) that would define the rights and obligations of both parties. It is recommended that the SPA have an 18 month time frame where the parties would agree to come to an agreement on a definitive PSC.

9 Vangold Resources Ltd, Q2 2009 Interim Financial Statements; June 30, 2009

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5.5 Proposed Contractual Framework The most efficient contractual framework will be the short form SPA. This will require a definitive commitment of time and manpower in order to finalize the PSC within a reasonable time frame.

The envisaged time frame of the SPA should be of 18 months after signature. The SPA would then run concurrently with the negotiations for the final PSC. The PSC, as outlined in section 3.2.2 should be of a total of seven years broken down into three periods. A first exploration period of two years (running concurrently with the SPA thus lasting an additional six months beyond the initial SPA’s term); as second exploration period of three years which would require at minimum the drilling of a well in order to enter into the third period of two years to complete delineation or commerciality documents (this third period could be granted to the contractor even without the drilling of a well in period 2 with the payment of a commensurate fee).

Given the important nature of these discussions and in order to capture both the intent and the letter of the contract it is highly recommended that appropriate legal and contractual expertise be sought in short order.

6. RECOMMENDATIONS

6.1 Ongoing Support Program to develop Policy and Law The present mission’s initial brief of capacity building should be pursued through the involvement of internationally qualified Geotechnical, Economic and Legal advisors. These personnel would act as initial advisors to frame the development of the GoR Petroleum Policy (nearly completed), Petroleum Law, Form PSC and preliminary regulations governing the petroleum sector. The costs of this capacity building support can be borne by excising source of funding within the WB. An existing facility of $250K can quickly be made available for disbursement. 6.2 Training An integrated technical, economic and legal training program should be initiated to further develop the oil and gas unit as well as associated personnel with other departments.

If a roster of 5 or more participants can be guaranteed and a directive of continuous participation can be issued the training courses should be offered in Rwanda in a hotel conference room by internationally accepted training organizations. The cost of this training can also be borne by the WB capacity building funding. The approximate costs of this program should not exceed $250K.

The overall time required for the full training curriculum should be of approximately 18 months with a course being offered every two months.

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6.3 Ongoing Negotiation Support The ongoing negotiations with VAN should be supported by qualified geotechnical, legal and economic consultants in order to give the GoR appropriate, timely and internationally accepted advice on all phases of negotiations until the conclusion of the PSC (i.e. SPA and PSC negotiations).

The TOR of this phase should be closely reviewed as the requirement of support will be on a cyclical basis rather than permanently (as the requirements would be for the period of face to face negotiations with VAN plus a week before and after). 6.4 National Data Archival As discussed in section 3.2.2 it is recommended that a National Data Repository be established along the lines of Alberta’s (Canada) Energy Conservation Board. This repository could be established under the “umbrella” of the OGMR and would archive all information and data acquired through petroleum work programs. Adequate staffing and physical space should be made available within OGMR to establish this facility as soon as feasible. It is important, however, for consistency and continuity that the ultimate management of this group be retained within the oil and gas unit.

The data requirements should be coordinated through the oil and gas unit to be harmonized with the GoR Petroleum Policy and Law as well as implementing regulations. 6.5 “Petroleum Working Group” If exploration activities progress, it is recommended that a PWG be formed as a subset of the ESWG in order to permit its participants the focus required to accomplish the large work program. This dedicated team would allow all of the stakeholders involved in the Petroleum Sector to sit at the same table and coordinate their efforts. The group should be made up of MININFRA’s oil and gas unit as its lead participants, REMA representatives, MINECOFIN, OGMR and the appropriate consultants and donors.

The PWG could report on a quarterly basis to the ESWG. 6.6 International Promotion of Petroleum Province A program international promotion could be pursued to stimulate further investor interest in Rwandan exploration. This program would involve the attendance and participation of GoR staff and consultants to promote the technical merits of the Lake Kivu area at International Technical Conferences and Petroleum shows. The appropriate displays and brochures could be produced through a consulting contract and the program could be coordinated effectively on a yearly basis.

This program would have the additional benefits of making VAN aware that they are not the only potential interested party as well as giving the GoR an additional international platform to outlines its policies.

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6.7 Ongoing Vangold Engagement In light of the uncertain and frontier nature of the Rwandan oil and gas potential care should be given to conclude a work program oriented to define the ultimate potential as soon as possible. The interest and past participation of VAN positions them as the most obvious choice to effectuate this initial important program efficiently and in the shortest delays. This short time frame will be beneficial to the GoR in ultimately defining its petroleum sector.

7. CONCLUSIONS

The Petroleum Sector of the Republic of Rwanda is clearly in its infancy at this time. However it is at the crossroad in pursuing substantial potential foreign investment opportunities in the oil and gas field. The current level of understanding, although still limited, is very encouraging in the Lake Kivu area.

The recent Vangold work program has certainly aided in the interpretation of the prospectivity of the Lake Kivu Graben. The confirmation of possibly one or two depo- centers to be pursued further with seismic data is an important addition to the overall understanding of the Kivu rift. As mentioned several times in this report the key questions facing Rwanda today are whether or not there are truly hydrocarbon prospective sediments, and associated structures to trap oil and/or gas in economic quantities. The essential element required to resolve these questions is the acquisition of adequate amounts of modern 2D seismic data.

The GoR should also strive to rapidly establish a globally competitive petroleum Policy with its associated, law, fiscal system and regulation as well as the required form agreements required to conclude mutually beneficial contracts.

In light of the risk profile of this emerging, unusual and exceptional frontier basin, focus should be kept in securing modest social and financial benefits early in the exploration cycle as the likely outcome in such basins globally is failure.

Finally oil exploration is a high risk and long time frame activity that rarely delivers short term benefits. Every attempt should be made to manage both public and institutional/governmental expectations. Furthermore using the Ugandan Lake Albert experience as a direct analogue to Lake Kivu should be resisted.

In conclusion it is imperative that a targeted capacity building program be instituted to prepare a dedicated team of negotiators working within MININFRA and associated departments. Furthermore it is important that the negotiations with Vangold Resources Ltd be prepared for adequately using a dedicated team of international consultants.

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I remain at your disposal to discuss or elaborate any of the ideas or recommendations expressed in this report.

François Gauthier, P.Geol. Principal FJG Energy Advisors

Houston, October 2009

The opinions and recommendations expressed in this report are solely those of François Gauthier and FJG Energy Advisors. They were supplied to the World Bank and Mr. David Santley at their request.

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ATTACHEMENT 1: SEMINAR MATERIALS

The two PowerPoint files presented during the Capacity Building Seminar in Kigali September 17 th 2009:

1. Petroleum Exploration Seminar, François J Gauthier, P.Geol. September 2009;

2. Petroleum Sector Governance, David J Santley; September 2009;

are under separate cover due to their size.

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ATTACHEMENT 2: TRAINING CURICULUM

The following training curriculum is recommended for Capacity Building for the management of the Rwandan petroleum sector.

After extensive research and for ease of management and cost efficiency it is recommended that OGCI-Petroskills of Tulsa, Oklahoma (now Petroskills) be utilized for this program.

OGCI Petroskills has been operating since 1963, where OGCI delivered the first petroleum technology short course. In 2001, BP, Shell, and OGCI formed the PetroSkills alliance and launched an approach in petroleum learning. Since then , , , ConocoPhillips, Chevron, YPF, Marathon, Swift Energy, PTTEP, Woodside Petroleum, , BG Group, Nexen Inc., TTG Systems, John M. Campbell & Company, and the University of Trinidad & Tobago have joined to help define the industry's standard in technical training. In the past seven years, the alliance has worked together to build a world leader in petroleum training.

All of the courses describes below are available as “public industry” courses at various locations in the USA or Europe. Alternatively the instructors could be flown to Kigali and an in-house course curriculum could be designed. The average costs for each participant for each course is approximately $3,200.00. Thus the total curriculum should be approximately $130,000.00. It is recommended that the program be discussed with OGCI Petroskills to develop the most adapted training program possible.

PROPOSED TRAININIG CURICULUM

1. INTRODUCTION TO THE PETROLEUM INDUSTRY

Overview of the Petroleum Industry - OVP PETROSKILLS: 1 DAY

Discipline: Introductory/Cross Training Level: Basic Instructors: Mr. Eric A. Foster , Mr. Ron Hinn , Mr. David Patrick Murphy , Mr. William K. Ott , Mr. Gerry H. Ross , Dr. Michael I. Treesh

DESIGNED FOR Both technical and business oriented professionals who are either new to the upstream oil and gas industry or experienced in one part, but could benefit from a wider point of view, all levels of support staff working in the industry, as well as investing or financial personnel with a need to better understand the industry.

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LEARNINGS • Business and exploration elements critical to the success of organizations in search of new reserves • Methods by which new field prospects are evaluated and risk factors assessed (Geology, Geophysics, ) • How exploration rights are acquired • The basic process for drilling and evaluating an exploration well (Drilling, Petrophysics, Testing) • Major steps required to appraise a new discovery and estimate its commerciality (Reservoir Engineering) • Strategies to maximize the value of an oil or gas field asset • How geology and reservoir management plans are used to guide new field development • Major steps in the design, construction and commissioning of facilities • Basic technical and operational steps required to produce an oil or gas field (Production Engineering) • Types of opportunities to optimize older fields and increase production

ABOUT THE COURSE This course presents an overview of the Petroleum Industry from the point-of-view of the Asset Management Cycle. By explaining the real-life steps involved in the creation and exploitation of oil and gas fields, the participant is introduced to the exciting processes which drive the industry and create new value. Emphasis is on Onshore as well as Offshore projects, including both large and small fields. Each step of the cycle is introduced with a summary of relevant technologies, economics, manpower requirements, importance of training and competency assessment, as well as relevant case histories. Both conventional and and gas prospects are included.

COURSE CONTENT

• The E&P Asset Management Cycle • Recognize and Assess Opportunities • Acquire Exploration Rights • Generate Exploration Prospect • Drill and Evaluate Exploration Well • Establish Commerciality • Create Asset Business Plan • Characterize Asset • Initiate Facility Design and Sanction Development Project • Design, Construct and Commission Facilities • Produce Asset • Exploit Asset • Dispose or Decommission Asset

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2. GEOLOGY

Basic Petroleum Geology - BG - PETROSKILLS: 5 DAYS

Discipline: Geology Level: Basic Instructors: Mr. John F. Dillon , Dr. D. Andy Link , PetroSkills Specialist

DESIGNED FOR Petroleum industry personnel in need of basic geological training, including engineering, geophysical, technical support, and administrative personnel

LEARNINGS • About plate tectonics and petroleum • About geological time and history • The fundamentals of rock formation and deformation • The essentials of various depositional environments and the reservoirs created by them • The distribution of and permeability in reservoirs produced in different depositional environments • How rock characteristics are related to modern geological processes and applied to the ancient record • About and source rocks • Of petroleum origin, migration, and trapping • How to correlate electric logs and recognize depositional environments on logs • How to make contour maps and cross sections • Elements of geophysics and exploration • How geology bears directly on engineering practices

ABOUT THE COURSE What is Basic Petroleum Geology ? For all practical purposes it closely resembles the freshman level course that a non-science major at a university would take to satisfy the science requirement. Presentation is oriented toward topics of interest to the petroleum industry. While high school chemistry and physics might help in understanding a very few selected topics, the course is designed for those with no technical training (and those who studiously avoided science in school). Primary objectives of the course are to broaden your geological vocabulary, explain selected geological principles and processes, and describe how certain petroleum reservoirs and source rocks are formed. If you have had a geology course at the university level and remember most of it, this course is not for you. If you have had a geology course and don’t remember much of it, then consider this course for a refresher. If you are an engineer, geophysicist, petrophysicist, geotech, lawyer, or financial analyst dealing with geologists and don’t understand the geological terms used in discussions and/or do not know the characteristics of a point bar, barrier island, channel-levee complex, or some other reservoir, then this course may be for you. Read on. Geology is a visual science, and there are some 700 slides presented in class. Participants receive a three-ring binder with over three hundred 8.5”X11” pages with annotated copies of the slides.

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Also provided is the textbook, “Basic Petroleum Geology”, a box of 16 common rocks and minerals, a small, pocket-size 10 power magnifier (handlens or loupe), and a number of exercises and handouts that go into the binder. Class participants from out of town should bring a suitcase with sufficient room to accommodate an extra thickness of some six inches (16cm) of class materials. To let you know what Basic Petroleum Geology covers, what follows is essentially a verbal agenda of the course. The first two days present geological materials along with fundamental geological processes and principles. We start with minerals important to the petroleum business and then move on to igneous and metamorphic rocks. Chemical stability of various kinds of igneous rocks is considered and how the stability relates to potential reservoir problems, a significant issue for reservoir and production engineers. The effect of igneous intrusions on reservoirs in the subsurface and a sequence of metamorphic rocks associated with increasing temperature and pressure are presented along with the effects on petroleum potential. After lunch on day one, we look at the rock and mineral box. Relationships between the minerals, rocks, and petroleum are examined, and participants learn how to use the 10X magnifiers. Clastic and nonclastic sedimentary rocks are of primary interest to the petroleum business. We go over the various grain sizes in clastic rocks with slides of the loose, unconsolidated sediments and the solid rock equivalents. Nonclastic rocks are classified and briefly illustrated. With porosity and permeability being the requisite properties for a reservoir, we consider the processes that affect these properties in sedimentary rocks, packing, sorting, fracturing, and diagenesis. Some of the properties are illustrated with slides of thin sections and scanning electron microscopy. Now that we know the various types of rocks (igneous, metamorphic, sedimentary) and the properties needed to make a reservoir, we will put rocks into the regional context of plate tectonics. In this section we consider the interior structure of the earth, how the interior affects the surface, the differences between continental and oceanic crustal rocks, division of the Earth’s surface into a number of moving plates, and the different types of plate margins. We care about the plate margins because they generally control what rocks are found there and how the rocks are deformed. All this bears on where we look for petroleum. A short video of plate positions and movements over the last 750 million years and slides of various plate margins from Iceland, Africa, Asia, the US, and elsewhere support the presentation. Structure follows the session on plate tectonics, covering strike, dip, folds (anticlines and synclines), and six different kinds of faults. Slides, contour maps and seismic lines illustrate various structures. Exercises require participants to contour data to produce a structure map and locate faults on seismic lines. Time and come next. Relative and absolute (radiometric) times are presented along with ways to determine each. Both concepts lead to the relative and absolute geological time scales and the associated terminology. Three exercises are given to determine the relative timing of geological events as seen in cross sections. Correlation based on outcrops and well logs is presented and integrated into stratigraphy. Stratigraphy is subdivided into sessions on sequence stratigraphy (with the changes related to sea level rise and fall), lithostratigraphy and facies changes, biostratigraphy, magnetostratigraphy, and the relevance and applications of each in the oil business. Exposure of the various types of rocks at the surface of the Earth leads to their weathering (breakdown) by both mechanical and chemical means. We examine agents and mechanisms of

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weathering, see resulting landforms and landslides from catastrophic failures of slopes, and take a quick look at some of the chemical reactions, Loss of rocks at the surface by weathering and erosion produces unconformities (breaks or missing data in the geological record). Three types of unconformity are defined and illustrated. Depending on class interest and questions, the first two days generally end on the topic of weathering. Sediments generated by weathering and erosion are ultimately delivered to basins and deposited in a variety of depositional environments. We care about and discuss these environments because this is where source rocks for petroleum and the reservoirs are created. Clastic depositional environments range from those closest to the sediment source (proximal) to those farthest from the sediment source (distal). Seven clastic environments are covered in class: alluvial fans; braided and meandering rivers; deserts; deltas; beach/barrier islands; and submarine fans. In each case, the modern environment is illustrated first, followed by examples of each environment exposed in outcrops and concluded with producing field examples. The object here is to show what the environments look like on the ground today because that is the way they look in the subsurface. The rocks in outcrop or in cores illustrate further what the reservoirs are like and the rock properties (porosity and permeability distribution) should mimic those seen in the modern environment. Several environments are presented for nonclastic sedimentary rocks: ramp, rimmed shelf, and flat-topped shelf. Presentation follows the same format as that for clastic rocks, the modern environment, illustrations of the rocks, and producing field examples. With the reservoirs in place (we made them in the various environments of deposition), we next consider the generation of petroleum in the source rocks and migration from the source rocks into the reservoirs. And once the petroleum is in the reservoirs, we finally consider the traps into which the petroleum is localized or concentrated and from which we can extract it. In Denver there is a field trip. The object of a trip is to show various environments of deposition and reservoirs. What is seen on the surface looks the same as its equivalent in the subsurface. The field trip takes about 5.5 hours. It features a nonconformity, fractured granite, metamorphic rocks, granitic dikes, alluvial fan sediments, nonmarine and marginal marine sandstone reservoirs, an oil seep, and a visit to a government core laboratory. We return to the classroom after the field trip to cool off and for more class work. Past participants have given good reviews to the field trips. For venues where there is a field trip (Denver), you should plan to be in class until 5 PM or a bit later each day and until about 3-4 PM on Friday. At venues with no field trip, class will run to about 4:30 PM each day and to about noon on Friday.

COURSE CONTENT • Minerals and rocks • Plate tectonics • Geological times • Weathering and erosion • Deposition • Diagenesis • Reservoirs • Structural geology and petroleum • Origin, migration, and trapping of petroleum

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3. GEOPHYSICS

Basic Geophysics - BGP - PETROSKILLS: 5 DAYS

Discipline: Geophysics Level: Basic Instructors: Mr. John Logel , Mr. Donald S. Macpherson , PetroSkills Specialist , Dr. Dwight Sukup , Dr. John Sumner DESIGNED FOR

Geoscientists, Engineers, Team Leaders, Geoscience Technicians, Asset Managers, and anyone involved in using seismic data that needs to understand and use this data as a communication vehicle.

LEARNINGS

• How seismic data represents subsurface rock parameters including the relative structure, lithology, and pore filling material • How seismic data is acquired and processed to produce a three dimensional seismic image • The limits of vertical and horizontal resolution inherent in the seismic data • How seismic data is used to define reservoir parameters and how it relates to reservoir development; this includes a detailed discussion of AVO and other seismic attributes • The various approaches to seismic imaging and how the velocity model relates to this image • How new technology including seismic inversion have helped us to define rock properties including pore filling material, pore pressure, water saturation, and fracture orientation • How to value the recent focus on developments such as time lapse seismic surveys for reservoir monitoring purposes

ABOUT THE COURSE

The course is designed to familiarize anyone using seismic data with the nature of the data and what it exactly represents. One of the key goals of the course is to explain the large and confusing amount of “jargon” that is used by the Geophysical community when they use seismic data as a communication vehicle.

The course is supplemented by a large number of case histories that graphically illustrate the principles in the course material. These are updated with every course presentation to keep up with the rapidly developing technology in this field. Each section of the course is supported with a classroom exercise. The course participants are given a data disk with several executable programs for parameter calculation and seismic modeling. The data disk also contains all of the course slides and exercises.

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Potential participants in this course (BGP) should also review the description for the Seismic Imaging of Subsurface Geology course (SSD). The Basic Geophysics course is designed to provide participants with a clear understanding of the nature of the seismic image. Seismic Imaging is a foundation level course that is designed for people who will be involved directly in decisions concerning how seismic data are acquired and processed.

COURSE CONTENT

• The nature of seismic data • What is propagating? • What causes seismic reflections and how they relate to rock properties including pore filling material • The in the seismic data and its limit of resolution • Seismic velocities as they relate to rock properties and the imaging process • The relationship between seismic velocities and pore pressure • Pore pressure prediction • Seismic data processing and • Prestack, poststack, time and depth imaging • Direct hydrocarbon indicators and AVO • Seismic inversion for rock and fluid properties • Seismic attributes • Time lapse reservoir monitoring • Recent developments in seismic acquisition, processing, and interpretation

4. RESERVOIR ENGINEERING

Basic Reservoir Engineering - BR – PETROSKILLS: 5 DAYS

Discipline: Reservoir Engineering Level: Basic Instructors: Dr. Tarek Hussein Ahmed , Dr. Kirk E. Boatright , Dr. Iskander R. Diyashev , Mrs. Mirta Beatriz Galacho , Mr. Jeremy (Jerry) J. Gilbert , Mr. Curt Golike , Dr. W. Greg Hazlett , Mr. Richard S Henry , MG&A Oil and Gas , Dr. Grant E. Robertson , Dr. Helmy Sayyouh , Mr. Richard H. Schroeder , Mr. Kenneth L. Schuessler , Dr. John P. Seidle

DESIGNED FOR Geologists, geophysicists, engineers, engineering trainees, technical managers, technical assistants, technicians, chemists, physicists, technical supervisors, service company personnel, sales representatives, data processing personnel, and support staff working with reservoir definition, development and production.

LEARNINGS • The fundamentals of fluid flow in porous media • How reservoirs are characterized by fluid type and drive mechanisms

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• The basis for reservoir fluid distribution • About oil and gas well performance and pressure buildup analysis • About oil displacement and optimizing reservoir performance • The basics of • How oil and gas in place can be estimated and recovery predicted

ABOUT THE COURSE The intent of Basic Reservoir Engineering is development of a more complete “understanding” of the characteristics of oil and gas reservoirs, from fluid and rock characteristics through reservoir definition, delineation, classification, development plan, and production. Data collection, integration and application directed toward maximizing recovery are stressed. Basic reservoir engineering equations are introduced with emphasis directed to parameter significance and an understanding of the results. 3-D and 4-D seismic concepts are introduced. For nearly 30 years this has been one of OGCI’s most popular and successful courses. As part of the Basic Reservoir Engineering course, there are class exercises designed to be solved by hand with a calculator. For those that prefer to use spreadsheets to do the calculations, participants are welcome to bring their own laptop computer.

COURSE CONTENT • Reservoir fluid properties • Coring practices and rock properties • Fundamentals of fluid flow • Reservoir fluid distribution • Reservoir classification • Reservoir drive mechanisms • Oil and gas well performance • Pressure buildup analysis • Oil displacement concepts • Estimation of oil-in-place and gas-in-place • Recovery

5. PETROLEUM ECONOMICS

Basic Petroleum Economics - BEC3 - PETROSKILLS: 3 DAYS

Discipline: Petroleum Business Level: Basic Instructors: Dr. Thijs Koeling , Mr. David Patrick Murphy , Dr. Richard D. Seba

DESIGNED FOR Managers, engineers, explorationists, field accounting supervisors and other personnel who need to develop or improve their skill and understanding of basic economic analysis and profitability of petroleum exploration and production

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LEARNINGS • How to evaluate the economic viability of a project • Cash flow techniques applicable in economic evaluations • How to use economic criteria to choose investments • Models to weigh risk and uncertainty • ABOUT THE COURSE

Could you answer the following three questions for your next project?

What will it cost? What is it worth? Will it earn sufficient profit? Before undertaking any project, these questions should be answered. The material covered in this 3-day course, which has been approved by PetroSkills curriculum advisors will provide the fundamentals necessary to enable you to do so. Contractual arrangements, which also significantly impact the economic viability of a project, are covered. Participants practice cash flow techniques for economic evaluations and investigate frequently encountered situations. Each participant will receive Economics of Worldwide Petroleum Production, written specifically for PetroSkills courses. This course is suggested for employees of PetroSkills member companies (BP, Shell, Halliburton, Saudi Aramco, Occidental, ConocoPhillips, Chevron, Repsol, Marathon, Swift Energy, PTTEP, Woodside, and Baker Hughes). Individuals may wish to participate in either this course or Expanded Basic Petroleum Economics, which is the 5-day version which includes expanded material covering finance, accounting, and budgeting.

COURSE CONTENT • Forecasting oil production • Defining: "reserves", operating expenses, capital expenditures, inflation, factors effecting oil and gas prices • Cash flow techniques • Economic criteria: interest, hurdle rate, time value of money, selection, ranking criteria • Risk, uncertainty: types of risk, mathematical techniques, probabilistic models, uncertainty in economic analysis • Tips on economic factors in computer spreadsheet analysis • Ethics in economic analyses

6. PETROLEUM CONTRACTS

International Petroleum Contracts - IPC – PETROSKILLS: 5 DAYS

Discipline: Petroleum Business Level: Intermediate Instructors: Dr. Thijs Koeling , Dr. Richard D. Seba

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DESIGNED FOR Exploration and production managers; managers; government representatives and others in the oil industry who expect to be involved in negotiating, administering, reviewing, managing, directing, and overseeing international exploration and production contracts between host governments and outside contractors

LEARNINGS • Distinguish between different types of contracts • Understand the economics terms of an E&P contract • Determine the economic value of various contract terms • Negotiate and assess the value of contractual terms

ABOUT THE COURSE You will learn the philosophy, evolution, and fundamentals of international petroleum contracts and have an opportunity to see how each of these actually works. You will take part in life-like negotiating sessions mastering many negotiating techniques, where a mistake is a learning experience not a disaster. As you prepare for each session, you use a computerized economic model to assess the value of contract terms. This enables improved planning of negotiating strategies to achieve the desired goals by parties at both sides of the negotiating table. The classes include participants from both national oil companies and foreign contractors, which adds further realism to the exercises. Host governments and outside contractors are on opposite sides of the negotiating table, but they are not adversaries. A win-win business arrangement should be the objective of both parties, as a signed contract makes them partners. A viable contract cannot be negotiated without an effective understanding of the underlying economics. Your negotiating strategies will determine contractual terms ultimately defining the economic benefits to be realized. Various contract types have specific "pros" and "cons". Concessions and production sharing agreements are two of the contract types to be evaluated. Each participant receives a disk copy of the spreadsheets used in the negotiation workshop and a manual, which explains the fundamental principles of E&P contracts, presents examples of economic analysis, and includes a model contract.

COURSE CONTENT • Types of international petroleum contracts • Important principles and terms in all contracts • Host governments and contractors contract objectives • Specific features of different types of contracts; dividing the production • Outline of a typical contract for E&P • Contract operating issues • Funding petroleum development programs • How the contractor is paid • Contractor's risk • Contract economics • Non-financial issues • Analysis of contract provisions

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• Model contract • Natural gas production under international contracts • Negotiations workshop • Ethics in international petroleum operations

7. GEOPHYSICAL INTERPRETATION AND IMAGING

Seismic Imaging of Subsurface Geology - SSD - PETROSKILLS: 5 DAYS

Discipline: Geophysics Level: Foundation Instructors: Dr. Michael Schoenberger , Dr. Dwight Sukup , Dr. John Sumner

DESIGNED FOR Seismic interpreters, geologists, and exploration managers who need to understand seismic exploration technology and technology specialists who need cross training

LEARNINGS • Communicate effectively with specialists in seismic acquisition, processing, and modeling • Assess the effects of earth filtering, data acquisition, and processing on seismic sections • Appreciate seismic data quality criteria: resolution, signal-to-noise ratio, and image integrity • Understand the methodology of seismic survey design and the reasons for common data processing and imaging streams. • Recognize whether appropriate technology has been applied to your exploration project • Be aware of the trade-off between data quality and cost

ABOUT THE COURSE Proper interpretation of seismic data requires an understanding of the underlying seismic model. Top-notch interpreters understand the manner in which seismic data are affected by earth structure and stratigraphy, as well as by approaches used to acquire, process, and image them. By understanding when a seismic section is a good representation of a geologic cross-section, the interpreter can assess the reliability of his seismic data. Furthermore, by appreciating the value of seismic modeling and inversion, he can utilize those technologies to verify the reasonability of his interpretation and to achieve additional insight into subsurface geology. This course also discusses analysis techniques such as Fourier spectra to enable him to evaluate the potential of his data and to communicate with specialists who use these techniques. This course introduces modern seismic imaging technology by providing an integrated approach to seismic modeling, acquisition, processing, and migration technologies. The material is presented in sufficient detail to enable the graduate to determine whether an existing data set meets his exploration needs and, if it does not, to work with specialists to reprocess it or to acquire a new data set that meets his needs. The lectures are complemented by many case-history examples and by a large number of hands-on exercises.

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This course is intended for geoscientists who have worked with seismic data but need to better understand its benefits and limitations. For those who have had limited prior exposure to seismic data, the Basic Geophysics course is a better introduction.

COURSE CONTENT • Basic seismology: reflections, refractions, diffractions • Seismic Data Acquisition: hardware, common midpoint, spread geometries • Seismic analysis: amplitude and phase spectra, sampling in time and space • Synthetic seismogram generation • Stratigraphic analysis: vertical resolution and its enhancement • Amplitudes – their significance and preservation • Improving data quality through data processing • Seismic modeling of geologic structures • Migration : what it accomplishes, when to use expensive pre • Lateral resolution • 3-D seismic exploration: benefits, survey design and processing • Recent advances in seismic prospecting: converted waved, time lapse, AVO • stack, depth, and wave equation approaches

8. RISK

Petroleum Risks and Decision Analysis - PRD - PETROSKILLS: 5 DAYS

Discipline: Petroleum Business Level: Foundation Instructors: Mr. Tim Nieman , Mr. John Schuyler

DESIGNED FOR

Geologists, engineers, geophysicists, managers, and planning analysts LEARNINGS • Express and understand judgments about risks and uncertainties as probability distributions • Work with probabilities and probability distributions, including revising prior assessments based upon new, imperfect information • Set up decision models to calculate expected value in decision trees, payoff tables, and Monte Carlo simulation • Use expected value as the cornerstone of objective forecasting and decision policy

ABOUT THE COURSE Good technical and business decisions are based on competent analysis of project costs, benefits and risks. Attendees learn a practical, systematic process for analyzing decisions under conditions of risk and uncertainty. Participants learn to design and solve decision models. In

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these, probability distributions express professional judgments about risks and uncertainties and are carried through the calculations. Decision tree and influence diagrams provide clear communications and the basis for valuing each alternative. The complementary Monte Carlo simulation technique is also presented and experienced in detail in a hand-calculation exercise. Project modeling fundamentals and basic probability concepts provide the foundation for the calculations. The mathematics is straightforward and mostly involves only common algebra. The emphasis is on practical techniques for immediate application. This is a fast-paced course and recommended for those with strong English listening skills. A semi-custom variant of this course, Economic Evaluation of Prospects and Producing Properties , is available for in-house presentation. Either course is intended as the prerequisite for the Advanced Decision Analysis course.

COURSE CONTENT • Decision Tree Analysis: decision models; low probability, high-consequence events; valuing additional information, flexibility and control; project threats and opportunities • Monte Carlo Simulation: Latin hypercube sampling; portfolio problems; optimization; advantages and limitations • Decision Criteria and Policy: value measures; multiple objectives; HSE; capital constraint; risk aversion • Modeling the Investment: influence diagrams; sensitivity analysis; modeling correlations * Basic Probability and : four fundamental rules, including Bayes’ theorem; choosing distribution types; common misconceptions about probability; avoiding biases in estimation • Expected Value Concept: foundation for decision policy, pitfalls to avoid • Implementing Decision Analysis: guidelines for good analysis practice; team analyses; computer tools (discussion and demonstrations); mitigating risks • Evaluating a multi-pay prospect (team exercise)

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