Financial, Physical and Process Audit: An Independent Report Assessing and Reconciling Physical and Financial Flows within Nigeria’s Oil and Gas Industry 2012 Presented by TAJU AUDU & CO 10th March, 2015 Taju Audu (Chartered&C Accountants) 20B Mombassa Street Wuse Zone 5 Abuja. 08033119089,(09)2913734 Email:[email protected] www.tajuaudu.com 1 10th March, 2015 The Executive Secretary, Nigeria Extractive Industries Transparency Initiative (NEITI), 4thFloor Murjanatu House, 1,Zambezi Crescent, Off Aguiyi Ironsi Street, Maitama, Abuja. Financial, Physical and Process Audit-An Independent Report Assessing and Reconciling Physical and Financial Flows within Nigeria’s Oil and Gas Industry-2012 TAJU AUDU & CO.(Chartered Accountants) in association with Efectivo Consortium was appointed by the NSWG in accordance with the requirements of NEITI Act 2007 to carry out an Assessment and reconciliation of Financial , Physical and Process Flows within Nigeria’s Oil and Gas Industry for the year ended 31st December, 2012. The Engagement was undertaken in accordance with the International Financial Reporting Standards (IFRS) on Related Services applicable to agreed-upon procedures engagements. The procedures performed were those set out in the Terms of Reference appended to this report except stated otherwise in this report including its appendices. We set out our findings in the following report; the procedures adopted in this engagement were not designed to constitute an audit or review made in accordance with the International Standards on Auditing (ISA). We therefore do not express any assurance on the transaction beyond the explicit statement set out in this report. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. Our report is solely for informing the NSWG on the matters set out in the Terms of Reference and is not to be used for any other purpose. The report relates only to the subject matter specifically set out herein and does not extend to any financial statement of any entity taken as whole. Yours Faithfully, For: Taju Audu & Co. Tajudeen Audu, FCA Engagement Partner. 2 LIST OF ABBREVIATIONS AND ACRONYMS ACRONYM DEFINITION AENR Agip Energy and Natural Resources Limited AF Alternative Funding AFS Audited Financial Statements AGO Automotive Gas Oil AIP Average Interest Percentage AMNI Amni International Petroleum Development Company Limited APDNL Addax Production Development Nigeria Limited APENL Addax Production and Exploration Nigeria Limited API American Petroleum Institute (measurement for heaviness crude) BBL Barrels Bbl/d Barrels Per Day BL Bill of Lading BIS Bank for International Settlement BOD Banking Operations Department BO Beneficial Ownership BOJ Best Of Judgement BSW Basic Sediments and Water(amount of contaminants in crude) BTU British Thermal Unit CA Confidentiality Agreement CAs Carry Agreements CAC Corporate Affairs Commission CAPEX Capital Expenditure CBN Central Bank of Nigeria CE Covered Entity 3 CCC Carry Capital Cost CGT Capital Gains Tax CITA Company Income Tax Act CIT Company Income Tax CNL Chevron Nigeria Limited COMD Crude Oil Marketing Division of NNPC COSM Crude Oil Stock Management CRF Consolidated Revenue Fund CSU Corporate Service Unit DG Director General DMO Debt Management Office DPK Dual Purpose Kerosene DPR Department of Petroleum Resources E&P Exploration and Production ECA Excess Crude Account ECOWAS Economic Community of West African States EDT Education Tax EEZA Exclusive Economic Zone Act EIA Environmental Impact Assessment EIA Energy Information Administration EIC Extractive Industry Company EI Extractive Industry EITI Extractive Industries Transparency Initiative ESSO Esso Exploration and Production Nigeria Limited ERP Enterprise Resource Planning FAAC Federation Accounts Allocation Committee 4 FCT Federal Capital Territory FDE Fraud and Debt Enforcement FEC Federal Executive Council FGN Federal Government of Nigeria FIRR Financial Internal Rate of Return FIRS Federal Inland Revenue Service FMF Federal Ministry of Finance FRB Federal Reserve Bank GDP Gross Domestic Product GED F&A Group Executive Director Finance &Account GGM Group General Manager(NNPC) GMD Group Managing Director(NNPC) GRC Gas Regulatory Commission GSA Gas Sales Agreement GSV Gross Standard Volume HPFO High Pour Fuel Oil IDSL Integrated Data Services Limited IOC International Oil Company IPP Independent Power Producer ITA Investment Tax Allowance JDA Joint Development Authority JDZ Joint Development Zone JMC Joint Ministerial Council of JDZ JOA Joint Operating Agreement JVAFA Joint Venture Alternative Funding Arrangement JVC Joint Venture Companies 5 JVCC Joint Venture Cash Calls JVF Joint Venture Funding JV Joint Venture KRPC Kaduna Refining and Petrochemical Company LAN Local Area Network LCV Local Content Vehicle LFN Law of Federation of Nigeria LNG Liquefied Natural Gas LOC Local /Indigenous Oil Companies LOR London Oil Report LPG Liquefied Petroleum Gas LPFO Low Pour Fuel Oil LR Long Residue MCA Modified Carry Agreement MMBTU Million British Thermal Unit MOR Miscellaneous Oil Revenue MOU Memorandum of Understanding MPNU Mobil Producing Nigeria Unlimited MPR Ministry of Petroleum Resources MT Metric Tons MV Merchant Vessel NAE Nigeria Agip Energy Limited NAOC Nigeria Agip Oil Company NAPIMS National Petroleum Investment Management Service NCDA Nigeria Content Development Act NCDMB Nigeria Content Development and Monitoring Board 6 NCS Nigerian Customs Service NDDC Niger Delta Development Commission NDPR Niger Delta Petroleum Resources NEITI Nigeria Extractive Industries Transparency Initiative NESREA National Environmental Standards and Regulations Agency NETCO National Engineering & Technical Company NGC Nigerian Gas Company NGL Natural Gas Liquid NHT Nigeria Hydro Carbon Tax NIADBMS NEITI Industry Audit Data Base Management System NIMASA Nigeria Maritime Administration and Safety Agency NIPEX Nigeria Petroleum Exchange NLNG Nigeria Liquefied Natural Gas NNPC Nigeria National Petroleum Corporation NNOC Nigeria National Oil Corporation NOC National Oil Company NOSDRA National Oil Spill Detection and Response Agency NPDC Nigeria Petroleum Development Company NSE Nigeria Stock Exchange NSV Net Standard Volume NSWG National Stakeholders Working Group OAGF Office of the Accountant General of the Federation OEL Oil Exploration License OGJ Oil and Gas Journal OML Oil Mining Lease 7 OPCO Operating Company OPEC Organization of Petroleum Exporting Countries OPL Oil Prospecting License OPTS Oil Producers Trade Section OSP Official Selling Price PA Petroleum Act PAYE Pay As You Earn PD Positive Development/Displacement PEFMB Petroleum Equalization Fund Management Board PHCN Power Holding Company of Nigeria PEL Petroleum Exploration License PHRC Port Harcourt Refining Company PIB Petroleum Industry Bill PLATFORM Platform Petroleum Limited PMS Premium Motor Spirit POCNL Philips Oil Company Nigeria Limited POOCN Pan Ocean Oil Corporation (Nigeria) PPMC Petroleum Products Marketing Company PPPRA Petroleum Products Pricing Regulatory Agency PPT Petroleum Profits Tax PR&IT Planning Research, Statistics and Information Technology PSC Production Sharing Contract PSF Petroleum Support Fund PTDF Petroleum Technology Development Fund QIT Qua Iboe Terminal RMAFC Revenue Mobilization Allocation and Fiscal Commission 8 RP Realisable Price RPP Returns Payment Processing SAP System Application Products (NNPC) SC Service Contracts SCRPPSD Special Committee on the Review of Petroleum Products SDN Sovereign Debt Note SDS Sovereign Debt Statement SEEPCO Sterling Oil Exploration and Energy Production Company Limited SEPCOL Shebah Exploration and Production Company Limited SEPLAT Seplat Petroleum Development Company Limited SIR Societe Ivoirenne De Raffinage SNEPCO Shell Nigeria Exploration and Production Company Limited SOF Satelite Oil Fields SPDC Shell Petroleum Development Company SPV Special Purpose Vehicle SRMF Sole Risk Marginal Field S&T Shipping and Terminal STARDEEP Star Deepwater Petroleum Limited SWIFT Society for Worldwide Interbank Financial Transactions TEPNG Total Exploration and Production Nigeria Limited TECOM Technical Committee TETFUND Tertiary Education Trust Fund TMP Trial Marketing Period TOR Terms of Reference TUPNIL Total Upstream Nigeria Limited USD United States Dollar 9 VAT Value Added Tax VGO Vacuum Gas Oil WAGP West African Gas Pipeline WHT Withholding Tax WRPC Warri Refining and Petrochemicals Company 10 NEITI AUDIT 2012 OFFICIAL EXCHANGE RATE: COMPUTED AVERAGE EXCHANGE RATE FOR 2012 AS OBTAINED FROM OANDA YEAR CURRENCY USD:NGN GBP:NGN EURO:NGN CHF:NGN AED:NGN 2012 157.5 249.6 202.5 168.0 42.9 Note: The above table shows the average exchange rate for the year 2012 as obtained from Oanda. Link: http://www.oanda.com/currency/average 11 CONTENTS LIST OF ABBREVIATIONS AND ACRONYMS ..................................................................................... 3 NEITI AUDIT 2012 OFFICIAL EXCHANGE RATE: ............................................................................. 11 CONTENTS ..................................................................................................................................... 12 2.0. MAIN REPORT ........................................................................................................................ 19 2.1 Background to the Global EITI .......................................................................................................... 19 2.2. Brief Historical Perspective