Oil and Gas Insurance Lessons for East Africa 7-Dec-15

East Africa Market Outlook Trends in Oil and Gas in East Africa

© 2015 KPMG Kenya, a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 2 Recent discoveries in oil and gas across the East African region have brought new focus on upstream activities 9 oil discoveries with 2C 616M and 3C 1.29B barrels. 3 gas discoveries with one estimated to have about 1.8 Tcf of natural gas and the other about 25m net pay. Over 53 Tcf of Natural Gas discovered. Gas monetization projects in top gear. Exploration at its early stage. Western arm of the East African Rift System. Exploration ongoing. Methane gas production in Lake Kivu. Policies being developed. Discovery of oil in Uganda in Resources in place: 6.5B barrels. Recoverable reserves: over 1.4 billion barrels. Bid round ongoing.

© 2015 KPMG Kenya, a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 3 The opportunities for local insurance companies in oil and gas sector cut across the segments Upstream Midstream Downstream On-shore Wells Off-shore Wells Field Processing, Gathering Systems Central Processing, Storage LPG Pipeline Transport LNG Transport Distribution & End-Use Residential Consumers Commercial Consumers Industrial Consumers Electric Utility Consumers

© 2015 KPMG Kenya, a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 4 These opportunities also traverse the related goods and services supply chain Fuel Emergency Services Waste Management Security Medical Crane Hire Personnel Transport Freight Forwarding Custom Clearance Facilities Management IT Services Telecoms Hotel/Accom. Office Supplies HR Unskilled Labour Training General Trades Catering Communications Camps/Accom. FPSO/Wellhead Tangibles Rig Hire Feed Seismic Services Well Services Environmental Services Int. Freight Services Site Prep. Field Construction Specialist Trades Inspections Infield Transport Spare Parts Infield Services Civil Mechanical Electricals Mud/ Cuttings Construction Materials INDIRECT SERVICES Mostly available and well serviced in EA Not very specialized but requires some expertise Need to improve standards Some investment required ($) DIRECT SERVICES More specialized Stringent compliance to safety and operational standards Requires significant investment ($$) Not widely available in EA SPECIALIST SERVICES Highly specialized Strictest standards for operations and safety Critical services (mistakes ground operations and increase losses exponential) Heavy investment in service provision + R&D ($$$) Not available in EA

Closer Look Lessons from Nigeria

© 2015 KPMG Kenya, a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 6 Nigeria: timeline of selected Oil & Gas sector developments 1956 First commercial discovery 1958 First oil (~ 5,000 bopd) 1971 Joined OPEC 1972 ranked 7 th largest producer globally 1977 Established NNPC 2010 Nigerian content law passed nd attempt with 60 companies – not launched st petroleum pool plans begin + collapse 2003 Insurance Act passed 2011 NAICOM publishes guidelines 2012 NOGIP with USD 20M capacity launched 2007 NAICOM raises capital requirements 2015 Pool with Africa Re as manager launched

© 2015 KPMG Kenya, a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 7 Some basic statistics on how the local insurance sector has been developing 10% % % 2015 Retention Rates 55% CAPTIVE 45% LOCAL ~USD 74M NON- LIFE NNPC 108 -> 59 Insurers 4 -> 2 Re- insurers ~30 O&G No. of Companies Top 10 companies cover 75%

© 2015 KPMG Kenya, a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 8 Challenges exist in the prospects of underwriting insurance for oil and gas locally Limited technical capacity to assess risks, limits, and other considerations for underwriting High capital base requirements Coordination issues with innovative solutions such as pools, etc. Industry arrangements especially offshore require global solutions Concerns with integrity and ethical practice Regulatory frameworks

© 2015 KPMG Kenya, a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 9 Lessons for East Africa Regulatory frameworks need to be clear + regulator is key Services become localized and insurance follows Role of the national oil company in development of local retention is important Some areas will have to remain global in nature (100% might be harder to achieve) Local content law opens the door (significant improvement) but competency + capacity still matter Business rules still apply – returns have to be right, successes will become targets

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