The Chairman, Seplat Petroleum Development Company Plc, Dr. Ambrose Orjiako, in this interview speaks on the need to ramp up the nation’s refining capacity among other industry issues
Investment in the oil industry has been hampered by regulatory uncertainty over the past few years. What do you think about the Petroleum Industry Governance Bill that was recently passed by the Senate?
I think passing the bill is a good thing; it is removing quite some uncertainty. I think one of the things that we would like to see once the PIGB is being executed is that all the bureaucracy and the difficulties in doing oil and gas business are reduced so that we can see more businesses and activities in the Nigerian oil and gas sector.
Last month, a former Minister of State for Petroleum Resources, Mr. Odein Ajumogobia, said we would likely see divestment by oil majors next year. Do you think indigenous firms have the capacity to acquire new assets?
I think the indigenous project, obviously led by Seplat, has demonstrated that we have capacity and ability to take on these assets; not only just taking them but adding value to the assets that we have taken. If you remember what we did with our assets, growing production from 14,000 barrels per day to over 80,000 bpd before the Forcados terminal went down, quite a number of other indigenous companies followed suit.
Also, the production and reserves that are owned by the indigenous companies are growing year in year out. What that means is that capacity is being built, the financial institutions, especially the banks in Nigeria, supported us.
Obviously, the difficulties in liquidity in the country and elsewhere will put some challenges in the ability to acquire these assets but those who are strong, who have the right balance sheet like Seplat, will be able to pay and get the assets.
Are we likely to see mergers and acquisitions considering the liquidity challenge facing many indigenous operators following the steep fall in crude oil prices and production disruptions last year?
Definitely, mergers and acquisitions are very important instruments for growth. So, all of the companies that are properly positioned will definitely see mergers and acquisitions.
Can you give a estimate how the shutdown of the Forcados Terminal for more than a year affected your operations and investment projection?
We obviously suffered quite a lot of setbacks and this is mainly because of the difficulty and challenges of the Trans Forcados Pipeline, our main export route, as well as the Forcados Terminal, and that meant that most of our production could not be exported. But what we did was to develop an alternative export route; albeit it didn’t quite export all that we produced. During that period, we quickly adapted and started exporting some of our production through the Warri refinery and that obviously meant that we were getting some revenue.
The absence of the Forcados Terminal affected our revenue because it impacted the volume we produced. Now going forward, we are going to maintain production and export through the Forcados Terminal as well as maintain the alternative export route.
The Forcados pipeline is back, up and running and it is also available for export. We have already started putting in oil through the Forcados pipeline. So, we are going to see quite a lot of improvement in the second half of this year. Going forward, we are also looking at other alternative export routes.
Another thing we did was to quickly expedite action on our gas development and commercialisation strategy, which we had started from inception, and that meant that quite a lot of revenue now came from gas.
You may have followed that we were able to increase our gas processing capacity to over 500 million standard cubic feet a day, and that also meant that we increased our gas production to 300 million scf a day. And with increasing price and increasing demand, that means more revenue coming in to the company.
During this period, we made sure that we produced and put in the domestic market quite a large volume of gas. Today, Seplat is happy to say that we are producing 25 per cent of the gas to power plants, and this is quite important to the Nigerian economy.
Another thing we did was to keep our eyes on costs and make sure that our cost of production continues to be low and that meant that the company continues to remain strong. We maintained a very stringent prudential guideline that the management has followed very well, cutting down our costs.
With respect to staff, one of the things we always said is that our staff are the anchor of our business. So, we are very careful what we do and we are making sure that staff welfare is uppermost in our minds.
Having said that, however, what we did was that we did not recruit new people. But those we have, we kept because we are going to feed that into our expansion and growth mode going forward. That is the reason we didn’t have to retrench or downside during the period.
There have been concerns about the state of the nation’s oil refineries over the years. What do you think should be done to ramp up domestic crude oil refining capacity?
I think it is something that needs to be addressed. It is not right that Nigeria being such a big oil-producing country will continue to rely on imported petroleum products. So, the government’s initiative to make sure that the refineries work in a proper way and have a better capacity utilisation is very important.
Perhaps more important, however, is the fact that government should do whatever it can to privatise those refineries so that the private sector will drive them. I believe that once that happens, importation of refined products will be a thing of the past.
Seplat has enjoyed the pioneer status right from inception; how did that help in sustaining the company?
The one very strong point to make is that we set up our company not depending on pioneer tax status. We set up our business and we were indeed one of the last companies that tapped into the pioneer tax status.
What is important to stress is that the reason for which the pioneer tax status was created was accomplished. During the period when we had the pioneer tax status, we embarked on and executed one of the biggest gas processing capacities in this country.
That was the time we took the gas processing capacity from the 90 million scf we inherited to more than 300 million scf a day. Today, we are more than 500 million scf a day in terms of capacity.
So, basically I can tell you that what we did was that we reinvested all the money that accrued to the company as a result of pioneer status.
Global oil prices have come under pressure in recent weeks; what is Seplat’s outlook for oil and gas prices for the year?
We take a view that hedging is a component of this business given the volatility of the global oil price. In terms of the outlook, it is a matter of balancing of supply and demand. Our take is that volatility will continue but we are in this business for a very long time. So, once you keep your eyes on your cost, make sure that the production cost per barrel is well within reason, which is what we are doing; you are definitely going to be in the business for a very long time.
There is increasing demand for gas in the country, especially for power generation. What is your expansion plan for gas development?
We have already made a very bold statement that we can deliver on our promises. Our Oben gas plant has increased our processing capacity to 500 million scf. Going forward, we are looking to continue to grow our gas business.
We are working very actively now to develop another gas project. When that is up and running, it will further augment what we are doing in the Oben plant. In addition to that, we are hoping that in the shortest period of time, we should be able to see ourselves taking our gas processing capacity to one billion scf a day. In doing that, we will be impacting gas supply to power plants, industries and agriculture, as well as enhancing our revenue base.
Is Seplat planning to diversify into the downstream sector of the industry in the coming years?
We don’t rule out downstream but now we are consolidating our work in the upstream and midstream sectors. When the time is right and if the investments are right, we will do downstream. But right now, we are focusing on our upstream and midstream businesses. Culled from Punch.