There has been enhanced cooperation between the Petroleum Technology Association of Nigeria (PETAN) and the independent, indigenous operators with opportunities provided for service companies and its members.
Predominant members of PETAN are of the service companies in Nigeria’s oil industry. The independent operators commenced with marginal field rounds of 2003, then the local content program gave rise essentially to PETAN including the divestment of asset that came into the oil industry from 2009 to 2013, the combination of these brought in Nigerian independent from obscurity to the point where they are relevant and by extension the Nigerian economy.
Speaking recently at an event organized by PETAN, Managing Director of Seplat, Austin Avuru observed that the concession map of the Niger Delta in terms of oil exploration has changed and it does not represent independent’s share of reserves. He posited that a 120,000 barrels per day, 40 million standard cubic feet (scf) of gas per day before 2010, at present 370, 000 barrels per day crude oil production, and over half billion cubic feet (bcf) of gas production per day by independents have made them to show case their presence in the oil industry. In acquiring assets over the same period, Avuru disclosed that “Independents have spent over $10 billion and the total spent in terms of Capital Expenditure (Capex) is over $12 billion in the same period. Production from independents and indigenous operators compounded average is about eighteen percent increase in production in 2007 and 2017 in ten years period.” This has resulted to big spend for the independents while $12 billion has also been spent.
However, independents success story is in gas, the significance of storage in gas from an average of 60 million scf per day to 640 million scf of gas per day at present. All the gas production except 20 million scf of gas from the Niger Delta marginal field that goes to NLNG, the rest is in the domestic market. This is where the significance comes in the gas story. Avuru added that “In the previous twenty years up to 2010, Nigeria’s total gas consumption was hovering around 300 million scf of gas per day but today the country is at 1.2 bcf of gas consumption and heading towards 3 bcf of gas consumption in 2020.” The significance of this domestic gas consumption will materialize in electricity and heavy industries which is domestic to the country.
Besides, this shows that Nigeria’s entrepreneurs, operators and service providers are accountable as they provide the necessary ingredients for economic growth in the country. It has positive multiplier effect in the banking industry and manufacturing. Avuru gave example of Dangote’s success and his dominance across Africa in cement production. At present, Nigeria is net exporter of cement probably in the next couple of years, the country maybe net exporter of fertilizer through gas production. The growth in gas production is just the beginning of the story and success for indigenous operators. The indigenous operators have anticipated that by the end of 2020 they would be producing 2 bcf of gas per day which will metamorphose into 7 Gigawatts of electricity and other value chain that will be beneficial to the country. The Seplat boss revealed that the indigenous operators will not wait for foreign interests to deliver gas to the domestic economy.
As part of its commitment to improve local content in Nigeria, being an indigenous firm, ninety-six percent of Seplat spend, goes to indigenous contractors. There is collaboration between indigenous firms and PETAN companies and when oil production and gas increase, PETAN members will get contract from indigenous players who have partnered together with the service companies without any legal hitch. Avuru made it known that Eighty-five percent of contracts registered by Seplat are Nigerian contractors and service providers while ninety percent of facility maintenance works are done by local contractors. Good number of them are community contractors and all the flow lines of Seplat are also constructed by local contractors. In 2014, fifty Nigerian contractors accounted for $460 million spent and only six of them were non-Nigerian companies. According to him “Critical jobs that could be termed as fairly complex such as associated gas and Obong gas station construction works with over $58 million worth of work were done by local contractors.” The AG compressors work in Oben that Seplat could only compressed 8 million scf of associated gas, the company compressed 50 million scf of gas for sale including storage tanks, and these were all done by Nigerian contractors.
Avuru averred that the relationship between PETAN and the independents including the fund spent for contracting jobs cannot be undermined. On the Nigeria banks, he added that he was not in the know that banks have funded significantly any transactions in the upstream before 2010. In 2010, Seplat borrowed $550 million to fund acquisition and its work project from a consortium of Nigerian banks without any assistance from foreign banks. In January 2015, the project was re-financed into a billion dollar facility, $300 million from foreign banks and $700 million by consortium of Nigerian banks.
The greatest significance of indigenous players has to do with Nigerian banks funding the oil industry. Although the banks are owed huge debt by the oil industry, most of it are from the downstream sector. “The upstream is discipline but the downstream brought problem to the banks due to the huge debt arising from loan”, he added. Nigerian independents collectively owed Nigerian banks about $6 billion. According to Avuru “If we go under, this economy goes under with us, this is how serious it is”. He made example with Platform Petroleum, an indigenous firm, the company started oil exploration in 2007 and borrowed $9 million from Skye Bank which was eventually paid. Three years later, the marginal field company borrowed another $20 million from Skye Bank to build its gas plant. Avuru explained further that “For independents, it will come to a point that the significance with regards to the economy, not just from gas to power or gas to industry, in terms of real spend at the distribution level, it will reach a point where value maximization relationship with the oil industry and PETAN can best be found in indigenous companies and independents.”
Avuru pointed out clearly that the Oben gas plant when it started from the scratch, it was 375 million scf processing capacity that was built in twenty-eight months, is delivering at present 380 million scf of gas into the domestic market. In his words, “If this is multiplied by 8 or 10 in the next few years that will be the story of indigenous companies in Nigeria”. Gas has been as a succor to the indigenous operators not necessarily crude oil production.