Friday, April 19, 2019
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Austin Avuru, Seplat, CEO

 

Oil price volatility means a lot for operators at all levels including the country at large. Stakeholders believe that in 2040 the oil and gas industry will be insignificant but there is sharp rise in renewable and gas production. Assessing combination of oil and gas, it still accounts for about 50% of energy mix hence there is still hope for the industry.

Expressing concerns about price volatility, Chief Executive Officer of Seplat, Austin Avuru, said at present, technology has brought solution into the oil industry. Tight oil and gas is the introduction of technology into energy mix given the right price regime to supplement conventional oil and gas. In his words, “If we didn’t have tight oil and tight gas today, probably oil will be $200 per barrel, so what you see is a supplementary volume coming from the application of technology to curtail prices.”

Avuru was of the view that independent operators in the oil industry, from 2010 to 2015 lent money to buy assets and do same to keep them. Seplat financed its debt with $1 billion to keep its assets in February 2015 when oil price crashed. According to Avuru, “It is a miracle that we were not wiped out from the surface of the earth, all the private operators.” Some independents are still struggling as a result of the ugly situation the industry found itself then. The oil majors survived because they have resilience and could adapt to any challenges in the industry. They used Capital Expenditure (CAPEX), for adjustments.

Oil crash affected Nigeria and the country’s economy went into recession. The cause of recession has nothing to do with fiscal regime but because production was low coupled with crash in oil price. The crash affected exploration and investments. When exploration and CAPEX drop, other circles for the next three years will feel the impact.

The Seplat CEO explained that oil and gas account for about 90% of Nigeria’s foreign earnings, 80% of government revenue and 60% of government tax receipts. When there is crash in prices, 90% of foreign earnings will be reduced by half. In the same vein, when production and oil drop below budget price, it will have adverse effect.

Avuru dissected Nigeria’s economy which picked up by 2.4% negative GDP growth, in July 2017, it improved minimally while the country still struggles with about 2% GDP growth in 2018 and it is expected to improve in 2019 with about 1.9%

He explained further that in price volatility regime, there are key things to consider for survival either as a country or as a company. There is need for financial resilience. Avuru said Seplat has learnt its lessons, “Never again do we get to a point where we can’t pay our vendors, contractors, we have to risk payment and every other thing.” The company managed its balance sheet to key cash position. He advised oil companies to draw a line for a certain cash reserve decision in the balance sheet and tune all CAPEX spend. The Chief Finance Officer takes care of this aspect while there should be time frame for the implementation.

In terms of operational activities, there is need for resilience, a culture which Seplat has imbibed in all its wells. According to Avuru, Sepat portfolio resilience also kept the company at bay. This saw the company throughout its difficult period when for sixteen months, “Seplat could not export oil through trans-Forcados.” However, the company survived through gas production. It produced 200 million scoff of gas, and about 10000 barrels of associated condenses hence “Portfolio resilience is important so that you can tune and make adjustments as to where the revenues will come from.”

The Seplat boss opined that confidence is gradually returning into the oil and gas industry after major upset due to price crash. He said about 32 sanctioned projects have been executed and by the end of 2018, there will also be another 30 FIDs which was down to 7 and it rose to 10 projects from 2015 to 2016. Indeed, there is confidence now in the industry as projects are being sanctioned.

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