‘Seplat has raised gas processing capacity above 500 million scf per day’
Nigeria’s leading oil and gas firm Seplat Petroleum Development Company, which is listed on the Nigerian and London Stock Exchanges recently held its Annual General Meeting (AGM). Following the AGM, Seplat Chairman A.B.C Orjiako held an interview with a few Journalists including Business-days PATRICK ATUANYA. Excerpts…
Seplat recorded a loss in 2016, how did you manage to remain in business despite these losses, without sacking any of your staff?
I think what you observed was actually a result of very well carefully thought-out planned long term view and growth of the company.
We obviously suffered quite a lot of setbacks and this mainly because of the difficulties and challenges of the trans-Forcados pipeline as well as the Forcados terminal, and that meant that most of our production could not be exported but during this period we quickly adapted and started exporting some of our products through the Warri refinery, and that meant we were getting some revenue in.
Another thing we did was to quickly expedite action with our gas development and commercialization strategy which we had started from inception, and that meant that quite a lot of revenue came from gas.
We were able to increase our gas processing capacity to over 500 million standard cubic feet (scf )a day and of course that also meant we increased our gas production to 300 million scf a day, and with increasing price, increasing demand that meant more revenue coming in for the company.
Another thing we did was that we keep our eyes on cost and made sure that our cost of production continues to be low and that meant that the company continued to remain strong.
With respect to the staff, one of the things we have always said is that our staff are the anchor of our business, so we are very careful with what we do, and we are making sure that staff welfare is uppermost in our minds.
But having said that, what we did was that we did not recruit new people, but those we have we kept because we were going to feed that into our expansion and growth plans going forward, that is the reason why we did not have to retrench or downsize during this period.
Seplat has enjoyed pioneer status since inception, how has that privilege helped in sustaining the company so far?
One very strong point we make is that we set up the company not depending on pioneer tax status, we set up our business and we are indeed one of the last companies that tapped into the pioneer tax status, but what is important to stress is that the reason for which the pioneer tax status was created, was already accomplished.
During the period when we had the pioneer tax was the period we embarked on and executed one of the biggest gas processing capacity in this country.
That was the time we took the gas processing capacity from 90 million scf we inherited to more than 300 million scf a day processing capacity, today we are more than 500 million scf a day capacity.
Basically, I can tell you what we have done is that we reinvested all the money accruable to the company as a result of pioneer tax and reinvested it in processing.
What is Seplat outlook for oil prices in 2017, and are you still actively hedging your production?
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’s a matter of balancing 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 will definitely going to be in the business for a very long time.
Speaking of gas, the FG recently rolled out a N702 billion bailout for the sector, basically for gas producers and the power sector, how do you think this will affect your bottom line?
What this will do is that because we are seeing increasing demand for gas and the prices are getting better, basically what we are doing is to make sure that we align with the gas-to-power revolution of the government, gas to industry and gas to agriculture; this is what we are doing, and we see what government is doing and that will now make it possible that those who take our gas are able to pay for the gas.
How did the shutdown of Forcados terminal affect your projection for last year, and when do you expect to start exporting crude through Forcados and what happens to your alternative route?
Basically, what we have decided to do is: and you have to understand this, I said this before, obviously the absence of the Forcados terminal affected our revenue, but what we did was to develop the alternate export route.
Now, going forward we are going to maintain production and export through the Forcados terminal as well as maintain the alternate export route.
In terms of timing, the Trans Forcados pipeline is back, up and running, and the Forcados terminal is also available for export.
So, we have commenced already, it is not a matter of when, we have already started production and putting oil through the Forcados pipeline. So you are going to see export through that terminal very shortly.
Force-majeure is still in place, does that not affect your operation in any way?
The force majeure is no longer in place, the Forcados terminal is now open and it’s going to be available for us to export our products.
What is your view on the Petroleum Industry Governance Bill (PIGB) that was recently passed by the Senate?
I think passing the bill is a good thing, its removing quite some uncertainty in the industry, and I think one thing that we will like to see is that once that PIGB is being executed, we would like to see that all the bureaucracy and difficulties in doing business in oil and gas are reduced so that we can see more business activities in the Nigerian oil and gas sector.
You spoke earlier on expanding your gas business; can you be specific on your expansion plans going forward?
What we have done with our expansion plan is that we have already made a very bold statement that we can deliver on our promises, and Oben gas plant which will basically increase the processing capacity to 500 million scf a day processing is already in place.
Going forward, we are looking to continue to grow our gas business, we are working very actively now to develop Anos gas project, when that is up and running it will further augment what we are doing in the Oben node, and in addition to that we are hoping that in the shortest period of time that we should be able to take our capacity to 1bcf a day of gas processing.
In doing that we will be impacting the Nigerian gas to power, we will be impacting Nigerian gas-to-industry, we will be impacting Nigerian gas-to-agriculture during this period, as well as enhancing our revenue base.
Your performance was largely affected last year due to the Forcados shut in and low global oil prices, how can you assure investors that very soon there will be light at the end of the tunnel?
I think one thing that should be placed very strongly on record is that during the period when trans-Forcados was not running that our alternative route for export was on and we developed this proactively, howbeit it did not quite export all that we produced.
But now that the trans-Forcados is back on stream, we are going to compensate as much as possible, we are going to see quite a lot of improvement for the second half of this year, and going forward we are also looking at other alternate export routes; hopefully that should come to stream sooner than later.
Even with the trans-Forcados back on stream we still plan to continue exporting through the alternate export routes so that if anything happens again, we are not caught in the situation where we have no production for export.
Can you give us an update on NPDC receivables and it is taking so long to get that?
I think what to talk about with the NPDC receivables is the fact that if you have follow that figure you will agree with me that it is coming down significantly, and we have continuously engaged NPDC and what you are seeing is that figure will continue to go down. We will continue to work on it to ensure that the receivable is completely removed from our books.
Is it possible to tell us what the company has invested in the last 1 year and what you intend to invest in the future?
Usually we do not forecast, we do not speak to all of these, but all of our investments have been captured in our report.
What you would find and I will say so is that we cut down in the area of CAPEX and maintain the very essential expenditure during this period. Going forward of course, we will keep an eye on our growth strategy and that will determine the kind of investments we would make.
As a follow-up to that, many oil company’s suspended investment as a result of crash in global oil prices, how did your company respond to that?
Normally when we look at our long term plan it does not mean that when you delay a project you shelf it, we have not shelved projects but some of them have been delayed; we have our eye on all of our projects and they will all continue to go as planned in the coming years. What happen last year was just basically a delay in projects, not that we shelved them.
Analysts say that we are likely going to see divestments next year in the oil and gas sector by IOCs, do you thick indigenous firms have the capacity to get new assets?
I think indigenous projects led by Seplat have demonstrated we have the capacity and ability to take up this assets, and not only taking the assets but adding value to the assets that we have taken.
If you remember what we did with our assets, we grew production from 14, 000 bpd, to now before the trans-Forcados went down to over 80,000 barrels a day.
Quite a number of other indigenous companies follow suit and they are doing the same.
You can see also that production and reserves owned by indigenous companies is growing year-in year-out, what that means is that capacity is being built, the financial institutions, especially the banks in Nigeria have supported.
Obviously there were difficulties in liquidity in the country and that is why it will put some challenges in the ability to acquire these assets but obviously those who are strong with the right balance sheet like Seplat will be able to play and get the assets they demand.
Are we likely to see some mergers and acquisition in the oil and gas space given the liquidity challenges we have seen in the country over the last two years?
Definitely, mergers and acquisitions are very important instrument for growth: so all of the companies that are properly positioned will definitely see mergers and acquisitions as a tool for growth.
Do you see Seplat diversifying to the downstream sector of the oil and gas industry?
As I said during the AGM, we do not rule out downstream but we are consolidating our role in the upstream sector and in the midstream with our gas investment.
When the time is right and if the investments are right we would do downstream, but right now we are focusing on our upstream and midstream business.
A recent report said we could see peak oil demand by 2020 due to Electric Vehicles coming on stream and new emissions standards in the West. What is strategy towards dealing with these disruptions coming to the oil and gas sector on the demand side?
The bold statement to make here is that regardless of what is happening with respect to climate and environment, fossil fuel will continue to play a dominant role in the energy value chain globally for a very long time to come.
Even when you hear people talk about peak demand happening in 2020 I do not think I want to pick a specific time when that will happen, reason being that there are very many frontier demand areas coming up.
The African continent for one, if you look at the lack of infrastructure in various areas: power, road, rail ways and all of that, all of these speak to increasing energy demand in Africa.
If you also look at the population growth that is happening in Africa and all of the emerging markets, that speaks to the potentials for growth in demand.
Then if you put this against the back drop of all the projects that have been put off or delayed as a result of the collapse in oil price, the indication is that the balancing in supply and demand is still not there, and I know that we still have a lot of inventory which the global market is mopping up over time, and this will take time to happen but I do not think the demand will be eroded to the level at which some prediction have happened provided those frontier areas for growth completely pick up in the short to medium term.
The PIGB that was recently past is silent on the issue of the host communities, do you not think that will disrupt activities in the Niger Delta?
I think the Niger Delta engagement is key to any success we want to make in the Nigerian oil and gas sector including of course the PIGB that was just passed.
I think what we should do is to wait and see what happens at the National Assembly, remember there has been no concurrence and there has also been continuous engagement, so I believe at some point all of the issues will be addressed before the final bill comes out for signature of Mr. President.
It does not appear that we have seen government exit from the JV cash calls, do you think government has the will power to actually exist the cash call?
I think what you are seeing as players in the industry is that government is actively engaging to find alternative way to fund its cash calls.
I think they are serious about it; some alternative plans are already being put in place in some areas, as a company we are very actively engaging the government for the areas where we can provide alternative funding.
So, that is working and we believe that when that matures it will definitely cure that challenge that has been there for a very long time.