Lack of policy direction hampers investment in oil and gas industry
MG VOWGAS has been in operation for over a decade driving local content development through fabrication of products and marine activities to support the oil and gas industry. Godwin Izomor, managing director and chief executive officer of the company in an interview with Olusola Bello, Energy Editor speaks about the prospects and challenges of indigenous oil servicing companies and what the subsector can do to gain tractions from IOC . Excerpt:
Can you tell us about how you came into the oil and gas sector?
MG Vowgas limited was established in 2006 and it started operations in 2009 by building tug boats and house boats and some other facilities that are needed in the industry. But before then i had worked for two other companies which i ran with my brothers.
You must have had the best of the oil and gas industry. Can you tell us about the dynamism of the industry?
The oil and gas industry has witnessed up and down in the last few years. A good student of the oil and gas industry will know that every four to five years the price of oil would always go up and drop . if it drops, this could take another two or more years before it would start rising again. This has been the situation for some years now.
Can you let us know some of the companies MG Vowgas has worked for?
MG Vowgas has worked for ExxonMobil, Agip and still working for Nigerian Agip Oil Company. It has also worked for a number of companies but at subcontracting level. That is the job was given to other companies and those companies invited us to do some aspects of the job for them we supported another company from the background.
Looking at the industry would say indigenous oil servicing sub sector has any prospect now. Because the IOCs are not awarding any major job in the country?
The future of the oil and gas industry, especially the oil servicing subsector would depend on our ability to develop local capacity and maximise all the value chains in the industry by reducing production cost and also retain a lot of investments, above all there is need to reduce the level of capital flights in the industry.
The future of indigenous oil servicing companies should not depend on the number of contracts that are awarded in the industry, but also their ability to meet the standard set internationally for any of the jobs that they are given. They should strive to meet the international or required standards in all areas of the industry. This is necessary so that they can compete international. You cannot build your business just around Nigeria when there may be other opportunities in other places beyond Nigeria.
Oil and gas business is an international business. So Nigerian companies must be forward looking. They cannot build their competences around what happens in Nigeria alone and when they are exposed to work outside the country they would be found wanting.
You have to build your business to meet the required standard in the industry so that you can compete. At MG Vowgas we are working very hard to have ISO certification 2015 and American Society of Mechanical Engineers( ASME) Certification. If we are able to get the required ASME stamp to build pressure vessels it could easily be used in United States of America, Europe and other places in the world. So local companies must be encouraged to build their capacities up to internationals standards.
In addition to this, indigenous companies must constantly engage in the training and retraining of their personnel.
People are canvassing that indigenous companies should form partnership so that they can attract jobs from international oil companies (IOCs). What is your take on this?
Whether they form partnership or they are individual companies the issue is that they must have the competency required internationally to meet the expectations of the IOCs. Once they have the required standard, facilities and personnel, they can work for companies in Nigeria, Angola, Congo, Europe and even in America. You should realize that it would be cheaper to hire an indigenous firm that meets the international standards required than hiring any firm from America or Europe.
For example, the cost of hiring an engineer in Nigeria is cheaper than cost of hiring an American and send him to Nigeria or middle East. When indigenous companies get the right certification, the IOCs will prefer to hire them because they prefer where they can get cheap labour. if you have cheap labour the product would be competitive. When you have the required competence and certification you should concentrate on building structures that would meet the industry standard requirement.
How would you classify what your company is doing?
MG Vowgas is into engineering, procurement construction (EPC), and fabrication. It also deals in installations and commissioning. We are also into marine and logistics. We have just acquired a place where we are planning to put in place modern logistics facilities so that even companies in neighbouring countries can also make use of our logistics services.
What gives you the confidence to embark in these ventures you are doing. What are you seeing that others are not seeing in the oil and gas industry?
The prospects and potentials of the Nigerian oil and gas are huge and it is only those that can take position now that may benefit from this industry in the nearest future. You must be futuristic in your approach to business. For example with the local content law many Nigerian firms are now encouraged to do one thing or the other in the industry . Today a lot of Nigerians are doing great things in the industry that nobody is talking about.
In drilling for instance, there are Nigerian companies that can compete with other multinational companies but they lack funds to carry out their businesses. You know the industry is technology driven and this requires that you renew your technology from time to time to meet the required standard in the industry but most Nigerian companies don’t have the funds to do this. This is a major problem for many companies.
But the confidence is there because, I have over 20 years experience in the industry and with the up and down in the industry I know when and where it is possible to make investment.
You should realise that every four or five years the price of oil would rise again after going through some turbulent times. Anytime the price of oil is up, major oil companies would always want to make some investments and subsequently make good returns. As they make more investments they are also pumping more oil into the world market for consumers to buy.
After this period again the price of oil would start coming down. One should realize that it is a circle which must be planned for so as to avoid panicking.
With the constantly growing world population at a very fast rate coupled with highly dynamic technology space many more people are buying cars and building factories and the rest of them, this has led to high oil demand.
In your own thinking why are there no investments in the oil and gas sector as expected?
Well, the present Minister of State for Petroleum, Emmanuel Kachikwu is trying his best. We must give it to him. So also the group managing director of the Nigerian National Petroleum Corporation (NNPC), Maikanti Baru. They are trying because looking back at what happened over the last few years when the industry was almost collapsed because it lacked direction, you would know that the these two people have tried so far.
The coming of these gentlemen has made the industry to record a lot of progress. The future of the industry is bright. Don’t forget that gas is coming up too and with a lot of investment in this sector, it would grow. The demand for gas globally is on the rise.
However I must mention that investments in the oil and gas industry is being hampered by a number of factors, one of which is that there is no policy direction right now because the national assembly has not been able to pass the Petroleum Industry Bill (PIB). Where there is no policy direction and the multinational companies do not know the direction you are going to they would not be able to invest their money. They would be waiting to see the direction the government is going before they decide what to do.
How are you positioning your company to take advantage that would be provided by Bonga Southwest and Zabazaba projects?
My company is well positioned to take advantage of the opportunities that may arise from these projects.
We have all it takes to participate and to support the local content policy to retain certain part of that money within country. I believe with proper monitoring of local content components of the projects would positively impact on indigenous companies as more local capacities are developed through these projects.
Here in MG Vowgas if we are given the chance we would develop local capacities that can compete in any part of the world. This is our focus and dream because we are not focusing only on Nigeria . By the time the logistic base takes off, we would be able to warehouse materials for other companies that are perhaps in , Equatorial Guinea , Congo, and even Angola. They can store their materials in our facilities in Nigeria and we would give it to them whenever they needed them.
Mind you we are working very seriously to get our ISO certification and ASME certification. Once you have their stamps you can work on any project here in Nigeria and it would be used in America.
How soon would you get your ASME?
We have projected April next year
What is your take on the proposed marginal field bid without the PIB passed?
The beauty of marginal field is that as a Nigerian you don’t pay royalty to the government. Those who have money to invest can invest in marginal fields. But you know there is an adage that says you don’t pursue two animals at the same time, because if you do, you would loss the two. So MW Vowgas is focused on the servicing sector of the industry. As a result we don’t want our attention diverted. But marginal field is lucrative depending on how you handle it. if you are able to put your acts together you can make your money from marginal field. But the problem in this country is that many people want to get the marginal field for the title sake not because they are interested in developing the fields. However, serious minded Nigerians should be able to invest in marginal field.
Do you agree with those saying the signature bonus should not be too high in order to encourage Nigerians to participate?
There is no free lunch anywhere in the world. You want government to give subsidy in petroleum products, subsidize education, they want government to do everything. The world is moving from public sector to private sector. Therefore Nigeria should pay for everything they consume, either power, marginal field or anything. They have to pay because they are going to make the money. They are not going to make it for government. It is your money because marginal field holders don’t not pay royalty. I would suggest that the government should place certain value on the assets. But she should also realise that Nigerians would struggle to make the money they would investment on the assets. So the price should not be too much high for them to purchase it..
Did you think that Nigerian financial institutions would be ready to finance intended marginal field owners?.
I believe the banks are the problems of Nigeria. Their interest rates are too high, they put their money where they want to make quick money. They don’t invest in long time projects. If you are going to buy a marginal assets for instance, the bank that is going to borrow you money should know that you are going to drill, lay pipes to evacuate the crude to somewhere so that it can be taken to global market. All these have to be put in place. If you go into the business and you don’t have proper planning it would fail.
How would you assess the local content policy so far?
It is very successful so far. As a matter of facts it is one of the best policies so far in the oil and gas industry. Well thought out and well implemented. Whoever conceived the idea of local content, has done well.
This is one of the best things that has happened to Nigeria oil and gas , especially Nigerian operators. If we continue to improve on the level we are now, which is 50 per cent, before you know it we may get to 100 per cent and Nigeria would be exporting technology.
Nigeria has a lot of experience in the industry right now. if you look well, major international oil companies both producers and oil servicing companies send Nigerians to the Middle East to man their operations in those places because we have cheap labours here. The companies train Nigerians and send them as managing directors of some of these companies. This is the beauty of what we are talking about. If we continue to improve on our local content policy we would continue to drum support for the Nigerian Content Development Monitoring Board NCDMB and increase our capacity. Before long Nigeria would be manufacturing machineries that the industry would need without looking outside.
What is your opinion about the Local content Fund?
The local content fund, they said they have release about $200million to bank of industry to support local companies. If the fund is distributed among the indigenous companies that needs the money, it would help them develop and the oil and gas industry as a whole would be better for it.
Is your company planning to access such fund?
Yes, of course. You know we don’t have money and we have so many things to do. We have to build capacities, train our personnel and we need a lot of machinery to meet the required standards in the industry for us to make our work easy and deliver speedily.
Let us talk about the equipment your company has currently. How much really can they do in terms of fabrications and others?
Like I have said we have the capacity to do many of the fabrications works needed in the industry and in other industries.
Not too long ago the Nigeria Navy officials were here to explore which area we can partner. I made it known to them that we can built submarines and other equipment that would help them. if they provide us the drawings we can build the submarine here because we have the welding system. There is welding robot that can weld anything no matter the thickness of the plates. We have the potentials to support our military and Navy. Our cutting machine can cut up to 200 mm which is far bigger than what they use to build nuclear weapons