‘We see ourselves increasing gas production because of huge opportunities’

EBIAHO EMAFO is the Managing Director, Eroton Exploration and Production (Eroton E&P) Company Limited, an indigenous energy company and operator of Oil Mining Licence (OML) 18.In an interview with FRANK UZUEGBUNAM, editor, West Africa Energy Intelligence, on the sidelines of The Nigeria Oil & Gas (NOG) Conference in Abuja, he talks about his optimism and hope that the Petroleum Industry Governance Bill (PIGB) will address some of the uncertainties in the sector when passed into law amongst other issues. Excerpts:

A lot has been said about where the country’s oil and gas sector should be heading at this point in time. What is your own perspective on that?

As a country, best practice has to be in place for us to be able to grow the sector. We have been having challenges in contracting cycle and approval delay, but recently, it has improved.

We need to have some improvement in terms of time of contract.The time within which all the necessary approval will be given should be looked at. Also, efficient project execution is another aspect. The deficiencies in that area need to be wiped out.

Again, there has to be a decision to what is best for the industry in terms of financing as well.We are gradually moving from cash call regime to alternative funding regime, which is good in itself.Unfortunately, not all the operators have signed on to the alternative-funding regime.

It is a good idea, especially with the joint venture arrangement so that when you are ready to embark on a project, you are not waiting for cash call funding, because you have already sourced capital to be able to execute your project.

If you have a system whereby you are given free hand to start a contract from the beginning to the end, there will be efficiency.

We have to be able to secure our pipelines and the life of the workers.At the end of the day, if you don’t have security on the line, you would be losing a lot of reserve.

Another key area is if more money is spent in developing a community like providing roads, water, and basic infrastructure, not lying solely in the hands of the operators, it will help to halt vandalism.The situation is so bad, and government really needs to do something about it.

Do you see the Petroleum Industry Governance Bill (PIGB) addressing some of these challenges you mentioned?

I am hopeful that the PIGB will be able to clear some of the challenges, but when the PIGB will be signed into law is another question.The intention of the PIGB is to make it easier for people to do business within the oil and gas space, but we have been waiting for several years for the PIGB to be signed into law.

 One aspect of the bill that will help us is in area of production to be recorded in terms of calculation of royalties, not at the well end but at the export end.This is because for us, we quickly have loss of production on the line due to sabotage and theft.At a time, we were losing over 40 percent of our production due to crude oil theft. When we started, we were losing 9 percent of our production, but it went up to 46 percent but now, it has dropped to about 23 percent loss on the line.

There is nowhere in the world you will buy an asset and factor in a loss of 40 per cent; that is huge, and alarming in terms of production.You factor in a loss of one to five per cent. But when you go as high as 50 per cent, it is a challenge to any business. Be it manufacturing or oil and gas.

Meanwhile, royalties are calculated at the well end (production), not at export and this leads to losses to us in the business. Nobody invests in an asset with the thought that these amount of losses would occur. 

Fiscal regime is important to make it comfortable for oil and gas operators to play in the Nigerian space.We have challenges with a lot of multiplicity of taxes that oil and gas companies have to pay; development fund for NDDC and other areas where oil and gas companies are contributing towards the communities they operate.We are hopeful that all of us will benefit if the PIGB is signed because more oil will be produced.

What of the security challenges?

Security is a big challenge. There is a lot of security problem in the Niger Delta area.

On our own part, we engage and work closely with communities since we started and contributed immensely to the development of the community.For instance, school rehabilitation, medical care, and we also provide them with scholarships.We just finished a programme whereby 12 students went to the USA to obtain a degree programme.We do WAEC sponsorship. We do empowerment. So working with the communities has helped us to have some form of security within our own operational area.

 We pump all our crude oil into the line that is not controlled by us; third party controls the line.They maintain and provide the line we use to pump our crude oil.So even if we have all the efforts currently ongoing with the community, we are still not able to guarantee the security on the line because it is not within our control.

For the last three, four weeks, we havenot produced crude oil because we donot have storage for crude oil.We were only able to produce non-associated gas, and nobody envisaged that.

Are you planning for crude oil storage facilities any time soon?

It is something we may think of in terms of looking for alternative evacuation option. Storage for crude oil is a big challenge for us. We may think in terms of looking for alternative evacuation options. Right now, we donot have visibility of how long the pipeline will be out and we need to look for alternative means of evacuation.

We have seen an endless postponement to the award of marginal fields licence in the country. What is your take on that?

It would be prudent for the government to open the marginal field, as it will bring revenue for the government. I donot know why it is taking too long.It should be awarded through a transparent process, and when the people who are beneficiaries start work, it will contribute towards the production quota of the country and more additional revenue for the government to be able to grow the country.

 

Do you see the price of oil hitting $100 anytime soon?

I wish it hits $120, but the reality is that it will be difficult. I think the price will hover around $60 to $80 per barrel.If it goes up to $100 then there must be something fundamental that will change.Though everybody wants the price of oil to go high, but we have to be realistic about it.

The major thing is to have the ability to export irrespective of the price of oil.

Let’s talk about Eroton.

Eroton Exploration and Production (Eroton E&P) Company Limited, is a leading Nigerian indigenous energy company, incorporated in August 2013, and began full operations in 2015.

We won the bid for the 45 percent total interest in OML 18, previously held by the Shell Petroleum Development Company, Total E&P Nigeria Limited, and Nigerian Agip Oil Company Limited.The asset was producing 10,000 barrels per day (bpd). Consequently, we became operator of OML 18 asset in October of 2014, in a joint venture between Eroton and the Federal Government of Nigeria, represented by NAPIMS. We have been able to improve the production to about 65,000bpd.

To date, there are over 11 developed fields comprising the following; Alakiri, Akaso, Asaritoru, Buguma, Bille, Cawthorne Channel, Orubiri, Krakama, Ibibio, Tema, and Awoba.

We currently provide 50 about million Standard Cubic Foot (SCF) of gas per day to fertiliser plant in Onne area of Port Harcourt for Notore. 

What are your projections for the company?

We have been able to achieve a growth basically by rigorous intervention. The plan is to start drilling actively.We intend to bring in a drilling rig to start drilling in the last quarter of 2018.

We see ourselves growing in terms of oil production by adding additional barrels through drilling activities.We also see ourselves growing in gas space as well, increasing our gas production because there is a huge opportunity in the gas space.

You have the gas-to-power for the power industries; gas to industrial companies, and you also have gas for export.We want to grow the gas business moving forward to next year in a really short time. We need to grow incremental barrels in terms of oil production.

We currently produce 60 million standard cubic feet (scf). We delivered about 50mscf, and we intend to grow that to 100 mscf. However, there are challenges with recovery in terms of payment for gas-to-power.So we are not just going to increase the output of gas without commercial justification for that.

If we grow our gas business to about 100mscf, that would be dependent on commercially viable options.There is equally a potential of us having gas-based industries. But again in the gas business you have to look at the structures as well as challenges in infrastructure.