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Nigeria needs to increase oil, gas reserves – Isa

The Chairman and Chief Executive Officer, Waltersmith Petroman Oil Limited, Mr Abdulrazaq Isa, speaks about the impact of the recent oil price slump, and the need to ramp up the nation’s oil and gas reserves, among other vital issues.


There has been an increase in local participation in the nation’s oil and gas industry in recent years; how are indigenous operators faring now?

The indigenous producers have made some tremendous progress now, if you look at where Nigeria was before the emergence of the current wave of indigenous producers. Today, I think we collectively produce between 300,000 to 400,000 barrels per day. We see that going up in the next couple of years. Now we are building capacity in terms of people, resources and access to finance. We have been through our challenges; I think most of us are coming out of it now.

In the light of the progress we have made, we have now formed a new group called the Indigenous Petroleum Producers Group, which is our umbrella body. It essentially captures Nigerians who have licences and are producing oil, not people who just own licences that are not producing. That body is going to get more and more influential in the system as the members’ capacities continue to grow. Our long-term goal is to be able to contribute to national development as a group by not just producing oil but by also adding value to the oil and gas that is produced and building the required energy infrastructure to utilise these natural resources, so that we can make it available to the domestic market. By this, I mean increasing domestic refining capacity, and the utilisation of gas for power and other things like fertiliser, petrochemicals, etc. I think that is an initiative that the indigenous group will promote in the next couple of years.

As for the service companies, they support us in terms of what they do, and we see that most of them have also made tremendous progress in terms of capacity as a result of the Nigerian content development programme initiative. Capacity is being built in that space and that is also manifesting itself in the quality of service they deliver to us in the upstream. They also have their umbrella body, called the Petroleum Technology Association of Nigeria. They are also able to influence government policies and see that they contribute tremendously to supporting the development of the industry, so that there is local retention of some of the resources and capacity, helping to create jobs and impacting the economy.

How would you describe the impact of the oil slump that started in mid-2014 on the indigenous players?

Remember, a lot of acquisitions were made in 2012, and we were part of the group that acquired assets.

The economics for the project were based on about $60 per barrel, and the oil price went down to below $30. That really destabilised the operators. On top of that, we also went through the upsurge in crisis/disruption in the Niger Delta. Those two things impacted us significantly and ultimately Nigeria as a whole, because we then went into a recession as a result of that. So, that was a huge setback for us. We had challenges in financing and servicing our debts at a time but some of the banks were quite supportive in that regard. But with the rebound in oil price, a number of us have restructured the debt and we are able to carry it on now and have made the account very current. We are back on course now, and I think that some of those licences that were acquired in 2012 and subsequently are going to be renewed for another round of maybe 20 years. So, that is going to really encourage further investment into those assets.

How would you describe the experiences of those that have not been able recover from the oil slump?

The big issue is debt because the huge debt overhang resulting from the acquisitions has been a challenge. And I think what most people are doing now is to try to restructure those debts, and the current market condition has been enabling that. The Nigerian banks have been totally out of the market more or less because those acquisitions were funded essentially by them. But now that the conditions seem to have improved, we see players coming into the market – crude off-takers are coming back into the market to provide some kind of finance, and some international financial institutions and potential investors are also coming back into the market. So, there seems to be appetite to do new deals, and these Nigerian companies are now taking advantage of that and restructuring their debts.

Are indigenous players investing in exploration activities?

Some are doing that. Now, some are beginning to look at that, as cash flow improves and the licences are now being renewed. In the last seven years, for some of the assets that were acquired in 2012, everybody was just focused on producing and paying back debts. But now that the licences are being renewed from next year, then there is a need to try and boost reserves. There is a need to look ahead and begin to invest in exploration.

For more than 10 years, the industry has not seen any major licensing rounds or marginal fields bid rounds. Do you think your members are keen to participate in licensing rounds?

We are. Our game is all about reserve replacement. The longevity of your business is driven by the size of your reserves and the moment you begin to produce an asset, you are already draining it. So, you need to replace those you have produced. All of us are still waiting that some assets need to come into the market, so that we can bid for those assets and help to extend the longevity of the nation’s reserves and our own reserves. So, yes, our members are waiting anxiously.

When the marginal fields round was announced, most of us were prepared and waiting, and we identified fields that we were hoping to target, but then nothing happened. So, I can tell you that there will be a lot of activity in that space once that happens. The existing producers, especially the ones that have been successful such as Waltersmith, will definitely go for any of the marginal fields that come into the market. For my company, we need additional feedstock for our refinery. We are building a modular refinery now and we are looking to expand it to about 30,000 barrels. So, we are going to need additional oil feedstock for our expansion programme. So, we are very keen to participate in any new licensing rounds.

How soon do you expect one to happen?

Again, it is government’s decision. We have no control over what government does. But I am not sure anything is going to happen until after the elections. I really don’t see anything happening between now and June. But if government decides to announce one tomorrow, we will all get ready to participate.

What should government do to support the growth of the indigenous operators?

We need government’s support to have access to resources at reasonable acquisition costs. I think government can work with us, indigenous companies, to build energy infrastructure for domestic utilisation of crude oil. That is very important. A strategic partnership can be built between the indigenous companies and government. Some of us are building a lot of gas plants now. Some of us are building mini refineries and modular refineries. Some of us will progress into building petrochemical and fertiliser plants because these are the things that we need to meet our population’s energy needs.

So, such a strategic relationship is necessary over the long term between us and government to support us in building capacity. And it is all around energy security for our country ultimately. We must do that because nobody is going to build our country for us.

I see potential opportunity for consolidation among indigenous operators. That I think is going to happen such that companies will begin to see the potential synergies among themselves and then be able to consolidate and strengthen themselves. I think that probably just like it happened in the banking sector, the number of indigenous operators will probably shrink as a result of this consolidation process. Either acquisitions or mergers can happen. I potentially see two or three companies looking at themselves and saying, ‘You have what I don’t have. If we come together, we can take advantage of what we both have.’ So, that is likely to happen in the next couple of years.